F-1 1 a2208109zf-1.htm FORM F-1

Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on March 19, 2012.

Registration No. 333-              

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



NOVALED AG
(Exact name of Registrant as specified in its charter)

Federal Republic of Germany
(State or other jurisdiction of
incorporation or organization)
  3670
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

Tatzberg 49
01307 Dresden, Germany
+49 351 79658-0
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



Puglisi & Associates
850 Library Avenue, Suite 204
Newark, DE 19711
+1 (302) 738 6680
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Krystian Czerniecki
Sullivan & Cromwell LLP
Neue Mainzer Straße 52
60311 Frankfurt am Main, Germany
+49 69 4272 5200

 

John D. Watson, Jr.
Latham & Watkins LLP
Reuterweg 20
60323 Frankfurt am Main, Germany
+49 69 6062 6000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o


CALCULATION OF REGISTRATION FEE

 
Title of Each Class of Securities to be Registered(1)
  Proposed Maximum Aggregate Offering Price(2)(3)
  Amount of Registration Fee
 
Ordinary Shares, notional value of €1.00 per share   $200,000,000   $22,920
 
(1)
American depositary shares issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6. Each American depositary share represents                  of an ordinary share.

(2)
Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

(3)
Includes ordinary shares represented by American depositary shares that the underwriters have the option to purchase, if any.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell, nor does it seek an offer to buy, these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated March 19, 2012

NOVALED AG

GRAPHIC

             American Depositary Shares
Representing                  Ordinary Shares



        This is an initial public offering of             American Depositary Shares, or ADSs, of Novaled AG, a German stock corporation. Each ADS will represent                  of an ordinary share with a value of €1.00.

        We are offering             ADSs. The selling shareholders identified in this prospectus are offering             ADSs. We will not receive any proceeds from the sale of the ADSs by the selling shareholders.

        Prior to this offering, there has been no public market for our ADSs or our ordinary shares. We currently estimate that the initial public offering price per ADS will be between $             and $             . We have applied to list the ADSs on the             under the symbol "         ."

        See "Risk Factors" beginning on page 11 to read about factors you should consider before buying our ADSs.



        Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.



 
  Per ADS   Total  

Initial public offering price

  $     $    

Underwriting discounts and commissions

  $     $    

Proceeds, before expenses, to Novaled AG

  $     $    

Proceeds, before expenses, to the selling shareholders

  $     $    

        To the extent that the underwriters sell more than             ADSs, the underwriters have the option to purchase up to an additional             ADSs from the selling shareholders identified in this prospectus at the initial public offering price less the underwriting discounts and commissions.



        The underwriters expect to deliver the ADSs against payment in New York, New York on                          , 2012.



Goldman, Sachs & Co.

  Deutsche Bank Securities



Canaccord Genuity   COMMERZBANK

Cowen and Company

 

JMP Securities

Prospectus dated                          , 2012.


Table of Contents


TABLE OF CONTENTS

 
  Page  

Prospectus Summary

    1  

Risk Factors

    11  

Forward-Looking Statements

    32  

Market, Industry and Other Data

    34  

Presentation of Financial and Other Information

    35  

Use of Proceeds

    36  

Dividend Policy

    37  

Exchange Rates

    38  

Capitalization

    39  

Dilution

    40  

Selected Financial Data

    42  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    45  

Our Company

    65  

Directors, Senior Management and Employees

    90  

Principal and Selling Shareholders

    102  

Related Party Transactions

    104  

Description of Share Capital

    106  

Shares Eligible for Future Sales

    114  

Exchange Controls and Limitations Affecting Shareholders

    116  

Description of American Depositary Shares

    117  

Market Information

    127  

Taxation

    128  

Expenses of the Offering

    136  

Enforcing Civil Liabilities

    137  

Underwriting

    138  

Legal Matters

    143  

Experts

    143  

Additional Information

    143  

Index to Financial Statements

    F-1  



        You should rely only on the information contained in this prospectus or contained in any free writing prospectus we file with the Securities and Exchange Commission, or the SEC. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We are offering to sell, and seeking offers to buy, our ADSs only in jurisdictions where offers and sales of these securities are legally permitted. The information contained in this prospectus or in any free writing prospectus we file is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of our ADSs.

        This prospectus contains forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks and actual results could differ materially. The sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Our Company," as well as those discussed elsewhere in this prospectus, contain a discussion of some of the factors that could contribute to those differences.

i


Table of Contents


PROSPECTUS SUMMARY

        This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our ADSs. You should carefully read the entire prospectus, including "Risk Factors" and the financial statements, before making an investment decision.


Company Overview

        We are a leader in the research, development and commercialization of technologies and materials that enhance the performance of organic light-emitting diodes, or OLEDs. OLEDs are solid-state devices composed of multiple thin layers of organic materials, collectively known as the OLED stack, that emit light when electricity is applied to them. Through our unique combination of organic conductivity doping technology, proprietary materials and OLED stack development expertise, we offer OLED display and lighting manufacturers customized solutions to optimize the performance, power efficiency, stability and lifetime of their products while decreasing their manufacturing complexity and cost. We are currently the only company licensing and selling organic conductivity doping technology and materials for use in the commercial mass production of display products in the OLED industry.

        The market for OLED products is growing rapidly. OLED displays are capturing an increasing share of the flat panel display, or FPD, market due to their superior image quality, increased power efficiency and thinner, lighter form factor as compared to existing liquid crystal display, or LCD, and plasma display panel, or PDP, technologies. Small-sized OLED displays have achieved significant penetration in the smartphone market, and medium-sized OLED displays are being introduced in tablet personal computers, or tablet PCs. Samsung Mobile Display, or SMD, and LG Display, or LGD, have recently announced plans to launch large-sized OLED televisions for the high-end consumer market. Commercial interest in OLED lighting products is also strong because the ability of OLED devices to efficiently produce diffuse, homogenous light from a flat, thin surface creates new opportunities in lighting installation and design. Philips, for example, has recently confirmed its intention to offer decorative and performance lighting products based on OLED technology. According to DisplaySearch, OLED displays are expected to grow from a $1.6 billion global market in 2010 to a $25.5 billion market in 2018 at a compound annual growth rate, or CAGR, of 41%. We estimate that the nascent OLED lighting market will develop into at least a $3.5 billion global market by 2018. In addition, DisplaySearch and NanoMarkets project that the OLED lighting market will develop into a $6 and $9.9 billion global market, respectively, over the same period.

        Our organic conductivity doping technology and proprietary materials significantly enhance the performance of OLED devices. By adding our proprietary doping materials to certain layers of the OLED stack through a process known as organic conductivity doping, we improve the injection and transport of electrical charges to the emission layer in the OLED stack. Combining our proprietary doping materials with our proprietary host materials can further increase the conductivity of the transport layers and produce what we believe to be the highest performing OLED devices. We have also developed proprietary outcoupling materials that complement our organic conductivity doping technology and proprietary materials by improving the extraction of light which would otherwise remain trapped in the OLED stack. Our organic conductivity doping technology and proprietary materials are designed to work with all existing emission layer technologies and are protected by a broad patent portfolio of more than 500 patents issued or pending worldwide.

        We sell our technology together with our proprietary materials to display manufacturers, such as SMD and LGD, that are successfully commercializing OLED FPDs in the consumer market. In addition, we market our technology and proprietary materials to key players in the lighting industry, such as Astron FIAMM and Philips, and we are working with luminaire manufacturers, such as Acuity Brands and Trilux, to pioneer the development of thin and flexible OLED lighting products. In the future, we also anticipate marketing our technologies and materials to manufacturers of other

 

1


Table of Contents

organic electronic devices, such as organic photovoltaics, or OPVs, and organic thin-film transistors, or OTFTs. We generate revenues primarily from the sales of our proprietary materials, the manufacture of which we outsource on a contract basis. We also generate revenues from intellectual property licensing and consulting services. In 2011, we recorded revenues of €17.4 million and a first time net profit of €3.6 million, compared to revenues of €6.9 million and a net loss of €2.3 million in 2010.

        We were founded in 2001 as a spin-off from the Technical University and Fraunhofer Institute in Dresden, Germany, both of which are leading German research institutions in the field of materials science and technology and remain shareholders in our company. We have raised capital in several venture capital rounds since we commenced operations in 2003, including in 2009 from our then existing shareholders. Most recently, in September 2011, Samsung Venture Investment Corporation, or SVIC, acquired what is currently a 9.84% stake in us, which we believe validates our market position as a leading provider of customized OLED stack solutions based on organic conductivity doping technology and materials.


Market Overview

        The market for OLED products has grown significantly in recent years, and OLED technology is rapidly gaining market share in the FPD market. Many industry analysts believe that OLED technology represents the future of the FPD market because it offers superior image quality, form factor and power efficiency as compared to existing LCD and PDP technologies. According to DisplaySearch, the market share of OLED FPDs has grown from $0.6 billion, or 1% of the FPD market, in 2008 to $4.3 billion, or 4% of the FDP market, in 2011 at a CAGR of 88%. Global OLED FPD revenues are projected to increase from $1.6 billion in 2010 to $25.5 billion in 2018 at a CAGR of 41%. The initial gain in market share for OLED FPDs has been driven by small-sized OLED FPDs, which have gained a significant share of the smartphone market, primarily through the active-matrix OLED, or AMOLED, smartphones sold by SMD, the current market leader in OLED FPDs. Medium-sized OLED FPDs are also being introduced into tablet PCs by SMD, and both SMD and LGD have announced plans to develop large-sized televisions using OLED technology and have recently demonstrated 55 inch OLED televisions at the 2012 Consumer Electronics Show. According to DisplaySearch, OLED televisions are projected to become the second largest source of OLED revenues by 2015, behind smartphones, growing from a $300 million global market in 2012 to a $6 billion market in 2018 at a CAGR of 65%. In the future, OLED technology may also allow manufacturers to develop transparent and flexible FPDs that are impossible to create with current display technology.

        OLED products in the lighting market are currently in a nascent stage of development and there is strong commercial interest in the further development of these products. We believe that OLED lighting products have the potential to offer substantial improvements over existing lighting technologies with respect to light quality, form factor and power efficiency. Because OLED lighting products produce diffuse homogenous light from a flat thin surface, their design and use varies widely from current lighting products based on point sources of light, and they offer substantial new opportunities for lighting installations based on illuminated surfaces and embedded lighting. The adoption of OLED lighting technology may also allow manufacturers to develop transparent and flexible lighting products.

        In addition to OLED FPDs and lighting products, markets are also developing for other organic electronic devices, such as OPVs and OTFTs. OPVs use organic materials to generate electricity from light, and because of their unique properties, such as flexibility and potential for large-area surface printing production processes, we believe that applications of OPVs may continue to grow in the future. In addition, we believe that OTFTs and organic diodes show strong promise for future use in products where large-area, flexible electronic circuits are required, such as electrophoretic, or e-ink, displays, large-area photodetectors, LCDs and OLED FPDs.

 

2


Table of Contents


Our Competitive Strengths

        We believe that our unique combination of organic conductivity doping technology, proprietary materials and OLED stack development expertise allows us to provide innovative OLED stack performance solutions to the rapidly growing OLED FPD market, as well as to the developing OLED lighting and organic electronics markets more generally. The following are our key competitive strengths:

    Well-positioned to capitalize on the expected growth of the OLED market.  We are currently the only company licensing and selling organic conductivity doping technology and materials for use in the commercial mass production of display products in the OLED industry. We are strategically well-positioned to capitalize on the current growth of the OLED display market by leveraging our established relationships with key display manufacturers, including SMD and LGD, both of which currently use one of our doping materials in the mass production of their smartphone displays and have begun testing the use of our materials in their OLED televisions. We are also strategically well-positioned for future growth in the OLED lighting market based on our partnerships with key manufacturers of lamps, such as Astron-FIAMM and Philips, and key manufacturers of luminaires, such as Acuity Brands and Trilux.

    Leader in optimizing OLED performance.  We leverage our unique combination of organic conductivity doping technology, proprietary materials and OLED stack development expertise to design customized OLED stack solutions that meet or exceed our customers' power efficiency, performance and lifetime requirements. We believe that we have one of the industry's largest databases of OLED performance data. Because our organic conductivity doping technology and proprietary materials can be used with all current emission layer technologies, they can improve the performance of any OLED product while representing only a small fraction of the total OLED manufacturing cost. By using our technology and materials, overall display product power efficiency can be increased by up to 40%, and overall display product lifetime can be increased by up to 500%. Use of our outcoupling solutions can further increase power efficiency by up to 80%, with approximately half of the gains coming from use of our proprietary outcoupling materials.

    Broad portfolio of patents protecting our intellectual property.  We have a broad portfolio of more than 500 pending and issued patents covering important customer and manufacturer markets and key OLED technologies, structures and materials. With an average patent age of five years and first key patent expiry dates that are not until the end of 2020, we believe that our patent portfolio provides us with a strong competitive advantage, especially in the areas of organic doping, OLED FPD and lighting products and other organic electronics.

    Strategic partnerships with key innovators in the OLED industry.  We have developed strategic partnerships with key innovators in the OLED industry, which we believe will enable us to position ourselves at the forefront of the rapidly developing OLED market. Our current partners include producers of other OLED materials, such as Universal Display Corporation, or UDC, Sumitomo, BASF Switzerland AG, or BASF, SFC and Hodogaya, equipment manufacturers, such as Aixtron, Applied Materials, Sunic and SNU, and leading research and development groups at Philips, Heliatek, Alanod, ArcelorMittal, the Technical University of Dresden, or TUD, the Fraunhofer Institute of Dresden and the Max Planck Institute of Stuttgart. Through these partnerships, we increase recognition of and familiarity with our brand, technology and materials, and also gain access to materials that OLED manufacturers use in the production of their devices.

    Leader in the research and development of OLED technologies and materials.  We are a leader in the research and development of OLED technologies and materials designed to enhance the performance of OLED products and organic electronic devices, and we believe

 

3


Table of Contents

      that our knowledge of OLED stack development represents a competitive advantage relative to other OLED materials companies. We also believe that our unique combination of physics, chemistry and engineering expertise, together with our optics skills, will allow us to continue developing innovative OLED technologies and materials and to continue supporting the commercialization of these technologies and materials by OLED product manufacturers.

    Experienced and capable management team.  The members of our management team have been with our company since shortly after we commenced operations in 2003 and have extensive prior experience in high-tech and consumer electronics businesses. Because of their in-depth understanding of the OLED industry and the needs of manufacturers in the display, lighting and organic electronics markets, we have successfully begun to commercialize our technology and materials in the OLED FPD and lighting markets.


Our Business Strategy

        Our primary goal is to market and further strengthen our portfolio of OLED technologies and proprietary materials in order to increase sales and licensing of our materials and technologies in the OLED FPD and lighting markets. In addition, we are working to develop product applications of our technology and materials in the organic electronics market, particularly with respect to OPVs and OTFTs. To achieve these goals, we are focused on the following key strategies:

    Drive Novaled PIN OLED® technology and materials into mass production in the display market.  Our primary strategy is to further drive the use of our technologies and materials in the mass production of OLED FPDs in order to achieve broad commercial adoption of our solutions in the wider OLED industry. In addition to our proprietary doping materials, which are currently used by SMD and LGD in the production of their OLED smartphone displays and are being tested for use in their future OLED televisions, we anticipate offering OLED display manufacturers integrated OLED stack solutions that pair Novaled PIN OLED® technology and our proprietary doping materials with our complementary host materials.

    Pioneer OLED technologies and products in the lighting market.  We are working to drive market acceptance of OLED lighting products, and to specifically establish the use of Novaled PIN OLED® technology and doping, host, blocking and outcoupling materials in manufacturing and product development in the OLED lighting market in order to benefit from the significant growth opportunities projected for OLED lighting products. We are actively engaged in research and development programs involving our technology and materials with leading lamp and luminaire manufacturers, including Astron FIAMM, Philips, Trilux and Acuity Brands, and have developed luxury OLED luminaires which are intended to raise consumer awareness of and increase demand for such products.

    Enter into other organic electronics fields.  We are actively exploring applications of our technology and materials to other organic electronics, particularly OPVs and OTFTs. We intend to develop and sell materials suitable for use in organic electronics generally, secure as much broad intellectual property as possible and play a leading role in new fields of organic electronics as they develop.

    Maintain our capital efficiency by outsourcing the manufacture of our proprietary materials.  We intend to continue outsourcing the manufacture of our proprietary materials on a contract basis, which allows us to minimize our capital expenditures and maintain a capital efficient business model. BASF currently produces the proprietary doping materials that we sell to SMD and LGD, and we anticipate entering into new agreements with BASF or other manufacturers for the production of our other proprietary materials as demand for them develops.

 

4


Table of Contents


Our Risks and Challenges

        There are a number of risks and uncertainties that may affect our business, financial and operating performance and growth prospects. You should carefully consider all of the risks discussed in "Risk Factors," which begin on page 11, the other information contained in this prospectus and our financial statements and the related notes before investing in our ADSs. If any of these risks materialize or we are unable to overcome these challenges, we may fail to achieve our strategic goals, and our business, financial condition or results of operations could suffer. Our key challenges include the following:

    We have limited revenues and a history of substantial losses, and we may experience substantial future losses as well as volatility in our operating results and working capital; as a result, our ADSs represent a highly speculative investment.

    If OLED display products fail to gain widespread commercial acceptance, or if new or alternative technologies limit the acceptance of OLED display products, we may fail to generate revenues sufficient to support our ongoing operations.

    If OLED technology fails to gain widespread acceptance in the lighting market, our business growth may be substantially limited in the future.

    Even if a widespread market for OLED products develops, our technology or materials may not be adopted by product manufacturers in that market, and if other companies develop alternatives to our doping materials or develop competing doping materials, our business may fail.

    If we fail to make advances in our OLED research and development activities, we may not succeed in commercializing our OLED technologies and materials.

    We rely solely on BASF for the manufacture of the proprietary doping materials that we sell to SMD, LGD and other OLED product manufacturers.

    Our business is highly dependent on the sale of a single doping material to SMD, and if we cannot form and maintain lasting business relationships with other OLED product manufacturers, our business strategy may fail.

    We depend on the manufacturing capabilities of display and lighting manufacturers to commercialize our OLED technologies and materials, and any difficulties or delays affecting their manufacturing processes or businesses could harm our business.

    If manufacturers develop or adopt more efficient OLED production equipment or techniques, our business may be harmed.

    The display manufacturers to which we sell materials or license technology operate in a highly competitive environment; if they fail to compete successfully, or decide to discontinue or reduce their display manufacturing businesses, our business will be harmed.

    If we cannot obtain, maintain and defend appropriate patent and other intellectual property rights protection for our OLED technologies and materials, our business will suffer.


Company Information

        We were registered as a stock corporation (Aktiengesellschaft) in the commercial register of the local court (Amtsgericht) of Dresden on March 16, 2006, under number HRB 24467. Our principal executive offices are located at Tatzberg 49, 01307 Dresden, Germany, and our telephone number is +49 351 79658-0. Our website is www.novaled.com. This website address is included in this prospectus as an inactive textual reference only. The information and other content appearing on our website are not part of this prospectus. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, DE 19711, telephone number +1 (302) 738 6680.

 

5


Table of Contents


The Offering

ADSs Offered by Novaled AG                ADSs, each representing                  of an ordinary share.

ADSs Offered by the Selling Shareholders

 

             ADSs, each representing                  of an ordinary share.

Public Offering Price

 

We currently estimate that the initial public offering price per ADS will be between $             and $             .

American Depositary Shares

 

The underwriters will deliver our shares in the form of ADSs. Each ADS, which may be evidenced by an American Depositary Receipt, or ADR, represents an ownership interest in                  of one of our ordinary shares. As an ADS holder, we will not treat you as one of our shareholders. The depositary, Citibank, N.A., will be the holder of the ordinary shares underlying your ADSs. You will have ADS holder rights as provided in the deposit agreement. Under the deposit agreement, you may only vote the ordinary shares underlying your ADSs if we ask the depositary to request voting instructions from you. The depositary will pay you the cash dividends or other distributions, if any, it receives on shares after deducting its fees and expenses and applicable withholding taxes. You may need to pay a fee for certain services, as provided in the deposit agreement. You are entitled to the delivery of shares underlying your ADSs upon the surrender of such ADSs, the payment of applicable fees and expenses and the satisfaction of applicable conditions set forth in the deposit agreement.

 

To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled "Description of American Depositary Shares." We also encourage you to read the deposit agreement, the form of which is attached as an exhibit to the registration statement of which this prospectus forms a part. We are offering ADSs so that our company can be quoted on the             and investors will be able to trade our securities and receive dividends on them in U.S. dollars.


Depositary

 

Citibank, N.A.

Custodian

 

Citibank Global Markets Deutschland AG.

Option to Purchase Additional Shares

 

             have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to             additional ADSs from             at the public offering price, less the underwriting discount. See "Underwriting." Unless otherwise indicated, all information in this prospectus assumes this option has not been exercised.

 

6


Table of Contents

Shares Outstanding After the Offering                ordinary shares.

Use of Proceeds

 

We estimate that we will receive net proceeds from this offering of approximately $             million, after deducting the underwriting discount and the estimated offering expenses payable by us. These estimates are based upon an assumed initial offering price of $             per ADS, the midpoint of the initial offering price range set forth on the front cover page of this prospectus.

 

We will not receive any proceeds from the sale of ADSs offered by the Selling Shareholders.

 

We currently intend to use the net proceeds from this offering primarily for general corporate purposes, including research and development, working capital, sales and marketing activities and capital expenditures.


Dividend Policy

 

We have not declared any cash dividends on our ordinary shares and have no present intention to pay dividends in the foreseeable future.

Proposed Stock Exchange Symbol

 

 

ADS CUSIP

 

 

 

7


Table of Contents


Summary Financial Data

        The following table presents summary financial data for the periods indicated. Financial data as of and for the years ended December 31, 2009, 2010 and 2011 were derived from our financial statements for these years. Our financial statements, which we have prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, have been audited and are included elsewhere in this prospectus. We have not provided selected financial data for 2008 and 2007 because to do so would have entailed unreasonable effort and expense.

        The following table also contains translations of euro amounts into U.S. dollars as of and for the year ended December 31, 2011. These translations are solely for the convenience of the reader and were calculated at the rate of €0.7708 = $1.00, as reported by the Federal Reserve Bank of New York on December 30, 2011. You should not assume that, on that or any other date, one could have converted these amounts of euro into dollars at that or any other exchange rate.

 
  As of and for the year ended December 31,  
 
  2009   2010   2011   2011  
 
  (in thousands except for share and per-share data)
 
 
         
 
 
  $
 

Selected Statement of Operations Data:

                         

Revenue

    6,426     6,856     17,405     22,580  

Cost of sales

    (1,403 )   (2,958 )   (8,743 )   (11,343 )

Thereof cost of sales of materials

    (895 )   (1,909 )   (5,158 )   (6,692 )

Thereof research and development(1)

    (508 )   (1,048 )   (3,584 )   (4,650 )
                   

Gross profit

    5,023     3,898     8,662     11,237  

Sales and marketing expenses

    (989 )   (1,256 )   (1,478 )   (1,917 )

Administrative expenses

    (2,580 )   (2,863 )   (4,090 )   (5,306 )

Research and development expenses(2)

    (2,620 )   (1,981 )   (1,633 )   (2,119 )

Other income

    79     128     545     707  

Other expenses

    (72 )   (138 )   (337 )   (437 )
                   

Results from operating activities

    (1,159 )   (2,212 )   1,669     2,165  

Finance income

    55     45     29     38  

Finance costs

    (191 )   (144 )   (480 )   (623 )

Net finance costs

    (136 )   (99 )   (451 )   (585 )
                   

Profit or loss before tax

    (1,295 )   (2,311 )   1,218     1,580  

Tax income(3)

    0     0     2,375     3,081  
                   

Profit and total comprehensive income

    (1,295 )   (2,311 )   3,593     4,661  

Earnings per share (undiluted)

   
(0.25

)
 
(0.39

)
 
0.60
   
0.78
 

Earnings per share (diluted)(4)

    (0.25 )   (0.39 )   0.60     0.78  

Weighted average shares used to compute earnings per share (undiluted)

   
5,271,424
   
5,915,977
   
5,971,412
   
5,971,412
 

Weighted average shares used to compute earnings per share (diluted)

    5,271,424     5,915,977     5,980,968     5,980,968  

Selected Cash Flow Data:

                         

Net cash generated by/(used in) operating activities

    (2,724 )   (1,015 )   1,979     2,566  

Net cash used in investing activities

    24     (783 )   (1,112 )   (1,443 )

Net cash provided by financing activities

    4,128     3,005     638     827  

Selected Balance Sheet Data:

                         

Cash and cash equivalents

    2,253     3,468     5,024     6,518  

Total assets

    12,763     13,433     20,502     26,598  

Total current liabilities

    2,335     2,162     3,713     4,816  

Total non-current liabilities

    2,483     1,298     1,647     2,137  

Total equity

    7,945     9,973     15,142     19,645  

 

8


Table of Contents


(1)
Research and development expenses associated with customer-sponsored research and development projects are included in cost of sales under IFRS. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, we did not separately track our costs for internal and customer-sponsored research and development projects in 2009, 2010 and 2011. As a result, the costs of our non-publicly funded internal research and development projects are included in our cost of sales for these periods. We anticipate that our research and development costs for all internal projects, whether publicly funded or not, will be included in our research and development expenses going forward.

(2)
Our research and development expenses for 2009, 2010 and 2011 consist solely of the unfunded costs of our publicly funded internal research and development projects. Under IFRS, any public funding we receive for our internal research and development projects must be netted against our research and development costs for reporting purposes. In 2009, 2010 and 2011, we recognized income from publicly-funded research and development projects of €2.8 million, €2.6 million and €2.2 million, respectively.

(3)
We had no current or deferred tax income in 2009 and 2010 due to the tax losses we incurred in those years. In addition, we did not recognize deferred tax assets in respect of our tax loss carry forwards in 2009 and 2010 because we had only generated losses in the prior years. Because we generated a profit in 2011 and currently anticipate generating profits going forward, we recognized a deferred tax asset in respect of our tax loss carry forwards in 2011 and thus realized a one-time gain in tax income of €2.6 million which, when netted against our deferred tax liabilities of €0.2 million, resulted in tax income of €2.4 million in this period.

(4)
For 2009 and 2010, diluted earnings per share were equal to undiluted earnings per share because potentially dilutive securities were excluded from the diluted earnings per share calculations due to their anti-dilutive effects resulting from the losses in both years. As of December 31, 2011, a total of 130,140 options had been issued under our various stock option plans. The diluted earnings per share calculation in 2011 excluded 117,540 of these options because certain performance conditions attached to these options had not been fulfilled as of December 31, 2011. The remaining 12,600 options were included in the diluted earnings per share calculation for 2011. The warrants issued to SVIC in 2011 in connection with its initial investment in our company, see "Related Party Transactions — Samsung Warrants," did not result in a dilutive impact in 2011, and there were no additional issuances of potentially dilutive securities.

Other Financial and Operational Data

Adjusted Total Comprehensive Income

        Adjusted total comprehensive income is an unaudited non-GAAP financial measure which our management uses to monitor our operational performance. We define "adjusted total comprehensive income" as total comprehensive income, as determined under IFRS, adjusted to exclude share-based compensation expenses and tax income. The following table shows our adjusted total comprehensive income for the periods under review:

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Total comprehensive income

    (1,295 )   (2,311 )   3,593  

Share-based compensation expense(1)

    779     145     531  

Tax income

    0     0     (2,375 )
               

Adjusted total comprehensive income

    (516 )   (2,166 )   1,749  
               

(1)
Our share-based compensation expenses for 2009, 2010 and 2011 include both employee and non-employee related share-based compensation expenses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Share-Based Compensation."

 

9


Table of Contents

Adjusted Total Research and Development Expenses

        Adjusted total research and development expenses is an unaudited non-GAAP financial measure which our management uses to monitor our total spending associated with internal and customer-sponsored research and development projects. We define "adjusted total research and development expenses" as our research and development expenses, as determined under IFRS, adjusted to include income from publicly funded internal research and development projects, which is netted against our research and development costs for reporting purposes under IFRS, and to include the portion of our cost of sales related to research and development projects. The following table shows our adjusted total research and development expenses for the periods under review:

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Research and development expenses

    (2,620 )   (1,981 )   (1,633 )

Add: income from publicly-funded R&D projects(1)

    (2,796 )   (2,625 )   (2,152 )

Add: cost of sales related to R&D projects(2)

    (508 )   (1,048 )   (3,584 )
               

Adjusted total research and development expenses

    (5,924 )   (5,654 )   (7,369 )
               

(1)
Our research and development expenses for 2009, 2010 and 2011 consist solely of the unfunded costs of our publicly funded internal research and development projects. Under IFRS, any public funding we receive for our internal research and development projects must be netted against our research and development costs for reporting purposes.

(2)
Research and development expenses associated with customer-sponsored research and development projects are included in cost of sales under IFRS. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, we did not separately track our costs for internal and customer-sponsored research and development projects in 2009, 2010 and 2011. As a result, the costs of our non-publicly funded internal research and development projects are included in our cost of sales for these periods. We anticipate that our research and development costs for all internal projects, whether publicly funded or not, will be included in our research and development expenses going forward.

 

10


Table of Contents


RISK FACTORS

        Investing in our ADSs involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus, including our financial statements and the related notes, before making an investment decision regarding our securities. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, that we believe are relevant to an investment in our securities. If any of these risks materialize, our business, financial condition or results of operations could suffer, the price of our ADSs could decline and you could lose part or all of your investment.

Risks Related to Our Operations

We have limited revenues and a history of substantial losses, and we may experience substantial losses in the future.

        Since inception, we have generated limited revenues while incurring substantial losses. Although we had a first time net profit of €3.6 million in the year ended December 31, 2011, we have a history of operating and net losses, and we may continue to suffer losses until such time, if ever, as we are able to achieve sufficient levels of revenue from the commercial exploitation of our technology and materials to support our business operations. There is no guarantee, however, that we will be able to successfully commercialize our technologies or materials because the market for OLED products may not develop or our technologies or materials may not be broadly adopted within OLED product markets.

        We license and sell our technologies and materials to OLED materials manufacturers and display and lighting manufacturers, which then incorporate them into the materials and products that they sell. Even if we or product manufacturers which are or become our customers in the future develop commercially viable applications of our technologies or materials, we may never recover our research and development expenses. We may also never generate meaningful revenues from the commercial adoption of our technologies or materials or be able to sustain profitable operations. In the years ended December 31, 2009 and December 31, 2010, we had net losses of €1.3 million and €2.3 million, respectively, and we may report net losses in future periods. We cannot predict what impact future net losses might have on our ability to finance our operations or continue as a going concern.

Because we have a limited operating history, our future results are unpredictable and our ADSs represent a highly speculative investment.

        Our future results are unpredictable because we have a limited operating history and face many risks and uncertainties. Even if we successfully address these risks, we may be unable to generate revenues sufficient to support our ongoing operations. We were founded in 2001 to perform research and development work in the field of applied optoelectronics, in particular to develop technologies for small molecule OLEDs, as well as to produce and market OLED materials, and we commenced operations in 2003. The commercialization of our OLED technologies and materials is uncertain and speculative, and there is only a limited amount of past experience and data upon which to evaluate our business and prospects. A potential investor in our ADSs should consider the uncertainties, changes, expenses, delays and other difficulties which may affect the development of our business and market. Because our future results are unpredictable, our ADSs are a highly speculative investment in which investors may lose some or all of their investment.

We may experience volatility in our operating results and our working capital.

        We may experience volatility in our quarterly or annual operating results and our working capital. The vast majority of our revenues come from sales of our proprietary materials to large

11


Table of Contents

manufacturers of consumer electronics, the businesses of which are affected by the seasonality of the consumer electronics markets generally. Because we have a limited number of customers, the timing of their purchases of our materials may significantly impact our quarterly or annual revenues, and have a substantial negative impact on our operating results.

        During the past three fiscal years, revenues in the first quarter of each year have been lower than revenues in the preceding fourth quarter. As a result, our working capital in the second half of the year tends to be higher than in the first half. Although we believe that this trend is connected to manufacturers spending their remaining materials purchasing budgets at the end of the year, we have no way of knowing whether this trend will continue or how it may impact our operating results in the future.

The global and European financial crises may have a substantial negative impact on our business.

        The recent global financial crisis and difficult economic environment have contributed to a reduction in consumer and corporate spending. These macroeconomic developments may have a substantial negative impact on our future business by reducing demand for our technologies and materials. Our ability to generate revenues depends upon our ability to commercially exploit our OLED technologies and materials. This, in turn, depends on the growth of the display and lighting markets as well as the adoption of our technology and materials within these markets. According to DisplaySearch, revenues in the flat screen display market decreased by approximately 15% in 2009. Although revenues recovered in 2010, renewed contraction or lack of growth in the display market may substantially limit the widespread adoption of OLED products and may impair our ability to commercially exploit our OLED technologies and materials within this market. Consumers may refuse to purchase OLED products in favor of cheaper alternatives, such as LCDs, and manufacturers may refuse to implement the new production processes required to manufacture OLED products. The commercial development and adoption of OLED products in the lighting market may also be slowed if consumers refuse to invest in new, and potentially more expensive, lighting products. As a result, we may find it increasingly difficult to generate new revenues in the display and lighting markets and to maintain our existing revenue streams.

        Because we are headquartered in Germany, the current European financial crisis also poses a substantial risk to us. The ongoing sovereign debt crisis has introduced considerable political and monetary uncertainty into the euro zone. The value of the euro has fluctuated substantially and unpredictably, and widespread political changes have occurred in several member countries. We have no way of predicting when and how the European financial crisis will be resolved. If countries leave the euro zone, either consensually or non-consensually, the value of the euro could depreciate rapidly, or the euro could cease to exist altogether. Such changes may result in substantial expense and disruption to us as we currently report our financial results in euros. In addition, companies we currently do business with may also face substantial disruption or cease to exist altogether. There is no guarantee that we would be able to enter into new agreements similar to those we have now or that purchasers of our materials or licensees of our technology would continue their relationships with us. Efforts to stabilize the euro zone may also result in substantial new taxes on us or restrictions on our ability to do business. Any such change may have a substantial negative impact on our business and revenues, and may cause our business to fail.

If OLED display products fail to gain widespread commercial acceptance, we may fail to generate revenues sufficient to support our ongoing operations.

        Our primary source of revenue is the sale of our proprietary materials and the licensing of our technologies to display manufacturers for incorporation into the OLED display products that they sell. Consequently, our success depends on the ability and willingness of those manufacturers to

12


Table of Contents

develop, manufacture and sell commercial products integrating OLED technologies and materials generally. The developments of recent years, however, have shown that the previously expected take-off of OLED technology in the display market has failed to occur several times. According to DisplaySearch, OLEDs accounted for only $4.3 billion or 4% of the total flat screen display market in 2011. Currently, OLED displays are primarily used in small- to medium-sized products, such as mobile phones with displays of up to five inches, and other similarly sized mobile electronic devices. Although OLED displays have been commercially introduced in televisions of up to fifteen inches in size, these products have not yet gained widespread acceptance or usage due to their high cost. OLED displays have also yet to be commercially introduced in larger products, such as laptop computers, desktop computer monitors or large-size televisions, other than in prototypes. Although many manufacturers plan to introduce these products in the future, customers may be slow to accept this new technology and may be unwilling to pay a higher price for products containing OLED displays. Some manufacturers may also refuse to integrate the new production processes OLED technologies require, preferring to wait until a later date to determine consumer demand, or may decide not to implement them at all. If a widespread market for OLED display products does not develop, we may be unable to generate revenues sufficient to support our operations, and our business may fail.

        Manufacturing OLED products is currently quite expensive, in part because OLED fabrication requires substantial new investments by product manufacturers to either convert their existing LCD production facilities to OLED technology or to build new OLED production facilities. To recoup their investment, manufacturers must believe that they will be able to sell enough OLED products to drive down their per-unit costs. Although some display manufacturers have invested substantial amounts in developing next generation manufacturing facilities for OLED display products, market acceptance of these products remains uncertain, and manufacturers may reduce or abandon their OLED production capacities in the future. In addition, because the market for small- and medium-sized OLED displays is currently dominated by a single manufacturer, SMD, OLED display technology may become a niche market and may eventually be superseded by other more widely accepted display technologies if other manufacturers do not follow SMD into the OLED display market. Without a widespread market for OLED display products, there may be insufficient demand for our technologies and materials to allow our business strategy to succeed.

If new or alternative technologies limit the acceptance of OLED display products, we may fail to generate revenues sufficient to support our ongoing operations.

        Alternative display technologies may limit the acceptance of OLED display products. LCD remains the dominant display technology, and recent advances in LCD technology may allow LCD products to successfully compete with OLED products on a variety of factors, including image quality, viewing angle, form factor and power efficiency. Current OLEDs often suffer from a relatively short lifespan and may slowly lose their ability to emit light over time. Because OLED products tend to internally reflect ambient light, they may have a lower display contrast and be less visible under direct light such as sunshine than LCD products. Further developments may allow LCD products to challenge OLED's current technological advantages, in particular power efficiency, response time and contrast. Because of LCD's widespread market and manufacturing base, manufacturers have considerable incentives to improve and develop LCD technology rather than to invest in OLED manufacturing capacity. If LCD products continue to be good enough for mass market consumers, the acceptance and development of OLED products may suffer, and we may fail to generate revenues sufficient to support our ongoing operations.

        New display technologies may also surpass or displace OLED technology before OLED display products gain widespread commercial acceptance. Qualcomm has developed a new full-color display technology called Mirasol that is more power efficient than LCD display technology and

13


Table of Contents

offers better visibility in direct light such as sunshine. Although this technology is currently only used in e-readers, it is possible, with quality and performance improvements over time, that it may develop into a future competitor with OLED in the small- and medium-sized flat panel display market. In addition, quantum dot LED, or QLED, display technology may outperform OLED display technology with respect to stability and may eventually outperform OLED display technology with respect to power efficiency while providing similar performance with respect to color, brightness and flexibility. We cannot predict the development or commercialization of new display technologies, or how they might impact our financial performance.

If OLED technology fails to gain widespread acceptance in the lighting market, our business growth may be substantially limited in the future.

        Although OLED technology has been successfully adopted in the small- and medium-sized display market, it has yet to be commercially adopted within any segment of the lighting market. While we anticipate that our future growth will be driven in part by the adoption of OLED technology within the lighting market, only a few OLED lighting products are currently available, including products designed by us and other OLED technology and manufacturing companies, and there has been no widespread commercial adoption or availability of OLED lighting products. LED lighting technology can be used to manufacture large-area lighting products that produce diffuse light similar to that of OLED lighting products. With further development, these LED lighting products may challenge or even displace OLED lighting products in the large-area lighting market in the future. We have no way of knowing whether OLED lighting products will be suitable for and acceptable to consumers in the future, and any failure of OLED lighting products to gain widespread acceptance in the lighting market may substantially limit our future business growth and adversely affect the investments we have made in the development of such products.

        While OLED is seen as an evolutionary technological development within the display market, OLED lighting products represent a fundamental change in the lighting market. Current lighting products consist of two components: light sources, which generate the light, and luminaires, which distribute it. Manufacturing and installation standards have been developed that allow manufacturers of light sources and manufacturers of luminaires to create products that work together easily, and the visual appearance of a current lighting product is largely a function of its luminaire. In contrast, the manufacture of OLED lighting products applies the light source, the OLEDs, directly to the surface of a substrate material, and, as a result, combines light source and luminaire in a manner distinct from current lighting products. The appearance of an OLED lighting product is both a function of the materials used in the production of the OLED panels and of the arrangement of the panels themselves. Because OLED lighting products produce diffuse homogenous light from a flat thin surface, they must be used and installed differently than conventional lighting products, which generate a large amount of light from a small area and rely on the luminaire to diffuse the light satisfactorily. Manufacturers and lighting designers must understand and appreciate the different approach to design and illumination represented by OLED lighting products if such products are to gain widespread commercial acceptance. In addition, manufacturing and installation standards for OLED lighting products must be developed if OLED lighting products are to become as ubiquitous and interchangeable as current lighting products. Many past lighting technologies, such as compact fluorescent bulbs and induction lamps, have promised technological or ecological benefits, but have ultimately proved unsuitable for widespread commercial use. We cannot guarantee that OLED lighting products will be accepted within the lighting market, and we have no way of knowing whether lighting industry participants will work together to produce the standards necessary to drive the widespread adoption of such products. Failure to develop appropriate standards may limit the acceptance of OLED technology in the lighting market, and may substantially limit our future business growth.

14


Table of Contents

Even if a widespread market for OLED products develops, our technology or materials may not be adopted by product manufacturers in that market.

        The success of our business depends upon our ability to successfully sell or license our technology or materials to display or lighting manufacturers. Even if a widespread market for OLED products develops, manufacturers may refuse to license or implement our technologies or materials in favor of the technologies or materials of our competitors. Before product manufacturers will agree to use our OLED technologies or materials for widespread commercial production, they will likely require us to demonstrate to their satisfaction that our technologies or materials are suitable for broad-based product applications. This may require us to prove the suitability or superiority of our OLED technologies or materials with respect to their:

    Lifetimes, brightness and color coordinates for full-color displays and general lighting products;

    Robustness, particularly for large-scale, demanding manufacturing environments;

    Stability at high operating temperatures;

    Power efficiency; and

    Scalability and cost-effectiveness with respect to manufacturing processes.

        Competing OLED technologies or materials may prove superior to ours in any of these characteristics, limiting our ability to successfully sell or license our technologies or materials in the OLED marketplace. If we cannot sell or license our technologies or materials, we may have insufficient revenues to continue developing our products or to successfully compete in the OLED market.

        In addition, technological developments in the OLED market may displace our OLED technologies or materials, or render them obsolete. Our technology and materials offer display and lighting manufacturers improvements in the power efficiency, stability and lifetimes of the products they sell. These benefits, however, often result in greater manufacturing complexity or higher costs. Manufacturers may decide that the benefits offered by our OLED technologies and materials do not justify their complexity or costs, and may search for other means by which to achieve the same results. Even without use of our OLED technologies or materials, manufacturers may be able to achieve similar benefits through alternative engineering of their OLED products or through the OLED technologies or materials offered by our competitors.

        In addition, because manufacturers base their use of certain technologies and materials on a holistic assessment of the needs of their customers and products, there is no guarantee that technological superiority alone will allow our technologies and materials to succeed in the OLED market. Our technologies and materials may be displaced by future technologies and materials that outperform ours, or that offer a more compelling value proposition to product manufacturers. Manufacturers which currently use our technologies and materials may delay adopting our new technologies and materials, and may delay or refuse to adopt our existing technologies and materials in their new products. Any such developments may have a substantial negative impact on our business and revenues, may result in lower prices and in turn lower margins for sales of our materials and may cause our business to fail.

If other companies develop alternatives to our doping materials or develop competing doping materials, our business may fail.

        The vast majority of our revenues currently come from the sales of one of our doping materials. The design of high-performance OLED devices is a rapidly changing field, and new developments may eliminate the need for our doping materials in the future. In addition, other companies may

15


Table of Contents

develop OLED technologies or materials that offer alternatives to our doping materials, or that surpass our doping materials in terms of performance or price. We cannot predict future developments within the OLED market, and cannot guarantee that our doping materials will continue to be valuable, useful or relevant to the OLED market in the future. Any such changes may have a substantial negative impact on our business and revenues, may result in lower prices and in turn lower margins for sales of our materials and may cause our business to fail.

If we fail to make advances in our OLED research and development activities, we may not succeed in commercializing our OLED technologies and materials.

        In order to maintain a competitive position in the OLED marketplace, we will have to complete further research and development with respect to our OLED technologies and materials. Advances in current and future technologies will require us to continue innovating in order to offer compelling and cost-effective OLED technologies and materials to display and lighting manufacturers. We cannot, however, be certain that any such work will yield advances in the development of our technologies or materials, or that we will be able to complete such work in a timely and efficient manner. Our research and development efforts remain subject to all of the risks associated with the development of new products based on emerging and innovative technologies, including unanticipated technical or scientific problems and insufficient funds to complete development of these products. Technological, research or manufacturing problems may result in delays and substantial additional expense, and may prevent us from maintaining or growing our relationships with product manufacturers. If we cannot complete the research and development of our technologies and materials successfully, or if we experience delays in completing the research and development of our technologies and materials for use in potential commercial applications, our business may fail.

        In addition, the market for OLED lighting products is currently at a nascent stage, and successful commercialization of our OLED technologies and materials in this market will likely require substantial research and development. Although prototype lighting products have been developed, these products have yet to be commercialized on even a small scale. Substantial advancements must be made with respect to OLED lighting products in order to manufacture such products at an attractive price. Even if we are able to continue developing our OLED technologies and materials in the display market, there is no guarantee that such developments will be useful in the lighting market or that we will be able to complete the necessary research and development for us to successfully compete in the lighting market as well. Any inability to successfully develop our technologies and materials for use in the lighting market may negatively impact our revenues and limit our growth in the future.

        We are currently investing money and resources in researching applications of our existing technology and materials in other organic electronic fields, such as OPVs and OTFTs, and we anticipate continuing to invest money in the research and development of new technology and materials in organic electronics generally. Because the markets for these products are extremely small, and in some cases do not exist at all, we cannot guarantee that we will be able to develop useful or commercially successful intellectual property or product applications in these areas. As a result, we may be unable to recover our research and development expenses or derive any significant revenue from this research, which may negatively impact our operating results and limit our growth in the future.

We rely solely on BASF for the manufacture of the doping materials that we sell to SMD, LG Display and other OLED product manufacturers.

        BASF is currently the sole manufacturer of the proprietary doping materials that we sell to SMD, LGD, and other OLED product manufacturers. Although we are able to manufacture small quantities

16


Table of Contents

of OLED materials ourselves in connection with our research and development activities, our business strategy relies on the use of subcontractors for the commercial production of our OLED materials. While we currently distribute certain materials from one manufacturer, we are entirely reliant on BASF to manufacture our proprietary materials on a large scale. Any change in our relationship with BASF may have a substantial negative impact on our business, and may cause our business to fail.

        In order to successfully commercially exploit our OLED materials, we must be able to produce and sell sufficiently high-quality OLED materials on demand. Our ability to fulfill our sales obligations, particularly to SMD and LGD, currently depends solely on BASF's ability and willingness to manufacture our proprietary doping materials. If BASF does not produce sufficient quantities of our materials or does not maintain a high production standard with respect to our materials, SMD or LGD may end its relationship with us, and our business may fail. In addition, other product manufacturers may refuse to purchase or license OLED technologies or materials from us.

        If BASF terminates its relationship with us or ceases production of our proprietary doping materials, there is no guarantee that we can identify, in a timely fashion or at all, alternative manufacturers which can meet the demand for our materials at the prices we have currently negotiated. In addition, because BASF only manufactures our materials at its facility in Basel, we are exposed to all the risks associated with its operations in Basel, including natural disasters, fire or industrial actions. If BASF's operations are disrupted, we may experience substantial costs and delays in transferring the manufacturing of our proprietary doping materials to another producer. Any disruption in the supply of our materials may harm our reputation in the OLED marketplace and may have a substantial negative impact on our ability to sell or license our technologies or materials in the future.

        BASF also exercises considerable bargaining power in light of its position as our sole OLED materials manufacturer. BASF has refused to lower its prices as our manufacturing volume has increased, which may deprive us of the economies of scale that other larger OLED companies enjoy. BASF may also refuse to implement manufacturing changes requested by our materials purchasers, and our competitors may be able to offer more flexibility with regard to product manufacturers' specifications. We are also dependent on BASF's continued research and development with respect to its manufacturing capacity, as our future technologies or materials may require manufacturing improvements or changes that BASF might be unwilling to make. Any difficulties in our relationship with BASF may have a substantial negative impact on our business and revenues, and may cause our business to fail.

Our business is highly dependent on the sale of a single doping material to SMD, which may limit our ability to grow and to commercialize our technologies or materials in the future.

        In 2011, nearly 60% of our revenue came from the sale of a single doping material to SMD. SMD uses this doping material in the production of its OLED mobile phone displays, and we anticipate that our short- to medium-term revenue growth in the display market will be significantly driven by SMD's increased sales of OLED display products and its corresponding increased usage of this doping material. SMD, however, has no obligation to continue purchasing any amount of this or any other OLED material from us, and we cannot predict whether it will continue to do so. SMD may identify, or may have already identified, other OLED materials, technologies or suppliers that it prefers to use, and may cease purchasing OLED materials from us without notice. While an affiliate of SMD, SVIC, is currently a 9.84% shareholder in our company, SMD's decision to continue using our doping material will be driven solely by its business considerations, which may differ substantially from SVIC's goals. Any decision by SMD to discontinue its purchases of this doping material from us or to reduce the quantity thereof may have a substantial negative impact on our

17


Table of Contents

business and revenues. We cannot guarantee that we would be able to identify alternative customers to replace any lost revenue, and such losses may substantially impair our ability to grow our business in the future and to conduct the research and development necessary to remain competitive in the OLED market.

        In addition, due to its large size and strong market position, SMD has a bargaining position superior to ours, and exercises considerable influence over the conduct of our business. SMD has yet to enter into a licensing agreement with us, and we cannot guarantee that it will do so in the future or, if it does, that the terms of any such agreement will be favorable to us. Because so much of our revenue derives from our relationship with SMD, we may find it difficult to negotiate favorable licensing terms with it. Our relationship with SMD may also limit our ability to use different companies for the manufacture of our OLED materials. We rely solely on BASF to manufacture the OLED materials that we sell on a large scale to OLED product manufacturers. Although other OLED materials manufacturers may be able to offer us lower costs and higher margins, SMD must first verify the quality of the OLED materials produced by any other manufacturer with which we wish to contract. Under the terms of our purchase agreement with SMD, we are not able to change our production conditions during a certain period following submission of a purchase order for our OLED materials by SMD. Such delays may slow or prevent us from making important changes in our business, which may limit our profitability or our chances of success. Because our business is highly dependent on our relationship with SMD, any decisions it makes may have a substantial negative impact on our business and growth.

If we cannot form and maintain lasting business relationships with OLED product manufacturers other than SMD, our business strategy may fail.

        Because we do not manufacture OLED products ourselves, the success of our business strategy depends on our ability to form successful and long-lasting business relationships with OLED display and lighting manufacturers. If companies refuse to develop products using our OLED technologies or materials, we may be unable to successfully commercialize our technologies and materials or generate revenues sufficient to sustain our business. In 2011, nearly 60% of our revenues came from the sale of a single doping material to SMD. Although we have recently entered into a purchase agreement with LGD, our sales under this agreement remain uncertain because LGD is not obligated to purchase any materials from us. While LGD plans to manufacture OLED mobile phone displays using the same doping material as SMD, SMD remains the dominant player in the OLED display market and will likely continue to be responsible for the vast majority of our revenue in the near future. LGD also anticipates using this doping material in its future production of OLED TVs, but we have no way of knowing whether LGD will be successful in producing and selling such TVs or the extent of its future demand for our doping material. Because both SMD and LGD may discontinue the use or purchase of this doping material at any time without prior notice to us, our future revenues and growth depend on our ability to develop a broad network of lasting business relationships with other product manufacturers in the display and lighting industries. There is, however, no guarantee that we will be able to do so, or that we will be able to successfully sell or license our technologies or materials to other product manufacturers in the future. In addition, if we cannot maintain our existing business relationships with SMD or LGD, or our future business relationships with other product manufacturers, we may suffer substantial expense in indentifying alternative product manufacturers and experience substantial delays in commercializing our OLED technologies and materials. Because OLED product manufacturers change their OLED designs infrequently, approximately once every six months for new products and once a year for older products, there may also be a substantial delay before product manufacturers are willing to evaluate our OLED materials for use in their products, or before OLED materials that have been approved for use are actually purchased. Any failure by us to maintain our current or future business relationships or to timely identify new product manufacturers which are

18


Table of Contents

interested in purchasing or licensing our technologies or materials may have a substantial negative impact on our business and revenues, and may cause our business to fail.

We depend on the manufacturing capabilities of display and lighting manufacturers to commercialize our OLED technologies and materials, and any difficulties or delays affecting their manufacturing processes or businesses could harm our business.

        The commercialization of our OLED technologies and materials relies on the successful development and sale of products incorporating our technologies or materials by display and lighting manufacturers. Because we do not manufacture OLED products ourselves, we are solely dependent on the manufacturing capacities of our purchasers and licensees. Any disruption or delay in their manufacturing processes or businesses may have a substantial negative impact on our business and revenues. Inability on the part of lighting or display manufacturers to deliver OLED products incorporating our technology or materials to their customers in a timely fashion may result in an overall reduction in demand for our technologies or materials, and may cause us to miss substantial market opportunities.

If manufacturers develop or adopt more efficient OLED production equipment or techniques, our business may be harmed.

        Based on current OLED manufacturing equipment and techniques, we believe that approximately seven percent, as measured by total yield, of the organic materials used in the production of an OLED, including the proprietary materials that we sell to SMD and LGD, are successfully applied to the OLED itself, with the remainder lost during the manufacturing process. As a result, OLED product manufacturers must purchase greater quantities of our materials than are ultimately required for the functioning of the OLED devices they produce. Although our materials represent a relatively small portion of their total costs, OLED product manufacturers may have an incentive to adopt new OLED production equipment or techniques that allow them to increase the efficiency of their production processes, and OLED production equipment manufacturers may develop cost-effective equipment to meet this demand. Using more efficient equipment or techniques, we believe that manufacturers may be able to successfully apply 30 to 50%, as measured by total yield, of our materials in the future. Any improvements in the efficiency of the OLED production process with respect to the use of our materials may result in a substantial decline in demand for or sales of our OLED materials, and may have a substantial negative impact on our business and revenues.

The display manufacturers to which we sell materials or license technology operate in a highly competitive environment; if they fail to compete successfully, or decide to discontinue or reduce their display manufacturing businesses, our business will be harmed.

        The market for consumer electronics is highly competitive. Manufacturers may decide to terminate or reduce their display product lines, or fail to compete successfully with respect to the product lines they develop. Because we are dependent on display manufacturers to commercialize our OLED technology and materials, any decision by them to decrease or stop production of products containing our OLED technologies or materials may have a substantial negative impact on our revenues. The failure of display manufacturers that are our customers to effectively and competitively market products containing our OLED technologies or materials may also negatively impact our business as consumers may not have sufficient opportunity to purchase products containing our technologies or materials, and competing manufacturers and products may surpass ours in the marketplace. If display manufacturers that are our customers fail to compete effectively in the consumer electronics and OLED markets, there is no guarantee that we will be able to find alternative manufacturers and our business may fail.

19


Table of Contents

The consumer electronics industry experiences significant downturns from time to time, which may adversely affect the demand for and pricing of our OLED technologies and materials.

        Our success depends upon the ability and willingness of display and lighting manufacturers to manufacture and sell products using our OLED technologies or materials, and the widespread acceptance of those products by consumers. The markets for display and lighting products are highly competitive. Success in the development and sale of these products depends on a number of factors beyond our control, including the cyclical and seasonal nature of the consumer electronics markets, as well as industry and general economic conditions. Any slowdown or decrease in consumer demand within these or related markets may negatively impact our revenues and business growth. In the past, both the display and lighting markets have experienced substantial periodic downturns, often in connection with declines in general economic conditions. These downturns have often resulted in lower product demand from consumers, manufacturer production overcapacity, and a decrease in end-product prices. Any such industry downturns in the future may cause significant harm to our business and substantially impair our ability to successfully commercialize our OLED technologies and materials.

Disagreements with respect to the commercial terms of our sales, licensing, purchase or manufacturing agreements may limit our ability to successfully commercialize our OLED technologies or materials.

        The legal obligations of the display and lighting manufacturers to which we may sell or license our OLED technologies or materials are governed by the sales or licensing agreements we enter into with those manufacturers. In addition, our relationships with SMD and LGD are governed by the purchase agreements between us and each manufacturer, and our relationship with BASF is governed by the manufacturing agreement between us. Although we attempt to address the full range of possible events that may occur during the development of products incorporating our OLED technologies or materials, or the manufacturing of our OLED materials, unanticipated or extraordinary events may occur beyond those contemplated by our agreements. In addition, our business relationships with our product manufacturers, including SMD and LGD, or BASF may include assumptions, understandings or agreements that are not included in our sales, licensing, purchasing or manufacturing agreements, or that are inaccurately or incompletely represented by their terms. The practices and procedures that develop between us and our product manufacturers, including SMD and LGD, or BASF may not be adequately reflected in our sales, licensing, purchase or manufacturing agreements and may, at times, deviate substantially from the terms contained in them. In addition, key terms in our sales, licensing, purchasing and manufacturing agreements may be misunderstood or contested, even when both we and the other party previously believed that we had a mutual understanding of our obligations.

        Any differences in interpretation or misunderstandings between us and other parties may result in substantial costs and delays with respect to the manufacturing or sales of products incorporating our OLED technologies or materials, and may negatively impact our revenues and operating results. Product manufacturers may fail to produce products incorporating our OLED technologies or materials on the timeline or in the manner we anticipated, and their use of our OLED technologies or materials may differ from the terms upon which we had agreed. In addition, we may be unable to supply OLED materials of the quality or in the quantity demanded or required. We may suffer harm to our reputation in the OLED market from missed development goals or deadlines, and may be unable to capitalize upon market opportunities as a result. Resolution of these problems may entail costly and lengthy litigation or dispute resolution procedures. In addition, there is no guarantee that we will prevail in any such dispute or, if we do prevail, that any remedy we receive, whether legal or otherwise, will adequately redress the harm we have suffered. The delays and

20


Table of Contents

costs associated with such disputes may themselves harm our business and reputation and limit our ability to successfully compete in the OLED market going forward.

Many of our competitors have greater resources, which may make it difficult for us to compete successfully against them.

        Many of our competitors are larger, more developed companies. As a result, they often have greater resources, more money and better access to capital than we do, which may allow them to more effectively research, develop and commercialize OLED and other display and lighting technologies and materials. They may also be better situated to withstand economic downturns and slowdowns in the consumer electronics and lighting industries, and may find it easier to attract, train and retain key technical and management personnel. As a result of their larger size and longer operating histories, our competitors often have global development and marketing plans, and a longer history of successful product development than we do. If we cannot successfully compete against such companies, our business may fail.

        With respect to our OLED materials, the Dow Chemical Company, LG Chem, Duksan Hi Metal, Hodogaya Chemical Group and Doosan all offer OLED materials that directly compete with our host materials. Each of these companies is much larger than we are and has a longer operating history both within the OLED market as well as within the broader technology and chemical markets. Because their materials offer similar benefits with respect to stability, power efficiency and product lifetimes, product manufacturers may prefer to purchase OLED materials from these larger, more established suppliers. Further, due to their size and respective market positions, we may be unable to compete with these companies if they engage in aggressive marketing or price competition, or in protracted and costly litigation relating to intellectual property rights. Any such disruption may have a substantial negative impact on our business and revenues, and may cause our business to fail.

If we cannot obtain, maintain and defend appropriate patent and other intellectual property rights protection for our OLED technologies and materials, our business will suffer.

        To successfully exploit and develop our OLED technology and materials, we must obtain, maintain and defend, through litigation or otherwise, patents and other intellectual property rights on our current and future technology and materials developments. Such protections are one of our key competitive advantages in the OLED market, and allow us to generate revenues from the commercialization of our OLED technologies and materials. If we fail to protect our intellectual property rights, they may be exploited by other manufacturers, which may deprive us of future revenue streams and business growth. There is no guarantee that we will be able to secure patents or intellectual property rights in the future, or that the patents and intellectual property rights we currently have will be upheld as valid if challenged. Several of our patent applications have been challenged by other parties in the past, and in one case we are appealing a challenge that resulted in the revocation of our patent. Even if our current or future patents or other intellectual property are upheld as valid, we cannot guarantee that they will provide commercially adequate protection of our OLED technologies or materials.

        We attempt to obtain broad international intellectual property rights for our OLED technologies and materials. We may, however, decide not to apply for or fail to obtain adequate protection in all foreign countries in which our technologies or materials are used or sold. Even if our intellectual property rights are recognized as valid, our OLED technologies or materials may be exploited by manufacturers in countries where we do not have intellectual property rights or where we cannot successfully enforce the rights we do have. Any failure to obtain or inability to protect our intellectual property in a particular country or jurisdiction may result in lost revenues and growth opportunities or even complete loss of the intellectual property in question. In addition, as a result of challenges to our patents, the scope of our intellectual property in certain countries or

21


Table of Contents

jurisdictions may be narrowed, potentially to the point where our intellectual property is effectively lost. Any narrowing of our intellectual property may, depending on its importance to our business, substantially limit our ability to commercialize our OLED technologies and materials.

        As a result of our ongoing research and development, we anticipate developing technologies and materials applicable to OPVs, OTFTs and other organic electronics. In order to successfully commercially exploit these developments, we will have to obtain and defend patents and other intellectual property rights. Any failure to do so may substantially limit the commercial viability of our research and development in the field of organic electronics, and have a significant negative impact on our future growth opportunities.

        We own trademarks for certain of our products and brands in various jurisdictions. We have not, however, applied for or obtained trademark registrations for our products and brands in all or even all major OLED market jurisdictions. As a result, we may not have recourse against third parties which use our trademarks in such jurisdictions. Any such use may weaken the value of our current trademarks, prevent us from successfully applying for new trademarks in the future, or have a substantial negative impact on our reputation or business.

        We may rely on unpatented proprietary technology and information in the course of our business, including our proprietary database of OLED experimental and performance data. This technology and information may be developed independently by others, who may then challenge our use of it. Likewise, others may obtain access to our unpatented technology and information. Employees who leave our company often go to work for one of our competitors, and in the course of their employment with us, typically have access to important proprietary information which may or may not be protected by our intellectual property rights. Although we rely on confidentiality agreements to protect our trade secrets, know-how and other proprietary information, there is no guarantee that these agreements will provide sufficient protection in the case of any unauthorized use, misappropriation or disclosure of such information. Defending ourselves against any unauthorized use, misappropriation or disclosure of our trade secrets, know-how, and other proprietary information may result in lengthy and costly litigation or administrative proceedings and cause significant disruption to our business and operations. If we are unable to protect our proprietary technology and information, our business will suffer.

We may face substantial costs, disruption or loss of rights as a result of litigation related to others' use of our intellectual property.

        To defend our patents and intellectual property rights against their unauthorized use by others, we may be forced to engage in lengthy and costly court or administrative proceedings. Such proceedings may have a substantial negative impact on our operations and result in considerable expense to us. In addition, such proceedings may place our intellectual property at risk, and may cause substantial distraction to management and key employees.

        We have entered into an agreement with Thomson Licensing S.A. whereby we may allow Thomson Licensing to litigate as principal any intellectual property infringement claims we may have in exchange for a percentage of the recovery from such litigation. Should Thomson Licensing pursue any such claims, we cannot guarantee that it will be successful, or that it will pursue them effectively or efficiently. Any recovery we may receive under our agreement with Thomson Licensing may be insufficient to compensate us for the harm we have suffered. Further, by initiating litigation to defend our intellectual property rights, through Thomson Licensing or otherwise, we may risk the loss of our intellectual property as defendants may attempt to establish that our patents or other intellectual property are invalid or unenforceable. Any inability to defend our intellectual property may negatively impact our business and substantially impair our revenues and growth.

22


Table of Contents

The future growth of our business may expose our intellectual property to a high risk of counterfeiting or unauthorized use.

        As part of our business strategy, we intend to sell or license our OLED technologies and materials to display and lighting manufacturers in many different countries. As a result, we may do business with manufacturers in countries where intellectual property rights have been or are routinely disregarded, and the future growth of our business may expose our intellectual property to a high risk of counterfeiting or unauthorized use. Although we attempt to obtain broad international intellectual property rights for our OLED technologies and materials, we cannot guarantee that such rights, to the extent we can obtain them, will be enforceable in a timely fashion or at all in any particular country or jurisdiction, or that if enforced, will offer us adequate commercial protection or adequate redress for any harm suffered. Counterfeiting or unauthorized use of our OLED technologies or materials may also expose our business to harms for which no adequate monetary redress exists, and to the extent we are unable to stop such use, may cause us to lose rights with respect to intellectual property that is crucial to our business. Any such misuse of our intellectual property may have a substantial negative impact on our business and revenues, and may cause our business to fail.

We may face substantial costs, disruption or loss of rights as a result of litigation related to our use of the intellectual property of others.

        We may have to defend ourselves against claims that we have infringed on the intellectual property rights of others. Because patent applications in many countries are confidential before publication, we may be unaware of other companies' filings for patents on key intellectual property that we already use. Consequently, we may unintentionally infringe upon the intellectual property of others. We may also fail to discover relevant patents or other intellectual property rights that affect our business. Plaintiffs who assert their intellectual property rights against us may seek permanent or temporary injunctive relief. While defending ourselves, we may be unable to exploit our current or future OLED technologies or materials until the resolution of the dispute. As a result of these disputes, we may also lose rights to intellectual property that we believe we own, including intellectual property that is crucial to our business. Any such delay or loss may have a substantial negative impact on our business and revenues, and may cause our business to fail.

        We may also employ individuals who were previously employed at other technology companies, including companies active in the OLED industry. As a result, we may become involved in claims that our employees have misused or misappropriated trade secrets or other proprietary information that they received in the course of their previous employment. Defending ourselves against such claims may be costly and cause substantial disruption to our business and operations.

Use of our technology or materials may infringe on the intellectual property of others.

        As part of our business strategy, we have licensed and continue to license our technology, which we refer to as Novaled PIN OLED® technology, and sell our materials to display and lighting manufacturers. Depending on how they implement our technology and materials in their products, manufacturers may infringe on the intellectual property of others. Because we are often unaware of how our technology and materials are used, we cannot guarantee that use of our technology and materials does not intentionally or unintentionally infringe upon the intellectual property of others. We are currently aware of one patent which may, in certain circumstances, be infringed by the use of our Novaled PIN OLED® technology, although we are unaware of any such infringement having occurred. While we do not know whether this patent is valid or whether it would be upheld by courts if challenged, we are actively monitoring the situation.

23


Table of Contents

        Were they to infringe others' intellectual property, manufacturers which license our Novaled PIN OLED® technology or purchase our materials may have to pay a separate licensing fee in order to use our Novaled PIN OLED® technology or materials, and may have to cease their use of such technology or materials altogether. Any infringement claims brought against us or any manufacturer using our Novaled PIN OLED® technology or our materials may cause substantial disruption to our business and operations and expose us to liability vis-à-vis our customers. We may be unable to use, exploit or develop a substantial part of our Novaled PIN OLED® technology or our materials during the pendency of any proceeding involving the status of the intellectual property allegedly infringed by our technology or materials, and in the course of such proceeding, we may lose rights to intellectual property that is crucial to our business or suffer a weakening of our patent portfolio. Any such delay or loss may have a substantial negative impact on our business and revenues, and may cause our business to fail.

If we cannot retain or recruit qualified personnel as we grow, our business may fail.

        The development of our technology and materials requires highly qualified employees. We face international competition from other employers, research facilities and academic institutions and must compete to find, attract, develop and retain qualified personnel. Our employees often have particular technological knowledge that is difficult for us to replace, and competition for highly qualified management and technical personnel is also intensifying as our industry continues to grow. We offer a stock option plan designed to create long-term incentives for employees to remain with us. But because a substantial majority of the rights granted under the plan have already vested and our employees can keep their stock options if they leave our company, the long-term incentive effect of our existing stock option plan may be substantially limited. German law also significantly limits our ability to prevent our employees from working for our competitors for longer periods of time through non-compete or other agreements. As our competitors are often larger, more developed companies, we may be and remain at a competitive disadvantage in recruiting and retaining personnel. Any inability to attract, retain or replace key personnel could have a substantial negative impact on our operations, revenues and financial condition.

We are exposed to currency fluctuations, which may have an adverse effect on us.

        Our operating results may be adversely affected by fluctuations in exchange rates, especially between the euro and U.S. dollar. Because our contracts with display manufacturers are denominated in U.S. dollars and our financial results are reported in euros, currency exchange rate fluctuations may negatively impact our reported financial results. In addition, because we purchase supplies used in the production of our technologies and materials in euros, currency exchange rate fluctuations may also affect the profitability of our sales and licensing agreements with manufacturers outside the euro zone and thus our operating results. Any such changes or fluctuations in currency exchange rates may have a substantial negative impact on our business and revenues.

Because the vast majority of OLED display manufacturers are located in the Asia-Pacific region, our customer base is geographically concentrated.

        Our primary source of revenue is from the sales of our OLED materials to SMD and, to a lesser extent, LGD, both of which are located in South Korea. Because production for the display industry is based almost exclusively in Asia, nearly all other display manufacturers to which we are likely to license or sell our OLED technology or materials are also located in that region. These display manufacturers are all large manufacturers of electronic goods, and because of their geographical proximity are similarly exposed to economic, seasonal and cyclical fluctuations within the Asian markets. Because such fluctuations may affect our current or future purchasers or licensees at the

24


Table of Contents

same time, they may have a disproportionate negative impact on our revenues and financial performance. In the case of an extended economic downturn in the Asian financial markets or consumer electronics industries, we may be unable to identify alternative product manufacturers who are interested in purchasing or licensing our OLED technologies or materials, and our revenues may be substantially reduced. Further, for reasons of convenience or preference, the display manufacturers to which we sell or license our materials may decide, or may have already decided, to work with local materials suppliers instead of foreign materials suppliers in the future. Political and legal developments in the Asia-Pacific region may also limit our ability to conduct business there, or decrease our attractiveness to local companies as a source of OLED technology and materials. We cannot guarantee that any of our current or future materials purchasers will be able or willing to continue working with us in the future, and any such change may substantially limit our ability to sell or license our OLED technologies or materials.

        The geographic clustering of display manufacturers may also expose us to substantial risk with respect to natural or manmade disasters or other disruptions in the Asia-Pacific region. Such disasters and disruptions may have a substantial negative impact on our ability to commercialize our OLED technology and materials by impairing many of our current or future manufacturing purchasers or licensees at the same time. Any such changes may have a substantial negative impact on our business and revenues, and may cause our business to fail.

We rely on our information technology systems, including systems provided by third parties, to conduct our business.

        We rely on our own information technology, or IT, systems to manage our business data, communications and computing needs efficiently. Our IT systems are also used to conduct research and development, manage our inventory, maintain our proprietary database of OLED experimental and performance data and other business processes. We also rely on the IT systems provided by third parties, for much of our networking and other IT infrastructure. If we are not able to effectively manage our IT infrastructure internally, it may have an adverse impact on our business. Should these systems not operate as intended, our ability to transact business would be significantly impaired. In addition, our IT systems are vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, power loss, hacker attacks, computer systems failure and viruses. The failure of our IT systems to perform as we anticipate could disrupt our business and could result in decreased sales or increased costs, causing our business and results of operations to suffer. In addition, flaws in our security systems could result in data misuse, which could damage our reputation and have an adverse effect on our business.

Impairment of our deferred tax assets could result in significant charges that would adversely impact our future operating results.

        As of December 31, 2011, we had operating tax loss carry-forwards of approximately €8.3 million that had been capitalized in our financial statements as deferred tax assets. To the extent that the utilization of tax loss carry-forwards is restricted or tax loss carry-forwards are forfeited, such tax loss carry-forwards cannot be set off against future taxable profits which may negatively impact our financial results and result in significant additional charges. In addition, any such restriction may require a write-down of the deferred tax assets in our financial statements.

        Under German law, use of our tax loss carry forwards is restricted in two ways. First, we may only use our tax loss carry forwards to offset up to €1 million in taxable income without restriction. At least 40% of our taxable income over €1 million must remain subject to taxation. Second, German law restricts our ability to use our tax loss carry forwards if there is a change in ownership of our company. We will lose our tax loss carry forwards on a pro rata basis in case of an aggregate change of ownership of 25% to 50% of the shares of our company within five years. If

25


Table of Contents

more than 50% of the shares of our company are transferred within five years, all of our tax loss carry forwards will be lost.

We may be required to pay additional taxes following tax audits.

        We are subject to routine tax audits by various tax authorities. The most recent tax audit in Germany related to the fiscal years up to and including 2008. Future tax audits may result in additional tax and interest payments which would negatively affect our financial condition and operating results. Changes in fiscal regulations or the interpretation of tax laws by the courts or the tax authorities may also have a substantial negative impact on our business.

Health and safety regulations in Germany and in the countries where our OLED technologies and materials are licensed or sold may prevent the sale or use of our technologies or materials in the future.

        We are subject to a variety of regulations regarding worker health and safety, both in our home country Germany and in the countries where our OLED technologies and materials are sold or licensed. Because our OLED technologies and materials frequently involve the manufacture or use of certain chemical compounds, we are required to certify their safety for industrial use and development in a variety of countries and contexts. As there has not been sufficient testing to determine the long-term health and environmental risks of all of the materials used in the production of OLEDs or OLED products, future regulations may ban the use of our materials due to the potential risk they pose to workers or may limit the use of our materials in research and commercial settings. Any such regulations may have a substantial negative impact on our business and revenues, and may cause our business to fail. Because we cannot guarantee the long-term safety of use or exposure to our materials, we may face liability for health risks or harms caused as a result of manufacturing or other processes that use our materials. Any such claims may have a negative impact on our revenues and may prove substantially disruptive to our business in the future.

        In addition, under the European Union regulation on classification, labeling and packaging of substances and mixtures, or CLP, we may be required to publicly disclose the chemical composition of our proprietary materials, which may facilitate infringement or avoidance of our intellectual property by materials manufacturers and potentially reduce the margin we are able to charge for our products by allowing product manufacturers to more accurately determine our production costs. We are closely following the development of the CLP regulation in order to determine its impact on our business, and any such developments may have a negative impact our revenues and a substantial negative impact on our business.

Risks Related to the Securities Markets and Ownership of Shares and ADSs

There has been no prior market for our ADSs and an active and liquid market for our securities may fail to develop, which could adversely affect the market price of our ADSs.

        Our ADSs will be a new issue of securities. Prior to the offering described in this prospectus, there has not been a public market for our ordinary shares or ADSs. Although we expect that our ADSs will trade on the New York Stock Exchange, or NYSE, or the Nasdaq Stock Market, or NASDAQ, we cannot assure you that an active public market for our securities will develop or be sustained after this offering. If an active market for our ADSs does not develop after the offering, the market price and liquidity of our ADSs may be adversely affected.

26


Table of Contents

The price of our ADSs may fluctuate significantly and our securities may trade below the initial public offering price, which may make it difficult for you to sell our ADSs when you want or at prices you find attractive.

        The initial public offering price of our ADSs will be determined by negotiations between us and representatives of the underwriters, based on numerous factors that we discuss under "Underwriting." This price may not be indicative of the market price of our securities after this offering. We cannot guarantee that you will be able to resell your ADSs at or above the initial public offering price or our net asset value. Stock markets have experienced extreme volatility in recent years that has often been unrelated to the operating performance of a particular company or industry. These broad market fluctuations may adversely affect the trading price of our securities, limiting your ability to sell our ADSs.

Future sales of our ADSs by existing shareholders, the anticipation of future sales of our ADSs in the public market or private transactions, or speculation to this effect, may adversely affect the trading price of our ADSs.

        Upon completion of this offering, our current shareholders will hold a         % equity interest in our company, assuming that the underwriters' option to purchase additional shares is not exercised. Our shareholders have agreed not to sell or transfer any of the remaining shares they hold without the consent of each of the joint bookrunners until 180 days after the date of our initial public offering. Sales of a substantial number of the shares of our company by our current shareholders, either in the public market or in private transactions, or the perception that such sales may occur, could adversely affect the market price of the shares and ADSs and our ability to raise capital through subsequent offerings of equity or equity-related securities.

Exchange rate fluctuations may reduce the amount of U.S. dollars you receive in respect of any dividends or other distributions we may pay in the future in connection with your ADSs.

        Under German law, the determination of whether we have been sufficiently profitable to pay dividends is made on the basis of the unconsolidated annual financial statements of Novaled AG prepared under the German Commercial Code (Handelsgesetzbuch) in accordance with accounting principles generally accepted in Germany, which we refer to as German GAAP. Exchange rate fluctuations may affect the amount of euro that we are able to distribute, and the amount in U.S. dollars that our shareholders receive upon the payment of cash dividends or other distributions we declare and pay in euro, if any. Such fluctuations could adversely affect the value of our ADSs, and, in turn, the U.S. dollar proceeds that holders receive from the sale of our ADSs.

We have no present intention to pay dividends on our ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of our ADSs appreciates.

        We have no present intention to pay dividends on our ordinary shares in the foreseeable future. Any recommendation by our management board and supervisory board to pay dividends will depend on many factors, including our financial condition, results of operations, legal requirements and other factors. Accordingly, if the price of our ADSs declines in the foreseeable future, you will incur a loss on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.

You may not be able to exercise your right to vote the ordinary shares underlying your ADSs.

        Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by our ADSs only in accordance with the provisions of the deposit agreement. The deposit agreement

27


Table of Contents

provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will, as soon as practicable thereafter, fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, the depositary shall distribute to the holders as of the record date (i) the notice of the meeting or solicitation of consent or proxy sent by us, (ii) a statement that such holder will be entitled to give the depositary instructions and a statement that such holder may be deemed, if the depositary has appointed a proxy bank as set forth in the deposit agreement, to have instructed the depositary to give a proxy to the proxy bank to vote the ordinary shares underlying the ADSs in accordance with the recommendations of the proxy bank and (iii) a statement as to the manner in which instructions may be given by the holders.

        You may instruct the depositary of your ADSs to vote the ordinary shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote unless you withdraw our ordinary shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares. The depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver voting materials to you. We cannot guarantee that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote, and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested.

        Under the deposit agreement for the ADSs, we may choose to appoint a proxy bank. In this event, the depositary will be deemed to have been instructed to give a proxy to the proxy bank to vote our ordinary shares underlying your ADSs at shareholders' meetings if you do not vote in a timely fashion and in the manner specified by the depositary.

        The effect of this proxy is that you cannot prevent our ordinary shares representing your ADSs from being voted, and it may make it more difficult for shareholders to influence the management of our company, which could adversely affect your interests. Holders of our ordinary shares are not subject to this proxy.

You may not receive distributions on our ordinary shares represented by our ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

        The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

You may be subject to limitations on the transfer of your ADSs.

        Your ADSs, which may be evidenced by ADRs, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any

28


Table of Contents

requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason.

We will be subject to substantial additional regulatory compliance requirements, including internal control over financial reporting requirements under Section 404 of the Sarbanes-Oxley Act of 2002, as a result of becoming a public company in the United States.

        We have never operated as a public company in the United States or elsewhere and will incur significant legal, accounting and other expenses that we did not incur as a private company in Germany. We will need to strengthen our internal policies and procedures in a range of areas in order to match the standards expected of public companies. Our management team and other personnel will have to devote substantial time to new compliance initiatives, and we may not successfully or efficiently manage our transition into a U.S. public company.

        In addition, we expect that the rules and regulations which are applicable to public companies in the United States, such as the Sarbanes-Oxley Act of 2002, will increase our legal and finance compliance costs considerably and will make some activities more time-consuming and costly. We may need to hire additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a U.S. public company. We are in the process of documenting and evaluating our internal control systems to allow management to report on, and our independent registered public accounting firm to assess, our internal control over financial reporting. We will be performing the system and process evaluation and testing, and any necessary remediation, required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We are first required to comply with Section 404 when filing our annual report in 2014 for the fiscal year ending December 31, 2013. We cannot be certain, however, as to the timing of completion of our evaluation, testing and remediation actions or the impact of these actions on our operations.

        We may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board rules and regulations as we continue the evaluation process. Remediation of any significant deficiencies or material weaknesses could require us to incur significant costs and expend significant time and management resources. We cannot assure you that any of the measures we may implement to remedy any such deficiencies will effectively mitigate or remedy such deficiencies. If we fail to comply with the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory agencies such as the SEC. In addition, failure to comply with Section 404 or to report a material weakness may cause investors to lose confidence in our financial statements and the trading price of our ADSs may decline. If we fail to fully establish and maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud, which could have a negative effect on the trading price of our ADSs and our future access to capital.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company.

        We are a "foreign private issuer," as defined in the SEC's rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our management board and supervisory board members are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we expect to submit quarterly interim

29


Table of Contents

financial data to the SEC under cover of the SEC's Form 6-K, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less information concerning our company publicly available than there is for other U.S. public companies.

As a foreign private issuer, we are not subject to certain NASDAQ and NYSE corporate governance rules applicable to U.S. listed companies.

        In connection with this offering, we will be relying on provisions in the Nasdaq Listing Rules or the NYSE Listed Company Manual that allow us to follow German corporate law and the German Corporate Governance Code with regard to certain aspects of corporate governance. This allows us to follow certain corporate governance practices that differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on NASDAQ or NYSE.

        In accordance with our NASDAQ or NYSE listing, our Audit Committee is required to comply with the provisions of Section 301 of the Sarbanes-Oxley Act of 2002 and Rule 10A-3 of the Exchange Act, both of which are also applicable to NASDAQ- or NYSE-listed U.S. companies. Because we are a foreign private issuer, however, our Audit Committee is not subject to additional NASDAQ or NYSE requirements applicable to listed U.S. companies.

        Furthermore, the Nasdaq Listing Rules and the NYSE Listed Company Manual require listed U.S. companies to, among other things, seek shareholder approval for the implementation of certain equity compensation plans and issuances of common stock. Under applicable German laws, shareholder approval is required for all amendments to our articles of association, capital increases (including the creation of authorizations for the management board to issue shares in the future), capital decreases, the exclusion of preemptive rights in connection with capital increases, the issue of convertible bonds or bonds with warrants attached, certain corporate measures (including the execution of inter-company agreements (Unternehmensverträge), the merger with another company or other corporate transformations), authorization to repurchase our own shares (subject to certain statutory exceptions), and other essential actions, such as the transfer of all or virtually all of our assets. We may not, however, be required to seek shareholder approval for issuances of shares in some circumstances in which a listed U.S. company would be required to do so under the Nasdaq Listing Rules or the NYSE Listed Company Manual, such as an acquisition of another company in exchange for shares representing more than 20% of our shareholders' voting power, if we use previously authorized capital for the acquisition.

Your rights as a shareholder in a German corporation may differ from your rights as a shareholder in a U.S. corporation.

        We are organized as a stock corporation (Aktiengesellschaft) under the laws of Germany, and by participating in the offering you will become a holder of ADSs with underlying shares in a German stock corporation. You should be aware that the rights of shareholders under German law differ in important respects from those of shareholders in a U.S. corporation. These differences include, in particular:

    Under German law, certain important resolutions, such as resolutions relating to changes in the articles of association of a German corporation, any increases or decreases in a German corporation's share capital, the issuance of convertible bonds or bonds with warrants attached and the dissolution of the German stock corporation apart from insolvency and certain other proceedings, require a 75% majority of the votes present or represented at the relevant shareholders' meeting. Therefore, the holder or holders of a blocking minority of 25% or, depending on the attendance level at the shareholders' meeting, the holder or holders of a smaller percentage of the shares in a German stock corporation may be able to

30


Table of Contents

      block any such votes, possibly to the detriment of the German stock corporation and to other shareholders.

    As a general rule under German law, a shareholder has no direct recourse against the members of the management board or supervisory board of a German stock corporation in the event that it is alleged they have breached their duty of loyalty or duty of care to the German stock corporation. Apart from insolvency or other special circumstances, only the German stock corporation itself has the right to claim damages from members of either board. A German stock corporation may waive or settle these damages only if at least three years have passed and the shareholders approve the waiver or settlement at the shareholders' meeting with a simple majority of the votes cast, provided that a minority holding, in the aggregate, 10% or more of the German stock corporation's share capital does not have their opposition formally noted in the minutes maintained by a German civil law notary.

        For more information, we have provided summaries of relevant provisions of German law and of our articles of association under "Directors, Senior Management and Employees" and "Description of Share Capital."

31


Table of Contents


FORWARD-LOOKING STATEMENTS

        This prospectus, including particularly the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Our Company," contains forward-looking statements. These forward-looking statements include statements regarding our financial position, our expectations concerning future operations, margins, profitability, liquidity and capital resources, our business strategy and other plans and objectives for future operations, and all other statements that are not historical fact. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "thinks," "estimates," "seeks," "predicts," "views," "potential," "likely" and similar expressions.

        Examples of forward-looking statements include statements concerning:

    the commercial applications of and future demand for our OLED technologies and materials, our skills and knowledge and OLED products generally;

    the successful commercialization of products incorporating our OLED technologies and materials by manufacturers, and their continued willingness to use our OLED technologies and materials;

    our ability to form and maintain business relationships with manufacturers of OLED and organic electronics products;

    our ability to supply sufficient high-quality materials to meet current and future demand for our technology and materials;

    the advantages and disadvantages of our OLED and organic electronics technologies and materials as compared to current or future competing technologies or materials;

    the outcomes of our ongoing and future research and development activities, and those of others, relating to OLED and organic electronics technologies and materials;

    the nature and potential advantages or disadvantages of any competing technologies that may be developed in the future;

    commercial growth and technological change in the flat panel display, lighting and organic electronics markets;

    the commercial adequacy of the protections afforded to us by the patents we own, and the cost and feasibility of obtaining, maintaining, enforcing and defending our current and future patents;

    our ability to protect our non-patented intellectual property and proprietary knowledge;

    our exposure to and ability to withstand third-party claims and challenges to our patents and other intellectual property rights;

    our future technology licensing, materials sales and consulting revenues and results of operations;

    the terms and anticipated results of our current and future contracts, agreements or partnerships;

    our plans, objectives and expectations with respect to future operations, revenues and expenditures;

    our ability to compete against third parties with greater resources and experience;

    the impact of exchange rate fluctuations; and

32


Table of Contents

    general economic and market conditions.

        Although we believe that these statements are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected, including, but not limited to:

    our ability to manage our relationships with product manufacturers and our materials suppliers;

    our ability to successfully research and develop new technologies and materials;

    the commercial viability of OLED and organic electronics technology and materials;

    the development of new, alternative or disruptive technologies or materials in the flat panel display, lighting or organic electronics markets;

    our ability to attract and retain sufficiently skilled employees, including skilled employees who are critical to the success of our business;

    negative worldwide economic conditions and ongoing instability and volatility in the worldwide financial markets;

    cyclical or seasonal slowdowns in the consumer electronics markets;

    our ability to handle our ongoing obligations as a U.S. public company;

    fluctuations of our operating results due to the effect of exchange rates or other factors; and

    the other factors listed under "Risk Factors" and elsewhere in this prospectus.

        Those factors, among others, could cause our actual results and performance to differ materially from the results and performance projected in, or implied by, the forward-looking statements. As you read and consider this prospectus, you should understand that the forward-looking statements are not guarantees of performance or results.

        These factors expressly qualify all subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. Except as required by law, we do not have any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

        In addition, this prospectus contains information concerning our industry that is forward-looking in nature and is based on a variety of assumptions regarding the ways in which the display, lighting and organic electronics markets will develop. These assumptions have to some extent been derived from market research and industry reports referred to in this prospectus, as well as from good faith estimates based on our internal information and the external sources we describe above.

33


Table of Contents


MARKET, INDUSTRY AND OTHER DATA

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our products and services. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates.

        In particular, we have relied upon DisplaySearch and NanoMarkets, two independent market research companies, as sources of information concerning the industry and the market in which we operate. We have not independently verified any third-party information and cannot assure you of its accuracy or completeness. While we believe the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and elsewhere in this prospectus. These and other factors could cause industry, market and other developments to differ materially from those expressed in the estimates made by third parties and by us.

34


Table of Contents


PRESENTATION OF FINANCIAL AND OTHER INFORMATION

        Our financial statements are prepared in accordance with IFRS as issued by the IASB and are expressed in euro, the single currency of the participating member states in the Third Stage of the European Economic and Monetary Union, or EMU, of the Treaty Establishing the European Community, as amended from time to time. In this prospectus, references to "dollars," "$" or "USD" are to U.S. dollars and references to "euro," "€" or "EUR" are to euro. The noon buying rate of the Federal Reserve Bank of New York for the euro on March 9, 2012 was €1.00 = $1.3108. Unless otherwise specified, we have used this rate for translations related to this offering that are calculated in this prospectus.

35


Table of Contents


USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately $              million, after deducting the underwriting discount and the estimated offering expenses payable by us. These estimates are based upon an assumed initial offering price of $             per ADS, the midpoint of the initial offering price range set forth on the front cover page of this prospectus.

        We will not receive any of the proceeds from sales of ADSs by the selling shareholders identified in this prospectus in connection with the exercise by the underwriters of the over-allotment option to purchase additional ADSs from such selling shareholders.

        The principal purposes of this offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our ADSs. Creating a public market for our ADSs will facilitate our ability to raise additional equity in the future and to use our ADSs as a means of attracting and retaining key employees and as consideration for acquisitions.

        As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including research and development, working capital, sales and marketing activities and capital expenditures.

        We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, intellectual property, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments.

        In anticipation of this offering, we intend to terminate the silent participation of tbg Technologie-Beteiligungs-Gesellschaft mbH, or tbg, in our company subject to the closing of this offering. In connection with the termination, tbg's equity contribution of €750,000 for the silent participation, together with interest and surcharges in an amount to be determined, would be paid to tbg shortly after the closing of this offering. For more information on tbg's silent participation, see "Description of Share Capital — Silent Participation."

        We will have broad discretion over the uses of the net proceeds from this offering. The amounts that we actually spend for the purposes described above may vary significantly and will depend, in part, on the timing and amount of our future revenues, our future expenses and any potential acquisitions that we may propose.

36


Table of Contents


DIVIDEND POLICY

        We have never declared or paid any cash dividends on our ordinary shares and have no present intention of declaring or paying any dividends in the foreseeable future. Any recommendation by our management and supervisory board to pay dividends will depend on many factors, including our financial condition, results of operations, legal requirements, capital requirements, business prospects and other factors.

        All of the shares represented by the ADSs offered by this prospectus will have the same dividend rights as all of our other outstanding shares. Any distribution of dividends proposed by our management board requires the approval of our shareholders in a shareholders' meeting. See "Description of Share Capital" which explains in more detail the procedures we must follow and the German law provisions that determine whether we are entitled to declare a dividend.

        For information regarding the German withholding tax applicable to dividends and related United States refund procedures, see "Taxation — German Taxation of ADSs."

37


Table of Contents


EXCHANGE RATES

        Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar amounts received by owners of our ADSs on conversion of dividends, if any, paid in euro on the ordinary shares and will affect the U.S. dollar price of our ADSs on the             . The table below shows the average and high and low exchange rates of U.S. dollars per euro for the periods shown. Average rates are computed by using the noon buying rate of the Federal Reserve Bank of New York for the euro on the last business day of each month during the period indicated.

Year Ended December 31,
  Average  

2007

    1.3797  

2008

    1.4705  

2009

    1.3956  

2010

    1.3220  

2011

    1.4002  

        The table below shows the recent high and low exchange rate for the U.S. dollar per euro.

Month
  High   Low  

September 2011

    1.4283     1.3446  

October 2011

    1.4172     1.3281  

November 2011

    1.3803     1.3244  

December 2011

    1.3487     1.2926  

January 2012

    1.3192     1.2682  

February 2012

    1.3463     1.3087  

        The noon buying rate of the Federal Reserve Bank of New York for the euro on March 9, 2012 was €1.00 = $1.3108.

38


Table of Contents


CAPITALIZATION

        The following table sets forth our capitalization as of December 31, 2011:

    on an actual basis; and

    on an as-adjusted basis to reflect, in addition, the sale by us of             ADSs in this offering at an assumed initial public offering of $             per ADS and the midpoint of the price range listed on the cover page of this prospectus after deducting underwriting discounts and estimated offering expenses payable by us.

 
  As of December 31, 2011  
 
  Actual   As Adjusted  
 
  (€ in thousands, unaudited)
 

Total non-current liabilities

    1,647        

Thereof guaranteed

    0        

Thereof secured

    534        

Thereof unguaranteed/unsecured

    1,113        

Total liabilities

    5,360        
           

Equity

    15,142        
           

Thereof share capital

    6,099        

Thereof capital reserves

    28,104        

Thereof retained earnings

    (19,061 )      
           

Total capitalization

    20,502        
           

39


Table of Contents


DILUTION

        If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and the net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ADS is substantially in excess of the net tangible book value per ADS attributable to our existing shareholders for our ordinary shares that will be outstanding immediately prior to the closing of this offering. We calculate net tangible book value per ordinary share by dividing the net tangible book value (total assets less intangible assets and total liabilities) by the number of outstanding ordinary shares. For purposes of illustration, the following discussion assumes that all of our outstanding shares both before and after the offering are in the form of ADSs, each representing                  of an ordinary share. Dilution is determined by subtracting net tangible book value per ADS from the assumed initial public offering price per ADS.

        Our net tangible book value as of             was $             , or $             per ADS. After giving effect to the above-referenced adjustment and the sale by us of our ADSs in this offering at an assumed initial public offering price of $             per ADS, the midpoint of the price range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and estimated offering expenses payable by us, our pro forma as-adjusted net tangible book value as of             , would have been approximately $             , or $             per ADS. This amount represents an immediate increase in our pro forma as-adjusted net tangible book value of $             per ADS to our existing shareholders and an immediate dilution of $             per ADS to new investors purchasing our ADS in this offering at the initial public offering price.

        The following table illustrates this dilution per ADS:

 
  Per ADS
 
  (in $)

Assumed initial public offering price

   

Net tangible book value before the change attributable to new investors

   

Increase in net tangible book value attributable to new investors

   

Pro forma net tangible book value after this offering

   

Dilution to new investors

   

        A $1.00 increase (decrease) in the assumed initial public offering price of $             per ADS would increase (decrease) our pro forma net tangible book value after this offering by ADS by $             per ADS and the dilution to new investors by $             per ADS, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts payable by us.

        The following table summarizes, on a pro forma as adjusted basis as of                          , after giving effect to options exercisable as of                          and this offering on an assumed initial public offering price of $             per ADS, which is the midpoint of the range reflected on the cover page of this prospectus, the difference between existing shareholders and new investors with respect to the number of ADSs purchased from us in transactions during the past five years or

40


Table of Contents

granted by us, the total cash consideration paid to us and the average price per ADS paid, before deducting estimated underwriting discounts and estimated offering expenses:

 
  ADSs Purchased   Total Consideration    
 
  Average Price
per ADS
 
  Number   Percent   Amount   Percent
 
   
  (in %)
  (in $)
  (in %)
  (in €)

Existing shareholders

                   

New investors

                   
                     

Total

      100.0       100.0    
                     

        A $1.00 increase (decrease) in the assumed initial public offering price of $             per ADS would increase (decrease) total consideration paid by new investors by $              million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts payable by us.

        Sales of ADSs by the selling shareholders in our initial public offering will reduce the number of ADSs held by existing stockholders to                    , or approximately         % of the total ADSs outstanding after our initial public offering, and will increase the number of shares held by new investors to                    , or approximately         % of the ADSs outstanding after our initial public offering.

        If the underwriters exercised their option to purchase additional shares in full, our existing stockholders would own         % and our new investors would own         % of the total number of ADSs outstanding after our initial public offering.

        To the extent that we grant options or other equity awards to our employees or members of our management board in the future, and those options or other equity awards are exercised or become vested or other issuances of shares of our ordinary shares are made, there will be further dilution to new investors.

41


Table of Contents


SELECTED FINANCIAL DATA

        The following table presents selected financial data for the periods indicated. Financial data as of and for the years ended December 31, 2009, 2010 and 2011 were derived from our financial statements for these years. Our financial statements, which we have prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, have been audited and are included elsewhere in this prospectus. We have not provided selected financial data for 2008 and 2007 because to do so would have entailed unreasonable effort and expense.

        The following table also contains translations of euro amounts into U.S. dollars as of and for the year ended December 31, 2011. These translations are solely for the convenience of the reader and were calculated at the rate of €0.7708=$1.00, as reported by the Federal Reserve Bank of New York on December 30, 2011. You should not assume that, on that or any other date, one could have converted these amounts of euro into dollars at that or any other exchange rate.

 
  As of and for the year ended December 31,  
 
  2009   2010   2011   2011  
 
  (in thousands except for share and per-share data)
 
 
         
 
 
  $
 

Selected Statement of Operations Data:

                         

Revenue

    6,426     6,856     17,405     22,580  

Cost of sales

    (1,403 )   (2,958 )   (8,743 )   (11,343 )

Thereof cost of sales of materials

    (895 )   (1,909 )   (5,158 )   (6,692 )

Thereof research and development(1)

    (508 )   (1,048 )   (3,584 )   (4,650 )
                   

Gross profit

    5,023     3,898     8,662     11,237  

Sales and marketing expenses

    (989 )   (1,256 )   (1,478 )   (1,917 )

Administrative expenses

    (2,580 )   (2,863 )   (4,090 )   (5,306 )

Research and development expenses(2)

    (2,620 )   (1,981 )   (1,633 )   (2,119 )

Other income

    79     128     545     707  

Other expenses

    (72 )   (138 )   (337 )   (437 )
                   

Results from operating activities

    (1,159 )   (2,212 )   1,669     2,165  

Finance income

    55     45     29     38  

Finance costs

    (191 )   (144 )   (480 )   (623 )

Net finance costs

    (136 )   (99 )   (451 )   (585 )
                   

Profit or loss before tax

    (1,295 )   (2,311 )   1,218     1,580  

Tax income(3)

    0     0     2,375     3,081  
                   

Profit and total comprehensive income

    (1,295 )   (2,311 )   3,593     4,661  

Earnings per share (undiluted)

   
(0.25

)
 
(0.39

)
 
0.60
   
0.78
 

Earnings per share (diluted)(4)

    (0.25 )   (0.39 )   0.60     0.78  

Weighted average shares used to compute earnings per share (undiluted)

   
5,271,424
   
5,915,977
   
5,971,412
   
5,971,412
 

Weighted average shares used to compute earnings per share (diluted)

    5,271,424     5,915,977     5,980,968     5,980,968  

Selected Cash Flow Data:

                         

Net cash generated by/(used in) operating activities

    (2,724 )   (1,015 )   1,979     2,566  

Net cash used in investing activities

    24     (783 )   (1,112 )   (1,443 )

Net cash provided by financing activities

    4,128     3,005     638     827  

Selected Balance Sheet Data:

                         

Cash and cash equivalents

    2,253     3,468     5,024     6,518  

Total assets

    12,763     13,433     20,502     26,598  

Total current liabilities

    2,335     2,162     3,713     4,816  

Total non-current liabilities

    2,483     1,298     1,647     2,137  

Total equity

    7,945     9,973     15,142     19,645  

42


Table of Contents


(1)
Research and development expenses associated with customer-sponsored research and development projects are included in cost of sales under IFRS. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, we did not separately track our costs for internal and customer-sponsored research and development projects in 2009, 2010 and 2011. As a result, the costs of our non-publicly funded internal research and development projects are included in our cost of sales for these periods. We anticipate that our research and development costs for all internal projects, whether publicly funded or not, will be included in our research and development expenses going forward.

(2)
Our research and development expenses for 2009, 2010 and 2011 consist solely of the unfunded costs of our publicly funded internal research and development projects. Under IFRS, any public funding we receive for our internal research and development projects must be netted against our research and development costs for reporting purposes. In 2009, 2010 and 2011, we recognized income from publicly-funded research and development projects of €2.8 million, €2.6 million and €2.2 million, respectively.

(3)
We had no current or deferred tax income in 2009 and 2010 due to the tax losses we incurred in those years. In addition, we did not recognize deferred tax assets in respect of our tax loss carry forwards in 2009 and 2010 because we had only generated losses in the prior years. Because we generated a profit in 2011 and currently anticipate generating profits going forward, we recognized a deferred tax asset in respect of our tax loss carry forwards in 2011 and thus realized a one-time gain in tax income of €2.6 million which, when netted against our deferred tax liabilities of €0.2 million, resulted in tax income of €2.4 million in this period.

(4)
For 2009 and 2010, diluted earnings per share were equal to undiluted earnings per share because potentially dilutive securities were excluded from the diluted earnings per share calculations due to their anti-dilutive effects resulting from the losses in both years. As of December 31, 2011, a total of 130,140 options had been issued under our various stock option plans. The diluted earnings per share calculation in 2011 excluded 117,540 of these options because certain performance conditions attached to these options had not been fulfilled as of December 31, 2011. The remaining 12,600 options were included in the diluted earnings per share calculation for 2011. The warrants issued to SVIC in 2011 in connection with its initial investment in our company, see "Related Party Transactions — Samsung Warrants," did not result in a dilutive impact in 2011, and there were no additional issuances of potentially dilutive securities.

Other Financial and Operational Data

Adjusted Total Comprehensive Income

        Adjusted total comprehensive income is an unaudited non-GAAP financial measure which our management uses to monitor our operational performance. We define "adjusted total comprehensive income" as total comprehensive income, as determined under IFRS, adjusted to exclude share-based compensation expenses and tax income. The following table shows our adjusted total comprehensive income for the periods under review:

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Total comprehensive income

    (1,295 )   (2,311 )   3,593  

Share-based compensation expense(1)

    779     145     531  

Tax income

    0     0     (2,375 )
               

Adjusted total comprehensive income

    (516 )   (2,166 )   1,749  
               

(1)
Our share-based compensation expenses for 2009, 2010 and 2011 include both employee and non-employee related share-based compensation expenses. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Critical Accounting Policies — Share-Based Compensation."

43


Table of Contents

Adjusted Total Research and Development Expenses

        Adjusted total research and development expenses is an unaudited non-GAAP financial measure which our management uses to monitor our total spending associated with internal and customer-sponsored research and development projects. We define "adjusted total research and development expenses" as our research and development expenses, as determined under IFRS, adjusted to include income from publicly funded internal research and development projects, which are netted against our research and development costs for reporting purposes under IFRS, and to include the portion of our cost of sales related to research and development projects. The following table shows our adjusted total research and development expenses for the periods under review:

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Research and development expenses

    (2,620 )   (1,981 )   (1,633 )

Add: income from publicly-funded R&D projects(1)

    (2,796 )   (2,625 )   (2,152 )

Add: cost of sales related to R&D projects(2)

    (508 )   (1,048 )   (3,584 )
               

Adjusted total research and development expenses

    (5,924 )   (5,654 )   (7,369 )
               

(1)
Our research and development expenses for 2009, 2010 and 2011 consist solely of the unfunded costs of our publicly funded internal research and development projects. Under IFRS, any public funding we receive for our internal research and development projects must be netted against our research and development costs for reporting purposes.

(2)
Research and development expenses associated with customer-sponsored research and development projects are included in cost of sales under IFRS. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, we did not separately track our costs for internal and customer-sponsored research and development projects in 2009, 2010 and 2011. As a result, the costs of our non-publicly funded internal research and development projects are included in our cost of sales for these periods. We anticipate that our research and development costs for all internal projects, whether publicly funded or not, will be included in our research and development expenses going forward.

44


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with, our audited annual and unaudited interim financial statements and the accompanying notes and other financial information included elsewhere in this prospectus. We have prepared our financial statements in accordance with IFRS as issued by the IASB.

        This discussion contains forward-looking statements. Statements that are not statements of historical fact, including expressions of our beliefs and expectations, are forward-looking in nature and are based on current plans, estimates and projections. Forward-looking statements are applicable only as of the date they are made. Except for any ongoing obligation to disclose material information as required by the U.S. federal securities laws, we do not have any intention or obligation to update forward-looking statements after we distribute this prospectus. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause our actual results or outcomes to differ materially from those expressed in any forward-looking statement. These factors include those identified under the headings "Risk Factors" and "Forward-Looking Statements."

Overview

        We are a leader in the research, development and commercialization of technologies and materials that enhance the performance of OLEDs. OLEDs are solid-state devices composed of multiple thin layers of organic materials, collectively known as the OLED stack, that emit light when electricity is applied to them. Through our unique combination of organic conductivity doping technology, proprietary materials and OLED stack development expertise, we offer OLED display and lighting manufacturers customized solutions to optimize the performance, power efficiency, stability and lifetime of their products while decreasing their manufacturing complexity and cost. We are currently the only company licensing and selling organic conductivity doping technology and materials for use in the commercial mass production of FPDs in the OLED industry.

        The market for OLED products is growing rapidly. OLED displays are capturing an increasing share of the FPD market due to their superior image quality, increased power efficiency and thinner, lighter form factor as compared to existing LCD and PDP technologies. Small-sized OLED displays have achieved significant penetration in the smartphone market, and medium-sized OLED displays are being introduced in tablet PCs. Samsung Electronics and LG Electronics have recently announced plans to launch large-sized OLED televisions for the high-end consumer market. Commercial interest in OLED lighting products is also strong because the ability of OLED devices to efficiently produce diffuse, homogenous light from a flat, thin surface creates new opportunities in lighting installation and design. Philips, for example, has recently confirmed its intention to offer decorative and performance lighting products based on OLED technology. According to DisplaySearch, OLED displays are expected to grow from a $1.6 billion global market in 2010 to a $25.5 billion market in 2018 at a CAGR of 41%. We estimate that the nascent OLED lighting market will develop into at least a $3.5 billion global market by 2018. In addition, DisplaySearch and NanoMarkets project that the OLED lighting market will develop into a $6 and $9.9 billion global market, respectively, over the same period.

        We were founded in 2001 as a spin-off from the Technical University and the Fraunhofer Institute in Dresden, Germany, with an initial focus on research and development in the field of applied optoelectronics, in particular developing technologies and materials to enhance the performance, power efficiency, stability and lifetimes of OLEDs. We commenced operations in 2003 and as a result of our research success, including the ongoing development of our organic

45


Table of Contents

conductivity doping technology and the development of additional proprietary materials from 2003 onward, began to enter into research and development, cooperation and licensing agreements with OLED product manufacturers, such as Philips in 2004, Pioneer in 2005, SMD, Panasonic and Osram in 2006, Astron FIAMM in 2007 and LGD in 2009. As our business has grown and the use of our organic conductivity doping technology and materials has become more widespread, our revenues in 2010 and 2011 have shifted away from research, development and license fees towards revenues from sales of our proprietary materials to leading OLED FPD manufacturers, such as SMD and LGD, for use in the mass production of their smartphone OLED displays. We anticipate that our future growth will be driven primarily by sales of our materials for use in the mass production of OLED displays in smartphones, tablet PCs and televisions.

        We completed our first venture capital financing round in 2003, and successfully raised venture capital again in 2005 and 2009. Most recently, in September 2011, SVIC acquired what is currently a 9.84% stake in us, which we believe validates our market position as a leading provider of customized OLED stack solutions based on organic conductivity doping technology and materials.

Results of Operations

        The following discussion describes the components of our income statement and certain factors affecting our results of operations.

Overview of Income Statement

Revenue

        Our revenue consists of sales of our proprietary materials, license fees and royalties received from licensing our proprietary technology, and fees from research and development projects that we conduct on a contractual basis for third parties, which we call customer-sponsored research and development projects. Our revenue growth has accelerated significantly in 2011, and we anticipate that our revenue will grow faster than the overall OLED industry as we increase both the use of our proprietary technology and materials within the OLED industry and the portion of the OLED industry that our solutions address.

        Sales of one of our doping materials to SMD for use in its OLED smartphone displays accounted for 10%, 35% and 59% of our revenue in 2009, 2010 and 2011, respectively. LGD has also recently begun using the same doping material in its OLED smartphone displays, and both manufacturers are testing this doping material for use in their future OLED televisions. As our business has grown and use of our technology and materials has become more widespread, sales of our materials have become the largest source of our revenues, and we anticipate that our short- and medium-term revenue growth will be driven largely by continued sales of our proprietary doping materials to both SMD and LGD.

        In 2009, we entered into a licensing agreement with Astron FIAMM for the use of our technology in its signal and lighting products, and a license agreement with the Fraunhofer Institute for Photonic Microsystems, or IPMS, for the use of our technology in lighting, signage, displays, integrated optoelectronics and solar cells. Although these licensing agreements each have a three-year term, all revenue from them was recognized in 2009. Under IFRS, we typically recognize revenue from licensing agreements as of the date on which we entered into the agreement, although we may recognize revenue over the lifetime of the agreement if we have ongoing obligations under the agreement.

        In the periods under review, we conducted customer-sponsored research and development projects with a variety of product manufacturers, including Astron FIAMM, Cambridge Display Technology, or CDT, Saint-Gobain, SMD and LGD, to explore the application of our technology and

46


Table of Contents

materials to their products. Revenue from customer-sponsored research and development projects is recognized over the lifetime of the project if the progress of the project can be measured reliably. If the progress of the project cannot be measured reliably, revenue is recognized when the project is completed.

        Under IFRS, income recognized from publicly funded research and development projects is not included in our revenue as this income is netted against our research and development costs for reporting purposes. In 2009, 2010 and 2011, we recognized income from publicly funded research and development projects of €2.8 million, €2.6 million and €2.2 million, respectively. We anticipate that income from our publicly funded research and development projects will remain at the same levels going forward.

        Companies which report their financial results using US GAAP are not required to net income recognized from publicly funded research and development projects against their research and development costs and instead include such income in their revenue. The following table adjusts our revenues to include income from our publicly funded internal research and development projects.

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Revenue

    6,426     6,856     17,405  

Income from publicly funded R&D projects

    2,796     2,625     2,152  
               

Adjusted revenue(1)

    9,222     9,481     19,557  
               

(1)
Adjusted revenue is an unaudited non-GAAP financial measure which our management uses to monitor our operational performance. We define "adjusted revenue" as revenue, as determined under IFRS, adjusted to include income from publicly funded research and development projects. Our management uses and intends to use non-GAAP adjusted revenue to manage and evaluate our performance, and we believe it is appropriate to disclose this non-GAAP financial measure, as a supplement to our IFRS reporting, to assist investors in analyzing the factors and trends affecting our business performance. We believe that the most directly comparable IFRS measure is revenue.

        Because we report our financial results in euros and receive the majority of our revenues in U.S. dollars, fluctuations in the value of the euro and the dollar affect our reported revenues. An increase in the value of the dollar relative to the euro would lead to higher reported revenues, and a decrease to lower reported revenues. Currently, we individually hedge the value of every sale of our materials, except, in rare cases, where favorable exchange rate movements are expected.

Cost of sales

        Our cost of sales consists of the costs associated with acquiring the materials that we sell, research and development costs associated with revenues generated by customer-sponsored research and development projects, operating lease expenses, depreciation and amortization and other costs. Currently, the materials we sell to SMD and LGD are manufactured for us by BASF on a contract basis, and we anticipate continuing to outsource the manufacture of our materials in the future.

        Cost of sales related to revenues from sales of materials in 2009, 2010 and 2011 were €0.9 million, €1.9 million and €5.2 million, respectively. In the same periods, cost of sales related to

47


Table of Contents

research and development projects were €0.5 million, €1.0 million and €3.6 million, respectively. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, we did not separately track our costs for internal and customer-sponsored research and development projects in 2009, 2010 and 2011. As a result, both the costs of our non-publicly funded internal research and development projects and the costs of our customer-sponsored research and development projects are included in our cost of sales for these periods. We have implemented new financial tracking procedures for 2012, and we anticipate that the only research and development costs that will be included in our cost of sales going forward will be those associated with customer-sponsored research and development projects. For more information, see " — Results of Operations — Overview of Income Statement — Research and development expenses."

Gross profit

        Our gross profit consists of the difference between our revenue and our cost of sales. Because we purchase the supplies used in the production of our materials in euros and receive revenues from the sales of these materials primarily in U.S. dollars, fluctuations in the value of the euro and the dollar may affect our gross profit margin.

Sales and marketing expenses

        Our sales and marketing expenses consist of personnel expenses, marketing costs, commissions, supplies and goods, depreciation and amortization and other expenses. The commissions we pay to our sales representatives are approximately 1% of the sales price of the goods sold.

Administrative expenses

        Our administrative expenses include personnel expenses, legal and consulting fees, operating lease expenses, depreciation and amortization and other expenses. The majority of the expenses from this offering will be netted against equity.

Research and development expenses

        Our research and development expenses consist of the costs incurred to improve our existing technology and materials and to develop new technologies and materials. Because the markets for OLED technology, and particularly OLED display technology, are changing rapidly, our ability to develop innovative technologies and materials is crucial to our continued success.

        We incur research and development costs in relation to internal and customer-sponsored research and development projects. Under IFRS, research and development costs associated with customer-sponsored research and development projects are included in our cost of sales, and research and development costs associated with our internal research and development projects are included in our research and development expenses. We have obtained public funding to help finance the cost of certain internal research and development projects. Under IFRS, any public funding we receive for our internal research and development projects must be netted against our research and development costs for reporting purposes.

        We have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function. Accordingly, we did not separately track our costs for internal and customer-sponsored research and development projects in 2009, 2010 and 2011. Although we can reliably determine our costs for publicly funded internal research and development projects in

48


Table of Contents

these periods, we cannot distinguish between the costs of our non-publicly funded internal research and development projects and the costs of our customer-sponsored research and development projects. As a result, the costs of our non-publicly funded internal research and development projects are included in our cost of sales for 2009, 2010 and 2011, and our research and development expenses for these periods consist solely of the unfunded costs of our publicly funded internal research and development projects. We have implemented new financial tracking procedures for 2012, and we anticipate that our research and development costs for all internal projects, whether publicly funded or not, will be included in our research and development expenses going forward. For more information on our research and development expenses, see " — Results of Operations — Adjusted Total Research and Development Expenses."

        Development costs under IFRS are generally required to be capitalized if the product or process being developed is technically and commercially feasible, the costs of the development can be measured reliably, there are probable future economic benefits from the development and we have sufficient intent and resources to complete the development and use or sell the resulting asset. We believe that we will continue to expense most of our future development costs as our internal research and development projects typically focus on gaining new scientific or technical knowledge instead of specific product development.

Other income

        Our other income consists of income from exchange gains and other income. We hold a small amount of cash in U.S. dollars, Japanese yen and Korean won, as well as other financial instruments denominated in Japanese yen and Korean won. The value of these holdings may change based on currency rate fluctuations in the value of the euro, U.S. dollar, Japanese yen and Korean won.

Other expenses

        Our other expenses consist of expenses from exchange losses, expenses from changes in the fair value of the foreign currency options we hold for hedging purposes, incidental costs of monetary transactions and other expenses.

Finance income and finance costs

        Finance income consists of interest income on loans and receivables. Interest income is recognized as it accrues in profit or loss, using the effective interest method.

        Finance costs consist of interest expense on borrowings, changes in the value of our provisions and impairment losses recognized on financial assets. Our interest expense consists of the interest from our loans, payments on our silent partnership interest and the interest portion of our lease payments on our finance leases. Borrowing costs are recognized in profit or loss using the effective interest method. In connection with this offering, we intend to terminate our silent partnership interest, which consists of a €750 thousand equity contribution on which we pay a fixed interest rate of 8%, and repay the equity contribution, as well as any interest and surcharges, shortly after the closing of this offering. Because of this intended repayment, we have recognized a €354 thousand increase in the carrying value of our silent partnership interest in 2011 for projected payments in connection with the early termination of the silent partnership.

Tax income

        Our tax income consists of current German and foreign income taxes and changes in the value of our German and foreign deferred tax assets and liabilities. Current tax and deferred tax are recognized in profit or loss except to the extent that they relate to items recognized directly in

49


Table of Contents

equity or in other comprehensive income. Our income taxes in Germany are based on our financial results as reported under German GAAP which may differ from our financial results as reported under IFRS.

        We had no current or deferred tax income in 2009 and 2010 due to the tax losses we incurred in those years. In addition, we did not recognize deferred tax assets in respect of our tax loss carry forwards in 2009 and 2010 because we had only generated losses in the prior years. Because we generated a profit in 2011 and currently anticipate generating profits going forward, we recognized a deferred tax asset in respect of our tax loss carry forwards in 2011 and thus realized a one-time gain in tax income of €2.6 million which, when netted against our deferred tax liabilities of €0.2 million, resulted in tax income of €2.4 million in this period.

        Under German law, use of our tax loss carry forwards is restricted in two ways. First, we may only use our tax loss carry forwards to offset up to €1 million in taxable income without restriction. At least 40% of our taxable income over €1 million must remain subject to taxation. Second, German law restricts our ability to use our tax loss carry forwards if there is a change in ownership of our company. We will lose our tax loss carry forwards on a pro rata basis in case of an aggregate change of ownership of 25% to 50% of the shares of our company within five years. If more than 50% of the shares of our company are transferred within five years, all of our tax loss carry forwards will be lost.

        We anticipate that we will be able to use our accumulated tax loss carry forwards of €8.3 million against future taxable income for German tax purposes. If our earnings develop as expected, our tax loss carry forwards will likely be exhausted by the end of 2013. We anticipate recognizing tax expense in 2012 and 2013 associated with the unwinding of a portion of the deferred tax asset recognized in respect of our tax loss carry forwards. From 2014 on, we expect our effective tax rate to be in line with the general German corporate tax rate of 30%.

Other Categories of Expenses Affecting Results

Personnel expenses

        Our personnel expenses consist of wages and salaries paid to our personnel, social security costs paid on their behalf, contributions to defined contribution plans and share-based compensation expenses. Personnel expenses are included in cost of sales, administrative, sales and marketing and research and development expenses. As part of our business strategy, we anticipate hiring additional personnel in 2012 and 2013 which will result in increased personnel expenses. We anticipate that our personnel expenses will grow at a substantially slower rate than our revenues.

        Our personnel expenses in 2009, 2010 and 2011 included employee share-based compensation expenses of €762 thousand, €20 thousand and €514 thousand, respectively. Share-based compensation expenses are calculated based on the fair value of the options as of their grant date. For more information, see " — Critical Accounting Policies — Share-Based Compensation."

Operating lease expenses

        Our operating lease expenses relate to our office space, and are included in cost of sales, administrative and research and development expenses. We currently rent our office space at below market rates from a joint public/private corporation partially owned by the city of Dresden and the Technical University of Dresden. Our current lease expires on December 31, 2012. Although it may be possible to extend our lease, the office space we currently use is intended for startup

50


Table of Contents

technology companies, and we anticipate that we will have to move at the end of 2012 or the beginning of 2013 to new office space that will be priced at market rates.

        This move will facilitate the growth of our company as we plan on moving from our current facilities of approximately 2,700 square meters in size to a new facility of over 4,000 square meters. The costs of the move are being financed from our cash on hand, and as a result of this move, we expect that our operating lease expenses will increase in the future.

Depreciation and amortization expenses

        Depreciation and amortization expenses are included in cost of sales, administrative and sales and marketing expenses. Our depreciation expenses are primarily related to the equipment we use in the testing and pilot production of our technology and materials. In 2009, 2010 and 2011, our depreciation expenses were €531 thousand, €668 thousand and €768 thousand, respectively.

        Because we have not capitalized any of our development expenses, our amortization expenses are primarily related to amortization of our patents. In 2009, 2010 and 2011, our amortization expenses were €141 thousand, €147 thousand and €169 thousand, respectively.

Results of Operations

        The following table sets forth our statements of comprehensive income for the periods indicated:

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Revenue

    6,426     6,856     17,405  

Cost of sales

    (1,403 )   (2,958 )   (8,743 )

Thereof cost of sales of materials

    (895 )   (1,909 )   (5,158 )

Thereof research and development(1)

    (508 )   (1,048 )   (3,584 )
               

Gross profit

    5,023     3,898     8,662  

Sales and marketing expenses

    (989 )   (1,256 )   (1,478 )

Administrative expenses

    (2,580 )   (2,863 )   (4,090 )

Research and development expenses(2)

    (2,620 )   (1,981 )   (1,633 )

Other income

    79     128     545  

Other expenses

    (72 )   (138 )   (337 )
               

Results from operating activities

    (1,159 )   (2,212 )   1,669  

Finance income

    55     45     29  

Finance costs

    (191 )   (144 )   (480 )

Net finance costs

    (136 )   (99 )   (451 )
               

Profit before tax

    (1,295 )   (2,311 )   1,218  

Tax income(3)

    0     0     2,375  
               

Profit and total comprehensive income

    (1,295 )   (2,311 )   3,593  
               

(1)
Research and development expenses associated with customer-sponsored research and development projects are included in cost of sales under IFRS. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, we did not separately track our costs for internal and customer-sponsored

51


Table of Contents

    research and development projects in 2009, 2010 and 2011. As a result, the costs of our non-publicly funded internal research and development projects are included in our cost of sales for these periods. We anticipate that our research and development costs for all internal projects, whether publicly funded or not, will be included in our research and development expenses going forward.

(2)
Our research and development expenses for 2009, 2010 and 2011 consist solely of the unfunded costs of our publicly funded internal research and development projects. Under IFRS, any public funding we receive for our internal research and development projects must be netted against our research and development costs for reporting purposes. In 2009, 2010 and 2011, we recognized income from publicly-funded research and development projects of €2.8 million, €2.6 million and €2.2 million, respectively.

(3)
We had no current or deferred tax income in 2009 and 2010 due to the tax losses we incurred in those years. In addition, we did not recognize deferred tax assets in respect of our tax loss carry forwards in 2009 and 2010 because we had only generated losses in the prior years. Because we generated a profit in 2011 and currently anticipate generating profits going forward, we recognized a deferred tax asset in respect of our tax loss carry forwards in 2011 and thus realized a one-time gain in tax income of €2.6 million which, when netted against our deferred tax liabilities of €0.2 million, resulted in tax income of €2.4 million in this period.

Adjusted Total Comprehensive Income

        Adjusted total comprehensive income is an unaudited non-GAAP financial measure which our management uses to monitor our operational performance. We define "adjusted total comprehensive income" as total comprehensive income, as determined under IFRS, adjusted to exclude share-based compensation expenses and to exclude tax income. Our management uses and intends to use non-GAAP adjusted total comprehensive income to manage and evaluate our performance, and we believe it is appropriate to disclose this non-GAAP financial measure, as a supplement to our IFRS reporting, to assist investors in analyzing the factors and trends affecting our business performance. We believe that the most directly comparable IFRS measure is total comprehensive income. The following table adjusts our total comprehensive income to remove share-based compensation expenses and to exclude tax income for the periods under review.

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Total comprehensive income

    (1,295 )   (2,311 )   3,593  

Share-based compensation expense(1)

    779     145     531  

Tax income

    0     0     (2,375 )
               

Adjusted total comprehensive income

    (516 )   (2,166 )   1,749  
               

(1)
Our share-based compensation expenses for 2009, 2010 and 2011 include both employee and non-employee related share-based compensation expenses. See " — Critical Accounting Policies — Share-Based Compensation."

52


Table of Contents

Adjusted Total Research and Development Expenses

        Adjusted total research and development expenses is an unaudited non-GAAP financial measure which our management uses to monitor our total spending associated with internal and customer-sponsored research and development projects. We define "adjusted total research and development expenses" as our research and development expenses, as determined under IFRS, adjusted to include income from publicly funded internal research and development projects, which is netted against our research and development costs for reporting purposes under IFRS, and to include the portion of our cost of sales related to research and development projects. Our management uses and intends to use adjusted total research and development expenses to evaluate our total spending on research and development projects, and we believe it is appropriate to disclose this non-GAAP financial measure, as a supplement to our IFRS reporting, to assist investors in analyzing the factors and trends affecting our growth and business performance. We believe that the most directly comparable IFRS measure is research and development expenses. The following table adjusts our research and development expenses to include income from publicly funded internal research and development projects and to include the portion of our cost of sales related to research and development projects.

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Research and development expenses

    (2,620 )   (1,981 )   (1,633 )

Add: income from publicly-funded R&D projects(1)

    (2,796 )   (2,625 )   (2,152 )

Add: cost of sales related to R&D projects(2)

    (508 )   (1,048 )   (3,584 )
               

Adjusted total research and development expenses

    (5,924 )   (5,654 )   (7,369 )
               

(1)
Our research and development expenses for 2009, 2010 and 2011 consist solely of the unfunded costs of our publicly funded internal research and development projects. Under IFRS, any public funding we receive for our internal research and development projects must be netted against our research and development costs for reporting purposes.

(2)
Research and development expenses associated with customer-sponsored research and development projects are included in cost of sales under IFRS. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, we did not separately track our costs for internal and customer-sponsored research and development projects in 2009, 2010 and 2011. As a result, the costs of our non-publicly funded internal research and development projects are included in our cost of sales for these periods. We anticipate that our research and development costs for all internal projects, whether publicly funded or not, will be included in our research and development expenses going forward.

53


Table of Contents

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Revenue

        The following table shows our revenue by major category:

 
  Year ended December 31,  
 
  2010   2011   % change  
 
  (in € thousands)
 

Sales of materials

    5,363     15,185     183%  

License fees and royalties

    0     0     0%  

Research and development services

    1,493     2,220     49%  
               

Total

    6,856     17,405     154%  
               

        Our revenue increased by 154% from €6.9 million in 2010 to €17.4 million in 2011. In 2011, sales denominated in U.S. dollars were $17.9 million and accounted for 73% of our total revenue, up from $3.4 million and 38% of our total revenue in 2010. On a constant currency basis, our revenue increased by €11.3 million or 165% in 2011.

        Revenue from sales of materials increased by 183% from €5.4 million in 2010 to €15.2 million in 2011 and accounted for 87% of our total revenue in 2011, up from 78% in 2010. This increase was largely due to sales of our materials to SMD, which increased by 328% from €2.4 million in 2010 to €10.2 million in 2011 and accounted for 59% of our revenue in 2011.

        We had no revenue from licensing agreements in 2011 because we did not enter into any new licensing agreements and because all revenue from our ongoing licensing agreements with Astron FIAMM and IPMS was recognized in 2009.

        Revenue from research and development services increased by 49% from €1.5 million in 2010 to €2.2 million in 2011, primarily due to new customer-sponsored research and development projects.

Cost of Sales and Gross Profit

        Cost of sales increased by 196% from €3.0 million in 2010 to €8.7 million in 2011, driven primarily by the increase in our sales of materials and by increased research and development costs associated with customer-sponsored research and development projects. Gross profit increased 122% from €3.9 million in 2010 to €8.7 million in 2011, and our gross profit margin decreased from 57% in 2010 to 50% in 2011, primarily due to the inclusion of an increased portion of our research and development costs in our costs of sales.

        In 2010 and 2011, €1.9 million and €5.2 million, respectively, of our cost of sales were associated with revenue from sales of materials, and €1.0 million and €3.6 million, respectively, of our cost of sales were associated with research and development projects. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, and did not separately track our costs for internal and customer-sponsored research and development projects, both the costs of our non-publicly funded internal research and development projects and the costs of our customer-sponsored research and development projects are included in our cost of sales for these periods. We anticipate that our research and development costs for all internal projects, whether publicly funded or not, will be included in our research and development expenses going forward. For more information, see " — Results of Operations — Overview of Income Statement — Cost of sales."

54


Table of Contents

Sales and Marketing Expenses

        Sales and marketing expenses increased by 18% from €1.3 million in 2010 to €1.5 million in 2011, primarily due to an increase in commissions of 116% from €190 thousand in 2010 to €411 thousand in 2011 which resulted from increased sales of our materials.

Administrative Expenses

        Administrative expenses increased by 43% from €2.9 million in 2010 to €4.1 million in 2011, primarily due to increased share-based compensation, legal, consulting and auditing expenses.

Research and Development Expenses

        Research and development expenses decreased by 18% from €2.0 million in 2010 to €1.6 million in 2011, primarily due to the inclusion of a larger portion of our overall research and development costs in cost of sales. Income from publicly funded research and development projects of €2.6 million in 2010 and €2.2 million in 2011 was netted against our research and development costs. In 2010 and 2011, none of our development costs were capitalized.

        Because we have historically accounted for our research and development expenses under German GAAP using the total cost method (Gesamtkostenverfahren), in which costs are reported based on their nature rather than their function, and did not separately track our costs for internal and customer-sponsored research and development projects in 2010 and 2011, our research and development expenses for these periods consist solely of the unfunded costs of our publicly funded internal research and development projects. For more information, see " — Results of Operations — Overview of Income Statement — Research and development expenses."

Other Income and Expenses

        Other income increased by 326% from €128 thousand in 2010 to €545 thousand in 2011, primarily due to an increase of income from foreign exchange gains of 533% from €78 thousand in 2010 to €494 thousand in 2011. Other expenses increased by 144% from €138 thousand in 2010 to €337 thousand in 2011, primarily due to changes in the fair value of our foreign currency options.

Results from Operating Activities

        Our results from operating activities increased from a €2.2 million loss in 2010 to a €1.7 million gain in 2011, primarily because or revenues from sales of materials grew substantially more quickly than our overall operating expenses in 2011.

Finance Income and Finance Cost

        Our net finance costs increased by 356% from €99 thousand in 2010 to €451 thousand in 2011, primarily due to an increase in interest expenses of 245% from €139 thousand in 2010 to €480 thousand in 2011 resulting from a change in the carrying value of our silent partnership interests in 2011 based on projected payments in connection with the early termination of the silent partnership.

Profit Before Tax

        Profit before tax increased from a loss of €2.3 million in 2010 to a gain of €1.2 million in 2011, primarily due to the rapid growth of our revenue from sales of materials in 2011 as described above.

55


Table of Contents

Tax Income

        Our tax income increased from zero in 2010 to a gain of €2.4 million in 2011 due to a one-time gain of €2.6 million resulting from the recognition of a deferred tax asset in respect of our tax loss carry forwards which was netted against our deferred tax liabilities of €0.2 million.

Profit and Total Comprehensive Income

        Our profit and total comprehensive income increased from a loss of €2.3 million in 2010 to a gain of €3.6 million in 2011 due to the rapid growth of our revenue from sales of materials, only small increases in our operating expenses and a one-time gain resulting from the recognition of a deferred tax asset in respect of our tax loss carry forwards. Excluding share-based compensation expenses and tax income, our total comprehensive income increased from a loss of €2.2 million in 2010 to a gain of €1.7 million in 2011.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Revenue

        The following table shows our revenue by major category:

 
  Year ended December 31,  
 
  2009   2010   % change  
 
  (in € thousands)
 

Sales of materials

    2,059     5,363     160%  

License fees and royalties

    2,613     0     (100% )

Research and development services

    1,754     1,493     (15% )
               

Total

    6,426     6,856     7%  
               

        Our revenue increased by 7% from €6.4 million in 2009 to €6.9 million in 2010. In 2010, sales denominated in U.S. dollars were $3.4 million and accounted for 38% of our total revenue, up from $0.9 million and 9% of our total revenue in 2009. On a constant currency basis, our revenue increased by €218 thousand or 3% in 2010.

        Revenue from sales of materials increased by 160% from €2.1 million to €5.4 million and accounted for 78% of our total revenue in 2010, up from 32% in 2009. This increase was largely due to increased demand for our materials by SMD for use in the mass production of its OLED smartphone displays. Revenues from sales of materials to SMD increased by 285% from €0.6 million in 2009 to €2.4 million in 2010 and accounted for 35% of our revenue in 2010.

        We had no revenue from licensing agreements in 2010 because we did not enter into any new licensing agreements. In 2009, our licensing fee revenue was primarily related to the licensing agreements we entered into with Astron-FIAMM and IPMS. Although these licensing agreements each have a three-year term, all revenue from them was recognized in 2009.

        Revenue from research and development services decreased by 15% in 2010, primarily because we had fewer customer-sponsored research and development projects.

Cost of Sales and Gross Profit

        Cost of sales increased by 111% from €1.4 million in 2009 to €3.0 million in 2010, driven primarily by the increase in our sales of materials. Gross profit decreased from €5.0 million in 2009 to €3.9 million in 2010, and our gross profit margin also decreased from 78% in 2009 to 57% in

56


Table of Contents

2010. Because licensing revenues tend to have a higher margin than revenues from sales of materials, our gross profit and gross profit margin were positively impacted in 2009 by the recognition of the revenue from the license agreements we entered into with Astron-FIAMM and IPMS.

        In 2009 and 2010, €0.9 million and €1.9 million, respectively, of our cost of sales were associated with revenue from sales of materials, and €0.5 million and €1.0 million, respectively, of our cost of sales were associated with research and development projects. Because we have historically accounted for our research and development expenses under German GAAP using the total cost method, in which costs are reported based on their nature rather than their function, and did not separately track our costs for internal and customer-sponsored research and development projects, both the costs of our non-publicly funded internal research and development projects and the costs of our customer-sponsored research and development projects are included in our cost of sales for these periods. For more information, see " — Results of Operations — Overview of Income Statement — Cost of sales."

Sales and Marketing Expenses

        Sales and marketing expenses increased by 27% from €1.0 million in 2009 to €1.3 million in 2010, primarily due to an increase in commissions of 202% from €63 thousand in 2009 to €190 thousand in 2010, which resulted from increased sales of our materials, and due to our participation in the Light+Building trade fair in Frankfurt, Germany.

Administrative Expenses

        Administrative expenses increased by 11% from €2.6 million in 2009 to €2.9 million in 2010, primarily due to an increase in personnel expenses from reclassification of certain salaries as administrative rather than sales and marketing expenses, and from additional personnel hiring due to the growth of our company. This increase was also caused by leasing approximately 350 square meters of additional office space.

Research and Development Expenses

        Research and development expenses decreased by 24% from €2.6 million in 2009 to €2.0 million in 2010, primarily due to a slight reduction in internal research and development spending and the inclusion of a larger portion of our overall research and development costs in cost of sales. Income from publicly funded research and development projects of €2.8 million in 2009 and €2.6 million in 2010 was netted against our research and development costs. In 2009 and 2010, none of our development costs were capitalized.

        Because we have historically accounted for our research and development expenses under German GAAP using the total cost method, in which costs are reported based on their nature rather than their function, and did not separately track our costs for internal and customer-sponsored research and development projects in 2009 and 2010, our research and development expenses for these periods consist solely of the unfunded costs of our publicly funded internal research and development projects. For more information, see " — Results of Operations — Overview of Income Statement — Research and development expenses."

Other Income and Expenses

        Other income increased by 62% from €79 thousand in 2009 to €128 thousand in 2010, primarily due to an increase in income from exchange gains of 212% from €25 thousand in 2009 to €78 thousand in 2010. Other expenses increased by 92% from €72 thousand in 2009 to €138 thousand in 2010, primarily due to an increase in exchange losses on unhedged trade

57


Table of Contents

receivables from €29 thousand in 2009 to €100 thousand in 2010, which resulted from appreciation of the euro.

Results from Operating Activities

        Our results from operating activities decreased from a loss of €1.2 million in 2009 to a loss of €2.2 million in 2010, primarily due to the recognition of all revenues from our Astron FIAMM and IPMS licensing agreements in 2009 and our increased cost of sales, sales and marketing and administrative expenses in 2010 which were only partially offset by decreased research and development expenses and increased revenue and other income in the same period.

Finance Income and Finance Cost

        Our net finance costs decreased by 27% from €136 thousand in 2009 to €99 thousand in 2010, primarily due to a decrease in interest expense of 25% from €191 thousand in 2009 to €144 thousand in 2010. In 2010, we paid off a substantial portion of our existing equipment purchase debt.

Profit Before Tax

        Profit before tax decreased from a loss of €1.3 million in 2009 to a loss of €2.3 million in 2010, primarily due to the increased cost of sales, sales and marketing and administrative expenses described above.

Tax Income

        Our tax income was zero in 2009 and 2010 due to our tax losses in both years. We did not recognize deferred tax assets in respect of our tax loss carry forwards in 2009 and 2010 because we had only generated losses in the prior years.

Profit and Total Comprehensive Income

        Our profit and total comprehensive income decreased from a loss of €1.3 million in 2009 to a loss of €2.3 million in 2010, primarily due to the increased cost of sales, sales and marketing expenses and administrative expenses described above. Excluding share-based compensation and tax income, our total comprehensive income decreased by 320% from a loss of €0.5 million in 2009 to a loss of €2.2 million in 2010.

Liquidity and Capital Resources

        As of December 31, 2011, our principal sources of liquidity consisted of cash and cash equivalents of €5.0 million and trade receivables of €3.3 million. We had working capital of €8.4 million as of the same date.

        Over the last three years, we have financed our operations primarily through sales of equity securities, cash flow from operations, government subsidies and long-term debt. In February 2009, we received net proceeds of €4.2 million from the sale of preferred shares, and in May 2010, we received net proceeds of €4.2 million from the sale of additional preferred shares. In September 2011, we received net proceeds of €819 thousand from SVIC's acquisition of 46,747 of our ordinary shares, which, in connection with its simultaneous acquisition of 554 thousand of our preference shares, currently amounts to a 9.84% stake in our company.

58


Table of Contents

Cash Flows

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Net cash generated by/(used in) operating activities

    (2,724 )   (1,015 )   1,979  

Net cash used in investing activities

    24     (783 )   (1,112 )

Net cash provided by financing activities

    4,128     3,005     638  

Cash and cash equivalents at the end of the year

    2,253     3,468     5,024  

Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

        We had a net cash inflow from operating activities of €2.0 million in 2011 as compared to a net cash outflow of €1.0 million in 2010. This increase was due to an increase in total comprehensive income, excluding share-based compensation expenses and tax income, and to changes in working capital. Our working capital increased by 32% from €6.2 million in 2010 to €8.4 million in 2011. Our trade receivables increased by €0.8 million in 2011 as compared to a decrease of €0.5 million in 2010, primarily due to increased sales of materials. Our inventories increased by €850 thousand in 2011 as compared to a €12 thousand increase in 2010, primarily due to additional inventory obtained as a result of increased sales of materials. Our other assets increased by €455 thousand in 2011 as compared to a €3 thousand decrease in 2010, primarily due to an increase in receivables and advances for patents and other non-financial assets. Our trade payables increased by €828 thousand in 2011 as compared to a €428 thousand decrease in 2010, primarily due to trade payables incurred as a result of our increased sales of materials.

        Our net cash outflow from investing activities increased by 42% from €0.8 million in 2010 to €1.1 million in 2011, primarily due to a 90% increase in payments for patents and other intangible assets from €166 thousand in 2010 to €315 thousand in 2011. Payments for time deposits increased from zero in 2010 to €110 thousand in 2011.

        Our net cash inflow from financing activities decreased by 79% from €3.0 million in 2010 to €0.6 million in 2011, primarily due a 76% decrease in proceeds from issuance of new shares from €4.2 million in 2010 to €1.0 million in 2011. Repayments of loans and borrowings also decreased by 66% from €1.2 million in 2010 to €0.4 million in 2011, primarily because we had previously paid off a substantial portion of our existing debt in 2010.

Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009

        Our net cash outflow from operating activities decreased by 63% from €2.7 million in 2009 to €1.0 million in 2010. This decrease was due to changes in working capital. Our working capital increased from €0.3 million in 2009 to €6.2 million in 2010. In 2009, our trade receivables increased by €2.0 million, primarily because payments for our publicly funded internal research and development projects were delayed by the German government. Our trade receivables decreased by €0.5 million in 2010 due to our implementation of improved cash collection processes. Our other assets decreased by €147 thousand in 2009 and decreased by €3 thousand in 2010, primarily due to increased receivables from publicly funded research and development projects. Our trade payables decreased by €21 thousand in 2009 as compared to a €428 thousand decrease in 2010, primarily due to our decision to pay off existing 2009 trade payables. Our other liabilities decreased by €1.0 million in 2009 as compared to a €0.2 million increase in 2010, primarily due to increased payables to personnel and decreased accruals.

59


Table of Contents

        Our net cash outflow from investing activities was €783 thousand in 2010 as compared to a net inflow of €24 thousand in 2010. This change was primarily due to a 84% decrease in proceeds from our time deposits from €595 thousand in 2009 to €95 thousand in 2010, which resulted from paying down in 2010 a substantial portion of the equipment debt secured by these deposits. Payments for plant and equipment increased by 163% from €277 thousand in 2009 to €743 thousand in 2010 caused by expansion of a research and development sampling tool. Payments for patents and other intangible assets also decreased by 49% from €324 thousand in 2009 to €166 thousand in 2010.

        Our net cash inflow from financing activities decreased by 27% from €4.1 million in 2009 to €3.0 million in 2010, primarily due to an increase in repayment of loans and borrowings from €98 thousand in 2009 to €1.2 million in 2010 resulting from repayment of a substantial portion of our existing equipment debt.

Future Capital Requirements

        We believe that our cash flow from operations and the net proceeds that we receive from this offering will be sufficient to meet our working capital, research and development and capital expenditure requirements for the next twelve months.

        Although we had no material commitments for future capital expenditures as of December 31, 2011, we are currently planning on future capital expenditures during 2012 of €8.8 million, which consist of €2.5 million for laboratory facilities, €2.5 million for clean room facilities, €2.5 million for the expansion of a research and development sampling tool and €1.3 million for general capital expenditures. Two-thirds of these planned capital expenditures relate to our anticipated move into new facilities, and should be considered a one-time expense.

Contractual Obligations

        The following table sets forth information on our contractual cash flow obligations by due date:

 
  As of December 31, 2011  
 
  Less Than
1 Year
  1 to
Less Than
3 Years
  3-5 Years   More Than
5 Years
  Total  
 
  (in € thousands)
 

Long-term debt obligations

    80     156     0     0     236  

Silent partnership obligations

    60     1,320     0     0     1,380  

Operating lease obligations

    191     35     1     0     227  

Finance lease liabilities

    576     402     0     0     977  
                       

Total

    906     1,913     1     0     2,820  
                       

        Our long-term debt obligations consist of a bank loan from Ostsächsische Sparkasse Dresden for the financing of a machine used in the test and pilot production of our OLED samples and materials.

        Our silent partnership obligations consist of our payments in connection with a past equity contribution. In connection with this offering, we intend to terminate our silent partnership interest, which consists of a €750 thousand equity contribution on which we pay a fixed interest rate of 8%, and repay the equity contribution, as well as any interest and surcharges, shortly after the closing of this offering.

        Our finance lease liabilities consist of payments under our lease purchase contracts for the equipment and machinery used in the test and pilot production of our OLED samples and materials.

60


Table of Contents

Off-Balance Sheet Transactions

        Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance or special purpose entities.

Quantitative and Qualitative Disclosure About Market Risk

        We are not generally exposed to significant interest rate risk but are exposed to currency exchange rate risks.

Interest Rate Risk

        We are not generally exposed to significant interest rate risk because our financial liabilities are either at fixed interest rates or, if at variable interest rates, are connected to a variable rate financial asset in the same amount and held by the same party. Our sole exposure to interest rate risk is from changes in the spread between our variable rate financial liabilities and our variable rate financial assets. This spread remained unchanged in 2009, 2010 and 2011, and we anticipate that it will remain unchanged going forward.

Currency Risk

        Our results of operations and financial condition are subject to exchange rate risks. In 2011, 73% of our revenue was denominated in U.S. dollars. Because we report our financial results in euros, any appreciation of the euro against the dollar would reduce our reported revenue and gross profit. We also purchase the supplies used in the production of our materials in euros and receive revenues from the sales of these materials primarily in U.S. dollars. As a result, fluctuations in the value of the euro and U.S. dollar may affect our gross profit margin. We hold a small amount of cash in U.S. dollars as well as cash and financial assets denominated in Japanese yen and Korean won, and fluctuations in the value of the euro, U.S. dollar, Japanese yen or Korean won may affect the value of these holdings.

        Although we do not currently hold any derivative financial instruments designed to protect us from the exchange rate risk associated with the euro, U.S. dollar, Japanese yen or Korean won, we currently enter into transactions designed to hedge the value of every sale of our materials except, in rare cases, where we anticipate favorable exchange rate movements. We expect that the dollar will remain at a favorable exchange rate relative to the euro in the short term, and will investigate future hedging transactions as necessary based on fluctuations of the euro, U.S. dollar, Japanese yen and Korean won. The table below shows our exposure to foreign currency risk for 2009, 2010 and 2011:

 
  December 31,  
 
  2009   2010   2011  
 
  (in € thousands)  
 
  USD   JPY   USD   JPY   USD   JPY   KRW  

Trade receivables

    64     5     410     0     2,279     27     0  

Other financial assets

    0     10     4     12     2     12     6  

Cash and cash equivalents

    59     15     60     19     803     236     5  

Trade payables

    (13 )   (10 )   (14 )   (26 )   (12 )   (31 )   0  

Other financial liabilities

    0     (2 )   0     (5 )   0     (7 )   0  
                               

Total

    110     18     460     0     3,072     237     11  
                               

61


Table of Contents

        The table below shows the currency exchange spot rates applied on the reporting dates for 2009, 2010 and 2011:

 
  December 31,  
1 Euro
  2009   2010   2011  

USD

    1.4406     1.3362     1.2939  

JPY

    133.16     108.65     100.20  

KRW

    n/a     n/a     1,498.69  

        A strengthening of the euro against the U.S. dollar and the Korean won of 15% and against the Japanese yen of 20% at the end of the reporting periods above would have increased (decreased) equity and profit or loss by the amounts shown in the table below. This sensitivity analysis is based on foreign currency exchange rate variances that we considered to be reasonably possible at the end of the relevant reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.

 
  December 31,  
 
  2009   2010   2011  
 
  (in € thousands)  
 
  USD   JPY   USD   JPY   USD   JPY   KRW  

    (+15%)     (+20%)     (+15%)     (+20%)     (+15%)     (+20%)     (+15%)  
                               

Profit or loss

    (17 )   (4 )   (69 )   0     (461 )   (47 )   (2 )

Equity

    0     0     0     0     0     0     0  

Critical Accounting Policies

        The discussion and analysis of our financial condition and results of operations are based on our financial statements, the preparation of which requires us to make certain estimates and judgments. Under different assumptions and conditions, our actual results might differ from our estimates. Our most significant estimates include the value of our share-based compensation.

Share-Based Compensation

        We have granted options to purchase shares of our company as payment for intellectual property or services under nine independent stock option plans:

    The Employee Stock Option Plan 2006, or ESOP 2006, under which options were granted to employees in June 2006;

    The Employee Stock Option Plan 2007, or ESOP 2007, under which options were granted to employees in July 2007;

    The Employee Stock Option Plan 2010, or ESOP 2010, under which options were granted to employees in December 2010;

    The Management Stock Option Plan 2006, or MSOP 2006, under which options were granted to members of the management board in June 2006;

    The Management Stock Option Plan 2007, or MSOP 2007, under which options were granted to members of the management board in July 2007 and December 2010;

    The Compensation Option Plan 2006, or COP 2006, under which options were granted in exchange for particular intellectual property in July 2006;

62


Table of Contents

    The Founder Option Plan 2003, or FOP 2003, under which options were granted to the original founders of Novaled GmbH, the predecessor to our company, in December 2003;

    The Supervisory Board Options 2009, or SUBO 2009, under which options were granted to members of the supervisory board in May 2009; and

    The Supervisory Board Options 2010, or SUBO 2010, under which options were granted to members of the supervisory board in December 2010.

        Under IFRS, we recognize an expense and a corresponding increase in equity based on the fair value of the options as of their grant date. All share-based compensation expenses are recognized net of an estimated forfeiture rate, and if the options vest over time, the expense is recognized over the length of the vesting period. In 2009, 2010 and 2011, we had employee share based compensation expenses of €762 thousand, €20 thousand and €514 thousand, respectively. In the same periods, we also had non-employee share-based compensation expenses, which are included in reported expenses based on the services received for the options, of €17 thousand, €125 thousand and €17 thousand, respectively.

Determination of Fair Value

        To determine the fair value of options granted, we use a Monte-Carlo simulation or the Black-Scholes formula depending on the conditions of the share option program. Both methods rely on the same valuation parameters, namely share price as of the valuation date, share price volatility, expected option life, dividend yield and the risk-free interest rate corresponding to the expected option life. Service and non-market performance conditions attached to the options are not taken into account in determining fair value.

        The assumptions used in calculating the fair value of our option grants represent our best estimates. These estimates involve inherent uncertainties and the application of management judgment, and, as a result, our share-based compensation expense could be materially different in the future if we apply different assumptions.

        We are also required to estimate share-based compensation expenses net of estimated forfeitures. In determining the estimated forfeiture rates for option grants, we consider the number of options that have been forfeited to date as well as those expected to be forfeited in the future. If our actual forfeiture rate is materially different from our estimate, our share-based compensation expenses could be significantly different from what we have recognized in the current period.

    Share Price

        Because our shares have not been publicly traded, historical share prices are not readily available. In estimating our share price as of a particular grant date, we have relied on the purchase price paid by investors in our previous venture capital rounds, as adjusted by a revenue multiplier based on the difference in time between the grant of the options and the sale of shares. Appropriate revenue multipliers were determined by reference to a group of peer companies.

    Share Price Volatility

        The volatility of our share price was based on the average historic volatility of the group of peer companies used to determine our share price.

    Expected Option Life

        The expected option life is estimated based on the exercise conditions of the grant or the option's term.

63


Table of Contents

    Dividend Yield

        We do not expect to pay dividends during the expected lives of any of our option grants.

    Risk-Free Interest Rate

        The risk-free interest rate was determined by using the interest rate term structures published by Deutsche Bundesbank.

Unadopted IFRS Accounting Standards

        A number of new IFRS standards, amendments to standards and interpretations have gone into effect for annual periods beginning after January 1, 2011 and have not been applied to our financial statements. None of these standards, amendments or interpretations is expected to have a significant effect on our financial statements, except for the new standard IFRS 9 Financial Instruments, or IFRS 9, which covers the classification and measurement of financial assets and replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 goes into effect on January 1, 2015 and may change the classification and measurement of our financial assets starting with our 2015 financial statements. We do not currently plan to adopt IFRS 9 before our 2015 financial statements, and we have not yet determined its impact on our financial reporting.

64


Table of Contents


OUR COMPANY

Introduction

        We are a leader in the research, development and commercialization of technologies and materials that enhance the performance of OLEDs. OLEDs are solid-state devices composed of multiple thin layers of organic materials, collectively known as the OLED stack, that emit light when electricity is applied to them. Through our unique combination of organic conductivity doping technology, proprietary materials and OLED stack development expertise, we offer OLED display and lighting manufacturers customized solutions to optimize the performance, power efficiency, stability and lifetime of their products while decreasing their manufacturing complexity and cost. We are currently the only company licensing and selling organic conductivity doping technology and materials for use in the commercial mass production of display products in the OLED industry.

        The market for OLED products is growing rapidly. OLED displays are capturing an increasing share of the FPD market due to their superior image quality, increased power efficiency and thinner, lighter form factor as compared to existing LCD and PDP technologies. Small-sized OLED displays have achieved significant penetration in the smartphone market, and medium-sized OLED displays are being introduced in tablet PCs. SMD and LGD have recently announced plans to launch large-sized OLED televisions for the high-end consumer market. Commercial interest in OLED lighting products is also strong because the ability of OLED devices to efficiently produce diffuse, homogenous light from a flat, thin surface creates new opportunities in lighting installation and design. Philips, for example, has recently confirmed its intention to offer decorative and performance lighting products based on OLED technology. According to DisplaySearch, OLED displays are expected to grow from a $1.6 billion global market in 2010 to a $25.5 billion market in 2018 at a CAGR of 41%. We estimate that the nascent OLED lighting market will develop into at least a $3.5 billion global market by 2018. In addition, DisplaySearch and NanoMarkets project that the OLED lighting market will develop into a $6 and $9.9 billion global market, respectively, over the same period.

        Our organic conductivity doping technology and proprietary materials significantly enhance the performance of OLED devices. By adding our proprietary doping materials to certain layers of the OLED stack through a process known as organic conductivity doping, we improve the injection and transport of electrical charges to the emission layer in the OLED stack. Combining our proprietary doping materials with our proprietary host materials can further increase the conductivity of these so-called transport layers and produce what we believe to be the highest performing OLED devices. We have also developed proprietary outcoupling materials that complement our organic conductivity doping technology and proprietary materials by improving the extraction of light which would otherwise remain trapped in the OLED stack. Our organic conductivity doping technology and proprietary materials are designed to work with all existing emission layer technologies and are protected by a broad patent portfolio of more than 500 patents issued or pending worldwide.

        We sell our technology together with our proprietary materials to display manufacturers, such as SMD and LGD, that are successfully commercializing OLED FPDs in the consumer market. In addition, we market our technology and proprietary materials to key players in the lighting industry, such as Astron FIAMM and Philips, and we are working with luminaire manufacturers, such as Acuity Brands and Trilux, to pioneer the development of thin and flexible OLED lighting products. In the future, we also anticipate marketing our technologies and materials to manufacturers of other organic electronic devices, such as OPVs and OTFTs. We generate revenues primarily from the sales of our proprietary materials, the manufacture of which we outsource on a contract basis. We also generate revenues from intellectual property licensing and from providing research and development services to third parties. In 2011, we recorded revenues of €17.4 million and a

65


Table of Contents

first-time net profit of €3.6 million, compared to revenues of €6.9 million and a net loss of €2.3 million in 2010.

        We were founded in 2001 as a spin-off from the Technical University and Fraunhofer Institute in Dresden, Germany, both of which are leading German research institutions in the field of materials science and technology and remain shareholders in our company. We have raised capital in several venture capital rounds since we commenced operations in 2003, including in 2009 from our then existing shareholders. Most recently, in September 2011, SVIC acquired what is currently a 9.84% stake in us, which we believe validates our market position as a leading provider of customized OLED stack solutions based on organic conductivity doping technology and materials.

Market Overview

OLED Marketplace

        The market for OLED products has grown significantly in recent years. OLED technology has spread rapidly in the small- and medium-sized FPD markets, and manufacturers have announced substantial capital investments with respect to the development of new large-sized OLED FPDs, particularly OLED televisions. Commercial interest in OLED lighting products is also strong, suggesting that these products represent a substantial opportunity for growth in the future. In addition, there is potential for the future development of markets in other organic electronic devices such as OPVs and OTFTs. Having proved its commercial feasibility in the FPD market, we believe that OLEDs are poised to develop into a widespread and potentially dominant technology in both the FPD and lighting markets.

Flat Panel Display Market

        The recent growth of the FPD market has been driven largely by the proliferation of mobile consumer electronic devices with small-sized FPDs, such as mobile phones, MP3 players and smartphones, and with medium-sized FPDs, such as digital cameras, e-readers, and tablet PCs. Large-sized FPDs have also been adopted in products such as televisions, desktop computer monitors and notebook computers.

        OLED technology is rapidly gaining market share in the FPD market because it offers superior image quality, form factor and power efficiency as compared to existing LCD and PDP technologies. According to DisplaySearch, the market share of OLED FPDs has grown from $0.6 billion or 1% of the FPD market in 2008 to $4.3 billion or 4% of the FDP market in 2011 at a CAGR of 88%. OLED FPDs produce richer, more accurate colors with a greater contrast between black and white than LCDs and PDPs. In addition, OLED FPDs can display fast moving videos better than LCDs and can be viewed from a wider angle with less distortion. Because OLED FPDs produce light from individual OLEDs within the display itself rather than filtering light produced by another source, they can be manufactured without the backlight unit required in LCDs, resulting in a display that is substantially thinner and lighter than an LCD and which may, in the future, be produced at a lower cost. OLED FPDs are more power efficient than PDPs, primarily because they operate at lower temperatures, and are also more power efficient than LCDs because the individual OLEDs in the display can be turned off when not emitting light, unlike the backlight of an LCD which is always on. Because of these advantages, many industry analysts believe that OLED technology represents the future of the FPD market. According to DisplaySearch, global OLED FPD revenues are projected to increase from $1.6 billion in 2010 to $25.5 billion in 2018 at a CAGR of 41%.

        The adoption of OLED FPDs was initially slowed by short display lifetimes, limited manufacturer production capacity and high prices. In the last several years, however, the lifetime of OLED FPDs has approached that of LCDs and PDPs, and small-sized OLED FPDs have gained a significant share of the smartphone market, primarily through the AMOLED smartphones sold by SMD, the

66


Table of Contents

current market leader in OLED FPDs. AMOLED FPDs have become the dominant OLED FPD in use today because they allow manufacturers to control individual pixels in the display through the thin film transistor, or TFT, backplane of the display. According to DisplaySearch, as of December 31, 2011, SMD had sold more than 30 million Galaxy S and SII smartphones with AMOLED FPDs, representing 6% of total smartphone sales in 2011. Medium-sized OLED FPDs are also being introduced into tablet PCs by SMD, and both SMD and LGD have announced plans to develop large-sized televisions using OLED technology and have recently demonstrated 55 inch OLED televisions at the 2012 Consumer Electronics Show. According to DisplaySearch, OLED televisions are projected to become the second largest source of OLED revenues by 2015, behind smartphones, growing from a $300 million global market in 2012 to a $6 billion market in 2018 at a CAGR of 65%.

        Manufacturing capacity for OLED FPDs is consequently growing, which will in turn likely lead to future decreases in price. SMD and LGD have announced plans to invest approximately $6 and $2.8 billion, respectively, in OLED FPDs in 2012, with SMD also halving its investment in LCDs to approximately $2 billion in the same period. Both SMD and LGD have constructed substantial new Generation 5.5 manufacturing facilities for the production of small-sized OLED FPDs used in smartphones, and SMD has constructed additional Generation 5.5 facilities for the production of medium-sized OLED FPDs used in tablet PCs. Both manufacturers have also announced plans for the construction of new Generation 8.5 manufacturing facilities intended for the production of OLED televisions of up to 60 inches in size. Because LCD manufacturers such as SMD and LGD can convert their existing manufacturing facilities to OLED technology and reuse their LCD TFT backplane manufacturing capacity with OLED FPDs, the development of OLED FPDs represents a natural evolution for LCD manufacturers. According to DisplaySearch, over 10 new OLED manufacturing facilities will be built or converted by SMD, LGD, AU Optronics, or AUO, and other manufacturers in 2013 and 2014. Increased manufacturing capacity and availability to consumers should create economies of scale and help drive down prices, particularly with respect to medium-and large-sized OLED FPDs used in tablet PCs and televisions. We believe that the cost of OLED FPDs will approach that of LCDs by 2015, and that OLED FPDs will be cheaper to manufacture than LCDs in the long run.

        OLED technology may also allow manufacturers to develop FPDs that are impossible to create with current display technology. Because OLEDs can be applied to a variety of substrates, such as glass, metal foil or plastic, manufacturers may be able to create FPDs that are transparent and flexible. Small-sized prototypes of such products have already been demonstrated by display manufacturers and OLED technology companies, and LGD has expressed interest in developing plastic OLED FPDs for mobile phones because such displays may be lighter, more robust and more shock absorbent than current glass FPDs.

Lighting Market

        OLED products in the lighting market are currently in a nascent stage of development. There is strong commercial interest in the development of such products, however, and we believe that OLED lighting products have the potential to offer substantial improvements over existing lighting technologies with respect to light quality, form factor and power efficiency.

        While OLED technology represents an evolutionary improvement over existing display technology, OLED technology represents a fundamental shift in the lighting market. Current lighting products and installation standards are based around a two-component view, in which light sources, which generate the light, are joined with luminaires, which distribute it. In contrast, OLED lighting products apply the light source, the OLEDs, directly to the surface of a substrate material and, as a result, combine light source and luminaire in a manner distinct from current lighting products. Because OLED lighting products produce diffuse homogenous light from a flat thin

67


Table of Contents

surface, their design and use varies widely from current lighting products based on point sources of light, and they offer substantial new opportunities for lighting installations and designs based on illuminated surfaces and embedded lighting. We estimate that the nascent OLED lighting market will develop into at least a $3.5 billion global market by 2018. In addition, DisplaySearch and NanoMarkets project that the OLED lighting market will develop into a $6 and $9.9 billion global market, respectively, over the same period.

        Development and growth in the lighting market are being driven primarily by the push for greater power efficiency. Existing lighting technologies such as incandescent and halogen produce high quality light, but their energy inefficiency has led numerous countries, including the United States, Canada, Australia, Japan, China, India, Russia, Brazil and the European Union, to phase out the use of such bulbs over the next five to ten years. OLED lighting technology produces a diffuse light with quality comparable to that of incandescent bulbs and with a power efficiency that may eventually meet or surpass that of fluorescent and LED lighting technology without the drawbacks associated with these technologies, namely poor light quality and the need for adequate thermal management and secondary light distribution systems such as mirrors, lens or diffusers. Because OLED lighting products do not require a separate luminaire beyond the substrate on which the OLEDs are deposited, OLED lighting technology can be easily applied to large-area lighting installations. OLED lighting products also switch on instantaneously and are fully dimmable. As it is possible to produce OLED lighting panels that are both transparent and flexible, the adoption of OLED lighting technology may also allow manufacturers to develop innovative lighting products.

        Several technological challenges have slowed the adoption of OLED lighting products. OLED lighting products have yet to reach lifetimes comparable to those of LED lighting products and are currently more expensive to manufacture than existing lighting products. Successful commercialization of OLED lighting technology will also require the development of new standards for the design and installation of OLED panels and a widespread understanding of the potential benefits and applications of OLED lighting. Numerous governmental programs are pushing forward the development of OLED lighting, and according to DisplaySearch, $156 million has been invested in OLED lighting projects in the European Union, United States, Japan and South Korea.

Other Organic Electronics

        In addition to OLED FPD and lighting products, markets are also developing for other organic electronic devices, such as OPVs and OTFTs. OPVs use organic materials to generate electricity from light. Because of their flexibility, light weight, and high performance in low or variable light situations, OPVs may be used as sources of electricity for portable electronic devices, or in a variety of markets such as building-integrated systems, signage, packaging and smart fabrics. Because of their unique properties, such as flexibility and potential for large-area surface printing production processes, we believe that applications of OPVs may continue to grow in the future.

        In addition, we believe that OTFTs and organic diodes show strong promise for future use in products where large-area, flexible electronic circuits are required, such as electrophoretic, or e-ink, displays, large-area photodetectors, LCDs and OLED FPDs. OTFTs may offer a superior mix of properties for use in lightweight, flexible products mounted on cheap, disposable plastic substrates because of the low processing temperatures required to manufacturer OTFTs. The first OTFT products to enter the market today are e-readers designed by Plastic Logic, and we believe that this market will continue to grow in the future.

Our Solutions

        Our organic conductivity doping technology and proprietary materials enable display and lighting manufacturers to improve the performance and lifetimes of their OLED products and

68


Table of Contents

organic electronic devices while decreasing manufacturing complexity and cost. By increasing the conductivity of the transport layers in the OLED stack, our technology, which we refer to as Novaled PIN OLED® technology, improves the injection and transport of electrical charges to the emission layer. Through use of Novaled PIN OLED® technology and materials, manufacturers are able to achieve a better balance of power efficiency, stability and lifetime, creating what we believe to be the highest performing OLED devices. In particular, Novaled PIN OLED® technology and materials allow manufacturers to:

    Increase power efficiency.  OLEDs produced using Novaled PIN OLED® technology and materials can achieve similar levels of performance with lower voltage and current requirements. The power efficiency of OLEDs can be further increased by use of our outcoupling materials, which increase the amount of light extracted from the OLED.

    Increase stability.  As a result of their increased power efficiency, OLEDs produced using Novaled PIN OLED® technology and materials are more stable than conventional, undoped OLEDs because they generate less heat and allow for the use of thicker transport layers.

    Increase lifetimes.  Because of their increased power efficiency and stability, OLEDs produced using Novaled PIN OLED® technology and materials have longer lifetimes than conventional, undoped OLEDs, thus increasing the lifetime of OLED FPD and lighting products.

    Increase design flexibility.  OLEDs produced using Novaled PIN OLED® technology and materials can be easily integrated with a wide variety of contact materials and allow for greater freedom in OLED stack and product design.

    Decrease manufacturing complexity and cost.  OLEDs produced using Novaled PIN OLED® technology and materials are cheaper and easier to manufacture than conventional, undoped OLEDs because they often do not require additional injection layers in the OLED stack which, in turn, reduces the number of evaporation chambers required in the manufacturing process.

        The specific improvements resulting from use of Novaled PIN OLED® technology and materials depend on the products to which they are applied. For OLED FPDs, we have successfully used Novaled PIN OLED® technology and materials to optimize product manufacturers' existing OLED stacks. Taking each factor independently, Novaled PIN OLED® technology and materials can reduce voltage requirements by up to 40%, increase current efficiency by up to 20% and improve lifetimes by up to 500%, which we believe are significant performance improvements. As a result of these improvements, overall display product power efficiency can be increased by up to 20%, and overall display product lifetimes can be increased by up to 500%. Similar performance improvements have also been achieved by the use of Novaled PIN OLED® technology and materials in OLED lighting products and organic electronic devices. For more details, see " — Our OLED Technologies and Materials — Performance Improvements."

Our Competitive Strengths

        As the only company currently licensing and selling organic conductivity doping technology and materials for use in the commercial mass production of display products in the OLED industry, we believe that the following are our key competitive strengths:

Well-positioned to capitalize on the expected growth of the OLED market

        We are strategically well-positioned to capitalize on the current growth of the OLED FPD market and the expected growth of the OLED lighting market by leveraging our established relationships with key display and lighting manufacturers. We are currently the only company licensing and

69


Table of Contents

selling organic conductivity doping technology and materials for use in the commercial mass production of display products in the OLED industry, which we believe gives us a strong first mover advantage as the OLED market develops. In the OLED FPD market, we have developed strong relationships with the leading display manufacturers SMD and LGD, both of which currently use one of our doping materials in the mass production of their mobile phone displays. Because of our existing relationships with SMD and LGD, we are strategically well-positioned to benefit from their future mass production of other OLED FPDs, such as those in tablet PCs and televisions, and we have already begun testing the use of our materials in SMD and LGD's OLED televisions. We believe that SVIC's 2011 acquisition of what is currently 9.84% of our company validates our market position as the leading provider of OLED stack solutions based on organic conductivity doping technology. In the OLED lighting market, we are pioneering the research and development of OLED lighting products based on our partnerships with key manufacturers of lamps, such as Astron-FIAMM and Philips, and key manufacturers of luminaires, such as Acuity Brands and Trilux. By working closely with such manufacturers to develop commercial OLED lighting products, we believe that we will drive adoption of our technologies and materials within the OLED lighting market as it develops.

Leader in optimizing OLED performance through our unique combination of organic conductivity doping technology, proprietary materials and OLED stack development expertise

        We are the leader in optimizing OLED performance through our unique combination of organic conductivity doping technology, proprietary materials and OLED stack development expertise. We work with manufacturers to design customized OLED stack solutions that meet or exceed their power efficiency, performance and lifetime requirements. We believe that we have one of the industry's largest databases of OLED experimental and performance data, allowing us to design optimal OLED stack solutions under a variety of conditions. Devices produced using Novaled PIN OLED® technology are substantially more power efficient than conventional, undoped OLED devices and have longer lifetimes and greater stability at the same operating temperatures. Our technology and materials are easily integrated onto all substrate materials, such as glass, metal and plastic, and with transparent oxide and metal contact materials. Use of our outcoupling solutions may allow manufacturers to increase the amount of light extracted from their OLEDs by up to 80%, with approximately half of the gains coming from use of our proprietary outcoupling materials. Our Novaled PIN OLED® technology and materials can be combined with all current emission layer technologies, including those of UDC and Sumitomo, and we believe that our technology and materials have the potential to improve the performance of any OLED product while representing only a small fraction of the total OLED product manufacturing cost.

Broad portfolio of patents protecting our intellectual property

        We have a broad portfolio of more than 500 pending and issued patents covering important geographical markets and key OLED technologies, structures and materials. We focus on obtaining patents in jurisdictions where major OLED manufacturers are headquartered, such as South Korea, and in jurisdictions that represent key OLED product markets, such as Europe and the United States. With an average patent age of five years and first key patent expiry dates that are not until the end of 2020, we believe that our patent portfolio provides us with a strong competitive advantage, especially in the areas of organic doping, OLED FPD and lighting products and other organic electronics. Important patent families cover device architecture technology, our proprietary materials and their applications, doped devices and our organic doping process, lighting, outcoupling, OPVs and other patents related to emission layers. Through an agreement with TUD, we have the right to acquire certain intellectual property related to optoelectronics, all inventions in the areas of doping materials for organic electronic applications and, subject to limited exceptions, all inventions where the relevant innovation relates to doped OLED stacks. We also anticipate

70


Table of Contents

expanding our patent portfolio through our established research and development platform of highly qualified engineers, who work closely with our manufacturing group to develop further technological improvements. Because we generate sufficient cashflow to sustain our research and development investments, we believe that we are well-positioned to not only defend our current patent position, but also to expand it in the future.

Strategic partnerships with key innovators in the OLED industry

        We have developed strategic partnerships with key innovators in the OLED industry, which we believe will enable us to position ourselves at the forefront of the rapidly developing OLED market. Our strategic partnerships take various forms, and are typically designed to allow us to cooperate with other OLED researchers and manufacturers with respect to the sharing and testing of OLED technology and materials. Through these partnerships, we increase recognition of and familiarity with our brand, technology and proprietary materials, and we also gain access to materials that are used by OLED manufacturers in the production of their devices. We are in constant discussion with our current and future partners regarding our level of collaboration. Our current partners include producers of emission and other OLED materials, including UDC, Sumitomo, BASF, SFC and Hodogaya, as well as producers of OLED substrates, electrodes and outcoupling materials such as Saint-Gobain. We have also completed partnerships with other OLED substrate producers such as 3M and Asahi Glass, or AGC. We advise equipment manufacturers such as Aixtron, Applied Materials, Sunic and SNU on the development of equipment for the manufacture of OLEDs, and we engage in research and development projects with a number of commercial and non-commercial partners, including Philips, Sumitomo, Heliatek, Bosch, Alanod, ArcelorMittal, TUD, the Fraunhofer Institute of Dresden and the Max Planck Institute of Stuttgart. In the future, we plan to develop further strategic partnerships with commercial organizations in Asia, as well as academic institutions in Asia, Europe and the United States.

Leader in the research and development of OLED technologies and materials

        We are a leader in the research and development of OLED technologies and materials designed to enhance the performance of OLED products and organic electronic devices, and we believe that our knowledge of OLED stack development represents a competitive advantage relative to other OLED materials companies. We also believe that our unique combination of physics, chemistry and engineering expertise, together with our optics skills, will allow us to continue developing innovative OLED technologies and materials and to continue supporting the commercialization of these technologies and materials by OLED product manufacturers. We have developed industry-leading OLED research facilities and test equipment, and we believe that we have one of the industry's largest databases of OLED experimental and performance data. We also believe that we are currently the industry leader with respect to OLED doping technology and research, and that our knowledge of OLED stack development represents a competitive advantage relative to other OLED materials companies. We have also conducted substantial research into integrating our technologies and materials into OLED FPD and lighting products and other organic electronic devices. In addition to our research facilities in Dresden, we are also preparing to open new product application development facilities close to our major manufacturing customers in South Korea in order to further enhance our technological and research collaboration. Because of our strong research and development position, we believe that we will be able to maintain our position as a leading provider of OLED technologies and materials in the future.

Experienced and capable management team

        The members of our management team have been with our company since shortly after we commenced operations in 2003. Because of their in-depth understanding of the OLED industry and

71


Table of Contents

the needs of manufacturers in the FPD, lighting and organic electronics markets, our management has begun to successfully commercialize our technology and materials in the display and lighting markets. Gildas Sorin has served as chief executive officer and chairman of our management board since August 2003. His prior experience includes management positions at Philips in the field of displays and at Thomson Multimedia. Our chief financial officer, Harry Böhme, joined our company at the end of 2006 after serving as general counsel of Intershop Communications AG and Vignette Deutschland GmbH. Gerd Günther, our chief marketing officer, joined us in 2005 after serving as global director of marketing at Grundig AG and as acting Business Unit Leader at Philips. In developing our business strategy, the management board is supported by key officers, including our business development manager, the heads of our three business lines, and our chief scientific officer, Dr. Jan Blochwitz-Nimoth, who is a member of our supervisory board, a key inventor of Novaled PIN OLED® technology and member of the team which received the 2011 Federal President's Award for Innovation and Technology (Deutscher Zukunftspreis), honoring those who produce and industrially exploit breakthrough scientific results and achievements.

Our Business Strategy

        Our primary goal is to market and further strengthen our portfolio of OLED technologies and proprietary materials in order to increase sales and licensing of our materials and technologies in the OLED FPD and lighting markets. In addition, we are also working to develop product applications of our technology and materials in the organic electronics field, particularly with respect to OPVs and OTFTs. To achieve these goals, we are focused on the following key strategies:

Drive Novaled PIN OLED® technology and materials into mass production in the display market

        Our primary strategy is to further drive the use of our technologies and materials in the mass production of OLED FPDs in order to achieve broad commercial adoption of our solutions in the OLED industry. Because of the expected growth of the OLED FPD market, we are targeting leading manufacturers of consumer electronic devices, including FPDs, as commercial partners, either as purchasers of our materials or as licensees of our technology. We do so by supplying our proprietary materials to product manufacturers for evaluation, use in product development and other pre-commercial activities. In addition to our close cooperation with SMD and LGD, which includes the testing of our materials in their future OLED televisions, we have also entered into development agreements with AUO and ChiMei Innolux, or CMI, with the goal of adopting our technologies and materials in these companies' FPD products. We have also developed a range of other materials that complement Novaled PIN OLED® technology and improve performance throughout the non-emissive layers of the OLED stack. As our business grows, we anticipate offering product manufacturers integrated OLED stack solutions that pair Novaled PIN OLED® technology and doping materials with complementary host materials. We also provide research and development, manufacturing and engineering consulting services to manufacturers which want to enter the OLED market or improve the performance of their existing OLED FPD products. We are active in the growing Chinese market for OLED products and have entered into a number of non-disclosure agreements with companies in China in order to investigate the suitability and feasibility of developing OLED products based on our technologies and materials. We anticipate entering into development agreements with Chinese companies in the future, and we believe that growth in both China and Asia generally will be an important part of our business strategy.

Pioneer OLED technologies and products in the lighting market

        We are working to drive market acceptance of OLED lighting products, and to specifically establish the use of Novaled PIN OLED® technology and our proprietary doping, host, blocking and outcoupling materials in manufacturing and product development in the OLED lighting market in

72


Table of Contents

order to benefit from the significant growth opportunities projected for OLED lighting products in the future. To this end, we are actively engaged in research and development programs involving our technology and materials with leading lamp and luminaire manufacturers, including Astron FIAMM, Philips, Trilux and Acuity Brands, in order to help drive the adoption of OLED lighting via product prototypes. Because OLED lighting products combine lamp and luminaire into a single lighting product and thus require an innovative approach to design and installation, we believe that OLED technology may revolutionize the lighting market. We have developed luxury OLED luminaires which are intended to raise consumer awareness of and increase demand for such products. We believe that our research and product development provides us with crucial product know-how and positions us to further commercialize our technologies and materials in the OLED lighting market as it develops.

Enter into other organic electronics fields

        We are actively exploring applications of our technology and materials to other organic electronics, particularly OPVs and OTFTs. Novaled PIN OLED® technology and materials can be easily adapted to OPVs and provide similar benefits with respect to power efficiency, performance and lifetimes. We are currently working with Heliatek to increase the efficiency of its OPVs, which could lead to significant innovation and cost savings in the solar energy market. With respect to OTFTs, our goal is to develop and improve transistor technologies for FPD product applications. We intend to develop and sell materials suitable for use in organic electronics generally, secure as much broad intellectual property as possible and explore other fields of application for our doping and other proprietary materials. Our long-term goal is to play a leading role in new fields of organic electronics by employing the technologies and materials that we continue to develop.

Maintain our capital efficiency through outsourcing the manufacture of our proprietary materials

        We currently outsource and intend to continue outsourcing the manufacture of our proprietary materials on a contract basis, which allows us to minimize our capital expenditures and maintain a capital efficient business model. BASF currently produces the proprietary doping material that we sell to SMD and LGD, and we believe that BASF has sufficient capacity to meet the present and anticipated future demand for our proprietary materials. We have developed and continue to research other materials, including host, blocking and outcoupling materials, and we anticipate entering into new agreements with BASF or other manufacturers for the production of these materials as and when demand for them develops.

Our OLED Technologies and Materials

What are OLEDs and how do they work?

        OLEDs are light-emitting diodes produced with organic materials. A light-emitting diode, or LED, is a semiconductor device that emits light when an electrical current passes through it. Although LEDs are typically produced with inorganic materials such as gallium arsenide, organic LEDs, or OLEDs, are produced with carbon-based compounds that also emit light in response to electrical current. Whereas LEDs are point sources of light that generate a large amount of light from a very small area, OLEDs are thin-film devices that produce diffuse, homogenous light from a flat surface. The use of OLEDs allows for the creation of light-emitting products, such as FPDs and luminaires, that are thinner, lighter and more flexible than those produced with LEDs because OLEDs can be applied to a wide variety of substrates, such as glass, metal foil, plastic and potentially textiles. Because they operate at lower voltages and do not require secondary optical fixtures for controlling light emission, OLED products are also typically more power efficient than those produced with LEDs.

73


Table of Contents

        Most state-of-the-art OLEDs are structured as multiple thin organic layers, collectively known as the OLED stack, that are placed between two electrodes, an anode and a cathode. At the center of the OLED stack is the light-emitting, or emission, layer. When voltage is applied to the OLED, charge carriers, electrons from the cathode and what are known as "holes," or the absence of electrons, from the anode, are injected into the adjacent organic layers, which are called the electron transport layer, or ETL, and hole transport layer, or HTL, respectively. These charge carriers move through the ETL and HTL toward the emission layer, where they recombine and produce light. The color of light produced can be controlled by the use of different phosphorescent or fluorescent organic materials in the emission layer, and its intensity depends on the amount of voltage applied. Because the light produced by the emission layer must exit the OLED in order to be useful for illumination purposes, one of the electrodes, typically the anode in a so-called bottom-emitting OLED, must be transparent. The following graphic shows the structure of a typical bottom-emitting OLED:

GRAPHIC

        In order to produce a useful OLED product, the OLEDs must be mounted on a substrate and then encapsulated in order to prevent their degradation due to humidity, oxygen and other impurities in air. Because OLEDs can be mounted on a variety of substrates, OLED products can be opaque or transparent, or rigid or flexible, depending on the substrate and encapsulation materials surrounding them.

        For FPDs, the use of OLED technology allows manufacturers to produce thinner, lighter and more power-efficient displays than those produced with LCD technology, primarily because an OLED FPD is emissive rather than transmissive and does not require a separate backlight unit to generate light. In addition, an OLED FPD only requires one polarizer to minimize reflection on the display due to ambient light instead of the two polarizers required by LCDs. Because OLED FPDs use the same technology as LCDs to control individual pixels in the display, the TFT backplane, conversion from LCD to OLED technology represents a natural evolution for LCD manufacturers.

74


Table of Contents


The following graphics shows some of the similarities and differences between OLED FPDs and LCDs, including the lack of a back light unit and the use of one less polarizer in an OLED FPD as compared to an LCD:

GRAPHIC

75


Table of Contents

Challenges Facing Conventional OLEDs

        Conventional OLEDs face several challenges, including the production of blue light, efficient injection and transport of electrical charges, extraction of light and production of white light.

Production of blue light

        The emission layer of an OLED stack typically contains different organic materials designed to produce the three primary colors red, green and blue. The production of red and green light is currently relatively efficient because these colors can be produced using higher luminance phosphorescent materials instead of the lower-performing fluorescent materials used to produce blue light. Because the emission materials used to produce blue light have lower power efficiency and lower lifetimes than the materials used to produce red and green, production of blue light is often the limiting factor in OLED product performance.

Injection and transport efficiency

        The power efficiency of an OLED depends primarily on how efficiently the charge carriers can be injected into the OLED stack and how efficiently they can pass through the transport layers into the emission layer. Injection efficiency is often low because the conductivity of the organic host materials that make up the transport layer is typically much lower than that of inorganic semiconductor materials, and because there are a limited number of materials available in mass production that are sufficiently transparent and conductive to serve as electrodes. The use of intermediate layers with good injection and transport characteristics between the electrodes and transport layers, so-called injection layers, can increase injection efficiency of the OLED stack, but often further limits OLED stack design because injection layers must be paired with a specific electrode material.

Light extraction

        Because the light produced by the emission layer must exit the OLED in order to be useful for illumination purposes, the performance of an OLED also depends on how efficiently light can be extracted, or outcoupled, from the emission layer. In conventional OLEDs, this process is relatively inefficient, with only 20 to 30% of the produced light leaving the device toward the observer. The rest is lost in a variety of processes. First, a large percentage of the generated light is reflected back inside the OLED upon reaching the boundary of the organic layers in the OLED stack. Light is also trapped in the substrate rather than exiting into the outside air, and, depending on the design of the OLED, some of the generated light may be absorbed by the cathode rather than being reflected toward the observer. Other light losses may occur due to a refractive index mismatch between the organic layers of the OLED stack and the substrate, and between the substrate and the outside air.

Production of white light

        Production of white light is challenging with OLEDs because there is no single emission material that produces white light. One approach is the so-called RGB patterning process in which red, green and blue emission materials are precisely distributed within the emission layer so that white light can be produced by combining these primary colors. RGB patterning, however, requires difficult and costly manufacturing processes, and the quality of white light produced may change due to the different aging of the red, green and blue emission materials. A less expensive approach involves the use of so-called single-unit white OLEDs, which are produced by placing complementary emission layers, typically red, green and blue, on top of each other in order to produce white light from a single OLED stack. In addition to single-unit white OLEDs, manufacturers

76


Table of Contents

may also use tandem-device white OLEDs in which two OLED stacks, one of which produces red and green light and the other of which produces blue light, are placed on top of each other within a single set of electrodes. Because the HTL and ETL of these two OLED stacks are adjacent to each other, they form a positive-negative, or p-n, junction across which charge carriers must flow. Although tandem-device white OLEDs are more power efficient and have longer lifetimes than single-unit white OLEDs, they increase the complexity and thickness of the OLED product by increasing the number of layers in the OLED stack.

Our Technical Solutions

        Our technologies and materials address the problems of injection and transport efficiency, light extraction and production of white light. In addition, they are designed to increase the stability and lifetimes of OLED products while decreasing their manufacturing complexity and cost.

Novaled PIN OLED® technology

        Novaled PIN OLED® technology uses electrically doped organic materials to increase the injection and transport efficiency of the transport layers of the OLED stack. This organic doping is accomplished in a manner similar to that of inorganic semiconductor doping. For the HTL, doping materials which act as electron acceptors are co-evaporated with the host material, which results in the formation of additional charge carriers, or "holes," in the HTL. The ETL is similarly doped with an electron-donating material that releases additional electrons into the ETL. Because the number of available charge carriers in both transport layers is significantly increased, the conductivity, and hence the injection and transport efficiency, of these layers is also increased by several orders of magnitude. This results in significantly lower voltage requirements for the OLED stack, allowing manufacturers to design top-emitting, bottom-emitting or transparent OLEDs with extremely low operating voltages. Because the performance of blue emission material is often the limiting factor in overall OLED performance, Novaled PIN OLED® technology may be used to increase the power efficiency of blue emission material, which in turn increases the overall power efficiency of the OLED stack. Because of their decreased voltage requirements, OLEDs produced using Novaled PIN OLED® technology also have increased stability and operating lifetimes as compared to conventional, undoped OLEDs. In addition, the use of doped transport layers often makes injection layers unnecessary, thereby simplifying OLED stack design and reducing manufacturing complexity and cost. Novaled PIN OLED® technology is easily integrated on all contact materials and substrates, and can be used with all current emission layer technologies, allowing manufacturers to easily adopt Novaled PIN OLED® technology in their existing OLED products. The following graphic shows a typical bottom-emitting OLED produced with Novaled PIN OLED® technology:

GRAPHIC

77


Table of Contents

Our proprietary materials

        In addition to the proprietary doping materials developed for use in Novaled PIN OLED® technology, we have also developed a variety of other proprietary materials designed to increase the transport, outcoupling and blocking performance of OLED stacks, as well as the performance of tandem-device white OLEDs. The use of our materials also offers similar performance benefits for other organic electronic devices, including OPVs and OTFTs.

    Doping and host materials

        Our molecular positive and negative doping materials, or our p- and n-doping materials, are used in Novaled PIN OLED® technology to increase the performance of the HTL and ETL, respectively, by increasing the injection and transport efficiency of these transport layers. We also sell host materials for use in the HTL and ETL that are matched to the characteristics of our p- and n-doping materials. By combining our proprietary doping and host materials, manufacturers are able to substantially increase the conductivity of their transport layers, resulting in increased power efficiency, stability and lifetimes. Because our doping and host materials are stable at high operating temperatures, they are suitable for use in a variety of OLED products.

        The increased conductivity of the transport layers resulting from the use of our doping and host materials also allows manufacturers to produce thicker, more stable transport layers with a variety of benefits for OLED stack performance. Because the transport layers are thicker, the emission layer can be placed at an optimal distance from the electrodes, increasing outcoupling performance and color purity without a loss in power efficiency. The use of thicker transport layers also results in better production yield because increasing the distance between the electrodes decreases the impact of local electrical shorts on product stability.

        Our doping and host materials allow manufacturers to avoid light loss due to cathode absorption, which occurs when the cathode in a bottom-emitting OLED fails to reflect all of the light produced by the emission layer and instead absorbs a portion of it. Cathode absorption loss varies exponentially with the distance between the emission layer and the cathode, and can be avoided by using thicker ETLs produced with our doping and host materials.

    Outcoupling materials

        Our outcoupling materials are designed to increase the amount of light outcoupled from the OLED. To increase light extraction from the emission layer, manufacturers can use a scattering layer in the OLED stack based on our internal outcoupling materials to increase the amount of light entering the substrate. Manufacturers can then apply standard external outcoupling films to efficiently outcouple light in the substrate toward the observer. By combining our internal outcoupling materials with standard external outcoupling films, our outcoupling materials can be used to enhance the power efficiency of OLED products by increasing the amount of light emitted from the device.

    Blocking materials

        Our blocking materials increase the operating efficiency of OLED products. Transport layers have dual roles in the performance of OLEDs. In addition to facilitating charge carrier injection and transport to the emission layer, the HTL and ETL must also block electrons and holes from escaping from the emission layer, in order to increase recombination of these charge carriers, and hence light production, within the OLED stack. By increasing the blocking performance of the transport layers, our blocking materials increase the power efficiency and lifetime of OLED products.

78


Table of Contents

        In addition, through use of our blocking materials, manufacturers can change the emission layer of their existing OLED stacks without modifying the surrounding transport layers. This flexibility allows manufacturers to use Novaled PIN OLED® technology and our other proprietary materials without worrying about their choice of emission layer technology, and allows us to adapt our technology and materials to a wide variety of OLED products.

    P-N junction materials

        Our p-n junction materials decrease the voltage requirements and thus increase the operating stability of tandem-device white OLEDs by lowering the voltage loss over the p-n junctions within tandem-device white OLEDs. In addition, our p-n junction materials allow manufacturers to produce metal-free tandem-device white OLEDs, and to increase outcoupling efficiency due to reduced light absorption losses.

Other organic electronics solutions

        The use of our materials allows manufacturers to increase the power efficiency, stability and lifetimes of their OPV and OTFT devices.

    Organic photovoltaics (OPVs)

        The use of our proprietary materials in OPVs results in benefits similar to those in OLEDs. Our PIN Tandem technology allows for the stacking of multiple OPVs while also simplifying the design of the individual OPV stack. By stacking multiple OPVs, manufacturers can increase the amount of light collected by their OPV devices because they can include multiple absorption layers, each of which is optimized for a particular part of the solar spectrum. In addition, our doping materials allow manufacturers to optimize the thickness of their absorption layers in order to further improve the collection of light. The use of our PIN Tandem technology also eliminates the need for extraction layers in the OPV stack, thereby simplifying OPV stack design. The increased amount of light captured by the use of multiple optimized absorption layers, in conjunction with the increased stability provided by our PIN Tandem technology, results in increased power efficiency and lifetimes in OPV devices.

    Organic thin film transistors (OTFTs)

        Use of our proprietary materials increases OTFT performance, primarily by enabling area selective contact doping and reduced contact resistance, particularly for higher frequency operation. Because use of our proprietary materials also results in lower materials requirements for the injecting electrode, manufacturers are able to replace gold with less expensive contact materials in their OTFTs. Use of our doping technology and materials may also potentially allow for new transistor designs with better current driving stability than existing OTFTs.

Performance Improvements

        The use of Novaled PIN OLED® technology and materials results in different performance improvements depending on the specific products to which they are applied. For OLED FPDs, we have successfully used Novaled PIN OLED® technology and materials to optimize product manufacturers' existing OLED stacks. Taking each factor independently, Novaled PIN OLED® technology and materials can reduce voltage requirements by up to 40%, increase current efficiency by up to 20% and improve lifetimes by up to 500%, which we believe are significant performance improvements. As a result of these improvements, overall display product power efficiency can be increased by up to 20%, and overall display product lifetime can be increased by up to 500%. Novaled PIN OLED® technology and materials can also reduce the number of layers in

79


Table of Contents

the OLED stack by up to 20%, resulting in decreased manufacturing costs. For example, the use of Novaled PIN OLED® technology can make injection layers unnecessary in the OLED stack, thereby reducing the number of evaporation chambers needed in the manufacturing process. When using Novaled PIN OLED® technology and materials to improve our customers' existing OLED stacks, we typically balance these factors in order to produce an optimal solution based on their production requirements.

        For OLED lighting products, Novaled PIN OLED® technology and materials enable manufacturers to use the lowest operating voltages, around three volts, for single-unit white OLEDs, and thereby increase the power efficiency of their OLED stacks by up to 40%. By pairing Novaled PIN OLED® technology with our outcoupling solutions, which improve the extraction of light that would otherwise remain trapped in the OLED stack, the power efficiency of the OLED stack can be improved by up to an additional 80%, with approximately 50% of the additional power efficiency improvement coming from the use of Novaled's outcoupling materials. As a result, lighting product lifetimes can be improved by more than a factor of three due to lower operating voltage requirements.

        Our doping technologies and materials can also be used to enhance the performance of other organic electrical devices, such as OPVs and OTFTs, that rely on the transport of electrical charges. Through use of our doping technologies and materials, we have been able to increase the conversion efficiency of a one square centimeter OPV by 25%, primarily as a result of using a stacked device structure with our PIN Tandem technology.

Our Products and Services

        We generate revenues from our products and services in three ways: selling our proprietary materials, licensing our intellectual property and providing research and development services. As our business grows, and as the markets for OLED products further develop, we anticipate entering into sales, licensing and research and development agreements with a variety of product manufacturers.

        Over the past three years, revenues generated from sales of our materials have increased significantly in absolute terms, but also in proportion to our other sources of revenue. The growth in our materials sales revenues is based primarily on our purchase agreement with SMD for the sale of one of our doping materials. The following tables show our revenue by major categories and geographic area:

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Sales of materials

    2,059     5,363     15,185  

License fees and royalties

    2,613     0     0  

Research and development services

    1,754     1,493     2,220  
               

Total

    6,426     6,856     17,405  
               

80


Table of Contents


 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (in € thousands)
 

Germany

    1,979     1,257     1,047  

France

    2,624     1,110     1,207  

South Korea

    620     2,795     12,947  

Other countries

    1,203     1,694     2,204  
               

Total

    6,426     6,856     17,405  
               

Sales of Materials

        We sell our proprietary materials to product manufacturers for use in the development and production of their OLED products. We are currently the only company selling organic conductivity doping technology and materials for commercial mass production in the OLED display industry. The largest and most important purchaser of our proprietary materials, as well as the source of the vast majority of our materials sales revenues, is SMD, primarily due to its use of one of our doping materials in its OLED mobile phone displays. We have also recently entered into a purchase agreement with LGD, which uses this same doping material in the mass production of its OLED mobile phone displays. Both SMD and LGD are investigating the use of this doping material in their future OLED televisions. In addition to our proprietary doping materials, we also offer over 16 other proprietary materials that can be used to improve the transport, blocking and outcoupling performance of OLEDs and other organic electronic devices either by themselves or in tandem with our proprietary doping materials and Novaled PIN OLED® technology.

        The production of our proprietary doping materials is subcontracted to BASF. While we believe that our contractual arrangements with BASF will continue to allow us to supply our materials purchasers with high-quality materials in the quantity they demand, we anticipate entering into new production agreements with BASF or other producers as part of our overall outsourcing strategy.

License Fees and Royalties

        We license our intellectual property, including Novaled PIN OLED® technology, to manufacturers in the display, lighting and organic electronics markets. We are actively seeking to expand our IP licensing activities with both the existing purchasers of our materials and new product manufacturers. Our primary licensing agreements are with Astron FIAMM, IPMS, Sumitomo and Heliatek.

Research and Development Services

        We provide research and development services for all stages of OLED product development. Our primary development partnerships in the FPD market are with SMD and LGD. For manufacturers which want to improve their existing OLED products, we provide research and development services with respect to OLED FPD and lighting structures, substrates, and signage. We also assist companies in developing OLED and OPV manufacturing processes and evaluate proposed OLED and OPV products and production methods. For manufacturers which are entering the OLED market for the first time, or for experienced OLED manufacturers which need targeted knowledge in specific areas, we offer custom-made know-how packages focusing on OLED FPD and lighting structures, substrates, materials, licensing and general industry information.

81


Table of Contents

Marketing and Sales

        We market our OLED technologies and materials through a dedicated sales team in Europe, through representative offices supported by local agents in Japan and South Korea and through local agents in China and Taiwan. Our European sales team is focused on establishing new research and development contracts and servicing certain key customers worldwide. Our local agents in Japan, South Korea, China and Taiwan are used to establish relationships with local manufacturers and other companies which may be interested in purchasing or licensing our technologies and materials. Because of the highly technical nature of our business, our initial sales contacts typically progress to meetings between our scientists and the technical and scientific personnel of our potential customers in order to fully explain the benefits of our technologies and materials. To better meet our customers' needs and to support their ongoing development and production efforts, we have scientific personnel permanently staffed at our offices in Japan and South Korea, and anticipate following a similar strategy in China as the commercialization of our technologies and materials develops there. We also participate in major industry trade shows and conferences in order to develop awareness of our company, technologies and materials.

Research and Development

        Our research and development activities are focused on advancing our OLED technologies and materials for display, lighting and other organic electronics applications. We conduct this research and development both internally and through various relationships with commercial business partners and academic institutions in order to improve our technology and materials and to make commercial and academic third parties aware of our technology and materials. We believe that our combination of physics, chemistry and engineering expertise, together with our optics skills, will allow us to continue developing innovative OLED technologies and materials and to continue supporting the commercialization of these technologies and materials by OLED product manufacturers. We have developed industry-leading research facilities at our headquarters in Dresden, Germany, and we are preparing to open new product application development facilities located close to our major manufacturing customers in South Korea in order to further enhance our technological and research collaboration.

        In the years 2009, 2010 and 2011, we incurred research and development expenses of €2.6 million, €2.0 million and €1.6 million, respectively, which consist solely of the unfunded costs of our publicly funded internal research and development projects. These expenses are reported net of income we recognized from publicly funded research and development projects, which was €2.8 million, €2.6 million and €2.2 million, respectively, in 2009, 2010 and 2011. Our cost of sales related to research and development projects were €0.5 million, €1.0 million and €3.6 million, respectively, for these same periods, and include both the costs of our non-publicly funded internal research and development projects and the costs of our customer-sponsored research and development projects. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Overview of Income Statement — Research and development expenses."

OLED Display Research

        Our primary research goals in OLED FPDs are to enhance our presence in the mobile display market, and to establish our presence in the growing OLED television market. Our materials, and in particular our doping materials, are currently used by leading OLED FPD manufacturers, including SMD and LGD. To expand the use of our materials, we are working to develop host materials that pair with our doping materials in order to market complete HTL solutions. We are also looking to improve blue pixel performance, power efficiency and lifetimes through use of so-called electron injection materials. In the OLED television market, we are working to ensure that our materials are

82


Table of Contents

compatible with various manufacturing technologies, such as scanning mask, laser-induced thermal imaging or printing, that may become the industry standard as the market for OLED televisions develops. We are also continuing our cooperation with emission material manufacturers, such as UDC and SFC, to ensure that our materials continue to perform well in future OLED stacks.

OLED Lighting Research

        Use of our doping and host materials is well-established in many current pilot OLED lighting projects. Our primary research goals in OLED lighting are to develop technologies and materials suitable for use when commercial production of OLED lighting products begins, and to develop additional functional components for OLED lighting products. We are looking for ways to manage the cost of OLED lighting products through the development of less costly materials and more efficient manufacturing processes. We are also developing outcoupling materials that are designed to maximize the extraction of light from the OLED stack, especially when used with Novaled PIN OLED® technology. We are conducting research on the deposition of OLED stacks on different substrate materials, including metal and metal foils, with the aim of developing more flexible OLEDs. We have begun to develop the next generation of OLED doping materials and are also working with equipment manufacturers to develop new deposition methods for our OLED materials.

Organic Electronic Research

        More so than in display and lighting, our research in organic electronics focuses on the transport layers and doping materials of the OPV stack. Our primary research goals in organic electronics are to ensure the use of our materials as commercial production of organic electronics develops and to facilitate the use of our materials and technology in OPVs. Our research focuses on reducing the cost of OPVs by developing higher-performance and cheaper materials, increasing the air and temperature stability of solar cells and enabling the use of our materials with cheaper and more efficient manufacturing processes. We are also focused on transforming individual devices into real world applications, particularly in the areas of OTFTs and organic diodes, and expect to develop intellectual property which we can license in the future. As part of our long-term research, we are also exploring the development of lithium-ion batteries with organic cathode materials. Although the market potential of this technology is unclear, we believe that we will be able to develop promising new business fields in organic electronics in the future.

Cooperation with Academic Institutions

        In 2008, IPMS opened the Center for Organic Materials and Electronic Devices Dresden, or COMEDD, in Dresden, Germany. IPMS works on electronic, mechanical and optical elements and their integration into tiny "smart" components and systems, with a particular focus on manufacturers which want to extend their products' functions using OLEDs. At COMEDD, research institutions and companies, such as Sunic and Aixtron, work on organic semiconductor materials for OLEDs and OPVs. COMEDD also focuses on developing OLED FPDs and lighting products on glass and other flexible substrates. We work with COMEDD and its participating institutions on the research and development of OLED technologies and materials.

        We continue to invest in research and cooperation agreements with key academic and non-commercial research groups in our target markets of Europe, the United States and Asia. The main focus of these agreements is to drive further "blue-skies" research in applications of our OLED technology, materials and know-how, and also to expose young students and researchers to our technology and materials and train them accordingly.

83


Table of Contents

Publicly Funded Research

        When available, we use public funding to support our research and development activities. This funding comes from three levels: the European Union, Germany, and the German state of Saxony. Because access to this funding is competitive, our project proposal must be accepted and approved, and work commence, before we can apply for reimbursement of a portion of our development costs. We retain sole ownership of any intellectual property derived in whole or in part from public funding although we may be obligated to remain in Saxony for up to five years in order to retain funding received from that state. Funding at the European Union and German levels is awarded on a consortium basis. The members of such consortiums, including ourselves, typically agree to license any intellectually property they develop during the course of project to each other at favorable rates. While public funding is currently an important source of our research and development budget, we anticipate that the overall percentage of our research and development budget derived from public funding will decrease as our revenues grow in the future.

        We have participated and continue to participate in publicly funded research projects in OLED and lighting technology. Key European projects in which we have participated include: OLLA and OLED100.eu, which aimed to develop high performance OLEDs for lighting, and FlexiDis, which was the largest display research project supported by the European Commission and aimed at developing flexible AMOLED FPDs. We are also supporting new key projects, including the German-funded OPEG-Project, which focuses on developing flexible organic solar cells with efficiencies of 10% and lifetimes in excess of 10 years, and the German So-Light project, which aims to develop OLED special lighting applications covering all parts of the value chain.

Intellectual Property

        Along with our personnel, our most fundamental assets are the patents and other intellectual property that we own. Our key patent families cover device architecture technology, our materials and their applications, doped devices and our doping process, lighting, outcoupling, OPVs and other patents related to emission layers. In addition, we have trademarks, design rights and internet domains that we regularly use in the course of our business. Our intellectual property also includes a substantial body of non-patented technical knowledge that we have accumulated over time as a result of our research and development activities.

Our Patents

        Our research and development activities, conducted both internally and through collaborative programs with our research and development partners, have resulted in the filing of a substantial number of patent applications related to our OLED technologies and materials. Our patent portfolio consists of more than 500 issued and pending patents covering many subfields of OLED technology including technology, materials, and device structure. As of December 20, 2011, we had 292 pending patent applications and owned 210 patents. The mean age of these patents is five years, and our first key patents will not begin to expire until November 2020.

        We believe that we have the largest organic doping intellectual property portfolio of any company, which covers our organic doping materials, OLED and other organic electronic device architectures and our doped layer technology. We also own other material and device patents which cover host, outcoupling, blocking and p-n junction materials, as well as lighting applications

84


Table of Contents

and OLED emissions zone structures. The table below provides summary information on the patent families that we believe are most important to our business:

Subject Matter   Key Intellectual Property (filing date)
Materials and Materials Applications   n-dopant, n-doping of organic semiconductors with air stable precursors (2003)
    electron transport material with enhanced dopability for higher conductivities and enhanced device efficiency (2005)
    n-dopant, air stable n-dopant precursors (2006)
    p-dopant, organic acceptors as strong p-dopants for organic semiconductors (2007, 2008)
    n-dopant, use of air stable n-dopant precursors for doping organic semiconductors (2007)
    electron transport material with enhanced dopability for higher conductivities and enhanced device efficiency (2007, 2010)
    p-dopant, organic acceptors as strong p-dopants for organic semiconductors (2008)
    electron transport material with enhanced dopability for higher conductivities and enhanced device efficiency (2010)
    OPV, n-dopant for OPV (2011)
Doped Device and Process   doped device architecture, low voltage OLED with doped transport layers and blocking layers (2000)
    doped device architecture, OLED with inverted stack (2001)
    doped device architecture, transparent OLED with enhanced stability and efficiency (2002)
    doped device architecture, polymer-small molecule hybrid OLED (2003)
Lighting and Outcoupling   outcoupling, internal outcoupling layer and material (2010)
Other (display, emission layer architecture and OPV)   OPV, process for production of organic solar cell (2010)

        Through a research cooperation agreement with TUD, we have the right to acquire all inventions and patent applications produced by TUD's Institute for Applied Photophysics in connection with its optoelectronics research group, excluding inventions in the field of organic solar cells, so long as we funded such research and development individually or jointly with TUD. We also have the right to separately acquire from TUD, regardless of funding, all inventions in the areas of doping materials for organic electronic applications and, subject to limited exceptions, all inventions where the relevant innovation relates to doped OLED stacks. In addition, we have a right of first refusal with respect to sales of any inventions which would fall under the scope of the agreement but for the fact that they were not funded partially or in full by us. The initial term of this agreement runs until January 31, 2013, and renews automatically for successive one year terms

85


Table of Contents

unless terminated with six months' prior notice. In addition to acquisitions from TUD, we also anticipate expanding our intellectual property portfolio with other acquisitions of relevant intellectual property.

        In November 2003, we entered into agreements with a professor from a German university pursuing research in OLEDs. According to the terms of these agreements, the professor must offer us the right to acquire any intellectual property that he develops in certain fields of OLED research. In the event we exercise the right to acquire such intellectual property, whether from the professor himself or from the university acting at his behest, the professor will receive, for the first five patents transferred to us or granted to us based on intellectual property we receive from the professor or the university, the right to acquire up to a certain number of shares in our company. Any additional transfers of such intellectual property must be in exchange for fair compensation as negotiated between the parties.

        We have acquired certain intellectual property from the professor in the past and are prepared to grant him appropriate compensation, which may include the right to acquire up to a maximum of 18,900 shares in our company. Due to certain legal reasons, including the fact that the agreement with the professor was concluded prior to our conversion into a stock corporation (Aktiengesellschaft) and is related to shares in our predecessor company, we are unable at present to finally determine the number of shares the professor is entitled to acquire. We are currently in the process of setting up new arrangements with the professor in order to clarify our contractual relationship with him.

        Our intellectual property portfolio is geographically well diversified with strong footprints in Germany, Europe, the United States, China, Japan and South Korea. We focus on obtaining patents in jurisdictions where major OLED manufacturers are headquartered, such as South Korea, and in jurisdictions that represent key OLED product markets, such as Europe and the United States. Although the markets for OLED lighting and organic electronics products are less mature, we believe that the future geographic distribution of our patents in these markets will be substantially similar to our current geographic patent distribution.

        Patentable ideas, developments, discoveries and inventions made by employees working in Germany are subject to the provisions of the German Act on Employees' Inventions (Gesetz über Arbeitnehmererfindungen), which regulates employers' entitlement to, and compensation payable for, inventions made by employees in the course of their employment. Any employee making an invention that either resulted from his or her employment or is essentially based on the employer's know-how must report such invention to the employer in writing. For notifications received prior to October 1, 2009, the employer has four months to claim the invention. For notifications received after October 1, 2009, the employer is automatically deemed to have claimed the invention if he does not release it within four months. The employee is entitled to payment of fair compensation for inventions claimed by the employer. We follow all relevant German regulations with respect to compensating our employees for their inventions.

        Because we are often unaware of how our technology and materials are used, we cannot guarantee that use of our technology and materials does not infringe upon the intellectual property of others. We are currently aware of one patent which may, in certain circumstances, be infringed by the use of our Novaled PIN OLED® technology, although we are unaware of any such infringement having occurred. We also believe that none of our customers are affected by this patent. While we do not know whether this patent is valid or whether it would be upheld by courts if challenged, we are actively monitoring the situation.

86


Table of Contents

Non-Patented Technical Know-How

        We have accumulated, and continue to accumulate, a substantial amount of non-patented technical information and know-how relating to OLED technologies and materials. Where practicable, we share portions of this information with display and lighting manufacturers and other business partners on a confidential basis. We also sell our information and know-how through technology disclosure packages to manufacturers. We employ various methods, such as confidentiality and employment agreements, to protect this information from unauthorized use or disclosure, although no such methods can provide complete protection.

Competition

        The industry in which we operate is highly competitive. Display and lighting manufacturers, including customers of ours, are engaged in their own OLED research, development and commercialization activities, and have developed and may continue to develop proprietary OLED technologies that are necessary or useful for commercial OLED devices. Although we are currently the only company selling organic conductivity doping materials for the transport layers of the OLED stack, other material manufacturers, such as Dow Chemical Company, LG Chem, Hodogaya, Duksan Hi-Metal and Doosan, are developing, selling or providing samples of competing host and other materials to potential customers, including companies to which we currently sell our proprietary materials. We do not currently compete with UDC and Sumitomo with respect to emission layer materials, and are not currently active in the emission layer field.

        Our existing business relationships with SMD and LGD, as well as our partnerships with other product manufacturers, suggest that Novaled PIN OLED® technology and our proprietary materials may achieve a significant level of market penetration in the OLED FPD and lighting markets. Other companies, however, may succeed in developing new OLED technologies and materials that are required in addition to ours, or that may be used instead of ours. We cannot be sure that SMD or LGD will continue to use our doping materials in their OLED mobile phone displays or that SMD or LGD will use our doping materials in their future OLED televisions. It is also unclear whether other product manufacturers with which we cooperate will use our OLED technologies and materials in the production of their FPDs and lighting products.

Material Contracts

        We enter into a variety of agreements with our strategic partners and customers. The most important of these agreements are our materials purchase and sales agreements with SMD and LGD and our supply agreement with BASF.

SMD

        Our relationship with SMD, the largest purchaser of our OLED materials, began in 2006. In October 2009, we entered into a purchase and sale agreement with SMD, in which we agreed on the general terms of sales of one of our doping materials to SMD. The agreement has an initial term of five years, and renews automatically for successive one-year terms unless terminated by either party with three months' written notice. There is no minimum purchase requirement under the agreement, and we are not allowed to change our materials production conditions without SMD's approval during a certain period following submission of a purchase order by SMD. In 2011, SVIC acquired what is currently a 9.84% interest in our company. In connection with this acquisition, SVIC was granted warrants to acquire up to an additional 1% of our outstanding share capital based on the revenues from sales of our materials to SMD. Because the sales threshold of the warrants was met in 2011, we anticipate that SVIC will acquire an additional 0.5% of our

87


Table of Contents

outstanding share capital in early 2012. For more information on SVIC's investment in our company, see "Related Party Transactions."

LGD

        Our relationship with LGD, the second largest purchaser of our OLED materials, began in 2009. In October 2011, we entered into a purchase and sale agreement with LGD, in which we agreed on the general terms of sales of one of our doping materials to LGD. The agreement has an initial term of one year and renews automatically for successive one-year terms unless terminated by either party with three months' written notice. There is no minimum purchase requirement under the agreement, although we are obligated to fulfill certain of LGD's forecasts of demand for our materials to the extent that LGD places orders for the forecasted quantity of materials. We must provide LGD with written notice a certain period of time ahead of any proposed changes to our materials or manufacturing processes.

BASF

        In April 2006, we entered into a manufacturing and supply agreement with Ciba Specialty Chemicals Inc., now BASF. Under the agreement, BASF agreed to be the exclusive manufacturer of certain OLED materials for us based on the quantities and specifications we provide. We amended the agreement in March 2009 to expand the range of materials that BASF would produce for us. In September 2010, we agreed to extend the initial term of the agreement until December 31, 2011, with automatic renewal for successive one-year terms unless terminated by either party with six months' written notice. At that time, we also agreed to enter into good faith negotiations with regard to a multi-year manufacturing and supply agreement.

Insurance

        We maintain comprehensive business liability insurance coverage (Betriebshaftpflichtversicherung) for our business operations.

        In addition, we have obtained directors and officers liability insurance, which covers expenses, capped at a certain amount, that our management and supervisory board members may incur in connection with their conduct as directors or officers of our company.

        We believe that all facilities leased by us are adequately insured.

Legal Proceedings

        We are not currently party to any legal proceedings of a material nature.

Property, Plant and Equipment

        Our headquarters is currently located in Dresden, Germany, where we lease office space for executive and support functions, laboratories and office space for our scientific teams, a cleanroom, manufacturing facilities and other technical space covering approximately 2,700 square meters.

        While we believe that our facilities are adequate for our current needs, our lease agreement will expire at the end of 2012. We plan to rent new larger space in the second half of 2012, which will accommodate the planned expansion of our operations. We are working closely with local authorities to coordinate our move and are currently considering three existing facilities. In addition, we are negotiating with our current landlord to extend the duration of our lease by one year. Despite our increased space requirements, we believe that we will be able to acquire new workspace without substantially disrupting our current operations.

88


Table of Contents

        In addition, we are also planning to open a new product application development facility close to our major manufacturing customers in South Korea.

Environmental, Health and Safety Regulations

        We are subject to environmental, health and safety regulations in our home company Germany, as well in the countries where our OLED technologies and materials are used or sold. There are no international standards applicable to the handling and shipping of the materials we produce. In the European Union, we are subject to the regulation on registration, evaluation, authorization and restriction of chemicals, or REACH, and the CLP regulation on the classification, labeling and packaging of substances and mixtures, regarding the conformity of the chemical goods we sell. Under CLP, we may be required to publicly disclose the chemical composition of our proprietary materials, which may facilitate infringement or avoidance of our intellectual property by materials manufacturers and potentially reduce the margin we are able to charge for our products by allowing product manufacturers to more accurately determine our production costs. We actively monitor our compliance with current and potential future health and safety regulations, and we are closely following the development of the REACH and CLP regulations in order to determine their impact on our business.

        We are also subject to other country-specific regulations, in particular those of South Korea, Japan, Taiwan, China and the United States. Each country has different regulatory standards depending on whether we sell or handle small or large amounts of our materials in that country, and the specific threshold for large amounts of material varies by country. When we qualify as handling or selling large amounts of material in a country, we must typically register in the country and possibly conduct tests involving our materials.

        We voluntarily conduct Ames mutagenicity tests on certain of our materials, including the material we sell to our largest purchasers SMD and LGD, to determine their oral toxicity. While we do not believe that OLEDs use any obviously hazardous materials, there has been insufficient testing to determine the long-term risks associated with OLED materials. It is possible that we will be subject to regulations in the future that are designed to limit or reduce the use of our technologies or materials. Our management board has created a Health and Safety Committee, lead by our CEO, the goal of which is to ensure that we not only comply with all applicable environmental, health and safety regulations, but that we also take all additional steps necessary to protect the health and safety of our employees.

89


Table of Contents


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Overview

        We are a German stock corporation (Aktiengesellschaft, or AG) with its registered seat in Germany. We are subject to German legislation on stock corporations, most importantly the German Stock Corporation Act (Aktiengesetz). In accordance with the German Stock Corporation Act (Aktiengesetz) our corporate bodies are the management board (Vorstand), the supervisory board (Aufsichtsrat) and the shareholders' meeting (Hauptversammlung). Our management board and our supervisory board are entirely separate and, as a rule, no individual may simultaneously be a member of both boards.

        Our management board is responsible for the day-to-day management of our business in accordance with applicable laws, our articles of association (Satzung) and its internal rules of procedure (Geschäftsordnung). Our management board represents us in our dealings with third parties.

        The principal function of our supervisory board is to supervise our management board. The supervisory board is also responsible for appointing and removing the members of our management board and representing us in connection with transactions between a current or former member of the management board and us.

        The members of our management board and our supervisory board are solely responsible for and manage their own areas of competency (Kompetenztrennung); therefore, neither board may make decisions that, pursuant to applicable law, our articles of association or the internal rules of procedure are the responsibility of the other board. Members of both boards owe a duty of loyalty and care to us. In carrying out their duties, they are required to exercise the standard of care of a prudent and diligent businessperson. If they fail to observe the appropriate standard of care, they may become liable to us.

        In carrying out their duties, the members of both boards must take into account a broad range of considerations when making decisions, including our company's interests and the interest of our shareholders, employees, creditors and, to a limited extent, the general public, while respecting the rights of our shareholders to be treated on equal terms. Additionally, the management board is responsible for implementing an internal monitoring system for risk management purposes.

        Our supervisory board has comprehensive monitoring responsibilities. To ensure that our supervisory board can carry out these functions properly, our management board must, among other things, regularly report to our supervisory board in relation to the current state of our company's business operations and future business planning (including financial, investment and personnel planning). In addition, our supervisory board is entitled to request special reports at any time.

        Under German law, our shareholders have no direct recourse against the members of our management board or the members of our supervisory board in the event that they are believed to have breached their duty of loyalty and care to our company. Apart from insolvency or other special circumstances, only we have the right to claim damages against the members of our two boards.

        We may waive these claims to damages or settle these claims only if at least three years have passed since any violation of a duty occurred and only if our shareholders approve the waiver or settlement at a shareholders' meeting with a simple majority of the votes cast; provided that no shareholders who in the aggregate hold one-tenth or more of our share capital oppose the waiver or settlement and have their opposition formally recorded in the minutes maintained by a German civil law notary.

        The following description, as far as it relates to our articles of association, is based on the proposed amended articles of association, which are expected to be adopted by the shareholders' meeting scheduled for March 28, 2012.

90


Table of Contents

Supervisory Board

        Our supervisory board consists of six members. It is not subject to employee codetermination as provided by the German One-Third Employee Representation Act (Drittelbeteiligungsgesetz) or the German Codetermination Act (Mitbestimmungsgesetz). Therefore, all of the members of our supervisory board are elected by the shareholders' meeting in accordance with the provisions of the German Stock Corporation Act (Aktiengesetz). German law does not require the majority of our supervisory board members to be independent and neither our articles of association nor the rules of procedure for our supervisory board provide otherwise.

        The members of our supervisory board may be elected for a term of up to approximately five years (standard term of office). Reelection, including repeated reelection, is permissible. The shareholders' meeting may specify a term of office for individual members or all of the members of our supervisory board which is shorter than the standard term of office and, subject to statutory limits, for different start and end dates of their term.

        The shareholders' meeting may, at the same time as it elects the members of the supervisory board, elect one or more substitute members. The substitute members replace members who cease to be members of our supervisory board and take their place for the remainder of their respective terms of office.

        Members of our supervisory board may be dismissed at any time during their term of office by a resolution of the shareholders' meeting adopted by three-quarters of the votes cast. In addition, any member of our supervisory board may resign at any time by giving two weeks' written notice of his or her resignation to our management board or the chairperson of our supervisory board. Our supervisory board may agree upon a shorter notice period.

        Our supervisory board elects a chairperson and a vice chairperson from among its members. The vice chairperson exercises the chairperson's rights and obligations at any time when the chairperson is prevented from doing so. At present, Thilo von Selchow has been elected chairman and Michael Mayer vice chairman. We expect that our shareholders' meeting will elect new members of our supervisory board at the shareholders' meeting scheduled for March 28, 2012 and that the members of our supervisory board in its new composition will elect a new chairperson and vice chairperson.

        The supervisory board meets at least twice during the first half and twice during the second half of each fiscal year. Our articles of association and the supervisory board's rules of procedure provide that a quorum of the supervisory board members is present if at least half of its members, but in any case no less than three members, participate in the vote. Members of our supervisory board are deemed present if they participate via telephone or video conference, subject to the chairperson not raising any objection to this type of participation at the beginning of the meeting. Any absent member may also participate in the voting by submitting their written vote through another member.

        Resolutions of our supervisory board are passed by simple majority unless otherwise required by law, our articles of association or the rules of procedure of our supervisory board. In the event of a tie, the chairperson, or in the event he or she is unavailable, the vice chairperson, has a casting vote.

        Our supervisory board is not permitted to make management decisions, but, in accordance with German law and in addition to its statutory responsibilities, it has determined that the following matters, among others, require its prior consent:

    the adoption of the annual budget;

    if provided for in the annual budget: the acquisition, transfer, disposal, contribution or pledging of any fixed assets (Anlagevermögen) worth more than €2,000,000 in each individual case and any commitment, of any nature whatsoever (except for the purchase and

91


Table of Contents

      sale of inventories and goods in the ordinary course of business), the amount of which would exceed annually, in one or more related instances, €2,000,000, including the granting of any guarantee, pledge, mortgage, charge or security right;

    if not provided for in the annual budget: the acquisition, transfer, disposal, contribution or pledging of any fixed assets (Anlagevermögen) worth more than €1,000,000 in each individual case and any commitment, of any nature whatsoever (except for the purchase and sale of inventories and goods in the ordinary course of business), the amount of which would exceed annually, in one or more related instances, €500,000, including the granting of any guarantee, pledge, mortgage, charge or security right;

    the acquisition or subscription of any direct or indirect interest in any other company, group or entity, as well as the setting up of any subsidiary or transfer or pledge by the same of its shares;

    the determination of the conditions upon which stock options or warrants will be granted to our employees and allocated among our employees;

    the appointment of any of our employees whose annual gross compensation exceeds €175,000 or the increase of the salary of any of our employees above this threshold;

    the entering into any agreement (or materially amending any existing agreement) with any of our shareholders or with any parties related to them within the meaning of Sections 15 et seq. of the German Stock Corporation Act (Aktiengesetz) or Section 15 of the German Fiscal Code (Abgabenordnung); and

    the permission for any subsidiary to issue or sell, except to us or to any wholly owned subsidiary, any equity security of such subsidiary.

        Our supervisory board may determine to make further types of actions contingent upon its approval.

        The following table sets forth the names and function of the current members of our supervisory board, their age, the end of their current terms and their principal occupations outside of our company (except in the case of Dr. Jan Blochwitz-Nimoth, whose principal occupation is serving as our chief scientific officer) as of March 19, 2012.

Name
  Age   End of term   Principal occupation

Thilo von Selchow (Chairman)

    49     March 28, 2012   CEO and President of ZMD AG

Michael Mayer (Vice Chairman)

    58     March 28, 2012   Chief executive officer of TechnoStart and managing partner of all TechnoStart funds

Jean-Michel Barbier

    67     March 28, 2012   Chairman and managing partner of TechFund Europe Management SAS and manager of JMB Consult S.à r.l.

Dr. Jan Blochwitz-Nimoth

    41     March 28, 2012   Chief scientific officer of Novaled AG

Michel de Lempdes

    35     March 28, 2012   Director at Crédit Agricole Private Equity

Dr. Paul-Josef Patt

    56     March 28, 2012   Managing partner of eCAPITAL entrepreneurial Partners AG

        The business address of the members of our supervisory board is the same as our business address: Novaled AG, Tatzberg 49, 01307 Dresden, Germany.

        The following is a brief summary of the business experience of the members of our supervisory board.

92


Table of Contents

        Thilo von Selchow has been chief executive officer and president of ZMD AG in Dresden, Germany, since 1999. Between 1991 and 1999, he held several managing director and chairman positions in the Heitkamp & Thumann Group. From 1990 to 1991, he was an investment manager at the BfM AG, Munich. He is a co-founder of Silicon Saxony e.V., Europe's largest microelectronics cluster and was its president from 2000 until 2006. He serves on the advisory board of the Fraunhofer-Gesellschaft for Microelectronics. Mr. von Selchow holds a degree in economics from the University of Munich.

        Michael Mayer is the founder and managing partner of TechnoStart Beratungsgesellschaft für Beteiligungsfonds mbH. Mr. Mayer headed the technology transfer group at Fraunhofer Institute for Systems and Innovation Research ISI in Karlsruhe and has led numerous studies on tech transfer. He serves as member of the board of directors of Ascendis Pharma A/S and as deputy chairman of the board of Spintec Engineering GmbH. Mr. Mayer studied economics at Konstanz University.

        Jean-Michel Barbier is chairman and managing partner of TechFund Europe Management SAS which in turn represents TechFund Capital Europe, the sister fund of Silicon Valley-based TechFund. He is also manager of JMB Consult S.à r.l. Prior to the creation of TechFund Capital Europe, Mr. Barbier was President and CEO of Thomson-CSF Ventures (now Thales Corporate Ventures). He founded this corporate fund in 1986, pioneering venture capital in France and Europe, and investing in more than 50 successful start-ups in the United States, Europe and Asia. Previously, he held several senior management positions at Alcatel and France Telecom. He serves on boards of Citilog SA, Solairedirect SA, Cooltech Applications SAS, Forenap FRP SAS, Demeter Partners SAS and 123 Holding ISF 2009. Mr. Barbier graduated from the University Paris-Sud 11 and the École Nationale Supérieur des Télécommunications.

        Dr. Jan Blochwitz-Nimoth is a co-founder of our company, a key inventor of the Novaled PIN OLED® technology and our chief scientific officer. Dr. Blochwitz-Nimoth studied physics at the Technical University Dresden and the University of Oldenburg and completed his diploma thesis at the Institute for Applied Photo Physics (IAPP) of the Technical University Dresden in the field of ultra-short laser spectroscopy. Afterwards, he worked for one year on inorganic optoelectronic and light projection devices. While working on his PhD at IAPP, he conducted intensive research on applications of doped charge transport layers for OLEDs. He received his PhD from the Technical University Dresden in July 2001.

        Michel de Lempdes is a director at Crédit Agricole Private Equity. Mr. de Lempdes joined Crédit Lyonnais Private Equity (now Crédit Agricole Private Equity) in 2001 and is responsible for investments in the area of electronics and internet. He started his career at Crédit Lyonnais Americas, where he was involved in the structuring of LBO operations and the creation of a private equity fund of funds at Crédit Lyonnais' Leverage Finance Sponsor Group in New York. Mr. de Lempdes serves as a director on the boards of Avertec, Emulation and Verification Engineering, E-Trend, Tronic's Microsystems and Splendia. Formerly, Mr. de Lempdes served as director on the boards of Si Automation, MonShowroom, Miyowa, Oclio and Dibcom. Mr. de Lempdes graduated from Reims business school.

        Dr. Paul-Josef Patt has been a managing partner, since 2001, and chief executive officer, since 2004, at eCAPITAL entrepreneurial Partners AG. He started his career as a project manager at Roland Berger & Partner and built up the strategic development of Kaufhof Holding AG. Through a management buy-in, he became the executive partner of a highly expansive retail company. After successfully selling his shares in 1997, he began to invest in various venture capital funds and later directly in several investments. He serves as a board member at Jedox AG and Open Exchange AG. Dr. Patt studied business administration in Tübingen, Paris and Münster and received his doctorate degree from Münster University.

93


Table of Contents

Supervisory Board Practices

        Decisions are generally made by our supervisory board as a whole; however, decisions on certain matters may be delegated to committees of our supervisory board to the extent permitted by law. The chairperson, or if he or she is prevented from doing so, the vice chairperson, chairs the meetings of the supervisory board and determines the order in which the agenda items are discussed, the method and order of the voting as well as any adjournment of the discussion and passing of resolutions on individual agenda items after a due assessment of the circumstances.

        To assist the supervisory board in carrying out its duties, we anticipate that the supervisory board, in its new composition following the shareholders' meeting scheduled for March 28, 2012, will, prior to the offering and in accordance with our articles of association and the internal rules of procedure of the supervisory board, establish a nomination committee in addition to the already existing audit committee and compensation committee, hereinafter collectively referred to as the Board Committees. The Board Committees may, to the extent legally permissible, be charged with additional decision-making powers. The supervisory board may, at its own discretion, establish, permanently or temporarily, other committees and charge them with decision-making powers.

        Set forth in the table below are the current members of the audit committee and the compensation committee:

Name of committee
  Current members
Audit Committee   Michel de Lempdes, Michael Mayer, Dr. Paul-Josef Patt
Compensation Committee   Thilo von Selchow, Michel de Lempdes, Jean-Michel Barbier

        The summary of the Board Committees' terms of reference set forth below is based on the proposed rules of procedure for each committee, which we anticipate will be adopted by the supervisory board following the shareholders' meeting scheduled for March 28, 2012.

        Audit Committee.    Our audit committee assists the supervisory board in overseeing the accuracy and integrity of our financial statements, our accounting and financial reporting processes and audits of our financial statements, the effectiveness of the internal control system and our compliance with legal and regulatory requirements, the independent auditors' qualifications and independence, the performance of the independent auditors and the effectiveness of our internal audit functions. The audit committee's duties and responsibilities to carry out its purposes include, among others:

    the preparation of the supervisory board recommendation to the shareholders' meeting on the appointment of the independent auditors to audit our financial statements of the Company and the respective proposal to the supervisory board;

    direct responsibility for the appointment, compensation, retention and oversight of the work of the independent auditors, who shall report directly to the audit committee; provided that the auditor appointment and termination shall be subject to approval by the shareholders' meeting;

    the pre-approval, or the adoption of appropriate procedures to pre-approve, all audit and non-audit services to be provided by the independent auditors;

    the handling of matters and processes related to auditor independence;

    the establishment, maintenance and review of procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and

94


Table of Contents

    the review and approval of all our related party transactions in accordance with our policies in effect from time to time.

        The audit committee shall have the resources and authority appropriate to discharge its duties and responsibilities, including the authority to select, retain, terminate, and approve the fees and other engagement terms of special or independent counsel, accountants or other experts and advisors, as it deems necessary or appropriate, without seeking approval of the management board or supervisory board. We shall provide for appropriate funding, as determined by the audit committee, in its capacity as a committee of the supervisory board, for payment of compensation to the independent auditors engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us, compensation of any advisers employed by the audit committee, and ordinary administrative expenses of the committee that are necessary or appropriate in carrying out its duties.

        The audit committee consists of at least three members and, subject to certain limited exceptions, each member of the audit committee must be independent according to the following criteria:

    no member of the audit committee may, directly or indirectly, accept any consulting, advisory or other compensatory fees from our company or its subsidiaries other than in such member's capacity as a member of our supervisory board or any of its committees; and

    no member of the audit committee may be an "affiliated person" of our company or any of its subsidiaries except for such member's capacity as a member of our supervisory board or any of its committees; for this purpose, the term "affiliated person" means a person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control of our company or any of its subsidiaries.

        At least one member of the audit committee shall qualify as "audit committee financial expert" as defined under the Exchange Act.

        Compensation Committee.    Our compensation committee, which consists of at least three members, is responsible for:

    reviewing our compensation policy and its implementation;

    recommending to the supervisory board for determination, the compensation of all members of the management board taking into account the requirements of the German Stock Corporation Act (Aktiengesetz), the German Corporate Governance Code (Deutscher Corporate Governance Kodex), or Corporate Governance Code, best practices in our and comparable industries and among other companies that maintain a primary listing on the same stock exchange or stock market as we do;

    reviewing and approving any severance or similar termination payments proposed to be made to any current or former member of the management board;

    making recommendations to the supervisory board with respect to the Company's incentive compensation plans and equity-based compensation plans and discussing and determining amendments to existing plans or the establishment of new management and employee compensation plans; and

    issuing an annual compensation report and preparing any report of the supervisory board to the annual shareholders' meeting (ordentliche Hauptversammlung).

95


Table of Contents

        Nomination Committee.    Our nomination committee, which consists of at least three members, is responsible for:

    identifying, pre-screening and interviewing qualified individuals and making recommendations to the supervisory board on the appointment and dismissal of members of the management board and on extending their appointments;

    making recommendations to the supervisory board on suitable candidates for election as members of the supervisory board, which the supervisory board shall propose for election at the shareholders' meeting;

    submitting recommendations regarding the composition of the Board Committees to the supervisory board;

    developing and recommending to the supervisory board a set of corporate governance guidelines applicable to us, reviewing them at least once a year, including the rules of procedure for the supervisory board, and submitting recommendations for their improvement to the supervisory board, in each case taking into account the recommendations (Empfehlungen) and suggestions (Anregungen) of the Corporate Governance Code, as appropriate;

    preparing the proposal regarding the declaration of conformity with the Corporate Governance Code, including the explanation of deviations from the Corporate Governance Code, for decision by the supervisory board and the corporate governance report to be included in the Company's annual report; and

    reviewing compliance with the declaration of conformity (Entsprechenserklärung) under the Corporate Governance Code.

Management Board

        Pursuant to our articles of association, our management board consists of at least two members. Our supervisory board determines the exact number of members. At present, our management board consists of three members: Gildas Sorin, Harry Böhme and Gerd Günther.

        The members of our management board are appointed by our supervisory board for a term of five years. They are eligible for reappointment or extension, including repeated re-appointment and extension, after the completion of their term in office, in each case again for up to additional five years. Under certain circumstances, such as a serious breach of duty or a vote of no confidence by the shareholders in a shareholders' meeting, a member of the management board may be removed from office by our supervisory board prior to the expiration of his or her term.

        The members of our management board conduct the daily business of our company in accordance with applicable laws, our articles of association and the rules of procedure for the management board adopted by our supervisory board. They are generally responsible for the management of our company and for handling our daily business relations with third parties, the internal organization of our business and communications with our shareholders. In addition, they have primary responsibility for (i) the preparation of our annual financial statements, (ii) the making of a proposal for the supervisory board's recommendation to our shareholders' meeting on how our profits (if any) should be allocated, and (iii) regular reporting to the supervisory board on our current operating and financial performance, our budgeting and planning processes and our performance under them, and on future business planning.

        Notwithstanding the collective responsibility for the management of the company overall, the rules of procedure provide that the members of our management board will unanimously adopt a schedule of responsibilities that assigns specific duties to each member of our management board. A responsibility assigned to an individual member of our management board will be that member's own responsibility subject to decisions taken by our management board as a whole. The members

96


Table of Contents

of our management board will decide as a group on matters not allocated to one of them under the schedule of responsibilities and whenever any one of them indicates that a matter should be decided as a group.

        A member of the management board may not deal with or vote on matters relating to proposals, arrangements or contractual agreements between himself or herself and our company and may be liable to us if he or she has a material interest in any contractual agreement between our company and a third party which is not disclosed to and approved by our supervisory board.

        The rules of procedure of our management board provide that our management board may only pass a resolution if all of its members have been invited and at least two members are present. Our management board makes decisions by a simple majority of the votes cast. A proposal will be regarded as rejected in case of an equality of votes.

        Pursuant to our articles of association, the company is represented by two members of the management board or by one member of the management board acting jointly with a holder of a general power of attorney (Prokurist). Our supervisory board may also grant each member of the management board sole power of representation. Such sole power of representation has been granted to each of the members of our management board.

        The table below sets forth an overview of the present members of our management board, their age, the date on which their current term expires and their position within the company as of March 19, 2012:

Name
  Age   End of term

Gildas Sorin

    59   December 31, 2014

Harry Böhme

    49   December 31, 2012

Gerd Günther

    51   March 31, 2013

        The business address of the members of our management board is the same as our business address: Novaled AG, Tatzberg 49, 01307 Dresden, Germany.

        The following is a brief summary of the business experience of the members of our management board.

        Gildas Sorin, born in 1952 in Nantes, France, has served as chairman of our management board and chief executive officer since August 2003. From 1998 to 2003, Mr. Sorin served as director of the Display Division of Philips Electronics and as vice president of Philips Components. Previously, Mr. Sorin had gained over 20 years of business experience with Thomson Multimedia. In 1981, he took over the European sourcing activities of Thomson Multimedia and in 1987 became deputy general manager of the worldwide Thomson R&D organization. In 1991, Mr. Sorin was appointed director of the joint venture Thomson/ST Microelectronics while keeping the position of general manager of Thomson strategic sourcing. He was appointed director of Thomson LCD and president of Thomson Plasma. Mr. Sorin serves as board director of Organic Electronics Saxony and is a board member of the German Flat Panel Display Forum, the World OLED Association and of the Comité National des Conseillers du Commerce Extérieur de la France. Mr. Sorin holds a degree in engineering from the Ecole Supérieur d'Electronique de l'Ouest and a degree in senior management from Thomson University.

        Harry Böhme, born in 1962 in Herten, Germany, has served as our chief financial officer on our management board since January 2007. From 2003 to 2006, he served as general counsel and director of finance of Intershop Communications AG, and from 2001 to 2002 as general counsel for Central Europe of Vignette Deutschland GmbH. In 1990, he founded and was co-partner of the law firm Rechtsanwälte Böhme & Partner, where he practiced law with a focus on commercial and company law until 2000. Mr. Böhme studied law at the Universities of Trier and Münster and completed his law degree with the second state exam of the state of North Rhine-Westphalia.

97


Table of Contents

        Gerd Günther, born in 1960 in Nuremberg, Germany, has served as our chief marketing and sales officer on our management board since April 2010 and has been responsible for our marketing and sales activities since March 2005. He began his career in the pharmaceutical industry in 1987, and later worked for several consumer electronics companies in the field of marketing. From 2000 to 2003, he was director and head of product management for Grundig AG. From 2003 to 2005, he was global director of marketing for Grundig AG, located in Hong Kong, where he gained broad experience in consumer electronics as product director for the Flat Panel Devices Group and head of the Portable Audio Group. Mr. Günther holds a degree in economics, specializing in international sales and marketing, from the University of Nuremberg.

Compensation of Management Board and Supervisory Board Members

Compensation of Management Board Members

        We have entered into service agreements with all current members of our management board. These agreements generally provide for a base salary and an annual bonus. For a discussion of the stock option and similar plans in which the members of our management board participate, see "— Employee and Management Stock Option Plans." In addition to these fixed and variable remuneration components under the terms of their service agreements, the members of our management board are entitled to specific insurance benefits (including accident and D&O insurance) and reimbursement of necessary and reasonable disbursements.

        We believe that the service agreements between our company and the members of our management board provide for payments and benefits (including upon termination of employment) that are in line with customary market practice.

        In 2011, the three members of our management board received total compensation of €729,113.59, which includes the base salary as well as any variable and other compensation.

Compensation of Supervisory Board Members

        Our articles of association provide that the annual compensation for each member of our supervisory board will be determined by the shareholders at the shareholders' meeting for one or several years. At our shareholders' meeting on June 23, 2010, our shareholders resolved that for the fiscal year 2011 each member of our supervisory board who is not a representative of one of our shareholders receives a fixed remuneration of €4,000 for each attended supervisory board meeting or annual shareholders' meeting. The maximum remuneration per year for each of the members of our supervisory board is limited to €30,000.

        None of the members of our supervisory board have entered into contracts with us providing for benefits upon termination of service on the supervisory board. We did not accrue any amounts to provide pension, retirement or similar benefits to members of our supervisory board in 2011.

Employee and Management Stock Option Plans

        In 2006, 2007 and 2010, we established three employee stock option plans, or ESOP 2006, ESOP 2007 and ESOP 2010, and together the ESOPs. The ESOPs are a measure to enable our employees to participate in the increase in value of our company and to provide an incentive to remain with our company on a long-term basis and to make further contributions to the increase in value of our company. In addition, we established two management stock option plans; one in 2006 and the other in 2007, MSOP 2006 and MSOP 2007 and together the MSOPs. Participation in the MSOPs is limited to the three members of our management board.

        Under the ESOPs all our employees, who were employed with our company at least on or prior to March 31, 2006 for the ESOP 2006, on or prior to September 1, 2007 for the ESOP 2007 and on or prior to July 1, 2010 for the ESOP 2010 are eligible to participate in these stock option plans. With regard to the MSOPs, only the members of our management board who were employed with

98


Table of Contents

our company at least on or prior to September 1, 2006 for the MSOP 2006 and at least on or prior to September 1, 2007 for the MSOP 2007 are eligible to participate therein. Only the current members of our management board participate in the MSOPs. In addition, Mr. Gerd Günter also participates in the ESOP 2006 and the ESOP 2007. As of March 19, 2012, we have granted to the current members of our management board (i) a total of 11,550 options under the ESOP 2006, a total of 9,450 options under the ESOP 2007, a total of 102,942 options under the MSOP 2006 and a total of 104,727 options under the MSOP 2007, whereby each option entitles its holder to receive one ordinary registered share of the company and (ii) a total of 3,111 options under the MSOP 2007 whereby each option entitles its holder to receive 21 ordinary registered shares of the company.

        Stock options may be granted under the ESOPs and the MSOPs to the option holder in such a way that each option right entitles the option holder to purchase either one or twenty one ordinary registered shares of the company, as the case may be, at a value of €1.00 per share. Our management board, and, to the extent that our management board is concerned in relation to the MSOP, our supervisory board, determined the grant date, amounts, vesting periods and other relevant terms of the stock option grants (including acceleration provisions) in accordance with the provisions of the respective plans. Any stock options allocated under ESOP 2006 and MSOP 2006 expire if the option holder's term of employment ends prior to three years, and under ESOP 2007, MSOP 2007 and the ESOP 2010 prior to two years, after the granting of the options. Any shares to be issued upon exercise of these stock options will be issued out of conditional capital.

        A stock option granted under the ESOP or the MSOP may not be exercised until the occurrence of each of the following three events: (i) the stock option holder satisfies a two-year waiting requirement (in each case measured from the date of grant), (ii) the stock options have vested (i.e., they are fully exercisable) and (iii) one of the following defined triggering events for the exercise of the option rights must have occurred:

    sale of transfer of a majority of the shares in the company to one or more third parties in one related transaction before a listing of the shares in our company at a domestic or foreign stock exchange;

    a merger of our company with another entity (Verschmelzung) within the meaning of the German Transformation Act (Umwandlungsgesetz); or

    a listing of the shares of our company on a stock exchange.

        In case of a transfer of a majority stake in our company to one or more third parties in the context of a single transaction, a transfer of all or substantially all of the assets of our company prior to a listing of the shares of our company or in case of a listing of the shares of our company, all options will vest and become fully exercisable ("Accelerated Vesting"). In the case of an Accelerated Vesting, stocks can be exercised only within two months following the relevant triggering event for the Accelerated Vesting. Therefore, upon the completion of the contemplated listing of the shares of our company all shares will vest and become fully exercisable within two months after the listing has occurred.

        The shares, which result from the exercise of option rights will entitle the shareholders to profits in the same business year as the option rights have been exercised. The option holders can neither transfer the granted option rights nor related claims to the granting of option rights. In particular, option rights or claims for the granting of option rights are not transferable, and cannot be pledged. Only vested option rights are inheritable. However, the transfer of vested option rights to our company or to a third party, such third party to be designated by us, is permissible.

99


Table of Contents

Share Ownership by Members of Supervisory Board and Management Board

Supervisory Board

        The following table provides information with respect to ownership of our ordinary registered shares and options for each of the members of our supervisory board as of March 19, 2012, based on an aggregate of €6,111,652 ordinary registered shares as registered in the commercial register.

Name
  Shares   Outstanding Shares   Options   Exercise Price   Expiration Date  
 
   
  (in %)
   
  (in €)
  2012
 

Dr. Jan Blochwitz-Nimoth

    163,292     2.67              

Thilo von Selchow

    12,600 (1)   0.21              

(1)
For more information on the issuance of these shares to Thilo von Selchow, see "Description of Share Capital — Changes in Our Share Capital During the Last Three Fiscal Years."

Management Board

        The following table provides information for each of the members of our management board with respect to (i) ownership of our ordinary registered shares and (ii) the number of shares each of them is entitled to based on the options they hold as of March 19, 2012.

Name
  Shares   Outstanding Shares   Number of Shares underlying Options   Exercise Price   Expiration Date  
 
   
  (in %)
   
  (in €)
  2016
 

Gildas Sorin

            168,000     1.00     June 30  

Harry Böhme

            63,000     1.00     June 30  

Gerd Günther

            63,000     1.00     June 30  
                       

Total

            294,000          
                       

Employees

        As of March 19, 2012, we had a total of 129 employees. The following table shows the breakdown of numbers of our workforce by main category of activity as of the dates indicated below:

 
  As of December 31,  
Name
  2009   2010   2011  

Research & Development

    68     74     86  

General & Administration

    21     25     29  
               

Total

    89     99     115  
               

        None of our employees are covered by labor unions or by a collective bargaining agreement, nor have we experienced any work stoppages at our facilities in the past. We believe that we have good relations with our employees.

100


Table of Contents

German Corporate Governance Code

        The Corporate Governance Code was originally published by the German Ministry of Justice (Bundesministerium der Justiz) in 2002 and was last amended on May 26, 2010. The Corporate Governance Code contains recommendations and suggestions relating to the management and supervision of German companies that are listed on a stock exchange. It follows internationally and nationally recognized standards for good and responsible corporate governance. The purpose of the Corporate Governance Code is to make the German system of corporate governance transparent for investors. The Corporate Governance Code includes corporate governance recommendations and suggestions with respect to shareholders and shareholders' meetings, the management and supervisory boards, transparency, accounting policies, and auditing.

        There is no obligation to comply with the recommendations or suggestions of the Corporate Governance Code. The German Stock Corporation Act (Aktiengesetz) only requires that the management board and supervisory board of a German listed company issue an annual declaration that either states that the company has complied with recommendations of the Corporate Governance Code, or lists the recommendations that the company has not complied with and explains its reasons for deviating from the recommendations of the Corporate Governance Code. In addition, in this annual declaration, a listed company is also required to declare whether it intends to comply with the recommendations or list the recommendations it does not plan to comply with in the future. These declarations have to be made accessible to shareholders at all times. If the company changes its policy on certain recommendations between such annual declarations, it must disclose this fact and explain its reasons for deviating from the recommendations. Non-compliance with suggestions contained in the Corporate Governance Code need not be disclosed.

        Following our listing on the             , the Corporate Governance Code will apply to us and we will be required to issue the annual declarations described above.

101


Table of Contents


PRINCIPAL AND SELLING SHAREHOLDERS

Principal and Selling Shareholders

        The following table sets forth certain information regarding the beneficial ownership as of March 19, 2012, of our company's shares based on the share capital registered in the commercial register and as-adjusted to reflect the sale of ADSs by us and the selling shareholders in the offering (assuming that all new shares are sold in the offering and that the Underwriters have not exercised their option to purchase additional shares), for:

    each shareholder known to us to be the beneficial owner of more than 5% of our outstanding shares or voting rights; and

    each selling shareholder.

        For purposes of this illustration, we assume that all of our ordinary shares are held in the form of ADSs before and after the offering. Our ADSs each represent                  of an ordinary share.

        Applicable percentage ownership is based on a total of 6,111,652 shares with 6,111,652 voting rights outstanding prior to the offering. After the completion of the offering it is anticipated that             shares will be outstanding with             voting rights.

 
  ADSs Owned
prior to the
Offering
  ADSs Being
Sold in the
Offering
  ADSs Owned
after the Offering(1)
 
Name of Beneficial Owner
  Number   Proportion
of capital
  Number   Number   Proportion
of capital
 
5% Shareholders:
   
  (in %)
   
   
  (in %)
 

Zweite TechnoStart Ventures(2)

          16.2                    

Crédit Agricole Private Equity entities(3)

          15.1                    

TechFund entities(4)

          13.4                    

eCapital Technologies Fonds(5)

          10.9                    

Samsung entities(6)

          9.8                    

BFH Beteiligungsholding GmbH

          9.8                    

CDC Innovation entities(7)

          9.0                    

Other Selling Shareholders:

                               

(1)
Assuming that the Underwriters fully exercise their option to purchase             additional shares from             would after the offering hold              shares.

(2)
Represents the shareholdings of Zweite TechnoStart Ventures Fonds GmbH & Co. KG, Ludwigsburg, Germany and Zweite TechnoStart Ventures Verwaltungs GmbH, Ludwigsburg, Germany.

(3)
Represents the shareholdings of FCPI Crédit Lyonnais Innovation 5, Paris, France, FCPR Crédit Lyonnais Venture 1, Paris, France and FCPI Crédit Lyonnais Innovation 6, Paris, France, FCPI LCL Innovation 2, Paris, France and FCPI LCL Innovation 2007, Paris, France.

(4)
Represents the shareholdings of TechFund Capital Europe FCPR, Paris, France, FCPI 123 Multinova, Paris, France, FCPI 123 Multinova II, compartment "Actions", Paris, France and FCPI 123 Multinova II, compartment "Obligations", Paris, France.

(5)
Represents the shareholdings of eCapital Technologies Fonds II GmbH & Co. KG, Münster, Germany and eCapital III Cleantech Fonds GmbH & Co. KG, Münster, Germany.

(6)
Represents the shareholdings of SVIC No. 18 New Technology Business Investment L.L.P., Seoul, Korea and SVIC No. 20 New Technology Business Investment L.L.P., Seoul, Korea.

(7)
Represents the shareholdings of Poste Innovation 4 FCPI, Science et Innovation 2 FCPI and CA Innovation 4 FCPI.

Changes in Principal Shareholdings During the Past Three Fiscal Years

        The only significant changes in the percentage ownership held by our principal shareholders during the past three years resulted from the capital increase in 2009 and 2010, see "Related Party

102


Table of Contents

Transactions — Shareholders Investments 2009/2010," and in connection with the acquisition in 2011 by Samsung Venture Investment Corporation of what is currently 9.84% of our outstanding share capital, in part from a capital increase and in part through purchases from existing shareholders. See "Related Party Transactions — Samsung Investment 2011."

103


Table of Contents


RELATED PARTY TRANSACTIONS

        We have, from time to time, entered into agreements with our shareholders and affiliates. We describe the principal transactions entered into since 2009 below.

Shareholders' Agreement 2009

        On January 7, 2009, our then existing shareholders, eCapital III Cleantech Fonds GmbH & Co. KG, FCPI LCL Innovation 2 and FCPI LCL Innovation 2007 entered into a shareholders' agreement. The shareholders' agreement defines the rights and obligations of the parties thereto as shareholders of our company and includes, inter alia, provisions on the composition of our supervisory and management boards, voting and approval requirements, rights of first refusal, tag-along and drag-along rights, anti-dilution protections, rights of the holders of preference shares regarding the conversion of their shares into ordinary shares.

        In case of an initial public offering, if certain conditions have been met, holders of preferences shares are required to convert their preference shares into ordinary shares. The shareholders' agreement terminates automatically immediately before and conditional on any initial public offering.

Shareholders Investments 2009/2010

        In 2009, certain of our existing shareholders, including BFH Beteiligungsholding GmbH, CA Innovation 4 FCPI, eCapital Technologies Fonds II GmbH & Co. KG, FCPI 123 Multinova, FCPI 123 Multinova II, compartiment "Actions," FCPI 123 Multinova II, compartiment "Obligations," KfW, Science et Innovation 2 FCPI, TechFund Capital Europe FCPR, TUDAG TU Dresden Aktiengesellschaft, Zweite TechnoStart Ventures Fonds GmbH & Co. KG, and new shareholders, including eCapital III Cleantech Fonds GmbH & Co. KG, FCPI LCL Innovations 2 and FCPI LCL Innovations 2007, or collectively Investment Shareholders, invested an aggregate amount of approximately €8,500,000 in our company.

        In this context, they entered into an investment agreement with us and our other existing shareholders providing for the acquisition of 62,305 newly issued registered series C preference shares (Vorzugsaktien der Serie (C)) in two consecutive tranches of 31,154 shares, or the First Tranche, and 31,151 shares, or the Second Tranche. Both tranches were issued for a subscription price equaling the nominal value of €1.00 per share plus an additional cash payment into our company's capital reserves. The implementation of the capital increase for the First Tranche was registered with the commercial register in February 2009 and for the Second Tranche in May 2010. The total payment by the Investment Shareholders to our company was €4,250,340 for the First Tranche and €4,249,931 for the Second Tranche. For a description of our preference shares, see "Description of Share Capital — Share Capital."

Samsung Investment 2011

        Samsung Mobile Display, a subsidiary of Samsung Electronics, is our largest customer, accounting for 59% of our total revenues in 2011, 35% of our total revenues in 2010, and 39% of our total revenues in 2009. As of March 19, 2012, Samsung Venture Investment Corporation, or SVIC, and its affiliates owned a total of 9.84% of our share capital as registered in the commercial register.

        SVIC acquired a stake in September 2011 by investing an aggregate amount of approximately €8,550,000, partly through the acquisition of existing shares from our current shareholders and partly through the acquisition of newly issued shares out of an existing authorized capital from our company.

104


Table of Contents

        In this context, SVIC entered into a share sale and purchase agreement with the following shareholders of our company: Dr. Jan Blochwitz-Nimoth, Dresden Fonds GmbH, KfW, Prof. Karl Leo, Dr. Martin Pfeiffer and Zweite TechnoStart Ventures Fonds GmbH & Co. KG. SVIC acquired a total of 554,480 shares consisting of registered series A, series B and series C shares for a purchase price of €13.80 for each of the shares sold by these shareholders.

        In addition, our management board resolved to increase our share capital by €46,747 by issuance of 46,747 new no par-value registered shares. SVIC subscribed for all 46,747 newly issued shares at a subscription price of €19.21 per share resulting in a total subscription price paid to our company in the amount of €898,009.87. SVIC assigned and transferred the subscribed shares to SVIC No. 18 New Technology Business Investment L.L.P., Seoul, Korea and SVIC No. 20 New Technology Business Investment L.L.P., Seoul, Korea.

Samsung Warrants

        In connection with SVIC's investment in September 2011, we and our shareholders entered into an amendment agreement to the existing shareholders' agreement dated January 7, 2009. This amendment agreement grants SVIC, inter alia, the right to subscribe up to two times for additional new shares, or Warrant Shares, to be issued by us in the amount of 0.5% of our then registered share capital and for a subscription price of €19.21 per share, if one or both of the following conditions are met:

    our sales to Samsung Electronics and its subsidiaries, or Samsung Electronics, have exceeded €6 million in the fiscal year 2011; and/or

    our sales to Samsung Electronics exceed €8 million in the first half of the fiscal year of 2012.

        SVIC can demand the issuance of the Warrant Shares within a period of thirty days after the relevant financial statements have been prepared by us.

        Because our sales to Samsung Electronics and its subsidiaries have surpassed €6 million in 2011, Samsung has indicated its intent to subscribe for the first tranche of the Warrant Shares in the amount of 0.5% of our registered share capital prior to the shareholders' meeting scheduled for March 28, 2012. We anticipate that our shareholders will resolve to increase our registered share capital at their March 28, 2012 meeting in order to issue these Warrant Shares to SVIC. We also anticipate that our shareholders will further resolve at the March 28, 2012 meeting to create sufficient authorized capital to account for the potential issuance of additional Warrant Shares to SVIC in 2012. If the 2012 sales threshold is met, the necessary increase in our registered share capital will likely occur in the third quarter of fiscal year 2012.

Indemnity and Cost Sharing Agreement

        In preparation for the offering, we intend to enter into an indemnity and cost sharing agreement with the selling shareholders. Under this agreement, the selling shareholders will agree (i) to indemnify us from certain liability risks and (ii) to assume the transaction costs, in each case arising out of or in connection with this offering and in proportion to their pro rata share of the secondary shares placed in the offering.

105


Table of Contents


DESCRIPTION OF SHARE CAPITAL

        The following description is a summary of certain information relating to our share capital as well as certain provisions of our articles of association and German stock corporation law. Unless stated otherwise, the description insofar as it relates to our articles of association is based on the proposed amendments to our articles of association, which are expected to be adopted by the shareholders' meeting scheduled for March 28, 2012. This summary does not purport to be complete and speaks as of the date of this document. Copies of the articles of association will be publicly available from the commercial register (Handelsregister) of the local court in Dresden, Germany, or electronically at www.unternehmensregister.de.

Share Capital

        Currently, our share capital as registered in the commercial register amounts to €6,111,652 and is divided into 737,647 registered shares, 1,459,500 registered series A preference shares (Vorzugsaktien der Serie (A)), 2,606,100 registered series B preference shares (Vorzugsaktien der Serie (B)) and 1,308,405 registered series C preference shares (Vorzugsaktien der Serie (C)). All shares are no par-value ordinary shares (Stückaktien ohne Nennbetrag).

        In the event of a liquidation of our company the liquidation proceeds will be distributed as follows: (i) holders of series C preference shares receive the stock price (including, inter alia, payments into the capital reserves) initially paid by them and dividends that have been resolved by our shareholders' meeting for series C shares but have not yet been distributed; (ii) subsequently holders of series B preference shares are satisfied for the analogous claims; (iii) these are followed by the holders of series A preference shares and their corresponding claims; (iv) finally, the remaining proceeds will be distributed to the shareholders in proportion to their holdings in our company.

        We anticipate that at our shareholders' meeting scheduled for March 28, 2012 our shareholders will resolve the conversion of our preference shares (series A, B and C) into ordinary shares.

        As a result, our share capital will amount to €6,111,652 and will be divided into 6,111,652 no par-value ordinary registered shares (auf den Namen lautende Stammaktien als Stückaktien ohne Nennbetrag), each with a notional value (the proportional amount of the share capital attributable to each share) of €1.00.

Form, Certification and Transferability of the Shares

        Our shares are in registered form. The form and contents of our share certificates, any dividend certificates, renewal certificates and interest coupons are determined by our management board with the approval of our supervisory board. A shareholders' right for certification of his or her shares is excluded, to the extent permitted by law and to the extent certification is not required by the stock exchange on which the shares are admitted to trading. We are permitted to issue share certificates that represent one or more shares.

        All of our outstanding shares are no par-value ordinary registered shares. If a resolution regarding a capital increase does not specify whether such increase will be in bearer or registered form, the new shares resulting from such capital increase will be no par-value ordinary registered shares by default. Any resolution regarding a capital increase may determine the profit participation of the new shares resulting from such capital increase.

        Our shares are freely transferable, with the transfer of ownership governed by the rules of the relevant clearing system.

106


Table of Contents

General Information on Capital Measures

        An increase of our share capital generally requires a resolution passed at our shareholders' meeting with a majority of three quarters of the share capital, represented at the relevant shareholders' meeting. Our articles of association provide that a majority of half of the share capital, represented at the relevant shareholders meeting, is sufficient in case of capital increases with subscription rights against contributions, capital increases from company reserves and issuances of convertible bonds, profit participation bonds and other instruments for which the shareholders have a subscription right. The shareholders at such meeting may authorize our management board to increase our share capital with the consent of our supervisory board, within a period of five years by issuing shares for a certain total amount (genehmigtes Kapital or authorized capital).

        Furthermore, our shareholders may resolve to create conditional capital (bedingtes Kapital); however, they may do so only to issue conversion or subscription rights to holders of convertible bonds, in preparation for a merger with another company or to issue subscription rights to employees and members of the management of our company or of an affiliated company by way of a consent or authorization resolution.

        Any resolution pertaining to the creation of authorized or conditional capital requires a majority of three quarters of the share capital represented at the relevant shareholders' meeting. Finally, the shareholders may also resolve to increase the share capital from company resources by converting capital reserve and profit reserves into share capital. Any resolution pertaining to an increase in share capital from company resources requires a majority of three quarters of the share capital, represented at the relevant shareholders' meeting.

        The aggregate nominal amount of the authorized capital created by the shareholders may not exceed one half of the share capital existing at the time of registration of the authorized capital with the commercial register.

        The aggregate nominal amount of the conditional capital created by the shareholders' meeting may not exceed one half of the share capital existing at the time of the shareholders' meeting adopting such resolution. The aggregate nominal amount of the conditional capital created for the purpose of granting subscription rights to employees and members of the management of our company or of an affiliated company may not exceed 10% of the share capital existing at the time of the shareholders' meeting adopting such resolution.

        Any resolution relating to a reduction of our share capital requires a majority of at least three quarters of the share capital represented at the relevant shareholders' meeting.

Changes in Our Share Capital During the Last Three Fiscal Years

        As of January 1, 2009, our share capital as registered with the commercial register amounted to €219,900. Since January 1, 2009, our share capital has changed as follows:

    In connection with investments by our shareholders in 2009 and 2010, see "Related Party Transactions — Shareholders Investments 2009/2010," we increased our share capital from authorized capital by €31,154 from €219,900 to €251,054, the capital increase relating thereto was registered on February 25, 2009, and by €31,151 from €251,054 to €282,205, the capital increase relating thereto was registered on May 25, 2010.

    On the basis of a shareholders' resolution taken at the general shareholders' meeting on June 23, 2010, we increased our share capital out of the company's capital reserve by €5,644,100 from €282,205 to €5,926,305. The capital increase was registered on August 25, 2010.

107


Table of Contents

    In the context of SVIC's investment in 2011, see "Related Party Transactions — Samsung Investment 2011," we issued new shares to SVIC thereby increasing our share capital from authorized capital by €46,747 from €5,926,305 to €5,973,052 shares. The capital increase was registered on November 24, 2011.

        In addition to the changes in share capital described above, we also increased our stated share capital through certain capital increases involving Dr. Jan Blochwitz-Nimoth, Dr. Martin Pfeiffer and Thilo von Selchow.

        In December 2011, we issued 71,400 new ordinary shares to Dr. Blochwitz-Nimoth and 54,600 new ordinary shares to Dr. Pfeiffer at a subscription price of €1.00 per share, which increased our share capital by €126,000 from €5,973,052 to €6,099,052. This capital increase was entered into the commercial register on December 28, 2011. Due to the possibility that the issuance of shares to Dr. Blochwitz-Nimoth and Dr. Pfeiffer did not comply with certain requirements of German law, we intend to cancel the shares originally issued to them against repayment of the subscription price and to then reissue                          shares to them at the same price in a transaction that fully complies with German law.

        In January 2012, we filed an application with the commercial register in Dresden for the registration of the issuance of 12,600 ordinary shares to Thilo von Selchow, the chairman of our supervisory board, at a subscription price of €3.33 per share. On January 31, 2012, the corresponding capital increase was entered into the commercial register resulting in an increase of our registered share capital by €12,600 from €6,099,052 to €6,111,652. Due to a defect in the resolution authorizing the issuance of shares to Mr. von Selchow, we intend to cancel the shares originally issued to him against repayment of the subscription price and to then reissue the shares to him at the same price in a transaction pursuant to a valid authorization and otherwise in full compliance with German law.

        On March 19, 2012, the amount of ordinary shares underlying allocated options covered by conditional capital amounted to 494,781. In addition we have granted warrants to SVIC covered by authorized capital, see "Related Party Transactions — Samsung Warrants". We have entered into agreements with a professor from a German university pursuing research in OLEDs pursuant to which we have acquired certain intellectual property from the professor in the past and are prepared to grant him appropriate compensation, which may include the right to acquire up to a maximum of 18,900 shares in our company. For more information on these agreements, see "Our Company — Intellectual Property — Our Patents."

        Our share capital as registered in the commercial register currently amounts to €6,111,652.

Authorized Capital

        Our management board is authorized to increase the share capital with our supervisory board's approval against contribution in cash or in kind. Our management board may use this authorization until March 27, 2017 to issue new shares in one or more tranches for any legal purpose in an aggregate amount of up to €3,055,826 in which case our existing shareholders will in principle be granted a subscription right, which may be excluded in the following circumstances:

    fractional amounts resulting from the subscription ratio;

    insofar as protection against dilution is necessary in order to grant a subscription right for new shares in subsequent share issuances to holders of conversion or option rights that were previously issued or will be issued by us, as they would be entitled to upon the exercise of conversion or option rights;

108


Table of Contents

    for the issuance of shares against contributions in kind, especially — but not limited to — for the purpose of (also indirectly) acquiring companies, parts of companies, or other assets (including claims) or to satisfy convertible bonds and/or bonds with warrants, or a combination of such instruments which are issued against contributions in kind;

    for the issuance of shares in connection with this offering;

    for the issuance of shares to Samsung Venture Investment Corporation, or to one or some of its affiliates, in particular, to SVIC No. 18 New Technology Business Investment L.L.P. and SVIC No. 20 New Technology Business Investment L.L.P., pursuant to Article 11 of the supplemental agreement of September 7, 2011 to the current shareholders agreement of January 1, 2009;

    in order to be able to issue shares to persons in an employment relationship with us and/or our affiliated companies; and

    in capital increases against cash contributions if

    the issue price of the new shares is not substantially lower than the market price of the shares already listed at the time of the final determination of the issue price pursuant to Section 203 paragraphs 1 and 2 and Section 186 paragraph 3 sentence 4 of the German Stock Corporation Act (Aktiengesetz), and

    the proportionate amount of the share capital attributable to the issued new shares for which a subscription rights are excluded does not exceed 10% of the share capital, neither at the time that the authorization becomes effective, nor at the time that the authorization is exercised.

      For the purpose of the case of capital increase against cash contributions, the market price may also be considered the market price of an ADS listed on the NASDAQ or NYSE divided by the number of our shares or multiplied by the fraction of our shares represented by an ADS, as the case may be.

      This limit of 10% of the shares includes shares which were issued or are to be issued to satisfy bonds with warrants, convertible bonds, or participation rights provided that these bonds were issued under exclusion of the subscription right pursuant to Section 186 paragraph 3 sentence 4 of the German Stock Corporation Act (Aktiengesetz). Further, this limit of 10% of the share capital also includes shares and ADSs previously repurchased, as the case may be, which were sold during the term of the authorized capital under exclusion of the subscription right pursuant to Section 71 paragraph 1 number 8 sentence 5 and Section 186 paragraph 3 sentence 4 of the German Stock Corporation Act (Aktiengesetz).

Conditional Capital

        Our articles of association reflect shareholders' resolutions creating four different conditional capitals which can be summarized as follows:

Conditional Capital I

        Our share capital is conditionally increased by up to €2,300,000 through the issuance of up to 2,300,000 ordinary registered shares. Our management board may determine, with the approval of our supervisory board, the details of the execution of the capital increase.

        The conditional capital increase will be carried out only to the extent that holders of option or conversion rights or parties who are required to exercise option rights or required to convert on the

109


Table of Contents

basis of bonds with warrants, convertible bonds, profit sharing rights or profit participation bonds (or a combination of these instruments) which were issued or guaranteed by us or a company controlled by us or a company in which we hold a majority interest, on the basis of an authorization resolution adopted by the shareholders' meeting held on March 28, 2012, exercise their option or conversion rights, or, to the extent that they are required to exercise their option or conversion rights, fulfill their obligation to exercise their option or conversion rights, and no other forms of fulfillment are used. The issuance of the new shares shall take place with a price for each option or conversion determined pursuant to the previously described authorization resolution.

Conditional Capital II

        Our share capital is conditionally increased by up to €343,140 by the issuance of up to 343,140 no par-value ordinary registered shares. The conditional capital increase exclusively serves the fulfillment of the option rights, which have been or will be granted by the company pursuant to the authorization of the shareholders' meeting on April 12, 2006 until December 31, 2010. The conditional capital increase may only be executed to the extent that the beneficiaries of the share options make use of their option rights. The new shares will participate in the profits of the company from the beginning of the fiscal year in which they come into existence by the exercise of the option rights.

Conditional Capital III

        Our share capital is conditionally increased by up to €86,310 by the issuance of up to 86,310 no par-value ordinary registered shares. The conditional capital increase exclusively serves the fulfillment of the option rights, which have been or will be granted by the company pursuant to the authorization of the shareholders' meeting on April 26, 2007 until December 31, 2010. The conditional capital increase may only be executed to the extent that the beneficiaries of the share options make use of their option rights. The new shares will participate in the profits of the company from the beginning of the fiscal year in which they come into existence by the exercise of the option rights.

Conditional Capital IV

        Our share capital is conditionally increased by up to €120,246 by the issuance of up to 120,246 no par-value ordinary registered shares. The conditional capital increase exclusively serves the fulfillment of the option rights, which have been or will be granted by the company pursuant to the authorization of the shareholders' meeting on May 7, 2009 until December 31, 2013. The conditional capital increase may only be executed to the extent that the beneficiaries of the share options make use of their option rights. The new shares will participate in the profits of the company from the beginning of the fiscal year in which they come into existence by the exercise of the option rights.

Preemptive Rights

        Under the German Stock Corporation Act (Aktiengesetz), an existing shareholder in a stock corporation has a preemptive right to subscribe for new shares to be issued by the corporation in proportion to the number of shares he or she holds in the corporation's existing share capital. These rights do not apply to shares issued out of conditional capital. The German Stock Corporation Act (Aktiengesetz) only allows the exclusion of preemptive rights in limited circumstances, and at least three quarters of the votes cast at the relevant shareholders' meeting must vote for such exclusion. In addition to approval by the shareholders' meeting, the exclusion of preemptive rights requires a justification. The justification must be based on the principle that the

110


Table of Contents

interest of the company in excluding preemptive rights outweighs the shareholders' interest in their preemptive rights and may be subject to judicial review.

Shareholders' Meetings, Resolutions and Voting Rights

        Shareholders' meetings may be held at the registered offices of the company or in a German city with more than 100,000 inhabitants. In general, annual shareholders' meetings are convened by our management board. The supervisory board is additionally required to convene a shareholders' meeting if this is in the best interest of our company. Both our management board and our supervisory board may convene extraordinary shareholders' meetings. In addition, shareholders who, individually or as a group, own at least five percent of our share capital may request our management board to convene a shareholders' meeting. If our management board does not convene a shareholders' meeting when so requested, the shareholders may petition the competent German court to be authorized to convene a shareholders' meeting.

        The notice of convening the shareholders' meeting must be made public at least 36 days prior to the meeting. Shareholders who, individually or as a group, own at least 5% or €500,000 of our share capital may require that modified or additional items be added to the agenda of the shareholders' meeting and that these items be published before the shareholders' meeting takes place.

        Our annual shareholders' meeting must take place within the first eight months of each fiscal year. Among other things, the annual shareholders' meeting is required to decide on the following issues:

    appropriation and use of annual net income;

    discharge or ratification of the actions taken by the members of our management board and our supervisory board;

    the election of our statutory auditors;

    increases or decreases in our share capital;

    the election of supervisory board members; and

    to the extent legally required, the approval of our company's unconsolidated financial statements.

        Each share carries one vote at a shareholders' meeting. Unless otherwise prescribed, the resolutions of our shareholders' meeting are passed with a simple majority of the votes cast. Where required a majority of the share capital present or represented at the meeting for adoption of a resolution, a simple majority of the share capital present or represented at the meeting is sufficient. Neither the German laws nor our articles of association provide for a minimum participation for a quorum for shareholders' meetings.

        Resolutions of fundamental importance require a simple majority of the votes cast and a majority of at least three quarters of the share capital present or represented at the meeting at the time of adoption of the resolution. Resolutions of fundamental importance include, in particular, capital increases with exclusion of preemptive rights, capital decreases, the creation of authorized or conditional share capital, the dissolution of our company, a merger into or with another company, split-offs and split-ups, the transfer of all or substantially all of our assets, the conclusion of inter-company agreements (Unternehmensverträge), in particular control agreements (Beherrschungsverträge), and profit and loss transfer agreements (Ergebnisabführungsverträge), and a change of the legal form of our company.

111


Table of Contents

Dividend Rights

        Shareholders participate in profit distributions in proportion to the number of shares they hold.

        Under German law, our company may declare and pay dividends only from the profits as they are shown in our company's unconsolidated annual financial statements prepared in accordance with applicable German law.

Liquidation Rights

        If we are liquidated, any liquidation proceeds remaining after all of our liabilities have been paid off would be distributed among our shareholders in proportion to their holdings in accordance with German statutory law.

Authorization to Acquire Our Own Shares

        We may not acquire our own shares unless authorized by the shareholders' meeting or in other very limited circumstances as set out in the German Stock Corporation Act (Aktiengesetz). Shareholders may not grant a share repurchase authorization lasting for more than five years. The rules in the German Stock Corporation Act (Aktiengesetz) generally limit repurchases to 10% of our share capital and resales must generally be made either on a stock exchange, in a manner that treats all shareholders equally or in accordance with the rules that apply to subscription rights relating to a capital increase.

        We anticipate that on March 28, 2012, our shareholders' meeting will resolve to authorize us to repurchase our shares or our ADSs for a period until March 27, 2017. Under this resolution, any shares or ADSs that we repurchase may be (i) sold to third parties against payment in cash at a price which is not significantly below the stock exchange price at the time of sale (in the event of a sale of shares the stock exchange price may be calculated on the basis of the price quoted for the ADSs); (ii) offered and transferred to third parties provided that this is for the purpose of acquiring companies, divisions of companies or interests in companies or other assets or for implementing mergers with companies; (iii) offered for purchase or transferred to current or former employees of our company or any of our subsidiaries; (iv) used to service subscription warrants or convertible bonds of our company or any of our subsidiaries; or (v) canceled. In addition, our supervisory board is authorized to offer for purchase or transfer shares or ADSs repurchased to our management board as stock-based compensation. The authorization may be exercised, in whole or in part, once or several times within the scope of the above mentioned limitations.

Squeeze-Out of Minority Shareholders

        Under German law, the shareholders' meeting of a stock corporation may resolve upon request of a shareholder that holds at least 95% of the share capital that the shares held by any remaining minority shareholders be transferred to this shareholder against payment of "adequate cash compensation." This amount must take into account the full value of the company at the time of the resolution, which is generally determined using the future earnings value method (Ertragswertmethode).

Silent Participation

        In January 2004, we entered into a silent participation agreement with tbg Technologie-Beteiligungs-Gesellschaft mbH, or tbg, an affiliate of our shareholder KfW. Under the agreement, we received an equity contribution of €750,000.00 from tbg, on which we are required to pay annual interest at a fixed rate of 8%. Tbg is also entitled to 12% of any annual profits (such profits to be calculated according to the provisions of the German Commercial Code (Handelsgesetzbuch, or

112


Table of Contents

HGB)) that we generate, and may exercise certain corporate governance rights. No profit participation was paid out to date as we did not generate any annual profits. In anticipation of this offering, we intend to terminate the silent participation of tbg in our company subject to the closing of this offering. In connection with the termination, tbg's capital contribution for the silent participation, any interest and surcharges would be paid to tbg shortly after the closing of this offering.

Objects and Purposes of Our Company

        Our business purpose is research and development in the field of applied optoelectronics, especially the development of technologies for small molecule organic light emitting diodes (OLED) and their production, as well as the commercialization of OLED technologies and products. We may establish branch offices, found, acquire, or hold interests in other companies, enter into inter-company agreements (Unternehmensverträge) or interest groups, as well as bring companies under our control or confine ourselves to the administration thereof. We may dispose of the interests we hold. We may divest or transfer our operations and assets in full or in part to affiliated companies. We are entitled to conduct all business activities and measures which are suitable in order to directly or indirectly promote our business purpose.

Registration of the Company with Commercial Register

        Our company is a German stock corporation (Aktiengesellschaft, or AG) and is organized under the laws of Germany. On March 16, 2006, our company was registered in the commercial register of Dresden, Germany under the number HRB 24467.

113


Table of Contents


SHARES ELIGIBLE FOR FUTURE SALES

        Upon completion of this offering, we will have             ADSs outstanding, representing approximately         % of our outstanding ordinary shares. All of the ADSs sold in this offering will be freely transferable by persons other than by our "affiliates" without restriction or further registration under the Securities Act. Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs. Prior to this offering, there has been no public market for our ordinary shares or the ADSs, and although we have applied to list the ADSs on             , we cannot assure you that a regular trading market will develop in the ADSs. We do not expect that a trading market will develop for our ordinary shares not represented by the ADSs. Furthermore, since no shares or ADSs will be available for sale from our principal shareholders shortly after this offering because of the contractual and legal restrictions on resale described below, sales of substantial numbers of ADSs in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.

Lock-Up Agreements

        We, the members of our management board and supervisory board and shareholders will agree that, subject to certain exceptions, we and they will not, without the prior written consent of Goldman, Sachs & Co. and Deutsche Bank Securities Inc., dispose of any of our ordinary shares or ADSs or other similar securities for a period of 180 days after the date of the underwriting agreement. Goldman, Sachs & Co. and Deutsche Bank Securities Inc. in their sole discretion may release any of the securities subject to these lock-up agreements at any time without notice. The release of any lock-up will be considered on a case-by-case basis. For more information, see "Underwriting."

Rule 144

        Under Rule 144, a person (or persons whose shares are aggregated):

    who is not considered to have been one of our affiliates at any time during the 90 days preceding a sale; and

    who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate;

    is entitled to sell his shares without restriction, subject to our compliance with the reporting obligations under the Exchange Act.

        In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who is our affiliate and has beneficially owned ordinary shares for at least six months is entitled to sell within any three-month period a number of shares that does not exceed the greater of:

    1.0% of the number of ordinary shares then outstanding, which is expected to compare to approximately             ADSs immediately after this offering (or             ADSs if the underwriters exercise their option to purchase additional ADSs in full); and

    the average weekly trading volume of the ADSs on the             during the four calendar weeks preceding the filing of a notice on Form 144 in connection with the sale.

        Any such sales by an affiliate are also subject to manner of sale provisions, notice requirements and our compliance with Exchange Act reporting obligations.

        In addition, in each case, these shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.

114


Table of Contents

Regulation S

        Regulation S under the Securities Act provides that shares owned by any person may be sold without registration in the United States, provided that the sale is effected in an offshore transaction and no directed selling efforts are made in the United States (as these terms are defined in Regulation S), subject to certain other conditions. In general, this means that our shares may be sold in some other manner outside the United States without requiring registration in the United States.

Rule 701

        Beginning 90 days after the date of this prospectus, persons other than affiliates who purchased ordinary shares from us in connection with a compensatory stock plan or other written agreement may be entitled to sell such shares in the United States in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 without complying with the current information or six-month holding period requirements. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.

115


Table of Contents


EXCHANGE CONTROLS AND LIMITATIONS AFFECTING SHAREHOLDERS

        There are currently no legal restrictions in Germany on international capital movements and foreign-exchange transactions, except in limited embargo circumstances relating to certain areas, entities or persons as a result of applicable resolutions adopted by the United Nations and the European Union. Restrictions currently exist with respect to, among others, Afghanistan, Belarus, Congo, Egypt, Eritrea, Guinea, Iran, Iraq, Ivory Coast, Lebanon, Liberia, Libya, Myanmar, North Korea, Somalia, Sudan, Syria, Tunisia, and Zimbabwe.

        For statistical purposes, there are, however, limited reporting requirements regarding transactions involving cross-border monetary transfers. With some exceptions, every corporation or individual residing in Germany must report to the German Central Bank (Deutsche Bundesbank) (i) any payment received from, or made to, a non-resident corporation or individual that exceeds €12,500 (or the equivalent in a foreign currency) and (ii) any claim against, or liability payable to, a non-resident or corporation in excess of €5 million (or the equivalent in a foreign currency) at the end of any calendar month. Payments include cash payments made by means of direct debit, checks and bills, remittances denominated in euro and other currencies made through financial institutions, as well as netting and clearing arrangements.

116


Table of Contents


DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Shares

        Citibank, N.A. has agreed to act as the depositary for the ADSs. Citibank's depositary offices are located at 388 Greenwich Street, New York, New York 10013. ADSs represent ownership interests in securities that are on deposit with the depositary. ADSs may be represented by certificates that are commonly known as "American Depositary Receipts" or "ADRs." The depositary typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citigroup Global Markets Deutschland AG, located at Reuterweg 16, 60323 Frankfurt, Germany.

        We appoint Citibank as depositary pursuant to a deposit agreement. A copy of the deposit agreement is on file with the SEC under cover of a Registration Statement on Form F-6. You may obtain a copy of the deposit agreement from the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and from the SEC's website (www.sec.gov). Please refer to Registration Number 333-                          when retrieving such copy.

        We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please remember that summaries by their nature lack the precision of the information summarized and that the rights and obligations of an owner of ADSs will be determined by reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety. The portions of this summary description that are italicized describe matters that may be relevant to the ownership of ADSs but that may not be contained in the deposit agreement.

        Each ADS represents the right to receive                  of an ordinary share on deposit with the custodian. An ADS also represents the right to receive any other property received by the depositary or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical considerations.

        If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and to the terms of any ADR that represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as owner of ADSs and those of the depositary. As an ADS holder you appoint the depositary to act on your behalf in certain circumstances. The deposit agreement and the ADRs are governed by New York law. However, our obligations to the holders of ordinary shares will continue to be governed by the laws of Germany, which may be different from the laws in the United States.

        In addition, applicable laws and regulations may require you to satisfy reporting requirements and obtain regulatory approvals in certain circumstances. You are solely responsible for complying with such reporting requirements and obtaining such approvals. Neither the depositary, the custodian, us nor any of their or our respective agents or affiliates shall be required to take any actions whatsoever on behalf of you to satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.

        As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name, through a brokerage or safekeeping account, or through an account established by the depositary in your name reflecting the registration of uncertificated ADSs directly on the books of the depositary (commonly referred to as the "direct registration system"). The direct registration system reflects the uncertificated (book-entry) registration of ownership of ADSs by the depositary. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary to the holders of the ADSs. The direct registration system includes automated transfers between the depositary and The Depository Trust Company, or DTC, the central book-entry clearing and settlement system for equity securities in the United States. If you decide to

117


Table of Contents

hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as ADS owner. Banks and brokers typically hold securities such as the ADSs through clearing and settlement systems such as DTC. The procedures of such clearing and settlement systems may limit your ability to exercise your rights as an owner of ADSs. Please consult with your broker or bank if you have any questions concerning these limitations and procedures. All ADSs held through DTC will be registered in the name of a nominee of DTC. This summary description assumes you have opted to own the ADSs directly by means of an ADS registered in your name and, as such, we will refer to you as the "holder." When we refer to "you," we assume the reader owns ADSs and will own ADSs at the relevant time.

Dividends and Other Distributions

        As a holder, you generally have the right to receive the distributions we make on the securities deposited with the custodian bank. Your receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders will receive such distributions under the terms of the deposit agreement in proportion to the number of ADSs held as of a specified record date.

Distributions of Cash

        Whenever we make a cash distribution for the securities on deposit with the custodian, the cash distribution will be received by the custodian. Upon receipt of confirmation of the deposit of the requisite funds, the depositary will arrange for the funds to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to German laws and regulations.

        The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The amounts distributed to holders will be net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. The depositary will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in respect of securities on deposit.

        The distribution of cash will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement.

Distributions of Shares

        Whenever we make a free distribution of ordinary shares for the securities on deposit with the custodian, we will deposit the applicable number of ordinary shares with the custodian. Upon receipt of confirmation of such deposit, the depositary will either distribute to holders new ADSs representing the ordinary shares deposited or modify the ADS-to-ordinary shares ratio, in which case each ADS you hold will represent rights and interests in the additional ordinary shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.

        The distribution of new ADSs or the modification of the ADS-to-ordinary shares ratio upon a distribution of ordinary shares will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes or governmental charges, the depositary may sell all or a portion of the new ordinary shares so distributed.

        No such distribution of new ADSs will be made if it would violate a law (i.e., the U.S. securities laws) or if it is not operationally practicable. If the depositary does not distribute new ADSs as described above, it may sell the ordinary shares received upon the terms described in the deposit agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.

118


Table of Contents

Distributions of Rights

        Whenever we intend to distribute rights to purchase additional ordinary shares, we will give prior notice to the depositary and we will assist the depositary in determining whether it is lawful and reasonably practicable to distribute rights to purchase additional ADSs to holders.

        The depositary will establish procedures to distribute rights to purchase additional ADSs to holders and to enable such holders to exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation contemplated in the deposit agreement (such as opinions to address the lawfulness of the transaction). You may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The depositary is not obligated to establish procedures to facilitate the distribution and exercise by holders of rights to purchase new ordinary shares other than in the form of ADSs.

        The depositary will not distribute the rights to you if:

    we do not timely request that the rights be distributed to you or we request that the rights not be distributed to you;

    we fail to deliver satisfactory documents to the depositary; or

    it is not reasonably practicable to distribute the rights.

        The depositary will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of such sale will be distributed to holders as in the case of a cash distribution. If the depositary is unable to sell the rights, it will allow the rights to lapse.

Elective Distributions

        Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice thereof to the depositary and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the depositary in determining whether such distribution is lawful and reasonably practicable.

        The depositary will make the election available to you only if it is reasonably practicable and if we have provided all of the documentation contemplated in the deposit agreement. In such case, the depositary will establish procedures to enable you to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement.

        If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a holder of ordinary shares would receive upon failing to make an election, as more fully described in the deposit agreement.

Other Distributions

        Whenever we intend to distribute property other than cash, ordinary shares or rights to purchase additional ordinary shares, we will notify the depositary in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the depositary in determining whether such distribution to holders is lawful and reasonably practicable.

        If it is reasonably practicable to distribute such property to you and if we provide all of the documentation contemplated in the deposit agreement, the depositary will distribute the property to the holders in a manner it deems practicable.

119


Table of Contents

        The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes and governmental charges, the depositary may sell all or a portion of the property received.

        The depositary will not distribute the property to you and will sell the property if:

    we do not request that the property be distributed to you or if we ask that the property not be distributed to you;

    we do not deliver satisfactory documents to the depositary; or

    the depositary determines that all or a portion of the distribution to you is not reasonably practicable.

        The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.

Redemption

        Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary in advance. If it is reasonably practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary will provide notice of the redemption to the holders.

        The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary will convert the redemption funds received into U.S. dollars upon the terms of the deposit agreement and will establish procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary. You may have to pay fees, expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as the depositary may determine.

Changes Affecting Ordinary Shares

        The ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par value, a split-up, cancellation, consolidation or reclassification of such ordinary shares or a recapitalization, reorganization, merger, consolidation or sale of assets.

        If any such change were to occur, your ADSs would, to the extent permitted by law, represent the right to receive the property received or exchanged in respect of the ordinary shares held on deposit. The depositary may in such circumstances deliver new ADSs to you, amend the deposit agreement, the ADRs and the applicable Registration Statement(s) on Form F-6, call for the exchange of your existing ADSs for new ADSs and take any other actions that are appropriate to reflect as to the ADSs the change affecting the ordinary shares. If the depositary may not lawfully distribute such property to you, the depositary may sell such property and distribute the net proceeds to you as in the case of a cash distribution.

Issuance of ADSs upon Deposit of Ordinary Shares

        The depositary may create ADSs on your behalf if you or your broker deposit ordinary shares with the custodian. The depositary will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and any charges and taxes payable for the transfer of the ordinary shares to the custodian. Your ability to deposit ordinary shares and receive ADSs may be limited by U.S. and German legal considerations applicable at the time of deposit.

120


Table of Contents

        The issuance of ADSs may be delayed until the depositary or the custodian receives confirmation that all required approvals have been given and that the ordinary shares have been duly transferred to the custodian. The depositary will only issue ADSs in whole numbers.

        When you make a deposit of ordinary shares, you will be responsible for transferring good and valid title to the depositary. As such, you will be deemed to represent and warrant that:

    The ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained.

    All preemptive (and similar) rights, if any, with respect to such ordinary shares have been validly waived or exercised.

    You are duly authorized to deposit the ordinary shares.

    The ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the ADSs issuable upon such deposit will not be, "restricted securities" (as defined in the deposit agreement).

    The ordinary shares presented for deposit have not been stripped of any rights or entitlements.

        If any of the representations or warranties are incorrect in any way, we and the depositary may, at your cost and expense, take any and all actions necessary to correct the consequences of the misrepresentations.

Transfer, Combination and Split Up of ADRs

        As an ADR holder, you will be entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you will have to surrender the ADRs to be transferred to the depositary and also must:

    ensure that the surrendered ADR certificate is properly endorsed or otherwise in proper form for transfer;

    provide such proof of identity and genuineness of signatures as the depositary deems appropriate;

    provide any transfer stamps required by the State of New York or the United States; and

    pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the deposit agreement, upon the transfer of ADRs.

        To have your ADRs either combined or split up, you must surrender the ADRs in question to the depositary with your request to have them combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit agreement, upon a combination or split up of ADRs.

Withdrawal of Shares Upon Cancellation of ADSs

        As a holder, you will be entitled to present your ADSs to the depositary for cancellation and then receive the corresponding number of underlying ordinary shares at the custodian's offices. Your ability to withdraw the ordinary shares may be limited by U.S. and German legal considerations applicable at the time of withdrawal. In order to withdraw the ordinary shares represented by your ADSs, you will be required to pay to the depositary the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the ordinary shares being withdrawn. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit agreement.

121


Table of Contents

        If you hold ADSs registered in your name, the depositary may ask you to provide proof of identity and genuineness of any signature and such other documents as the depositary may deem appropriate before it will cancel your ADSs. The withdrawal of the ordinary shares represented by your ADSs may be delayed until the depositary receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in mind that the depositary will only accept ADSs for cancellation that represent a whole number of securities on deposit.

        You will have the right to withdraw the securities represented by your ADSs at any time except for:

    Temporary delays that may arise because (i) the transfer books for the ordinary shares or ADSs are closed, or (ii) ordinary shares are immobilized on account of a shareholders' meeting or a payment of dividends.

    Obligations to pay fees, taxes and similar charges.

    Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.

        The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with mandatory provisions of law.

Voting Rights

        As a holder, you generally have the right under the deposit agreement to instruct the depositary to exercise the voting rights for the ordinary shares represented by your ADSs. The voting rights of holders of ordinary shares are described in the Section entitled "Description of Share Capital — Shareholders' Meetings, Resolutions and Voting Rights."

        As soon as practicable, after receipt of notice by the depositary at least thirty (30) days prior to a shareholders meeting or the voting deadline for a consent or solicitation of proxies, the depositary will distribute to you any notice of shareholders' meeting received from us together with information explaining how to instruct the depositary to exercise the voting rights of the securities represented by ADSs.

        If we appoint a proxy bank in accordance with German law for the shares represented by ADSs, hereinafter the Deposited Securities, holders of ADSs who do not timely give voting instructions to the depositary will be deemed to have instructed the depositary to give a proxy to the proxy bank to vote the Deposited Securities represented by such holders' ADSs, in accordance with the recommendations of the proxy bank pursuant to German law provided that (i) the depositary and we have provided timely notice to holders as of the applicable record date that we have appointed a proxy bank for the Deposited Securities, and (ii) the taking of such actions does not violate any U.S. or German laws.

        Please note that the ability of the depositary to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary in a timely manner.

122


Table of Contents

Fees and Charges

        As an ADS holder, you will be required to pay the following service fees to the depositary:

Service   Fees

Issuance of ADSs

  Up to U.S. 5¢ per ADS issued

Cancellation of ADSs

  Up to U.S. 5¢ per ADS canceled

Distribution of cash dividends or other cash distributions

  Up to U.S. 5¢ per ADS held

Distribution of ADSs pursuant to stock dividends, free stock distributions or exercise of rights. 

  Up to U.S. 5¢ per ADS held

Distribution of securities other than ADSs or rights to purchase additional ADSs

  Up to U.S. 5¢ per ADS held

Depositary Services

  Up to U.S. 5¢ per ADS held on the applicable record date(s) established by the Depositary

Transfer of ADRs

  U.S. $1.50 per certificate presented for transfer

        As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

    Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in Germany (i.e., upon deposit and withdrawal of ordinary shares).

    Expenses incurred for converting foreign currency into U.S. dollars.

    Expenses for cable, telex and fax transmissions and for delivery of securities.

    Taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn from deposit).

    Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.

        Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date.

        The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (e.g., distributions of shares, distributions of rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients' ADSs in DTC accounts in turn charge their clients' accounts the amount of the fees paid to the depositary banks.

123


Table of Contents

        In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.

        Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of such changes.

        The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program established pursuant to the deposit agreement, by making available a portion of the depositary fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary may agree from time to time.

Amendments and Termination

        We may agree with the depositary to modify the deposit agreement at any time without your consent. We undertake to give holders 30 days' prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not consider to be materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges you are required to pay. In addition, we may not be able to provide you with prior notice of any modifications or supplements that are required to accommodate compliance with applicable provisions of law.

        You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the ordinary shares represented by your ADSs (except as permitted by law).

        We have the right to direct the depositary to terminate the deposit agreement. Similarly, the depositary may in certain circumstances on its own initiative terminate the deposit agreement. In either case, the depositary must give notice to the holders at least 30 days before termination. Until termination, your rights under the deposit agreement will be unaffected.

        After termination, the depositary will continue to collect distributions received (but will not distribute any such property until you request the cancellation of your ADSs) and may sell the securities held on deposit. After the sale, the depositary will hold the proceeds from such sale and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary will have no further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding (after deduction of applicable fees, taxes and expenses).

Books of Depositary

        The depositary will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit agreement.

        The depositary will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADSs. These facilities may be closed from time to time, to the extent not prohibited by law.

124


Table of Contents

Limitations on Obligations and Liabilities

        The deposit agreement limits our obligations and the depositary's obligations to you. Please note the following:

    We and the depositary are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith.

    The depositary disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement.

    The depositary disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in ordinary shares, for the validity or worth of the ordinary shares, for any tax consequences that result from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice.

    We and the depositary will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement.

    We and the depositary disclaim any liability if we or the depositary are prevented or forbidden from or subject to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement, by reason of any provision, present or future of any law or regulation, or by reason of present or future provision of any provision of our articles of association, or any provision of or governing the securities on deposit, or by reason of any act of God or war or other circumstances beyond our control.

    We and the depositary disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for the deposit agreement or in our memorandum and articles of association or in any provisions of or governing the securities on deposit.

    We and the depositary further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting Shares for deposit, any holder of ADSs or authorized representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information.

    We and the depositary also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit which is made available to holders of ordinary shares but is not, under the terms of the deposit agreement, made available to you.

    We and the depositary may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties.

    We and the depositary also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement.

Pre-Release Transactions

        The depositary may, in certain circumstances, issue ADSs before receiving a deposit of ordinary shares or release ordinary shares before receiving ADSs for cancellation. These transactions are commonly referred to as "pre-release transactions." The deposit agreement limits

125


Table of Contents

the aggregate size of pre-release transactions and imposes a number of conditions on such transactions (i.e., the need to receive collateral, the type of collateral required, the representations required from brokers, etc.). The depositary may retain the compensation received from the pre-release transactions.

Taxes

        You will be responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the depositary and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the taxes that are due.

        The depositary may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and charges are paid by the applicable holder. The depositary and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary and to the custodian proof of taxpayer status and residence and such other information as the depositary and the custodian may require to fulfill legal obligations. You are required to indemnify us, the depositary and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.

Foreign Currency Conversion

        The depositary will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.

        If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or within a reasonable period, the depositary may take the following actions in its discretion:

    Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical.

    Distribute the foreign currency to holders for whom the distribution is lawful and practical.

    Hold the foreign currency (without liability for interest) for the applicable holders.

126


Table of Contents


MARKET INFORMATION

        Prior to the offering, there has been no public market for our shares or ADSs. We have applied to list the ADSs on the             . We cannot be certain at this time that this application will be approved.

        The principal trading market for our company's ADSs, each representing                  of an ordinary share, is expected to be the             , where we expect our ADSs to trade under the symbol             . All of our company's shares are in registered form. The depositary for the ADSs is Citibank, N.A. We do not currently intend to list our shares or ADSs on any stock exchange outside of the United States.

127


Table of Contents


TAXATION

German and United States Taxation

        The following discussion describes the material German tax and U.S. federal income tax consequences for a U.S. holder of acquiring, owning, and disposing of the ADSs. A U.S. holder, which we refer to as a U.S. holder, is a resident of the United States for purposes of the Convention Between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, which we refer to as the Treaty, that is fully eligible for benefits under the Treaty. A holder will be a U.S. holder entitled to full Treaty benefits in respect of the ADSs if it is:

    the beneficial owner of the ADSs (and the dividends paid with respect thereto);

    a citizen or an individual resident of the United States, a corporation or other entity treated as a corporation for U.S. federal income tax purposes created or organized under the laws of the United States or any state thereof or the District of Columbia, an estate the income of which is subject to U.S. federal income tax without regard to its source, or a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for U.S. federal income tax purposes;

    not also a resident of Germany for German tax purposes; and

    not subject to the limitation on benefits (i.e., anti-treaty shopping) article of the Treaty that applies in limited circumstances.

        Special rules apply to pension funds and certain other tax-exempt investors.

        This discussion does not address the treatment of ADSs that are (i) held in connection with a permanent establishment or fixed base through which a U.S. holder carries on business or performs personal services in Germany or (ii) part of business assets for which a permanent representative in Germany has been appointed.

        This discussion applies only to U.S. holders that acquire the ADSs in the initial offering and hold the ADSs as capital assets for U.S. federal income tax purposes. It does not purport to be a comprehensive description of all tax considerations that may be relevant to a decision to purchase the ADSs by any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers that are generally assumed to be known by investors. In particular, this discussion does not address tax considerations applicable to a U.S. holder that may be subject to special tax rules, including, without limitation, a dealer in securities or currencies, a trader in securities that elects to use a mark-to-market method of accounting for securities holdings, banks, thrifts, or other financial institutions, U.S. expatriates, an insurance company, a tax-exempt organization, a person that holds the ADSs as part of a hedge, straddle, conversion or other integrated transaction for tax purposes, a person that purchases or sells ordinary shares or ADSs as part of a wash sale for tax purposes, a person whose functional currency for tax purposes is not the U.S. dollar, a person subject to the U.S. alternative minimum tax, or a person that owns or is deemed to own 10% or more of the company's voting stock. In addition, the discussion does not address tax consequences to an entity treated as a partnership (or other pass-through entity) for U.S. federal income tax purposes that holds the ADSs. The U.S. federal income tax treatment of each partner of the partnership generally will depend upon the status of the partner and the activities of the partnership. Prospective purchasers that are partners in a partnership holding the ADSs should consult their own tax advisors.

128


Table of Contents

        This discussion is based on German tax laws (including, but not limited to interpretation circulars issued by German tax authorities, which are not binding for the courts), U.S. federal income tax laws (including the Internal Revenue Code of 1986, as amended, which we refer to as the Code, its legislative history, final, temporary and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof), and the Treaty. These laws are subject to change, possibly on a retroactive basis. There is no assurance that German or U.S. tax authorities will not challenge one or more of the tax consequences described in this discussion. In addition, this discussion is based upon the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.

        Prospective holders of ADSs should consult their own tax advisors regarding the German and U.S. tax consequences of the purchase, ownership and disposition of the company's ADSs in light of their particular circumstances, including the effect of any state, local, or other foreign or domestic laws or changes in tax law or interpretation.

German Taxation of ADSs

General

        For German tax purposes, the ADSs will represent a beneficial ownership interest in the underlying shares. Dividends are accordingly attributable to U.S. holders and U.S. holders are treated as holding an interest in the company's shares for German tax purposes.

German Taxation of Dividends

        The full amount of a dividend distributed by the company, excluding an amount that is treated as repayment of capital under German tax laws, is subject to German withholding tax at a rate of 25% plus a solidarity surcharge of 5.5% on the withholding tax, resulting in an aggregate rate of 26.375%. The basis for the withholding tax is the dividend approved for distribution by the company's general shareholder meeting.

        Withholding tax is withheld and remitted to the German tax authorities by the disbursing agent, i.e., the bank, financial services institution, securities trading enterprise or securities trading bank (each as defined in the German Banking Act (Kreditwesengesetz) and in each case including a German branch of a foreign enterprise, but excluding a foreign branch of a German enterprise) that holds or administers the underlying shares in custody and disburses or credits the dividend income from the underlying shares or disburses or credits the dividend income from the underlying shares on delivery of the dividend coupons or disburses such dividend income to a foreign agent or the central securities depository (Wertpapiersammelbank in terms of the German Depositary Act (Depotgesetz)) holding the underlying shares in a collective deposit, if such central securities depository disburses the dividend income from the underlying shares to a foreign agent, regardless of whether or not a holder must report the dividend for tax purposes and regardless of whether or not a holder is a resident of Germany.

        Pursuant to the Treaty, the German withholding tax may not exceed 15% of the dividends received by U.S. holders. The excess of the total withholding tax, including the solidarity surcharge, over the maximum rate of withholding tax permitted by the Treaty is refunded to U.S. holders upon application. For example, for a declared dividend of 100, a U.S. holder initially receives 73.625 (100 minus the 26.375% withholding tax). The U.S. holder is entitled to a partial refund from the German tax authorities in the amount of 11.375% of the gross dividend, which is equal to the excess of the amount withheld at the total German domestic dividend withholding rate (including the solidarity surcharge) over the amount computed under the applicable Treaty rate (hence, the excess of the 26.375% total German withholding over the 15% Treaty withholding tax rate). As a result, the U.S.

129


Table of Contents

holder ultimately receives a total of 85 (85% of the declared dividend) following the refund of the excess withholding.

Withholding Tax Refund for U.S. Holders

        U.S. holders are generally eligible for treaty benefits under the Treaty (as discussed above in " — German and United States Taxation"). Accordingly, U.S. holders are entitled to claim a refund of the portion of the otherwise applicable 26.375% German withholding tax on dividends that exceeds the applicable Treaty rate.

        Individual claims for refunds may be made on a separate form, which must be filed with the German Federal Central Tax Office (Bundeszentralamt für Steuern, An der Küppe 1, 53225 Bonn, Germany). The form is available at the same address, on the German Federal Tax Office's website (www.bzst.de) or from the Embassy of the Federal Republic of Germany, 4645 Reservoir Road, NW, Washington D.C. 20007-1998. The refund claim becomes time-barred after four years following the calendar year in which the dividend is received. As part of the individual refund claim, a U.S. holder must submit to the German tax authorities the original withholding certificate (or a certified copy thereof) issued by the disbursing agent and documenting the tax withheld and an official certification of United States tax residency on IRS Form 6166. IRS Form 6166 may be obtained by filing a properly completed IRS Form 8802 with the Internal Revenue Service, P.O. Box 71052, Philadelphia, PA 19176-6052. Requests for certification must include the U.S. holder's name, social security number or employer identification number, the type of U.S. tax return filed, the tax period for which the certification is requested and a user fee of $35. An online payment option is also available at www.irs.gov. If the online payment option is used, then the completed IRS Form 8802 and all required attachments should be mailed to Internal Revenue Service, P.O. Box 16347, Philadelphia, PA 19114-0447. The Internal Revenue Service will send the certification on IRS Form 6166 to the U.S. holder, who must then submit the certification with the claim for refund of withholding tax.

        Under a simplified refund procedure based on electronic data exchange (Datenträgerverfahren) a broker that is registered as a participant in the electronic data exchange procedure with the German Federal Central Tax Office (Bundeszentralamt für Steuern) may file an electronic collective refund claim on behalf of all of the U.S. holders for whom it holds the company's ADSs in custody. However the simplified refund procedure only allows for a refund up to the regular tax rate provided in the Treaty. It is not possible to use the simplified refund procedure to claim a further refund, for example based on special privileges under the Treaty.

German Taxation of Capital Gains

        The capital gains from the disposition of ADSs realized by a holder that is not a German resident would be subject to German tax if such holder at any time during the five years preceding the disposition, directly or indirectly, held ADSs that represent 1% or more in the company's shares. If such holder had acquired the ADSs without consideration, the previous owner's holding period and size of the holding would also be taken into account.

        However, U.S. holders are eligible for treaty benefits under the Treaty (as discussed above in " — German and United States Taxation"). Pursuant to the Treaty, U.S. holders are not subject to German tax even under the circumstances described in the preceding paragraph.

        German statutory law requires the disbursing agent to levy withholding tax on capital gains from the sale of shares or other securities held in a custodial account in Germany. With regard to the German taxation of capital gains, disbursing agent means a bank, a financial services institution, a securities trading enterprise or a securities trading bank (each as defined in the German Banking Act (Kreditwesengesetz) and, in each case including a German branch of a

130


Table of Contents

foreign enterprise, but excluding a foreign branch of a German enterprise) that holds the ADSs in custody or administers the ADS for the investor or conducts sales or other dispositions and disburses or credits the income from the ADSs to the holder of the ADSs. The statute does not explicitly condition the obligation to withhold taxes on capital gains being subject to taxation in Germany under German statutory law or on an applicable income tax treaty permitting Germany to tax such capital gains. However, an interpretation circular issued by the German Federal Ministry of Finance (dated December 22, 2009, reference number IV C 1-S2252/08/10004 at no.s 313, 315) provides that taxes need not be withheld when the holder of the custody account is not a resident of Germany for tax purposes and the income is not subject to German taxation. The interpretation circular further states that there is no obligation to withhold such tax even if the non-resident holder owns 1% or more of the shares of a German company. While interpretation circulars issued by the German Federal Ministry of Finance are only binding on the tax authorities but not on the tax courts, in practice, the disbursing agents nevertheless rely on guidance contained in such interpretation circulars. Therefore, a disbursing agent would only withhold tax at 26.375% on capital gains derived by a U.S. holder from the sale of ADSs held in a custodial account in Germany in the unlikely event that the disbursing agent did not follow this guidance. In this case, the U.S. holder would be entitled to claim a refund of the withholding tax from the German tax authorities under the Treaty.

German Inheritance and Gift Tax

        Under German domestic law, the transfer of ADSs will be subject to German gift or inheritance tax if:

        (a)   the decedent or donor or heir, beneficiary or other transferee (i) maintained his or her residence or a habitual abode in Germany or had its place of management or registered office in Germany at the time of the transfer, or (ii) is a German citizen who has spent no more than five consecutive years outside Germany without maintaining a residence in Germany or (iii) is a German citizen who serves for a German entity established under public law and is remunerated for his or her service from German public funds (including family members who form part of such person's household, if they are German citizens) and is only subject to estate or inheritance tax in his or her country of residence or habitual abode with respect to assets located in such country (special rules apply to certain former German citizens who neither maintain a residence nor have their habitual abode in Germany), or

        (b)   at the time of the transfer the ADSs are held by the decedent or donor as business assets forming part of a permanent establishment in Germany or for which a permanent representative in Germany has been appointed, or

        (c)   the ADSs subject to such transfer form part of a portfolio that represents at the time of the transfer 10% or more of the registered share capital of the company and that has been held directly or indirectly by the decedent or donor, either alone or together with related persons.

        Under the United States-Germany Inheritance and Gifts Tax Treaty, a transfer of ADSs by gift or upon death is not subject to German inheritance or gift tax, if the donor or the transferor is domiciled in the United States within the meaning of the United States-Germany Inheritance and Gift Tax Treaty and is neither a citizen of Germany nor a former citizen of Germany and, at the time of the transfer, the ADSs are not held by the decedent or donor as business assets forming part of a permanent establishment in Germany or for which a permanent representative in Germany has been appointed. Notwithstanding the foregoing, in case the heir, transferee or other beneficiary (i) has, at the time of the transfer, his or her residence or habitual abode in Germany, or (ii) is a German citizen who has spent no more than five (or, in certain circumstances, ten) consecutive years outside Germany without maintaining a residence in Germany or (iii) is a German citizen who

131


Table of Contents

serves for a German entity established under public law and is remunerated for his or her service from German public funds (including family members who form part of such person's household, if they are German citizens) and is only subject to estate or inheritance tax in his or her country of residence or habitual abode with respect to assets located in such country (or special rules apply to certain former German citizens who neither maintain a residence nor have their habitual abode in Germany), the transferred ADSs are subject to German inheritance or gift tax.

        If, in this case, Germany levies inheritance or gift tax on the ADSs with reference to the heir's, transferee's or other beneficiary's residence in Germany or his or her German citizenship, and the United States also levies federal estate tax or federal gift tax with reference to the decedent's or donor's residence (but not with reference to the decedent's or donor's citizenship), the amount of the U.S. federal estate tax or the U.S. federal gift tax, respectively, paid in the United States with respect to the transferred ADSs is credited against the German inheritance or gift tax liability, provided the U.S. federal estate tax or the U.S. federal gift tax, as the case may be, does not exceed the part of the German inheritance or gift tax, as computed before the credit is given, which is attributable to the transferred ADSs. A claim for credit of the U.S. federal estate tax or the U.S. federal gift tax, as the case may be, may be made within one year of the final determination (administrative or judicial) and payment of the U.S. federal estate tax or the U.S. federal gift tax, as the case may be, provided that the determination and payment are made within ten years of the date of death of the decedent or of the date of the making of the gift by the donor. Similarly, U.S. state-level estate or gift taxes is also creditable against the German inheritance or gift tax liability to the extent that U.S. federal estate or gift tax is creditable.

Other German Taxes

        There are no transfer, stamp or similar taxes which would apply to the purchase, sale or other disposition of ADSs in Germany. Net worth tax (Vermögenssteuer) is no longer levied in Germany.

U.S. Taxation of ADSs

General

        This subsection " — U.S. Taxation of ADSs" is the opinion of Sullivan & Cromwell LLP.

        This discussion addresses only United States federal income taxation.

        In general, and taking into account the earlier assumptions under the subsection " — German and United States Taxation," for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the ordinary shares represented by those ADRs. Exchanges of ordinary shares for ADRs, and ADRs for ordinary shares, generally will not be subject to United States federal income tax.

U.S. Taxation of Dividends

        Under the United States federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation as ordinary income. If you are a non-corporate U.S. holder, dividends paid to you in taxable years beginning before January 1, 2013 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the ordinary shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements.

        Dividends we pay with respect to the ordinary shares or ADSs generally will be qualified dividend income.

132


Table of Contents

        You must include any German tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of ordinary shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income will be the U.S. dollar value of the euro payments made, determined at the spot euro/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. Any such exchange gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the ordinary shares or ADSs and thereafter as capital gain.

        Subject to certain limitations, the German tax withheld in accordance with the Treaty and paid over to Germany will be creditable or deductible against your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate. To the extent a refund of the tax withheld is available to you under German law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. See "— German Taxation of ADSs — Withholding Tax Refund for U.S. Holders," above, for the procedures for obtaining a tax refund.

        For foreign tax credit purposes, dividends will be income from sources outside the United States and will, depending on your circumstances, be either "passive" or "general" income for purposes of computing the foreign tax credit allowable to you.

U.S. Taxation of Capital Gains

        Subject to the PFIC rules discussed below, if you sell or otherwise dispose of your ordinary shares or ADSs in any other taxable disposition, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your ordinary shares or ADSs. Capital gain of a non-corporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

Additional United States Federal Income Tax Considerations

        PFIC Rules.    We believe that ordinary shares and ADSs should not be