<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SI DIAMOND TECHNOLOGY, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
STATE OF TEXAS 76-0273345
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
DOUGLAS P. BAKER
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
SI DIAMOND TECHNOLOGY, INC. SI DIAMOND TECHNOLOGY, INC.
12100 TECHNOLOGY BOULEVARD 12100 TECHNOLOGY BOULEVARD
AUSTIN, TEXAS 78727 AUSTIN, TEXAS 78727
(512) 331-6200 (512) 331-6200
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, INCLUDING AREA AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF SMALL BUSINESS ISSUER'S CODE, OF AGENT FOR SERVICE)
PRINCIPAL EXECUTIVE OFFICES)
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COPIES TO:
DONALD T. LOCKE
HASKELL SLAUGHTER & YOUNG, L.L.C.
1200 AM SOUTH/HARBERT PLAZA
1901 SIXTH AVENUE NORTH
BIRMINGHAM, ALABAMA 35203
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement has been declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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 earlier effective
registration statement for the same offering. [_]
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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share........ 14,262,226
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Common Stock Underlying
Warrants............... 13,684,253
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Common Stock Issuable
Upon Conversion of
Series C Preferred
Stock Underlying
Warrants............... 135,000
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Common Stock Issuable
Upon Conversion of
Series E Preferred
Stock.................. 3,991,522
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Common Stock Issuable
Upon Conversion of
Series F Preferred
Stock.................. 2,058,253
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Common Stock Issuable
Upon Conversion of
Series G Preferred
Stock.................. 1,722,344
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Total................. 35,853,598(1) $0.54688 $13,578,796 $4,115.00(1)
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</TABLE>
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(1) Of the number of shares of Common Stock being registered in this
Registration Statement, a total of 11,024,027 shares of Common Stock in
this Registration Statement have previously been registered and the
registration fees paid with the Company's Registration Statement Nos. 333-
24801 and 333-38941. The filing fee included with this Registration
Statement is for the additional 24,829,571 shares of the Company's Common
Stock registered herein.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low sales
prices per share of Common Stock as reported by the NASDAQ Small Cap
Market on November 18, 1997.
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.
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<PAGE>
FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-38941
PROSPECTUS
SI DIAMOND TECHNOLOGY, INC.
14,472,558 SHARES OF 135,000 SHARES OF
COMMON STOCK COMMON STOCK
(PAR VALUE $.001 PER SHARE) ISSUABLE UPON
CONVERSION OF SERIES C PREFERRED STOCK
UNDERLYING WARRANTS
1,432,283 SHARES OF 7,830,740 SHARES OF
COMMON STOCK COMMON STOCK
UNDERLYING WARRANTS ISSUABLE UPON
CONVERSION OF SERIES E PREFERRED STOCK
3,176,092 SHARES OF
COMMON STOCK ISSUABLE UPON
CONVERSION OF SERIES F PREFERRED
STOCK
This Prospectus relates to 27,046,673 shares (the "Shares") of Common Stock,
par value $.001 per share (the "Common Stock"), of SI Diamond Technology,
Inc., a Texas corporation (the "Company"), which may be offered for sale by
certain shareholders of the Company (the "Selling Shareholders") from time to
time. The Shares offered for sale are: (1) presently outstanding, (2) underlie
certain existing warrants to purchase Common Stock (the "Warrants"), (3) are
issuable upon conversion of shares of the Company's Series C Preferred Stock
underlying certain existing preferred stock warrants (the "Series C
Warrants"), (4) are issuable upon conversion of outstanding shares of the
Company's Series E Preferred Stock, or (5) are issuable upon conversion of
outstanding shares of the Company's Series F Preferred Stock. As of October
21, 1997, there were 14,472,558 outstanding Shares of Common Stock, 1,432,283
Shares underlying the Warrants, 135,000 Shares issuable upon conversion of the
Series C Preferred Stock underlying the Series C Warrants, 7,830,740 Shares
issuable upon conversion of the Series E Preferred Stock, and 3,176,092 Shares
issuable upon conversion of the Series F Preferred Stock which Shares are all
subject to this Prospectus. See "Plan of Distribution and Selling
Shareholders." The Company's principal executive offices are located at 12100
Technology Boulevard, Austin, Texas 78727 and its telephone number is (512)
331-6200.
This offering is not being underwritten. The Selling Shareholders directly,
through agents designated by them from time to time or through dealers or
underwriters also to be designated, may sell the Shares from time to time, in
or through privately negotiated transactions, or in one or more transactions,
including block transactions, on the NASDAQ Small Cap Market, the Boston Stock
Exchange or the Pacific Stock Exchange or on any stock exchange on which the
Shares may be listed in the future pursuant to and in accordance with the
applicable rules of such exchanges or otherwise. The selling price of the
Shares may be at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. To the
extent required, the specific Shares to be sold, the names of the Selling
Shareholders, the respective purchase prices and public offering prices, the
names of any such agent, dealer or underwriter and any applicable commissions
or discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution and Selling
Shareholders."
The Company will receive the proceeds from the exercise of the Warrants and
the Series C Warrants, but will not receive any proceeds from the sale of the
Shares by the Selling Shareholders. The Company has agreed to pay
substantially all of the expenses of this offering (other than commissions and
discounts of underwriters, dealers or agents), which are estimated at $50,460.
The Company has agreed to indemnify certain of the Selling Shareholders
against certain civil liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). See "Plan of Distribution and
Selling Shareholders."
The Selling Shareholders and any broker-dealers, agents or underwriters that
participate with the Selling Shareholders in the distribution of any of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any commissions received by them and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution and Selling
Shareholders."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES.
The Common Stock is traded and quoted on the NASDAQ Small Cap Market under
the symbol "SIDT". On October 21, 1997, the closing price of the Common Stock
as reported on the NASDAQ Small Cap Market was $0.53125 per share.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 28, 1997.
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SHARES OFFERED HEREBY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Materials filed with the Commission by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549;
and at the Regional Offices of the Commission at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60606-2511; and
Seven World Trade Center, New York, New York 10048. Copies of such material
can also be obtained at prescribed rates from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission also maintains a Web site that contains reports, proxy
statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
The Common Stock is included in the NASDAQ Small Cap Market under the symbol
"SIDT." Reports, proxy and information statements and other information
concerning the Company can be inspected at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., 3rd Floor, Washington, D.C.
20006 or obtained by calling the Nasdaq Public Reference Room Disclosure Group
at (800) 638-8241.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act (File No. 1-11602), are incorporated
by reference in this Prospectus and shall be deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-KSB/A for the fiscal year ended
December 31, 1996.
(2) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1997.
(3) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1997.
(4) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended September 30, 1997.
(5) The Company's Current Report on Form 8-K dated as of October 28, 1997.
All documents subsequently filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering made by this Prospectus shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of
filing such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral
request of any such person, a copy of any or all of the documents referred to
above that have been incorporated by reference in this Prospectus (not
including exhibits to the documents that are incorporated by reference unless
such exhibits are specifically incorporated by reference into such documents).
Requests for such copies should be directed in writing or by telephone to SI
Diamond Technology, Inc., 12100 Technology Boulevard, Austin, Texas 78727,
Attention: Corporate Secretary (Telephone: (512) 331-6200).
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<PAGE>
RISK FACTORS
The Common Stock being offered hereby involves a high degree of risk.
Prospective investors should carefully consider the following risk factors in
addition to other information contained in this Prospectus in evaluating an
investment in the shares of Common Stock offered hereby.
EARLY STAGE OF DFE PRODUCT DEVELOPMENT; NO DFE PRODUCT REVENUES; DFE PRODUCT
UNCERTAINTY
The Company's Diamond Field Emission ("DFE") technology and products
resulting therefrom will require significant additional development,
engineering, testing and investment prior to commercialization. The Company's
leading potential DFE product is the Diamond Field Emission Lamp ("DFEL"). If
the DFEL is successful, the Diamond Field Emission Display ("DFED") is also a
possibility. There can be no assurance that either the DFEL or DFED will be
successfully developed, be capable of being produced in commercial quantities
on a cost-effective basis or be successfully marketed.
HISTORY OF OPERATING LOSSES; GOING CONCERN
For the nine months ended September 30, 1997, the Company suffered a net
loss of ($4,397,784). For the years ended December 31, 1992, 1993, 1994, 1995
and 1996, the Company suffered net losses of $1,630,978, $7,527,677,
$7,255,420, $14,389,856 and $13,709,006, respectively. The Company expects to
continue to incur additional operating losses for an extended period of time
as it continues to develop products for commercialization and there can be no
assurance that the Company will be profitable in the future. The Company's
independent auditors have included an explanatory paragraph in their report on
the Company's financial statements stating that as of March 27, 1997, the
Company has not yet achieved profitability, has a working capital deficit and
must obtain additional capital to fund its ongoing operations. As a result,
there is substantial doubt about the Company's ability to continue as a going
concern. The Company's operations to date have been primarily financed by the
proceeds of the sale of equity securities of the Company and from revenues
generated from research and development conducted for third parties; although
since the second quarter of 1994, revenues from commercial services and
product sales have exceeded those earned through such research and development
("R&D") activities. In order to continue its transition from a contract
research and development organization into a company with viable operations,
the Company anticipates substantial product development expenditures for the
foreseeable future.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
The Company expects to incur substantial expenses for R&D, product testing,
production, manufacturing, product marketing and administrative overhead. The
majority of R&D expenditures are for development of the Company's DFE
technology. Further, the Company believes that certain proposed products may
not be available for commercial sale or routine use for a period of one to two
years. Therefore, it is anticipated that the commercialization of the
Company's existing and proposed products will require additional capital in
excess of the Company's other current sources of funding. The combined effect
of the foregoing may prevent the Company from achieving profitability for an
extended period of time. Because the timing and receipt of revenues from the
sale of products will be tied to the achievement of certain product
development, testing, manufacturing and marketing objectives which cannot be
predicted with certainty, there may be substantial fluctuations in the
Company's results of operations. If revenues do not increase as rapidly as
anticipated, or if product development and testing and marketing require more
funding than anticipated, the Company may be required to curtail its expansion
and/or seek additional financing from other sources. The Company may seek such
additional financing through the offer of debt or equity, joint venture
financing, or any combination thereof at any time.
The Company has developed a plan to maintain operations for 12-18 months
after the date of this Registration Statement. However, existing resources at
current spending levels are only available for approximately seven months
after the date of this Prospectus. This estimate is based on current
development plans, current operating plans, the current regulatory
environment, historical experience in the development of
3
<PAGE>
electronic products and general economic conditions. Changes could occur to
cause available resources to be consumed before such time. The Company's plan
is primarily dependent on increasing revenues and raising additional funds
through strategic partners, additional debt offerings, or additional equity
offerings. If adequate funds are not available from operations or additional
sources of financing, the Company may have to reduce substantially or
eliminate expenditures for research and development, testing and production of
its products or obtain funds through arrangements with other entities that may
require the Company to relinquish rights to certain of its technologies or
products. Such results would materially and adversely affect the Company.
DEPENDENCE ON PRINCIPAL PRODUCTS
The Company's DFE technology is an emerging technology. The financial
condition and prospects of the Company are dependent upon market acceptance
and sales of the Company's DFE products and its Electronic Billboard.
Additional R&D needs to be conducted with respect to the DFE products and the
Electronic Billboard before marketing and sales efforts can be commenced.
Market acceptance of the Company's products will be dependent upon the
perception within the electronics and instrumentation industries of the
quality, reliability, performance, efficiency, breadth of application and
cost-effectiveness of the products. There can be no assurance that the Company
will be able to gain commercial market acceptance for its products or develop
other products for commercial use.
COMPETITION; POSSIBLE TECHNOLOGICAL OBSOLESCENCE
The display, semiconductor and coating system industries are highly
competitive and are characterized by rapid technological change. The Company's
existing and proposed products will compete with other existing products and
may compete against other developing technologies. Development by others of
new or improved products, processes or technologies may reduce the size of
potential markets for the Company's products. There can be no assurance that
such products, processes or technologies will not render the Company's
proposed products obsolete or less competitive. Many of the Company's
competitors have greater financial, managerial and technical resources than
the Company. The Company will be required to devote substantial financial
resources and effort to further R&D. There can be no assurance that the
Company will successfully differentiate its products from its competitors'
products or that the Company will be able to adapt to evolving markets and
technologies, develop new products or achieve and maintain technological
advantages.
TECHNOLOGIES SUBJECT TO LICENSES
As a licensee of certain research technologies, the Company has various
license agreements with Microelectronics and Computer Technology Corporation
("MCC") and Diagascrown, Inc., wherein the Company has acquired rights to
develop and commercialize certain research technologies. In certain cases,
agreements require the Company to pay royalties on sale of products developed
from the licensed technologies and fees on revenues from sublicensees, where
applicable, and to pay for the costs of filing and prosecuting patent
applications. The Company's principal license agreement with MCC requires the
Company to pay exclusivity fees under certain circumstances in order to
maintain the Company's exclusive rights under the MCC Agreement. Each
agreement is subject to termination by either party, upon notice, in the event
of certain defaults by the other party. The payment of such royalties may
adversely affect the future profitability of the Company.
NO ASSURANCE OF MARKET ACCEPTANCE
Since its inception, the Company has focused its product development efforts
on R&D of technologies that the Company believes will be a significant advance
over currently available technologies. The Company has limited experience in
manufacturing and marketing. The new management team that was put in place in
1996 has experience in manufacturing and marketing; however, with any new
technology there is a risk that the market may not appreciate the benefits or
recognize the potential applications of the technology. Market acceptance of
the Company's products will depend, in part, on the Company's ability to
convince potential customers of the advantages of such products as compared to
competitive products, and will also depend upon the Company's ability to train
manufacturers and others to use the Company's products. There can be no
assurance that the Company will be able to successfully market its proposed
products even if such products perform as anticipated.
4
<PAGE>
LIMITED MANUFACTURING CAPACITY AND EXPERIENCE
The Company has no established commercial manufacturing facilities in the
areas in which it is conducting its principal research. Its existing
manufacturing, while related, would not directly support manufacturing of the
proposed new products. The new management team that was put in place has
commercial manufacturing and marketing experience; however, the Company will
be required to either employ additional qualified personnel to establish
manufacturing facilities or enter into appropriate manufacturing agreements
with others. There is no assurance that the Company will be successful in
attracting experienced personnel or financing the cost of establishing
commercial manufacturing facilities, if required, or be capable of producing a
high quality product in quantity for sale at competitive prices.
MARKETING AND SALES UNCERTAINTIES
There can be no assurance that the DFE related products or the Electronic
Billboard will be successfully developed or that such products will be
commercially successful. The Company intends to establish a sales organization
to promote, market, and sell its products. To develop a sales organization
will require significant additional expenditures, management resources and
training time. There can be no assurance that the Company will be able to
establish such a sales organization.
UNPROVEN TECHNOLOGY; NEED FOR SYSTEM INTEGRATION
In order to prove that the Company's technologies work and can produce a
complete product, the Company must ordinarily integrate a number of highly
technical and complicated subsystems into a fully-integrated prototype. There
can be no assurance that the Company will be able to successfully complete the
development work on any of its proposed products or ultimately develop any
marketable products.
DEPENDENCE UPON GOVERNMENT CONTRACTS
A significant portion of the Company's revenues has been derived from
contracts with agencies of the United States government. In the years ended
December 31, 1992, 1993, 1994, 1995 and 1996, and for the nine months ended
September 30, 1997 such contracts accounted for approximately $930,000,
$1,147,000, $820,000, $1,009,000, $2,869,000 and $757,595, respectively, or
approximately 99%, 89%, 41%, 33%, 50% and 25% of the Company's total revenues
for each of those periods. The Company's contracts involving the United States
government are or may be subject to various risks, including unilateral
termination for the convenience of the government, reduction or modification
in the event of changes in the government's requirements or budgetary
constraints, increased or unexpected costs causing losses or reduced profits
under fixed-price contracts or unallowable costs under cost reimbursement
contracts, risks of potential disclosure of the Company's confidential
information to third parties, the failure or inability of the prime contractor
to perform its prime contract in circumstances where the Company is a
subcontractor, the failure of the government to exercise options provided for
in the contracts and the exercise of "march-in" rights by the government.
March-in rights refer to the right of the government or government agency to
exercise a non-exclusive, royalty-free, irrevocable, worldwide license to any
technology developed under contracts funded by the government if the
contractor fails to continue to develop the technology. The programs in which
the Company participates may extend for several years but are normally funded
on an annual basis. There can be no assurance that the government will
continue its commitment to programs to which the Company's development
projects are applicable or that the Company can compete successfully to obtain
funding available pursuant to such programs. A reduction in, or discontinuance
of, such commitment or of the Company's participation in these programs would
have a material adverse effect on the Company's business, operating results
and financial condition.
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company's ability to compete effectively with other companies will
depend, in part, on the ability of the Company to maintain the proprietary
nature of its technology. Although the Company has been awarded, has filed
applications for or has been licensed technology under numerous patents, there
can be no assurance as to the degree of protection offered by these patents or
as to the likelihood that pending patents will be issued. There can be no
assurance that competitors in both the United States and foreign countries,
many of which have substantially greater resources and have made substantial
investments in competing technologies, have not already or will not apply for
and obtain patents that will prevent, limit or interfere with the Company's
ability to
5
<PAGE>
make and sell its products. There can also be no assurance that competitors
will not intentionally or unintentionally infringe the Company's patents. The
defense and prosecution of patent suits are both costly and time-consuming,
even if the outcome is favorable to the Company. In foreign countries, the
expenses associated with such proceedings can be prohibitive. In addition,
there is an inherent unpredictability in obtaining and enforcing patents in
foreign countries. An adverse outcome in the defense of a patent suit could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require the Company to
cease selling its products. Although third parties have not asserted
infringement claims against the Company, there can be no assurance that third
parties will not assert such claims in the future. Claims that the Company's
products infringe on the proprietary rights of others are more likely to be
asserted after commencement of commercial sales incorporating the Company's
technology. The Company also relies on unpatented proprietary technology, and
there can be no assurance that others may not independently develop the same
or similar technology or otherwise obtain access to the Company's proprietary
technology. To protect its rights in these areas, the Company requires all
employees and most consultants, advisors and collaborators to enter into
confidentiality agreements. There can be no assurance that these agreements
will provide meaningful protection for the Company's trade secrets, know-how
or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. While the Company has attempted to protect
proprietary technology it may develop or acquire and will attempt to protect
future developed proprietary technology through patents, copyrights and trade
secrets, it believes that its success will depend more upon further innovation
and technological expertise.
AVAILABILITY OF MATERIALS AND DEPENDENCE ON SUPPLIERS
It is anticipated that materials to be used by the Company in producing its
future products will be purchased by the Company from outside vendors and, in
certain circumstances, the Company may be required to bear the risk of
material price fluctuations. It is anticipated by the Company's management
that the majority of raw materials to be used in products to be manufactured
by the Company will be readily available. However, there can be no assurance
that such materials will be available in the future or if available will be
procurable at prices which will be favorable to the Company.
DEPENDENCE ON KEY PERSONNEL
The future success of the Company will depend in large part on its ability
to attract and retain highly qualified scientific, technical and managerial
personnel. Competition for such personnel is intense and there can be no
assurance that the Company will be able to attract and retain all personnel
necessary for the development of its business. In addition, much of the know-
how and processes developed by the Company reside in its key scientific and
technical personnel and such know-how and processes are not readily
transferable to other scientific and technical personnel. The loss of the
services of key scientific, technical and managerial personnel could have a
material adverse effect on the Company.
CONCENTRATION OF OWNERSHIP
Officers, directors and principal shareholders of the Company own, or have
the power to vote, in the aggregate, approximately 50% of the voting stock of
the Company. Due to the relatively large number of shares owned by these
shareholders and certain provisions of the Company's Amended and Restated
Articles of Incorporation ("the Restated Articles") and Bylaws, it may be
difficult for other shareholders to cause a change in control of the Company
or effect other fundamental corporate transactions if officers, directors and
principal shareholders were to act as a group.
VOLATILITY OF MARKET FOR SHARES
The market price of the Shares, like that of the common stock of many
emerging technology companies has fluctuated significantly in recent years and
will likely continue to fluctuate in the future. The price of such
6
<PAGE>
securities currently rises and is expected to continue to rise rapidly in
response to certain events, such as announcements concerning product
developments, licenses and patents, although the outcome of such events may
not be fully determined. Similarly, prices of such securities may fall rapidly
if unfavorable results are encountered in product development or market
acceptance. In the event that the Company achieves earnings from the sale of
products, securities analysts may begin predicting quarterly earnings. The
failure of the Company's earnings to meet analysts' expectations could result
in a significant rapid decline in the market price of the Company's Common
Stock. In addition, the stock market has experienced and continues to
experience extreme price and volume fluctuations which have affected the
market price of the equity securities of many technology companies and which
have often been unrelated to the operating performance of those companies.
Such broad market fluctuations, as well as general economic and political
conditions, may adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 18, 1997, there were 20,887,708 shares of Common Stock
outstanding, of which 14,723,521 shares of Common Stock were freely tradeable
without restriction or further registration under the Securities Act by
persons other than "affiliates" of the Company. As of that date, the remaining
shares of Common Stock were deemed "restricted securities," as defined in Rule
144 under the Securities Act, and may not be resold in the absence of
registration under the Securities Act or pursuant to an exemption from such
registration, including exemptions provided by Rule 144 under the Securities
Act. Under Rule 144, persons who have held securities for a period of at least
one year may sell a limited amount of such securities without registration
under the Act. Rule 144 also permits, under certain circumstances, persons who
are not affiliates of the Company, to sell their restricted securities without
quantity limitations once they have completed a two-year holding period.
The Registration Statement, of which this Prospectus is a part, pertains to
14,262,226 Shares of Common Stock which are currently "restricted securities";
13,684,253 Shares of Common Stock which underlie existing Warrants; 135,000
Shares of Common Stock which are issuable upon conversion of the Series C
Preferred Stock underlying the Series C Warrants; 3,991,522 Shares of Common
Stock which are issuable upon conversion of the Series E Preferred Stock;
2,058,253 shares of Common Stock which are issuable upon conversion of the
Series F Preferred Stock; and 1,722,344 shares of Common Stock which are
issuable upon conversion of the Series G Preferred Stock. The Company is
obligated to maintain the effectiveness of the Registration Statement for
varying periods of time, pursuant to separate agreements with certain groups
of the Selling Shareholders. As of November 18, 1997, the Company is
additionally obligated to register an additional 1,845,150 shares of its
Common Stock which are currently "restricted securities" in certain
circumstances.
In addition to the shares of Common Stock which are outstanding as of
November 7, 1997, 3,500,000 shares of Common Stock have been reserved for
issuance pursuant to the Company's stock option plans. 14,469,219 shares of
Common Stock have also been reserved for issuance upon the exercise of
Warrants that have been issued by the Company (13,684,253 of such shares have
been registered in the Registration Statement). Additionally, 125,275 shares
of Common Stock have been reserved for issuance upon conversion of the
Company's Series A Preferred Stock, 750,000 shares of Common Stock have been
reserved for issuance upon conversion of the Series C Preferred Stock
underlying the Series C Warrants (the "Series C Shares") (135,000 of such
shares have been registered in the Registration Statement), 3,991,522 shares
of Common Stock have been reserved for issuance upon conversion of the
Company's Series E Preferred Stock (the "Series E Shares"), 2,058,253 shares
of Common Stock have been reserved for issuance upon conversion of the
Company's Series F Preferred Stock (the "Series F Shares") and 1,722,344
shares of Common Stock have been reserved for issuance upon conversion of the
Company's Series G Preferred Stock (the "Series G Shares").
No prediction can be made as to the effect, if any, that future sales, or
the availability of shares of Common Stock for future sales, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Stock by the Company or by shareholders who hold "restricted
securities," or the perception that such sales may occur, could adversely
affect prevailing market prices for the Common Stock.
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POSSIBLE ADVERSE EFFECT OF SALES BY SELLING SHAREHOLDERS ON THE MARKET FOR AND
THE PRICE OF THE COMMON STOCK
Upon registration in accordance with its obligations, the Selling
Shareholders will be permitted to sell up to 35,853,598 shares of Common Stock
(of which 13,684,253 are Shares of Common Stock subject to issuance upon the
exercise of certain Warrants; 135,000 are Shares of Common Stock issuable upon
conversion of the Series C Shares underlying the Series C Warrants; 3,991,522
are Shares of Common Stock issuable upon conversion of the Series E Shares;
2,058,253 are Shares of Common Stock issuable upon conversion of the Series F
Shares and 1,722,344 are Shares of Common Stock issuable upon conversion of
the Series G Shares). The Shares (assuming the exercise of all Warrants and
conversion of all the Series C Shares, Series E Shares and Series F Shares
subject to the Registration Statement) represent approximately 85% of the
shares of Common Stock outstanding on the date hereof. The Company will not
receive any proceeds from sales of Shares held by such Selling Shareholders.
The Company will receive the proceeds from the exercise of any Warrants to
purchase Shares of Common Stock or the exercise of any Series C Warrants to
purchase shares of the Company's Series C Preferred Stock (which are
convertible into Common Stock). Assuming the exercise of all Warrants and
Series C Warrants which are subject to the Registration Statement of which
this Prospectus is a part, the Company would receive approximately $5,600,000
from such exercises. The exercise prices of the Warrants and the Series C
Warrants range from $1.00 to $7.89 per share of the Company's Common Stock. It
is unlikely that the Warrants or the Series C Warrants will be exercised until
the trading price of the Common Stock exceeds the exercise price of the
Warrants or the Series C Warrants, if at all.
Sales of or offers to sell substantial blocks of Common Stock currently held
by certain shareholders, or the perception by investors, investment
professionals or securities analysts of the possibility that such sales may
occur, could adversely affect the price of and market for the Common Stock.
PRIOR AND SUPERIOR RIGHTS OF OTHER CLASSES OF CAPITAL STOCK
The rights of holders of the Common Stock to receive dividends or other
payments with respect thereto are subject to any prior and superior rights of
holders of the Company's Preferred Stock. As of November 18, 1997, the Company
had issued and outstanding 100 shares of its Series A Preferred Stock, 228
shares of its Series E Preferred Stock, 1,185 shares of its Series F Preferred
Stock and 1,700 shares of its Series G Preferred Stock. Additionally, the
Company has authorized 75,000 shares of Series C Preferred Stock and 90,000
shares of Series D Preferred Stock. No shares of Series C Preferred Stock or
Series D Preferred Stock are currently outstanding; however, Series C Warrants
are outstanding to purchase 75,000 shares of Series C Preferred Stock. No
current series of the Company's Preferred Stock has rights that are prior and
superior to the Common Stock with respect to dividends. Additionally, only the
holders of the Series A Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock are entitled to a liquidation
preference over the holders of the Common Stock. The Board of Directors,
however, has the authority to provide for the issuance of additional shares of
Preferred Stock in one or more additional series and such shares may, in the
Board's discretion, have prior and superior rights to receive dividends or
other payments with respect thereto. In light of its future capital
requirements, the Company could issue shares of Preferred Stock at any time
having such prior and superior rights. See "Description of Capital Stock".
LACK OF DIVIDENDS
The Company has never paid cash dividends on its equity securities and does
not intend to pay cash dividends in the foreseeable future. To the extent the
Company has earnings in the future, the Company intends to reinvest such
earnings in the business operations of the Company.
ANTITAKEOVER EFFECTS
The Company's Restated Articles and Bylaws contain a number of provisions
which could make the acquisition of the Company, by means of an unsolicited
tender offer, a proxy contest or otherwise, more difficult.
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Among other things, (i) the Board is authorized to issue series of Preferred
Stock that could, depending on the terms of such series, impede the completion
of a merger, tender offer or other takeover attempt; (ii) the Board of
Directors is divided into three classes of directors, with the result that
approximately one-third of the Board of Directors are elected each year; (iii)
except in limited circumstances, no shares of the Company's Preferred Stock
may be issued or sold to any officer or director of the Company or any
shareholder owning more than five percent (5%) of the Company's Common Stock
without the affirmative vote of a majority of the disinterested shareholders
of the Company; and (iv) holders of Series C and Series D Preferred Stock have
the right to acquire additional shares in certain circumstances where the
voting power of such holders would be diluted. See "Description of Capital
Stock--Certain Provisions of the Articles of Incorporation, Bylaws and Texas
Law."
LIMITATION OF REMEDIES; INDEMNIFICATION
The Company's Restated Articles provide that a director of the Company will
only be liable to the Company for (i) breaches of his duty of loyalty to the
Company and its shareholders, (ii) acts or omissions not in good faith or
which constitute a breach of duty of a director of the Company or involves
intentional misconduct or a knowing violation of law, (iii) transactions from
which a director receives an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, (iv)
acts or omissions for which liability is specifically provided by statute, and
(v) acts relating to unlawful stock purchases or payments of dividends. Thus,
the Company may be prevented from recovering damages for certain alleged
errors or omissions by its directors. The Bylaws also provide that, under
certain circumstances, the Company will indemnify its officers and directors
for liabilities incurred in connection with their good faith acts for the
Company. Such an indemnification payment might deplete the Company's assets.
While Texas law permits a shareholder to bring a derivative action on behalf
of a corporation, the law relating to the remedies available to corporate
shareholders is constantly changing. Shareholders who have questions
concerning the fiduciary obligations of the officers and directors of the
Company should consult with independent legal counsel. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Securities Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered
by the safe harbors created thereby. Investors are cautioned that all forward-
looking statements involve risks and uncertainty, including without
limitation, the uncertainty of additional funding, the development of other
technologies, the ability of the Company to acquire manufacturing facilities
and marketing and sales expertise, the ability of the Company to attract and
retain highly qualified personnel, as well as general market conditions and
the degree and nature of competition. Where any such forward-looking statement
includes a statement of the assumptions or basis underlying such forward-
looking statement, the Company cautions that, while it believes such
assumptions or basis to be reasonable and makes them in good faith, assumed
facts or basis almost always vary from actual results, and the differences
between assumed facts or basis and actual results can be material, depending
upon the circumstances. Where in any forward-looking statement, the Company or
its management expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement or
expectation or belief will result or be achieved or accomplished.
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USE OF PROCEEDS
The Selling Shareholders will receive all of the net proceeds from the sale
of the Shares. The Company will not receive any of the proceeds from the sale
of the Shares by the Selling Shareholders. The Company will receive the
proceeds from the exercise of the Warrants and the Series C Warrants, which
proceeds will be used for working capital. See "Plan of Distribution and
Selling Shareholders." Assuming the exercise of all Warrants and Series C
Warrants which are subject to the Registration Statement, of which this
Prospectus is a part, the Company shall receive approximately $5,600,000 upon
such exercise. The exercise prices of the Warrants and the Series C Warrants
range from $1.00 to $7.89 per share of the Company's Common Stock. It is
unlikely that the Warrants or the Series C Warrants will be exercised until
the trading price of the Common Stock exceeds the exercise price of the
Warrants or the Series C Warrants, if at all.
PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS
GENERAL
The Company is filing the Registration Statement, of which this Prospectus
is a part, to permit transactions with respect to certain shares of the
Company's Common Stock, which are (1) currently "restricted securities" held
by the Selling Shareholders, (2) issuable upon exercise of certain outstanding
Warrants to purchase shares of the Company's Common Stock, (3) issuable upon
conversion of shares of the Company's Series C Preferred Stock underlying
certain Series C Warrants, or (4) issuable upon conversion of outstanding
shares of the Company's Series E Preferred Stock, Series F Preferred Stock or
Series G Preferred Stock. This offering is not being underwritten. The Selling
Shareholders directly, through agents designated from time to time, or through
dealers or underwriters also to be designated, may sell the Shares from time
to time, in or through privately negotiated transactions, or in one or more
transactions, including block transactions, on the NASDAQ Small Cap Market,
the Boston Stock Exchange, the Pacific Stock Exchange or on any stock
exchanges on which the Shares may be listed in the future pursuant to and in
accordance with the applicable rules of such exchanges. The selling price of
the Shares may be at market prices prevailing at the time of sale, at prices
relating to such prevailing market prices or at negotiated prices. Further,
the Selling Shareholders are not restricted as to the number of shares which
may be sold at any one time, and it is possible that a significant number of
shares could be sold at the same time, which may have a depressive effect on
the market price of the Company's Common Stock.
To the extent required by applicable law, the specific Shares to be sold,
the names of the Selling Shareholders, the respective purchase prices and
public offering prices, the names of any such agent, dealer or underwriters,
and any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying Prospectus. Resales or reoffers of the
Shares by the Selling Shareholders must be accompanied by the delivery of a
copy of this Prospectus. Copies of this Prospectus shall be delivered to each
Selling Shareholder after the Registration Statement, of which this Prospectus
is a part, is declared effective. Each Selling Shareholder shall also be
informed that the anti-manipulative rules under the Exchange Act (Rules 10b-6
and 10b-7) may apply to their sales in the market, and each Selling
Shareholder shall also be sent a copy of Rules 10b-6 and 10b-7, as well as a
copy of the Commission's Release No. 34-23611 which discusses these rules and
their application in certain circumstances, with a copy of this Prospectus.
The Selling Shareholders and any underwriters, dealers or agents that
participate in the distribution of the Shares may be deemed to be
underwriters, and any profit on the sale of the Shares by them and any
discounts, commissions or concessions received by any such underwriters,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act. The Selling Shareholders may also sell such Shares
pursuant to Rule 144 promulgated under the Securities Act, or may pledge
shares as collateral for margin accounts, and such shares could be resold
pursuant to the terms of such accounts.
There can be no assurance that the Selling Shareholders will sell any or all
of the Shares offered by them hereunder. The Company has filed the
Registration Statement of which this Prospectus forms a part to comply
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with the exercise by the BEG Selling Shareholders, the Series E Selling
Shareholders, the MCC Selling Shareholders, the December 1995 Selling
Shareholders, the GH Selling Shareholders, the Series F Selling Shareholders
and the Series G Selling Shareholders (each as defined below) of demand
registration rights granted to such Selling Shareholders, and to comply with
certain "piggy-back" registration rights granted to other Selling
Shareholders.
IPO WARRANT SELLING SHAREHOLDERS
In the Company's initial public offering (the "IPO") completed in February
1993, the Company issued a total of 100,000 Warrants to purchase shares of the
Company's Common Stock as part of the underwriter's compensation to the
persons identified in the Selling Shareholders Table as the IPO Warrant
Selling Shareholders (the "IPO Warrant Selling Shareholders"). Pursuant to the
terms of these Warrants, the Company agreed to give notice of its intention to
file certain registration statements to such holders and give them an
opportunity to be included in such registration statements. The number of
Shares of Common Stock underlying the Warrants issued in such IPO are included
in the Registration Statement, and the Company agreed to pay all expenses in
the preparation of the Registration Statement (other than commissions and
discounts of any underwriters, dealers or agents). The Company also agreed to
indemnify the IPO Warrant Selling Shareholders and any underwriters they
utilize against certain civil liabilities, including liabilities arising under
the Securities Act.
All of the IPO Warrant Selling Shareholders have been utilized within the
past three (3) years by the Company in its capital raising activities.
AUGUST 1993 SELLING SHAREHOLDERS
In August 1993, the Company issued shares of its Common Stock in an exempt
offering under Regulation D of the Securities Act to those shareholders
identified in the Selling Shareholders Table as the August 1993 Selling
Shareholders (the "August 1993 Selling Shareholders"). Each August 1993
Selling Shareholder was also issued one (1) Warrant for every two (2) shares
of Common Stock that were purchased in this transaction. The holders of these
Shares and Warrants were granted "piggy-back" registration rights in which the
Company agreed to have the Common Stock held by the August 1993 Selling
Shareholders, as well as the Common Stock underlying their Warrants, included
in the Registration Statement and to cause such Registration Statement to
become effective as soon as practicable.
EAST/WEST SELLING SHAREHOLDERS
In February 1995, the shareholders identified in the Selling Shareholders
Table as the East/West Selling Shareholders (the "East/West Selling
Shareholders") acquired shares of Common Stock as well as Series C Warrants to
acquire shares of the Company's Series C Preferred Stock, which are further
convertible into shares of the Company's Common Stock. The Company granted
"piggy-back" registration rights to the East/West Selling Shareholders with
respect to such Shares in the event of the registration of any of the
Company's equity securities, except in certain circumstances, and agreed to
keep any such registration with respect to the East/West Selling Shareholders
effective for a period of at least six months. Additionally, the Company
agreed to pay all of the expenses incident to the preparation and filing of
the Registration Statement (other than commissions and discounts of any
underwriters, dealers or agents). The Company also agreed to indemnify the
East/West Selling Shareholders and any underwriters they may utilize against
certain civil liabilities, including liabilities arising under the Securities
Act. In addition, each East/West Selling Shareholder agreed to indemnify the
Company against certain civil liabilities, including liabilities under the
Securities Act, with respect to written information furnished by the East/West
Selling Shareholders to the Company.
East/West Technology Partners, Ltd., an East/West Selling Shareholder, and
its representatives, have assisted the Company in the past three years in its
capital raising activities.
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BEG SELLING SHAREHOLDERS
Effective June 20, 1995, the shareholders identified in the Selling
Shareholders Table as the BEG Selling Shareholders (the "BEG Selling
Shareholders") acquired shares of the Company's Common Stock in an exempt
transaction. Pursuant to the Subscription Agreement and Purchaser
Questionnaires with respect to such transactions, the Company was required to
file the Registration Statement with respect to the Common Stock acquired by
the BEG Selling Shareholders and keep such Registration Statement effective
for a period of three (3) years. The number of Shares of Common Stock
underlying certain Warrants issued to the BEG Selling Shareholders are also
included in the Registration Statement, of which this Prospectus is a part.
The Company agreed to pay all of the expenses in the preparation of the
Registration Statement (other than commissions and discounts of any
underwriters, dealers or agents). The Company also agreed to indemnify the BEG
Selling Shareholders and any underwriters they utilize against certain civil
liabilities, including liabilities arising under the Securities Act. In
addition, each BEG Selling Shareholder agreed to indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act,
with respect to written information furnished by the BEG Selling Shareholders
to the Company.
Marc W. Eller became a director of the Company on November 15, 1995 and the
Company's Chairman of the Board and Chief Executive Officer on July 26, 1996.
Mr. Eller is also the vice-president and chairman of the board of BEG
Enterprises, Inc., a BEG Selling Shareholder which has assisted the Company
within the past three years in its capital raising activities. Ronald J.
Berman, the president of BEG Enterprises, Inc. is also a director of the
Company.
MCC SELLING SHAREHOLDER
In October 1995, the Company issued Microelectronics and Computer Technology
Corporation ("MCC") shares of the Common Stock of the Company in payment of an
exchangeable note arising in connection with Amendment No. 2 to the Patent and
Know-How Cross-License ("Know-How Agreement") Agreement between MCC and the
Company dated January 19, 1995. Pursuant to the Know-How Agreement the Company
also issued 340,717 shares of Common Stock of the Company (the "MCC
Shares").The Company also issued Warrants on January 19, 1996 to MCC (the "MCC
Warrants") to purchase 22,326 shares of the Company's Common Stock. The
Company agreed to register the MCC Shares and the shares underlying the MCC
Warrants upon demand and to keep such registration statement effective for a
period of three years. The MCC Shares and the shares underlying the MCC
Warrants are included in the Registration Statement. The Company is required
to pay all of the expenses in the preparation of the Registration Statement
(other than commissions and discounts of any underwriters, dealers or agents).
THE DECEMBER 1995 SELLING SHAREHOLDERS
Effective December 1995, the shareholders identified in the Selling
Shareholders Table as the December 1995 Selling Shareholders (the "December
1995 Selling Shareholders") acquired shares of the Company's Common Stock in
an exempt transaction. Upon demand by the December 1995 Selling Shareholders,
the Company was required to file the Registration Statement with respect to
the Shares acquired by such Selling Shareholders and keep such Registration
Statement effective for a period of three (3) years. The number of shares of
Common Stock underlying certain Warrants issued to the December 1995 Selling
Shareholders are also included in the Registration Statement, of which this
Prospectus is a part. The Company agreed to pay all of the expenses in the
preparation of the Registration Statement (other than commissions and
discounts of any underwriters, dealers or agents). The Company also agreed to
indemnify the December 1995 Selling Shareholders and any underwriters they
utilize against certain civil liabilities, including liabilities arising under
the Securities Act.
SERIES E SELLING SHAREHOLDERS
Effective in January 1996, the shareholders listed in the Selling
Shareholders Table as the Series E Selling Shareholders (the "Series E Selling
Shareholders") acquired shares of the Company's Series E Preferred Stock
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<PAGE>
in an exempt transaction pursuant to Regulation D of the Securities Act. In
connection with such transaction, the Company additionally issued warrants to
several individuals connected with Swartz Investments, Inc. to purchase shares
of the Company's Common Stock (the "Swartz Warrants"). Swartz Investments,
Inc., assisted the Company as placement agent for the Series E Preferred
Stock.
Subject to adjustment in certain circumstances, each share of Series E
Preferred Stock is convertible into that number of shares of Common Stock
determined by dividing (i) the original issue price of the Series E Preferred
Stock (the "Series E Issue Price") plus an amount equal to 8% of the Series E
Issue Price per annum from the date the escrow agent first had in its
possession the funds representing payment of the Series E Preferred Stock to
the conversion date by (ii) $1.50. Any shares of Series E Preferred Stock
outstanding on January 15, 1999 shall be automatically converted into the
Company's Common Stock on such date.
Notwithstanding the preceding paragraph, beginning with April 1997, where
the average of the closing bid prices of the Company's Common Stock for all
trading days for such calendar month is less than $1.00, the Company shall,
upon notice by the Series E Selling Shareholders, redeem shares of the Series
E Preferred Stock held by each holder in an amount equal to the lesser of (i)
7% of the aggregate shares of Series E Preferred Stock held by such holder as
of April 21, 1997 or (ii) all shares of Series E Preferred Stock then held by
such holder.
Except pursuant to the automatic conversion of the Series E Preferred Stock
on January 15, 1997, in no event shall any Holder be entitled to convert
shares of Series E Preferred Stock which, upon conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by such Holder
and its affiliates to exceed 4.9% of the outstanding shares of the Company's
Common Stock following such conversion. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by a Holder
and its affiliates shall include the shares of Common Stock issuable upon
conversion of the shares of Series E Preferred Stock with respect to which the
determination of such proviso is being made, but shall exclude the shares of
Common Stock which would be issuable upon conversion of the remaining
unconverted portion of the Series E Preferred Stock beneficially owned by such
Holder and its affiliates. Except as set forth in the preceding sentence, for
purposes of this paragraph, "beneficial ownership" shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.
Upon the conversion of the Series E Preferred Stock, the Company will
account for the difference between the conversion price and the trading price
on the conversion date as a preferred stock dividend. Assuming the conversion
had taken place on December 31, 1996, the Company would have recognized a
preferred stock dividend of approximately $1,090,000, which would have
resulted in a net loss per common share of ($1.39) for the year ended December
31, 1996.
The Company agreed at the time of sale of the Series E Preferred Stock to
register pursuant to the Registration Statement the shares of Common Stock (i)
issuable upon conversion of the Series E Preferred Stock as determined at the
time of such registration and (ii) upon exercise of the Swartz Warrants, and
to keep such Registration Statement effective until sixty (60) days after all
shares of Series E Preferred Stock shall have been converted. Additionally,
the Company agreed to pay all of the expenses incident to the preparation and
filing of the Registration Statement (other than commissions and discounts of
any underwriters, dealers or agents). The Company also agreed to indemnify the
Series E Selling Shareholders and any underwriters they may utilize against
certain civil liabilities, including liabilities arising under the Securities
Act. In addition, each Series E Selling Shareholder agreed to indemnify the
Company against certain civil liabilities, including liabilities under the
Securities Act, with respect to written information furnished by the Series E
Selling Shareholders to the Company.
GH SELLING SHAREHOLDERS
GH Securities, Ltd. ("GH") was issued 219,149 Warrants in connection with
the Company's offerings under Regulation S of the Securities Act in August,
September, October and November 1993. In February 1996,
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these 219,149 Warrants were repriced and reissued to GH. Also in February
1996, the Company issued GH 150,000 Warrants in connection with a Regulation S
offering by the Company in September 1994 and an additional 60,000 Warrants
for the termination of certain contractual obligations arising out of the
Company's initial public offering in early 1993. The Company also issued
55,000 Warrants in February 1996 to a former advisor of the Company. In
connection with these transactions of the Company in February 1996, the
Shareholders identified in the Selling Shareholders Table as the GH Selling
Shareholders (the "GH Selling Shareholders") entered into a Rights Agreement
in which the Company gave demand registration rights to the GH Selling
Shareholders. The Company agreed to use its best efforts to file the
Registration Statement, of which this Prospectus is a part, with respect to
the Shares and the Shares underlying certain Warrants held by the GH Selling
Shareholders and to cause such Registration Statement to become effective and
remain effective for a period of three (3) years. The Company agreed to pay
all of the expenses in the preparation for the Registration Statement (other
than commissions and discounts of any underwriters, dealers or agents). The
Company also agreed to indemnify the GH Selling Shareholders and any
underwriters they utilized against certain civil liabilities, including
liabilities arising under the Securities Act. In addition, each GH Selling
Shareholder agreed to indemnify the Company against certain civil liabilities,
including liabilities under the Securities Act, with respect to written
information furnished by the GH Selling Shareholders to the Company.
GH and David M. Klausmeyer have assisted the Company within the past three
years with its capital raising activities.
NOTE WARRANT SELLING SHAREHOLDERS
As of October 31, 1996, Diamond Tech One, Inc. ("DTO"), a wholly owned
subsidiary of the Company, borrowed a total of $1,000,000 from the persons or
entities identified in the Selling Shareholder Table as the Note Warrant
Selling Shareholders (the "Note Warrant Selling Shareholders"). In addition,
the Company granted Warrants to each Note Warrant Selling Shareholder to
purchase 50,000 shares of the Company's Common Stock at $1.00 per share at any
time until June 1, 1998. These Warrants were issued in an exempt transaction
under Regulation D of the Securities Act. 100,000 of these Warrants have been
exercised for Shares of the Company's Common Stock. Under the terms of the
agreement with the Note Warrant Selling Shareholders, the Company is obligated
to grant each of these shareholders additional warrants to purchase up to
50,000 shares of the Company's Common Stock on the same terms as those of the
original grant of Warrants to the Note Warrant Selling Shareholders.
The Company also agreed that within 15 days of the issuance date of the
Warrants to the Note Warrant Selling Shareholders it would file a Registration
Statement, of which this Prospectus is a part, to include the shares of Common
Stock underlying these Warrants. The Company also agreed to keep such
Registration Statement effective until June 1, 1998.
SERIES F SELLING SHAREHOLDERS
Effective in March 1997, the shareholders listed in the Selling Shareholders
Table as the Series F Selling Shareholders (the "Series F Selling
Shareholders") acquired shares of the Company's Series F Preferred Stock in an
exempt transaction pursuant to Regulation D of the Securities Act.
Subject to adjustment in certain circumstances, each share of Series F
Preferred Stock is convertible into that number of shares of Common Stock
determined by dividing (i) the original issue price of the Series F Preferred
Stock (the "Series F Issue Price") plus an amount equal to 4% of the Series F
Issue Price per annum from the date the Series F Preferred Stock was issued to
the conversion date by (ii) $1.50.
14
<PAGE>
Notwithstanding the previous paragraph, for each calendar month, commencing
with July 1997, if the average of the closing bid prices of the Company's
Common Stock for all the trading days for such calendar month is less than
$1.00, then each holder of Series F Preferred Stock may have the Company
redeem shares of the Series F Preferred Stock held by such holder in an amount
equal to the lesser of (1) 7% of the aggregate shares of Series F Preferred
Stock held by such holder as of July 14, 1997, or (2) all shares of Series F
Preferred Stock then held by such holder. For shares of Series F Preferred
Stock submitted to the Company under the terms of this provision, the Company
shall have the option of redeeming the shares submitted upon notice to the
holders within one (1) business day of the receipt of notice from the holder
exercising the rights of this provision. If the Company does exercise its
option to redeem, the redemption price shall be the equivalent of 115% of the
sum of the original Series F Issue Price plus any accrued interest under the
terms of the Series F Certificate of Designation, as amended. If the Company
does not exercise its right to redeem under this provision, then the shares of
Series F Preferred Stock shall be converted into shares of the Company's
Common Stock (valued at the average of the closing bid prices of the Company's
Common Stock for all trading days for such calendar month). The payment of
such redemption price or the shares of Common Stock to be received upon
conversion pursuant to the terms of this provision shall be delivered to the
holder of Series F Preferred Stock within ten (10) business days of the
receipt by the Company of notice from such holder exercising his rights under
the terms of this provision.
In addition, pursuant to the terms of the Series F Certificate of
Designation, since the closing bid price of the Company's Common Stock did not
exceed $1.50 by October 12, 1997, the Company is obligated to renegotiate the
conversion terms of the Series F Preferred Stock with its holders.
Upon the conversion of the Series F Preferred Stock, the Company will
account for the difference between the conversion price and the trading price
on a conversion date as a preferred stock dividend. Assuming the conversion
had taken place on June 30, 1997, the Company would not have recognized a
preferred stock dividend.
The Company agreed at the time of sale of the Series F Preferred Stock to
register pursuant to the Registration Statement the shares of Common Stock
issuable upon conversion of the Series F Preferred Stock as determined at the
time of such registration and to keep such Registration Statement effective
for one (1) year. Additionally, the Company agreed to pay all of the expenses
incident to the preparation and filing of the Registration Statement (other
than commissions and discounts of any underwriters, dealers or agents). The
Company also agreed to indemnify the Series F Selling Shareholders and any
underwriters they may utilize against certain civil liabilities, including
liabilities arising under the Securities Act. In addition, each Series F
Selling Shareholder agreed to indemnify the Company against civil liabilities,
including liabilities under the Securities Act, with respect to written
information furnished by the Series F Selling Shareholders to the Company.
SERIES G SELLING SHAREHOLDERS
Effective in June 1997, the shareholders listed in the Selling Shareholders
Table as the Series G Selling Shareholders (the "Series G Selling
Shareholders") acquired shares of the Company's Series G Preferred Stock in an
exempt transaction pursuant to Regulation D of the Securities Act.
Subject to adjustment in certain circumstances, each share of Series G
Preferred Stock is convertible into that number of shares of Common Stock
determined by dividing (i) the original issue price of the Series G Preferred
Stock (the "Series G Issue Price") plus an amount equal to 10% of the Series G
Issue Price per annum from the date the Series G Preferred Stock was issued to
the conversion date by (ii) $1.00.
In addition to the shares of Series G Preferred Stock issued in this
offering, the Series G Selling Shareholders also received Warrants to purchase
an aggregate of 850,000 shares of the Company's Common Stock at $1.00 per
share.
15
<PAGE>
The Company agreed at the time of sale of the Series G Preferred Stock to
register pursuant to the Registration Statement the shares of Common Stock
issuable upon conversion of the Series G Preferred Stock as determined at the
time of such registration and to keep such Registration Statement effective
for one (1) year. Additionally, the Company agreed to pay all of the expenses
incident to the preparation and filing of the Registration Statement (other
than commissions and discounts of any underwriters, dealers or agents). The
Company also agreed to indemnify the Series G Selling Shareholders and any
underwriters they may utilize against certain civil liabilities, including
liabilities arising under the Securities Act. In addition, each Series G
Selling Shareholder agreed to indemnify the Company against civil liabilities,
including liabilities under the Securities Act, with respect to written
information furnished by the Series G Selling Shareholders to the Company.
OCTOBER 1997 SELLING SHAREHOLDERS
Effective in October 1997, the shareholders listed in the Selling
Shareholders Table as the October 1997 Selling Shareholders (the "October 1997
Selling Shareholders") acquired shares of the Company's Common Stock in an
exempt transaction pursuant to Regulation D of the Securities Act. Pursuant to
the terms of the subscription agreement between the October 1997 Selling
Shareholders and the Company, the October 1997 Selling Shareholders agreed to
fund $500,000 to the Company upon the execution of the subscription agreement
and the delivery of a stock certificate to the entity designated by the
October 1997 Selling Shareholders representing the number of shares of the
Company's Common Stock resulting from the division of the $500,000 by a value
which was equal to 65% of the average closing bid price of the Company's
Common Stock for the five trading days immediately preceding the date of the
subscription agreement. In addition, the October 1997 Selling Shareholders
received one Warrant for each share of Common Stock as calculated pursuant to
the sentence above. The purchase price of each Warrant received by the October
1997 Selling Shareholders was the equivalent of 115% of the average closing
bid price of the Company's Common Stock for the five trading days immediately
preceding the date of the subscription agreement. In November 1997, on the
first business of day December 1997 and on the first business day for each
month thereafter up to and including April 1998, the October 1997 Selling
Shareholders shall purchase an additional $500,000 of the Company's Common
Stock at a price which shall be equal to 65% of the average closing bid price
of the Company's Common Stock for the five trading days immediately preceding
the issuance date in each of those successive months. In addition, the October
1997 Selling Shareholders shall also receive one Warrant for each share of
Common Stock as calculated in the above sentence. The purchase price for each
of these Warrants shall be 115% of the average closing bid price of the
Company's Common Stock for the five trading days immediately preceding the
first business day of each month pursuant to the terms of the subscription
agreement.
Under the terms of the registration rights agreement between the Company and
the October 1997 Selling Shareholders, the Company is obligated either prior
or concurrent with the closing of this offering to have this Registration
Statement on Form S-3 filed covering the resale of all of the October 1997
Selling Shareholders shares of Common Stock.
OTHER SELLING SHAREHOLDERS
The Company has agreed to give the shareholders listed herein as the Other
Selling Shareholders (the "Other Selling Shareholders") "piggy-back"
registration rights regarding shares underlying certain Warrants and Shares
held by these holders. Pursuant to these "piggy-back" rights, the Company
agreed to use its best efforts to have the Common Stock and the Common Stock
issuable upon the exercise of these Warrants included in the Registration
Statement, of which this Prospectus is a part. Mr. Kravetz, Columbus and BEG
have each assisted the Company within the past three (3) years with its
capital raising activities.
SELLING SHAREHOLDERS
This Prospectus covers offers from time to time of the Shares of Common
Stock owned by the Selling Shareholders. Set forth below are the names of the
Selling Shareholders as well as (i) the number of Shares of Common Stock, (ii)
the number of Shares of Common Stock underlying existing Warrants, (iii) the
number of
16
<PAGE>
Shares of Common Stock issuable upon conversion of shares of the Company's
Series C Preferred Stock underlying the Series C Warrants, (iv) the number of
Shares of Common Stock issuable on conversion of the Company's Series E
Preferred Stock, (v) the number of Shares of Common Stock issuable upon
conversion of the Company's Series F Preferred Stock and (vi) the number of
Shares of Common Stock issuable upon conversion of the Company's Series G
Preferred Stock held as of the date of this Prospectus by the Selling
Shareholders, which are also the numbers of Shares which may be offered for
sale by each Selling Shareholder from time to time pursuant to this
Prospectus. Because the Company does not know how many Shares may be sold by
the Selling Shareholders pursuant to this Prospectus, no estimate can be given
as to the number of the Shares that will be held by the Selling Shareholders
upon termination of this offering.
17
<PAGE>
SELLING SHAREHOLDERS TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK ISSUABLE
UPON CONVERSION OF
SERIES C PREFERRED
STOCK, SERIES E
NUMBER OF SHARES PREFERRED STOCK,
NUMBER OF SHARES OF COMMON STOCK SERIES F PREFERRED
OF COMMON STOCK UNDERLYING STOCK AND SERIES G PERCENTAGE OF INTERESTS
HELD AND OFFERED WARRANTS OFFERED PREFERRED STOCK PRIOR TO ANY SALES MADE
PURSUANT TO THIS PURSUANT TO THIS OFFERED PURSUANT PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS TO THIS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ---------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
IPO WARRANT SELLING
SHAREHOLDERS
GH Securities, Ltd...... 45,000 *
Lawrence I. Kravetz..... 30,000 *
Fritz Volker............ 15,000 *
Frank J. Ingersoll...... 9,000 *
George Dullnig & Co..... 1,000 *
AUGUST 1993 SELLING
SHAREHOLDERS
How & Co................ 15,000 7,500 *
Barry Kitt.............. 8,000 4,000 *
Gilbert Kitt............ 4,000 *
Barney Cacioppo......... 6,000 3,000 *
Peter and Ruth Medding.. 2,500 *
Richard and Susan
Goebel................. 2,000 *
Richard and Mary
Pulciani............... 2,000 *
Albert Vivo............. 2,000 *
Rocky and Genevieve
Dazzo.................. 2,000 *
Ben Chilcutt............ 2,000 *
Claus Fichte............ 4,000 2,000 *
Ronald Cacioppo......... 1,000 *
James Cacioppo.......... 1,000 *
John Church............. 1,000 *
Argon Electric.......... 2,000 1,000 *
Robert Watt............. 1,000 *
Sheldon Solomon Trust... 2,000 1,000 *
Susan Oelsen............ 2,000 *
Suzanne Kibort.......... 2,000 1,000 *
George and Emma
Kienberger............. 2,000 1,000 *
Steven Tsengas.......... 1,000 *
Malcolm Thomas.......... 1,000 *
Bruce Sabel............. 2,000 1,000 *
Gary Wright............. 1,000 *
Richard Browning Trust.. 2,000 1,000 *
Richard Hutter.......... 1,000 *
L.P. David Orosz........ 2,000 1,000 *
Ansford Party Ltd....... 1,000 *
Ranleigh Party Ltd...... 1,000 *
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK ISSUABLE
UPON CONVERSION OF
SERIES C PREFERRED
STOCK, SERIES E
NUMBER OF SHARES PREFERRED STOCK,
NUMBER OF SHARES OF COMMON STOCK SERIES F PREFERRED
OF COMMON STOCK UNDERLYING STOCK AND SERIES G PERCENTAGE OF INTERESTS
HELD AND OFFERED WARRANTS OFFERED PREFERRED STOCK PRIOR TO ANY SALES MADE
PURSUANT TO THIS PURSUANT TO THIS OFFERED PURSUANT PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS TO THIS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ---------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
EAST/WEST SELLING
SHAREHOLDERS
East/West Technology
Partners, Ltd.......... 77,250 *
BDM Federal, Inc........ 111,140 42,750 *
International Technology
Exchange Corporation... 15,000 *
BEG SELLING SHAREHOLDERS
BEG Enterprises, Inc.
(3).................... 62,760 *
Bernice Berman.......... 41,841 4,185 *
Gloria Felsenthal....... 8,368 837 *
Kirk Gibson Revocable
Trust.................. 20,920 2,092 *
David Honigman.......... 104,602 10,461 *
Norine H. Kielson Trust. 20,920 2,092 *
RSP 3, L.P.............. 3,000 1,255 *
Kaye Honigman Singer.... 83,682 8,369 *
Robert A. Sprotte Money
Purchase Plan.......... 11,920 1,192 *
Robert A. Sprotte IRA... 4,500 450 *
Sherry L. Sprotte IRA... 4,500 450 *
VALASSIS Enterprises, L.
P...................... 52,301 5,230 *
Mark S. and Francis A.
Wagner................. 5,230 *
Lawrence I. Kravetz..... 5,187 *
MCC SELLING SHAREHOLDER
Microelectronics and
Computer Technology
Corporation............ 340,717 22,326 1.74%
DECEMBER 1995 SELLING
SHAREHOLDERS
Dr. Hal & Margaret
Bozof.................. 4,000 400 *
Gloria D. Freer......... 5,000 500 *
Gary and Cheryl Kaplan.. 3,000 300 *
Dr. Alan P. Lightman.... 4,000 400 *
Dr. David Lightman...... 4,000 400 *
Combined Turner
Children's Trust....... 3,000 300 *
RSP 3, L.P.............. 7,920 *
Pinnacle Fund, L.P...... 10,000 *
Michael S. Blechman
Family Trust........... 38,100 3,810 *
Rock Financial
Corporation............ 4,762 *
SERIES E SELLING
SHAREHOLDERS
Leonardo, L.P........... 761,145 619,654 6.42%
Nelson Partners......... 197,536 1,009,458 5.51%
Olympus Securities,
Ltd.................... 173,858 1,009,458 5.40%
Gracechurch & Co........ 252,413 1.20%
Raphael, L.P............ 465,993 2.18%
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK ISSUABLE
UPON CONVERSION OF
SERIES C PREFERRED
STOCK, SERIES E
NUMBER OF SHARES PREFERRED STOCK,
NUMBER OF SHARES OF COMMON STOCK SERIES F PREFERRED
OF COMMON STOCK UNDERLYING STOCK AND SERIES G PERCENTAGE OF INTERESTS
HELD AND OFFERED WARRANTS OFFERED PREFERRED STOCK PRIOR TO ANY SALES MADE
PURSUANT TO THIS PURSUANT TO THIS OFFERED PURSUANT PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS TO THIS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ---------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
AG Super Fund Int'l
Partners............... 184,208 291,245 2.25%
GAM L.P................. 168,906 291,245 2.17%
LaRocque Trading Group
LLC.................... 79,882 52,056 *
KA Trading L.P.......... 47,632 *
Eric S. Swartz.......... 55,702 *
Michael C. Kendrick..... 55,702 *
P. Bradford Hathorn..... 5,000 *
Lance T. Bury........... 5,000 *
Dwight B. Bronnum....... 1,500 *
Robert L. Hopkins....... 1,500 *
Charles Krusen.......... 4,867 *
Enigma Investments
Limited................ 1,521 *
David K. Peteler........ 3,000 *
S. Edward Bradford...... 11,000 *
GH SELLING SHAREHOLDERS
GH Securities, Ltd...... 429,149 2.01%
David M. Klausmeyer..... 55,000 *
NOTE WARRANT SELLING
SHAREHOLDERS
Pinnacle Fund L.P. ..... 100,000 *
Michael S. Blechman
Family Trust........... 50,000 90,000 *
Valassis Enterprises
L.P. .................. 100,000 *
N. Martin Co. .......... 50,000 50,000 *
SERIES F SELLING
SHAREHOLDERS
Thomas Kernaghan & Co.
Limited................ 402,293 1,710,868 9.53%
Stanley B. Dickson...... 69,548 347,385 1.96%
FT Trading Co. ......... 242,905 1.16%
SERIES G SELLING
SHAREHOLDERS
William W. Gow.......... 50,000 101,557 *
John Green Company...... 50,000 101,535 *
SCG Cellular, Inc....... 25,000 50,740 *
James G. Petroff........ 25,000 50,735 *
Mark S. Wagner.......... 25,000 50,724 *
Chris A. Lawson......... 25,000 50,724 *
Steve Airello........... 25,000 50,724 *
Pinnacle Fund, L.P...... 100,000 202,828 1.43%
Daniel E. Cafolla....... 12,500 25,351 *
Dan Cafolla &
Associates, Inc. Profit
Sharing Plan........... 12,500 25,351 *
J. Brad Carter, M.D..... 75,000 151,904 1.08%
J. Brad Carter, M.D.,
IRA Account............ 25,000 50,635 *
Klaich Animal Hospital,
Ltd. Amended Profit
Sharing Plan........... 50,000 101,305 *
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK ISSUABLE
UPON CONVERSION OF
SERIES C PREFERRED
STOCK, SERIES E
NUMBER OF SHARES PREFERRED STOCK,
NUMBER OF SHARES OF COMMON STOCK SERIES F PREFERRED
OF COMMON STOCK UNDERLYING STOCK AND SERIES G PERCENTAGE OF INTERESTS
HELD AND OFFERED WARRANTS OFFERED PREFERRED STOCK PRIOR TO ANY SALES MADE
PURSUANT TO THIS PURSUANT TO THIS OFFERED PURSUANT PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS TO THIS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ---------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
George F. Valassis...... 100,000 202,433 1.43%
Peerless Distributing
Company................ 25,000 50,395 *
ARA..................... 25,000 50,395 *
Nicholas Martin Living
Trust.................. 100,000 202,838 1.43%
Michael Scott Bleckman
Family Trust........... 100,000 202,170 1.43%
OCTOBER 1997 SELLING
SHAREHOLDERS
Bank Insinger de
Beaufort............... 5,440,985 5,440,985 35.9%
Ainslie Investment Ltd.. 5,440,985 5,440,985 35.9%
OTHER SELLING
SHAREHOLDERS
Lawrence I. Kravetz..... 70,400 *
BEG Enterprises, Inc. .. 65,034 *
Columbus Asset
Management, Ltd........ 20,000 *
Katherine D. Banks...... 95,000 *
Peter Moon.............. 20,625 *
IN Partnership, Inc..... 12,207 *
The Investor Relations
Company................ 3,000 *
Market Pathways......... 205,000
200,000
John E. Palmer.......... 7,500
H. Marcia Smolens....... 7,500
---------- ---------- --------- ----
TOTAL................. 14,262,226 13,684,253 7,907,119 84.6%
</TABLE>
- --------
* Less than 1%
(1) The number of Shares of Common Stock issuable upon conversion of the
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock is subject to adjustment (upward or downward) based on fluctuations
in the market price of the Common Stock. See "Description of Capital
Stock--Preferred Stock--Series E Preferred Stock; --Series F Preferred
Stock and; --Series G Preferred Stock." The number of such Shares included
in this Prospectus and in the table is the number of Shares into which the
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock were convertible as of November 18, 1997.
(2) This percentage was calculated including Shares issuable upon the exercise
of Warrants and conversion of Series C Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock, as
applicable, into shares of the Company's Common Stock.
(3) Ronald J. Berman, a director of the Company and the president of BEG
Enterprises, Inc., also owns an additional 94,250 shares of the Company's
Common Stock purchased on the open market, which are not subject to this
Prospectus.
21
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 120,000,000 shares
of Common Stock, par value $.001 per share (the "Common Stock"), and 2,000,000
shares of Preferred Stock, par value $1 per share (the "Preferred Stock"). The
Preferred Stock may be issued in series and currently consists of (i) Series A
Convertible Preferred Stock, (ii) Series C Preferred Stock, (iii) Series D
Preferred Stock, (iv) Series E Preferred Stock, (v) Series F Preferred Stock
and (vi) Series G Preferred Stock. At November 18, 1997, 20,887,708 shares of
Common Stock, 100 shares of Series A Preferred Stock, 228 shares of Series E
Preferred Stock, 1,185 shares of Series F Preferred Stock and 1,700 shares of
Series G Preferred Stock were issued and outstanding. No shares of Series C
Preferred Stock, or Series D Preferred Stock are currently outstanding;
however, Series C Warrants are outstanding to purchase 75,000 shares of Series
C Preferred Stock. After giving effect to the conversion of the Series A
Preferred Stock into 125,275 shares of Common Stock, the conversion of the
Series C Preferred Stock underlying existing Series C Warrants into 750,000
shares of Common Stock (135,000 of which are included in the Registration
Statement), the conversion of the Series E Preferred Stock into 3,991,522
shares of Common Stock, the conversion of the Series F Preferred Stock into
2,058,253 of Common Stock, and the conversion of the Series G Preferred Stock
into 1,722,344 shares of Common Stock, there would be shares of
Common Stock issued and outstanding. Additionally, 14,469,219 shares of Common
Stock are reserved for issuance upon exercise of Warrants (including
13,684,253 Shares of Common Stock underlying certain Warrants included in this
Prospectus) that have been issued by the Company, and 3,500,000 shares are
reserved for issuance under the Company's stock option plans.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share, voting with
the holders of any other class of stock entitled to vote, without regard to
class, on all matters to be voted on by the shareholders, including the
election of directors. All issued and outstanding shares of Common Stock are
fully paid and nonassessable. The Common Stock is currently listed on the
Boston and Pacific Stock Exchanges and quoted on the NASDAQ Small Cap Market
("NASDAQ").
Subject to any prior and superior rights of the Preferred Stock, the holders
of Common Stock are entitled to receive dividends when, and if, declared by
the Board of Directors from funds legally available therefor. Currently, no
series of Preferred Stock has rights that are prior and superior to the Common
Stock with respect to dividends.
In the event of any liquidation, dissolution or winding up of the affairs of
the Company, the holders of the Common Stock are entitled to receive, pro
rata, any assets of the Company remaining after payment has been made in full
to the holders of any series of Preferred Stock with a liquidation preference.
Currently, only the holders of the Series A Preferred Stock, the Series E
Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock
are entitled to a liquidation preference, while the holders of Series C
Preferred Stock and Series D Preferred Stock have no priority over the holders
of Common Stock with respect to liquidation distributions.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series as
may be established and designated from time to time by the Board of Directors
by resolution. The voting powers, preferences and relative, participating,
optional and other special rights and the qualifications, limitations or
restrictions of any series of Preferred Stock shall be as is stated in the
resolution or resolutions of the Board of Directors that provides for the
designation of such series. With the exception of shares issued pursuant to
any duly adopted stock option plan of the Company, no shares of Preferred
Stock may be issued to any officer or director of the Company or any
shareholder who directly or indirectly owns greater than five percent (5%) of
the issued and outstanding voting stock of the Company or any affiliate of
such persons, without the affirmative vote of a majority in interest of the
disinterested shareholders of the Company. Under the Texas Business
Corporation Act, each series of Preferred Stock is entitled to vote as a class
with respect to a proposed amendment to the Company's Restated Articles of
Incorporation (the "Restated Articles") in certain circumstances.
22
<PAGE>
Series A Preferred Stock
There are currently issued and outstanding 100 shares of the Series A
Preferred Stock, which is the total number currently authorized for issuance.
Each outstanding share of the Series A Preferred Stock is currently
convertible into 1252.75 shares of Common Stock, subject to adjustment in
certain circumstances. Except as otherwise required by law, the holders of the
Series A Preferred Stock are entitled to vote on all matters with the holders
of the Common Stock and are entitled to one vote for every share of Common
Stock into which the holders' Series A Preferred Stock is convertible. The
holders of Series A Preferred Stock have no preferential dividend rights and
are entitled to share in any dividends declared on the Common Stock based on
the number of shares of Common Stock into which the shares of Series A
Preferred Stock are convertible. In the event of voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the
Series A Preferred Stock are entitled to receive the liquidation price of
$1,000 per share before any distribution is made to the holders of Common
Stock or any other series of Preferred Stock ranking junior as to liquidation
rights as to the Series A Preferred Stock. Holders of Series A Preferred Stock
also are entitled to share equally in any liquidation distributions to the
holders of Common Stock based on the number of shares of Common Stock into
which the shares of Series A Preferred Stock are convertible. The Company has
no redemption rights or obligations with respect to the Series A Preferred
Stock. Without the consent of all holders of Series A Preferred Stock, the
Company may not alter any provision of (i) the Bylaws of the Company or (ii)
the Restated Articles so as to adversely affect the rights of the holders
thereof.
Series C Preferred Stock
There are currently no outstanding shares of the Series C Preferred Stock;
however, 75,000 shares are authorized for issuance pursuant to outstanding
Series C Warrants. Each share of Series C Preferred Stock is convertible into
ten (10) shares of Common Stock, subject to adjustment in certain
circumstances. Except as otherwise required by law, the holders of the Series
C Preferred Stock are entitled to vote on all matters with the holders of the
Common Stock and are entitled to one vote for every share of Common Stock into
which the holders' Series C Preferred Stock is convertible. In order to
maintain the voting power of the shares of Series C Preferred Stock, the
holders thereof are entitled to purchase additional shares of the Company's
voting securities upon the Company's issuance of additional shares of voting
securities in certain circumstances. See "--Certain Provisions of the Articles
of Incorporation, By-Laws and Texas Law." The holders of Series C Preferred
Stock have no preferential dividend rights and are entitled to share in any
dividends declared on the Common Stock based on the number of shares of Common
Stock into which the shares of Series C Preferred Stock are convertible.
Holders of Series C Preferred Stock have no preference with respect to any
distributions in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Company, but are entitled to share equally
with the holders of the Common Stock based on the number of shares of Common
Stock into which the shares of Series C Preferred Stock are convertible. The
Company has no redemption rights or obligations with respect to the Series C
Preferred Stock. Without the mutual consent of the Board of Directors of the
Company and holders of not less than a majority of all outstanding shares of
Series C Preferred Stock, none of the rights of the holders of Series C
Preferred Stock may be altered.
Series D Preferred Stock
There are currently no outstanding shares of the Series D Preferred Stock;
however, 90,000 shares are authorized for issuance. Each share of Series D
Preferred Stock is convertible into ten (10) shares of Common Stock, subject
to adjustment in certain circumstances. Except as otherwise required by law,
the holders of the Series D Preferred Stock are entitled to vote on all
matters with the holders of the Common Stock and are entitled to one vote for
every share of Common Stock into which the holders' Series D Preferred Stock
is convertible. In order to maintain the voting power of the shares of Series
D Preferred Stock, the holders thereof are entitled to purchase additional
shares of the Company's voting securities upon the Company's issuance of
additional shares of voting securities in certain circumstances. See "--
Certain Provisions of the Articles of Incorporation, By-Laws and Texas Law."
The holders of Series D Preferred Stock have no preferential dividend rights
and are entitled to share in any dividends declared on the Common Stock based
on the number of shares of Common
23
<PAGE>
Stock into which the shares of Series D Preferred Stock are convertible.
Holders of Series D Preferred Stock have no preference with respect to any
distributions in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Company, but are entitled to share equally
with the holders of the Common Stock based on the number of shares of Common
Stock into which the shares of Series C Preferred Stock are convertible. The
Company has no redemption rights or obligations with respect to the Series D
Preferred Stock. Without the mutual consent of the Board of Directors of the
Company and holders of not less than a majority of all outstanding shares of
Series D Preferred Stock, none of the rights of the holders of Series D
Preferred Stock may be altered.
Series E Preferred Stock
There are 1,500 shares of the Series E Preferred Stock currently authorized
for issuance, of which 228 shares are issued and outstanding. Subject to
adjustment in certain circumstances, each share of Series E Preferred Stock is
convertible into that number of shares of Common Stock determined by dividing
(i) the original issue price of the Series E Preferred Stock (the "Issue
Price") plus an amount equal to 8% of the Issue Price per annum from the date
the escrow agent first had in its possession the funds representing payment of
the Series E Preferred Stock to the conversion date by (ii) $1.50. Any shares
of Series E Preferred Stock outstanding on January 15, 1999 shall be
automatically converted into Common Stock on such date. In the event any
shares of the Series E Preferred Stock are converted or redeemed pursuant to
their terms, the shares of Series E Preferred Stock so converted or redeemed
shall be canceled, shall return to the status of authorized but unissued
Preferred Stock of no designated series, and shall not be issuable by the
Company as Series E Preferred Stock.
Notwithstanding the preceding paragraph, for each calendar month, beginning
with April 1997, where the average of the closing bid prices of the Company's
Common Stock for all trading days for such calendar month is less than $1.00,
the Company shall, upon notice by the Series E Selling Shareholders, redeem
shares of the Series E Preferred Stock held by each holder in an amount equal
to the lesser of (i) 7% of the aggregate shares of Series E Preferred Stock
held by such holder as of April 21, 1997 or (ii) all shares of Series E
Preferred Stock then held by such holder.
Except pursuant to the automatic conversion of the Series E Preferred Stock
on January 15, 1997, in no event shall any Holder be entitled to convert
shares of Series E Preferred Stock which, upon conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by such Holder
and its affiliates to exceed 4.9% of the outstanding shares of the Company's
Common Stock following such conversion. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by a Holder
and its affiliates shall include the shares of Common Stock issuable upon
conversion of the shares of Series E Preferred Stock with respect to which the
determination of such proviso is being made, but shall exclude the shares of
Common Stock which would be issuable upon conversion of the remaining
unconverted portion of the Series E Preferred Stock beneficially owned by such
Holder and its affiliates. Except as set forth in the preceding sentence, for
purposes of this paragraph, "beneficial ownership" shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.
Except as otherwise required by law, the holders of the Series E Preferred
Stock are entitled to vote on all matters with the holders of Common Stock and
are entitled to one vote for every share of Common Stock into which the
holders' Series E Preferred Stock is convertible. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Series E Preferred Stock are entitled to receive
the liquidation price of $10,000 plus 8% per annum from the date of issuance,
before any distribution is made to the holders of Common Stock or any other
series of Preferred Stock ranking junior as to liquidation rights of the
Series E Preferred Stock. The holders of Series E Preferred Stock are not
entitled to receive dividends.
24
<PAGE>
In the event that at the time of a requested conversion by a holder of
Series E Preferred Stock, the conversion price is $3 or less per share, the
Company has the right to redeem all or part of the shares at a redemption
price per share equal to (i) the number of shares of Common Stock into which
each share is convertible times (ii) the closing bid price per share of the
Common Stock. The Company additionally has the right to redeem all or part of
the Series E Preferred Stock at any time, but in no event may redeem less than
$5,000,000 per redemption. In the event that the Company elects to effect such
a redemption, the redemption price per share of Series E Preferred Stock shall
be as follows:
<TABLE>
<CAPTION>
ELAPSED TIME SINCE LAST
REDEMPTION PRICE CLOSING
---------------- ------------------------------
<S> <C>
130% of Stated Value 90 days--6 months
125% of Stated Value 6 months and 1 day--12 months
120% of Stated Value 12 months and 1 day--18 months
115% of Stated Value 18 months and 1 day--24 months
110% of Stated Value 24 months and 1 day--30 months
105% of Stated Value 30 months and 1 day--36 months
</TABLE>
"Stated Value" is defined as the Issue Price of the Series E Preferred Stock
plus an amount equal to 8% of such price from the date of issuance. Without
the consent of the holders of not less than a majority of all outstanding
shares of Series E Preferred Stock, the Company may not (i) alter the rights
of the holders of Series E Preferred Stock, (ii) create any new class or
series of Preferred Stock with prior rights with respect to distributions or
(iii) do any act not authorized by the Company's Restated Articles which would
result in the taxation of the holders of Series E Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as amended.
Series F Preferred Stock
There are 2,500 shares of the Series F Preferred Stock currently authorized
for issuance, of which 1,185 shares are issued and outstanding. Subject to
adjustment in certain circumstances, each share of Series F Preferred Stock is
convertible into that number of shares of Common Stock determined by dividing
(i) the original issue price of the Series F Preferred Stock (the "Series F
Issue Price") plus an amount equal to four percent (4%) of the Series F Issue
Price from the issue date of the Series F Preferred Stock being converted to
the conversion date by (ii) $1.50.
Notwithstanding the previous paragraph, for each calendar month, commencing
with July 1997, if the average of the closing bid prices of the Company's
Common Stock for all the trading days for such calendar month is less than
$1.00, then each holder of Series F Preferred Stock may have the Company
redeem shares of the Series F Preferred Stock held by such holder in an amount
equal to the lesser of (1) 7% of the aggregate shares of Series F Preferred
Stock held by such holder as of July 14, 1997, or (2) all shares of Series F
Preferred Stock then held by such holder. For shares of Series F Preferred
Stock submitted to the Company under the terms of this provision, the Company
shall have the option of redeeming the shares submitted upon notice to the
holders within one (1) business day of the receipt of notice from the holder
exercising the rights of this provision. If the Company does exercise its
option to redeem, the redemption price shall be the equivalent of 115% of the
sum of the original Series F Issue Price plus any accrued interest under the
terms of the Series F Certificate of Designation, as amended. If the Company
does not exercise its right to redeem under this provision, then the shares of
Series F Preferred Stock shall be converted into shares of the Company's
Common Stock (valued at the average of the closing bid prices of the Company's
Common Stock for all trading days for such calendar month). The payment of
such redemption price or the shares of Common Stock to be received upon
conversion pursuant to the terms of this provision shall be delivered to the
holder of Series F Preferred Stock within ten (10) business days of the
receipt by the Company of notice from such holder exercising his rights under
the terms of this provision.
25
<PAGE>
In addition, pursuant to the terms of the Series F Certificate of
Designation, since the closing bid price of the Company's Common Stock did not
exceed $1.50 by October 12, 1997, the Company is obligated to renegotiate the
conversion terms of the Series F Preferred Stock with its holders.
Except as otherwise required by law, the holders of the Series F Preferred
Stock shall have no voting power. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the
Series F Preferred Stock are entitled to receive the liquidation price of
$1,000 per share plus four percent (4%) per annum from the date of issuance,
before any distribution is made to the holders of Common Stock or any other
series of Preferred Stock ranking junior as to liquidation rights of the
Series F Preferred Stock. The Series F Preferred Stock shall be subordinate to
the Series A Preferred Stock and Series E Preferred Stock for liquidation
purposes. The holders of the Series F Preferred Stock are not entitled to
receive dividends.
Without the consent of the holders of not less than seventy five percent
(75%) of all outstanding shares of Series F Preferred Stock, the Company may
not (i) alter rights, preferences or privileges of the Series F Preferred
Stock so as to adversely affect the Series F Preferred Stock (ii) create any
new class of Preferred Stock senior to or having a preference over the Series
F Preferred Stock with respect to payments upon liquidation or (iii) do any
act or thing not authorized by the Company's Restated Articles which would
result in taxation of the holders of Series F Preferred Stock under (S) 305 of
the Internal Revenue Code, as amended.
Series G Preferred Stock
There are 3,000 shares of Series G Preferred Stock currently authorized for
issuance, of which 1,700 shares are issued and outstanding. Subject to
adjustment in certain circumstances, each share of Series G Preferred Stock is
convertible into that number of shares of Common Stock determined by dividing
(i) the original issue price of the Series G Preferred Stock (the "Series G
Issue Price") plus an amount equal to ten percent (10%) of the Series G Issue
Price from the date of the Series G Preferred Stock being converted to the
conversion date by (ii) $1.00.
Except as provided by law, the holders of Series G Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock
into which their respective shares of Series G Preferred Stock are then
convertible using the record date for the taking of such vote of shareholders
as the date as of which the Conversion Price is calculated. Holders of Series
G Preferred Stock shall be entitled to notice of all shareholders meetings or
written consents with respect to which they would be entitled to vote.
In the event of any liquidation, dissolution or winding-up of the
Corporation, either voluntary or involuntary (a "Liquidation"), the holders of
shares of the Series G Preferred Stock then issued and outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether from capital, surplus or earnings,
before any payment shall be made to the holders of shares of the Common Stock
or upon any other series of Preferred Stock of the Corporation with a
liquidation preference subordinate to the liquidation preference of the Series
A or Series E or Series F Preferred Stock, an amount per share equal to the
sum of (i) the Stated Value and (ii) an amount equal to ten percent (10%) of
the Stated Value multiplied by the fraction N/365, where N equals the number
of days elapsed since the issue date of the Series G Preferred Stock. If, upon
any Liquidation of the Corporation, the assets of the Corporation available
for distribution to its shareholders shall be insufficient to pay the holders
of shares of the Series G Preferred Stock and the holders of any other series
of Preferred Stock with a liquidation preference equal to the liquidation
preference of the Series G Preferred Stock the full amounts to which they
shall respectively be entitled, the holders of shares of the Series G
Preferred Stock and the holders of any other series of Preferred Stock with
liquidation preference equal to the liquidation preference of the Series G
Preferred Stock shall receive all of the assets of the Corporation available
for distribution and each such holder of shares of the Series G Preferred
Stock and the holders of any other series of Preferred Stock with a
liquidation preference equal to the liquidation preference of the Series G
Preferred Stock shall share ratably in any distribution in accordance with the
amounts due such shareholders. In the event
26
<PAGE>
of Liquidation, the Series G Preferred Stock shall be subordinate to Series A,
Series E and Series F Preferred Stock. After payment shall have been made to
the holders of shares of the Series G Preferred Stock of the full amount to
which they shall be entitled, as aforesaid, the holders of shares of the
Series G Preferred Stock shall be entitled to no further distributions thereon
and the holders of shares of the Common Stock and of shares of any other
series of stock of the Corporation shall be entitled to share, according to
their respective rights and preferences, in all remaining assets of the
Corporation available for distribution to its shareholders.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 18, 1997, there were 20,887,708 shares of Common Stock
outstanding, of which 14,473,521 shares of Common Stock were freely tradeable
without restriction or further registration under the Securities Act by
persons other than "affiliates" of the Company. As of that date, the remaining
shares of Common Stock were deemed "restricted securities," as defined in Rule
144 under the Securities Act, and may not be resold in the absence of
registration under the Securities Act or pursuant to an exemption from such
registration, including exemptions provided by Rule 144 under the Securities
Act. Under Rule 144, persons who have held securities for a period of at least
one year may sell a limited amount of such securities without registration
under the Securities Act. Rule 144 also permits, under certain circumstances,
persons who are not affiliates of the Company, to sell their restricted
securities without quantity limitations once they have completed a two-year
holding period.
The Registration Statement, of which this Prospectus is a part, pertains to
14,262,226 Shares of Common Stock which are currently "restricted securities";
13,684,253 Shares of Common Stock which underlie existing Warrants; 135,000
Shares of Common Stock which are issuable upon conversion of the Series C
Preferred Stock underlying Series C Warrants; 3,991,522 Shares of Common Stock
which are issuable upon conversion of the Series E Preferred Stock, 2,058,253
shares of Common Stock which are issuable upon conversion of the Series F
Preferred Stock and 1,722,344 shares of Common Stock which are issuable upon
conversion of the Series G Preferred Stock. The Company is obligated to
maintain the effectiveness of the Registration Statement for varying periods
of time, pursuant to separate agreements with certain groups of the Selling
Shareholders. As of November 18, 1997, the Company is additionally obligated
to register an additional 1,845,130 shares of its Common Stock which are
currently "restricted securities," in certain circumstances.
In addition to the shares of Common Stock which are outstanding as of
November 18, 1997, 3,500,000 shares of Common Stock have been reserved for
issuance pursuant to the Company's stock option plans. 14,469,219 shares of
Common Stock have also been reserved for issuance upon exercise of Warrants
that have been issued by the Company (13,684,253 of such shares have been
registered in the Registration Statement). Additionally, 125,725 shares of
Common Stock have been reserved for issuance upon conversion of the Company's
Series A Preferred Stock, 750,000 shares of Common Stock have been reserved
for issuance upon conversion of the Company's Series C Preferred Stock
(135,000 of which are included in the Registration Statement) underlying the
Series C Warrants, 3,991,522 shares of Common Stock have been reserved for
issuance upon conversion of the Series E Preferred Stock, 2,058,253 shares of
Common Stock have been reserved for issuance upon conversion of the Series F
Preferred Stock and 1,722,344 shares of Common Stock have been reserved for
issuance upon conversion of the Series G Preferred Stock.
No prediction can be made as to the effect, if any, that future sales, or
the availability of shares of Common Stock for future sales, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Stock by the Company or by shareholders who hold "restricted
securities," or the perception that such sales may occur, could adversely
affect prevailing market prices for the Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Securities
Transfer, Incorporated, 938 Quail Street, Suite 101, Lakewood, Colorado 80215.
27
<PAGE>
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION, BY-LAWS AND TEXAS LAW
The Company's Restated Articles currently contain provisions which could be
considered to have anti-takeover effects. First of all, the authorized and
unissued shares of the Company's Preferred Stock (the "Unissued Preferred
Stock") and Common Stock (the "Unissued Common Stocks") could be used by
incumbent management to make more difficult and thereby discourage an attempt
to acquire control of the Company, even though some shareholders may deem such
an acquisition desirable. For example, the shares of Unissued Preferred Stock
and Unissued Common Stock could be privately placed with purchasers who might
support the Board of Directors in opposing a hostile takeover bid. The
issuance of the Unissued Preferred Stock with voting rights and/or the
Unissued Common Stock could also be used to dilute the stock ownership and
voting power of a third party seeking to remove directors, replace incumbent
directors, accomplish certain business combinations, or alter, amend, or
replace provisions in the Company's Restated Articles. To the extent that it
impedes any such attempt, the Unissued Preferred Stock and Unissued Common
Stock may serve to perpetuate current management. From time to time, the
Company evaluates potential transactions and acquisitions, which if
consummated, may require the issuance of the Unissued Preferred Stock or
Unissued Common Stock.
The Company's Restated Articles require a classified Board of Directors
pursuant to which only one-third (1/3) of the Board of Directors is elected
each year for a term of three years. Therefore, even when a shareholder, or a
group of shareholders, has sufficient voting power to elect all of the
directors to be elected every year, the Company's classified Board could have
the effect of requiring two successive annual meetings to replace a majority
of the Board of Directors and three annual meetings to replace the entire
Board of Directors. There is no cumulative voting with respect to the election
of directors.
The Company's Restated Articles also contain a provision which states that
with the sole exception of shares issued pursuant to the duly adopted stock
option plans of the Company, no shares of the Company's Preferred Stock shall
be issued or sold to any officer or director of the Company, or any
shareholder who directly or indirectly owns more than five percent (5%) of the
issued and outstanding voting stock of the Company, or any affiliate of such a
person, without the affirmative vote of a majority in interest of the
disinterested shareholders of the Company.
The Company's Restated Articles also contain provisions for the Series C
Preferred and the Series D Preferred Stock concerning certain anti-dilution
rights. (None of the Series C Preferred or Series D Preferred is outstanding
at this time). These provisions state that if the aggregate percentage
interest of the holder of the Series C Preferred or the Series D Preferred of
the Total Voting Power of the Company (defined in the Restated Articles to
mean the total voting power of all voting stock of the Company entitled to
vote at any meeting of the shareholders of the Company) is or would be reduced
as a result of an issuance by the Company of such voting stock (including any
issuance following conversion of any security convertible into or exchangeable
for voting stock or upon the exercise of any option, warrant, or other right
to acquire any voting stock) the Company shall notify the holders of the
Series C Preferred and Series D Preferred promptly after establishing the
material terms of such proposed issuance. In such notices, the Company shall
offer to sell to the holders of the Series C Preferred and the Series D
Preferred that number of shares of voting stock which, if so purchased, would
result in the retention by the holders of the Series C Preferred and Series D
Preferred of each of its aggregate percentage interest in the Total Voting
Power in effect immediately prior to such proposed reduction of its aggregate
interest. If such offer is accepted by the Series C Preferred holders or the
Series D Preferred holders within thirty (30) days following receipt of such
notice, the Company shall sell such shares to the holders of the Series C
Preferred or the Series D Preferred at a purchase price determined as provided
in the appropriate provisions of the Series C Preferred and the Series D
Preferred in the Restated Articles.
The Company shall not be obligated to deliver notices or offer voting stock
for sale pursuant to these provisions in respect of the following issuances of
voting stock: (a) pursuant to employee, director or consultant stock option,
purchase, bonus, exchange or other such plans or upon the exercise of options
or other rights
28
<PAGE>
granted thereunder, and (b) in connection with transactions in which shares of
voting stock are issued to security holders of a company being acquired by the
Company or to a company some or all of whose assets are being acquired by the
Company.
The Restated Articles limit the liability of directors of the Company in
their capacity as directors. Specifically, the directors of the Company will
not be liable to the Company or its shareholders for monetary damages for an
act or omission in a director's capacity as a director, except for liability
(i) for any breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for any act or omission not in good faith which constitutes
a breach of duty of the director to the Company or acts or omissions which
involve intentional misconduct or a knowing violation of the law, (iii) for
transactions from which a director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's office, (iv) for an act or omission for which the liability of a
director is expressly provided for by an applicable statute, or (v) for acts
related to an unlawful stock repurchase or payment of a dividend.
The overall effect of the provisions in the Company's current Restated
Articles described above would be to make more difficult or discourage a
merger, tender, offer or proxy contest, even if such transaction or occurrence
generally is favorable to the interests of the shareholders, or they may delay
or frustrate the assumption of control by a holder of a large block of the
Company's securities and the removal of incumbent management, even if such
removal may be beneficial to the shareholders.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1996, incorporated by
reference in this prospectus, have been incorporated herein in reliance on the
report, which includes an explanatory paragraph regarding the Company's
ability to continue as a going concern, of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL OPINIONS
Certain legal matters in connection with the Common Stock offered hereby
have been passed upon for the Company by Haskell Slaughter & Young, L.L.C.
29
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SHARES OFFERED HEREBY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Risk Factors............................................................... 3
Use of Proceeds............................................................ 10
Plan of Distribution and Selling Shareholders.............................. 10
Description of Capital Stock............................................... 22
Experts.................................................................... 29
Legal Opinions............................................................. 29
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SI DIAMOND
TECHNOLOGY,
INC.
[LOGO OF S.I. DIAMOND APPEARS HERE]
14,262,226 SHARES OF
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
13,684,253 SHARES OF
COMMON STOCK
UNDERLYING WARRANTS
135,000 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES C
PREFERRED STOCK
UNDERLYING WARRANTS
3,991,522 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES E
PREFERRED STOCK
2,058,253 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES F
PREFERRED STOCK
1,722,344 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES G
PREFERRED STOCK
----------------
PROSPECTUS
----------------
NOVEMBER , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated fees and expenses payable in connection with this offering,
all of which are payable by the Company, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 4,115.00
Printing and engraving expenses............................... 5,000.00
Legal fees and expenses....................................... 7,500.00
Accounting fees and expenses.................................. 5,000.00
Miscellaneous................................................. 3,000.00
----------
Total....................................................... $24,615.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02A(16) and Article 2.01-1 of the Texas Business Corporation Act
and Article VIII of the Company's Bylaws provide the Company with broad powers
and authority to indemnify its directors and officers and to purchase and
maintain insurance for such purposes. Pursuant to such statutory and Bylaw
provisions, the Company has purchased insurance against certain costs of
indemnification that may be incurred by it and its officers and directors. See
"Item 17. Undertakings" for a description of the Securities and Exchange
Commission's position regarding such indemnification provisions.
Additionally, Article Seven(C) of the Company's Restated Articles, provides
that a director of the Company is not liable to the Company or its
shareholders for monetary damages for any act or omission in the director's
capacity as director except that Article Seven(C) does not eliminate or limit
the liability of a director for (i) breaches of his duty of loyalty to the
Company and its shareholders, (ii) acts or omissions not in good faith or
which constitute a breach of duty of a director of the Company or involves
intentional misconduct or a knowing violation of law, (iii) transactions from
which a director receives an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, (iv)
acts or omissions for which liability is specifically provided by statute, and
(v) acts relating to unlawful stock purchases or payments of dividends.
Article Seven (C) also provides that any subsequent amendments to Texas
statutes that further limit the liability of directors will inure to the
benefit of the directors, without any further action by shareholders. Any
repeal or modification of Article Seven (C) shall not adversely affect any
right of protection of a director of the Company existing at the time of the
repeal or modification.
The foregoing discussion is not intended to be exhaustive and is qualified
in its entirety by each of such documents and such statutes.
ITEM 16. EXHIBITS
See Index to Exhibits on page II-4 for a descriptive response to this item.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-1
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the forgoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
Provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON BEHALF OF THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF AUSTIN, STATE OF TEXAS, ON NOVEMBER , 1997.
SI DIAMOND TECHNOLOGY, INC.
/s/ Marc W. Eller
By __________________________________
Marc W. Eller
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Marc W. Eller and Douglas P. Baker and each or
either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any subsequent
registration statements relating to the offering to which this Registration
Statement relates, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and Agents or either of them,
or their or his substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Marc W. Eller Chairman of the Board of November 20, 1997
____________________________________ Directors and Chief
Marc W. Eller Executive Officer (Principal
Executive Officer)
/s/ Dr. Zvi Yaniv President and Chief November 20, 1997
____________________________________ Operating Officer and
Dr. Zvi Yaniv Director
/s/ Douglas P. Baker Vice President, Chief November 20, 1997
____________________________________ Financial Officer (Principal
Douglas P. Baker Financial Officer)
/s/ Lee B. Arberg Director November 20, 1997
____________________________________
Lee B. Arberg
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ronald J. Berman Director November 20, 1997
____________________________________
Ronald J. Berman
/s/ Philip C. Shaffer Director November 20, 1997
____________________________________
Philip C. Shaffer
/s/ David R. Sincox Director November 20, 1997
____________________________________
David R. Sincox
Director November 20, 1997
____________________________________
Dr. Robert Johnson
Director November 20, 1997
____________________________________
Igor Leontiev
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
The exhibits indicated by an asterisk (*) are incorporated by reference from
previous filings with the Commission.
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGES
------- ---------------------- ------------
<C> <S> <C>
4.1* Amended and Restated Articles of Incorporation of the
Company as filed on February 14, 1997 with the
Secretary of State of the State of Texas (Exhibit 3.1
to the Company's Current Report on Form 8-K dated as
of February 14, 1997 (File No. 1-11602)).
4.2* Statement of Resolutions Establishing and Designating
the Series F Preferred Stock of the Company as filed
with the Secretary of State of the State of Texas on
March 10, 1997 (Exhibit 3.2 to the Company's Current
Report on Form 8-K dated as of March 7, 1997) (File
No. 1-11602)).
4.3* Form of Certificate for Shares of the Company's Common
Stock (Exhibit 4.1 to the Company's Registration
Statement on Form SB-2 (No. 33-51466-FW) dated January
7, 1993).
4.4* Form of Convertible Subordinated Debenture Agreement
(Exhibit 10.18 to the Company's Registration Statement
on Form SB-2 (No. 33-51466-FW) dated January 7, 1993)
4.5* Form of Subordinated Debenture Agreement with Attached
Warrants (Exhibit 10.17 to the Company's Registration
Statement on Form SB-2 (No. 33-51466-FW) dated January
7, 1993).
4.6* Form of Underwriter's Warrant (Exhibit 1.4 to the
Company's Registration on Form SB-2 (No. 33-51466-FW)
dated January 7, 1993).
4.7* Form of Subscription Agreement for the sale of Units,
each consisting of two shares of the Company's Common
Stock and one Warrant (June 1993) to purchase one
share of Common Stock. (Exhibit 4.7 to the Companys'
Registration Statement on Form S-3 dated January 19,
1996 (File No. 1-11602)).
4.8* Form of Warrant (June 1993) to purchase shares of the
Company's Common Stock. (Exhibit 4.8 to the Company's
Registration Statement on Form S-3 dated January 19,
1996 (File No. 1-11602)).
4.9* Option, Share and Warrant Purchase Agreement dated
February 9, 1995 by and between the Company and
Diagascrown, Inc. (Exhibit 10.1 to the Company's
Report on Form 10-QSB for the fiscal quarter ended
March 31, 1995 (File No. 111602)).
4.10* Warrant granted to East/West Technology Partners, Ltd.
to purchase 13,500 shares of the Company's Series C
Preferred Stock (Exhibit 10.3 to the Company's Report
on Form 10-QSB for the fiscal quarter ended March 31,
1995 (File No. 1-11602)).
4.11* Form of Subscription Agreement and Purchaser
Questionnaire by and between the Company and
purchasers of the Company's Common Stock effective as
of June 20, 1995 (Exhibit 4.1 to the Company's Report
on Form 10-QSB for the fiscal quarter ended June 30,
1995 (File No. 1-11602)).
4.12* Form of Warrant (BEG) to purchase shares of the
Company's Common Stock in connection with the Form of
Subscription Agreement and Purchase Questionnaire by
and between the Company and the purchasers of the
Company's Common Stock dated as of June 20, 1995.
(Exhibit 4.12 to the Company's Registration Statement
on Form
S-3 dated January 19, 1996) (File No. 1-11602)).
4.13* Form of Placement Agreement dated as of July 19, 1995
by and between the Company and Columbus Asset
Management Limited (Exhibit 4.2 to the Company's
Report on Form 10-QSB for the fiscal quarter ended
September 30, 1995 (File No. 1-11602)).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGES
------- ---------------------- ------------
<C> <S> <C>
4.14* Form of Warrant in connection with Placement Agreement
dated as of July 19, 1995 by and between the Company
and Columbus Asset Management (Exhibit 4.3 to the
Company's Report on Form 10-QSB for the fiscal quarter
ended September 30, 1995 (File No. 1-11602)).
4.15* Amendment No. 3 to the Patent and Know-How Cross-
License Agreement executed on October 17, 1995 between
the Company and Microelectronics & Computer Technology
Corporation. (Exhibit 4.15 to the Company's
Registration Statement (No. 333-00674) on Form S-3
dated January 26, 1996 (File No. 1-11602)).
4.16* Form of Subscription Agreement and Purchaser
Questionnaire in connection with the Company's $1.5
million private placement of its Common Stock (Exhibit
4.1 to the Company's Current Report on Form 8-K dated
as of January 19, 1996 (File No. 1-11602)).
4.17* Form of Regulation D Subscription Agreement in
connection with the private placement of the Company's
Series E Preferred Stock. (Exhibit 4.2 to the
Company's Current Report on Form 8-K dated as of
January 19, 1996) (File No. 1-11602)).
4.18* Form of Registration Rights Agreement in connection
with the private placement of the Company's Series E
Preferred Stock (Exhibit 4.3 to the Company's Current
Report on Form 8-K dated as of January 19, 1996) (File
No. 1-11602).
4.19* Form of Warrant Issued to Swartz Investments, Inc.
(Exhibit 4.5 to the Company's Current Report on Form
8-K dated as of January 19, 1996 (File No. 1-11602)).
4.20* Amendment No. 2 to the Patent and Know-How Cross
License Agreement dated January 19, 1995 (Exhibit 10.8
to the Company's Report on Form 10-QSB for the fiscal
quarter ended March 31, 1995 (File No. 1-11602)).
4.21* Form of Certificate for Shares of the Company's Series
C Preferred Stock (Exhibit 4.1 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1995 (File No. 1-11602)).
4.22* Underwriting Agreement dated as of August 27, 1993, and
effective as of September 7, 1993 between the Company
and GH Securities, Ltd. (Exhibit 4.1 to the Company's
Report on Form 10-QSB for the fiscal quarter ended
September 30, 1995 (File No. 1-11602)).
4.23* Warrant to Purchase 150,000 shares of Common Stock at
$3.90 per share issued to GH Securities, Ltd.
exercisable at any time on or before February 21,
1999. (Exhibit 4.18 to the Company's Report on Form
10-KSB for the fiscal year ended December 31, 1995.
(File No. 1-11602))
4.24* Rights Agreement dated February 21, 1996, among the
Company, GH Securities, Ltd. and David Klausmeyer
(Exhibit 4.19 to the Company's Report on Form 10-KSB
for the fiscal year ended December 31, 1995 (File No.
1-11602)).
4.25* Warrant to Purchase 60,000 shares of Common Stock at
$6.50 per share issued to GH Securities, Ltd.
exercisable any time on or before February 21, 1999
(Exhibit 4.20 to the Company's Report on Form 10-KSB
for the fiscal year ended December 31, 1995 (File No.
1-11602)).
4.26* Warrant to purchase 55,000 shares of Common Stock at
$5.50 per share issued to David M. Klausmeyer
exercisable any time on or before February 21, 1999
(Exhibit 4.21 to the Company's Report on Form 10-KSB
for the fiscal year ended December 31, 1995).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGES
------- ---------------------- ------------
<C> <S> <C>
4.27* Form of Warrant (October 1996) to purchase shares of
the Company's Common Stock (Exhibit 4.1 to the
Company's Current Report on Form 8-K dated October 30,
1996 (File No. 1-11602))
4.28* Form of Regulation D Subscription Agreement by and
between the Company and the Holders of the Company's
Series F Preferred Stock (Exhibit 4.3 to the Company's
Current Report on Form 8-K dated as of March 7, 1997
(File No. 1-11602)).
4.29* Form of Registration Rights Agreement by and between
the Company and Holders of the Company's Series F
Preferred Stock (Exhibit 4.4 to the Company's Current
Report on Form 8-K dated as of March 7, 1997 (File No.
1-11602)).
4.30* Form of Subscription Agreement by and between the
Company and Holders of the Company's 8% Convertible
Debentures (Exhibit 4.1 to the Company's Current
Report on Form 8-K dated as of March 7, 1997 (File No.
1-11602)).
4.31* Form of the Company's 8% Convertible Debenture (Exhibit
4.2 to the Company's Current Report on Form 8-K dated
as of March 7, 1997 (File No. 1-11602)).
4.32* Certificate of Amendment to the Company's Amended and
Restated Articles of Incorporation (amending the
Company's Series E Preferred Stock) as filed on May 1,
1997 with the Secretary of State of the State of Texas
(Exhibit 4.32 to the Company's Registration Statement
on Form S-3 (No. 333-24801) dated June 6, 1997).
4.33* Amendment to Amended and Restated Articles of
Incorporation of the Company (amending the Company's
Series F Preferred Stock) as filed with the Secretary
of State of the State of Texas on August 4, 1997
(Exhibit 3(I).2 to the Company's Current Report on
Form 8-K dated August 4, 1997 (File No. 1-11602)).
4.34* Statement of Resolutions Establishing and Designating
the Company's Series G Preferred Stock, as filed with
the Secretary of State of the State of Texas on June
11, 1997 (Exhibit 3.1 to the Company's Current Report
on Form 8-K, dated as of July 25, 1997 (File No. 1-
11602)).
4.35* Form of Regulation D Subscription Agreement by and
between the Company and Holders of the Company's
Series G Preferred Stock (Exhibit 4.2 to the Company's
Current Report on Form 8-K dated as of July 25,
1997)).
4.36* Form of Registration Rights Agreement by and between
the Company and the Holders of the Company's Series G
Preferred Stock (Exhibit 4.2 to the Company's Current
Report on Form 8-K dated as of July 25, 1997)).
4.37* Form of Warrant by and between the Company and Holders
of the Company's Series G Preferred Stock (Exhibit 4.3
to the Company's Current Report on Form 8-K dated as
of July 25, 1997 (File No. 1-11602).
4.38* Form of Regulation D Subscription Agreement by and
between the Company and the October 1997 Selling
Shareholders dated as of October 27, 1997 (Exhibit
4.38 to the Company's Registration Statement (No. 333-
38941) on Form S-3 dated October 28, 1997).
4.39* Form of Registration Rights Agreement by and between
the Company and the October 1997 Selling Shareholders
dated as of October 27, 1997 (Exhibit 4.39 to the
Company's Registration Statement (No. 333-38941) on
Form S-3 dated October 28, 1997).
4.40* Form of Warrant by and between the Company and the
October 1997 Selling Shareholders (Exhibit 4.40 to the
Company's Registration Statement (No. 333-38941) on
Form S-3 dated October 28, 1997).
5.1 Opinion of Haskell Slaughter & Young, L.L.C., as to
certain legal aspects of the offering.
23.1 Consent of Haskell Slaughter & Young, L.L.C. (included
in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney (set forth on the signature page of
this Registration Statement)
</TABLE>
II-7
<PAGE>
[LETTERHEAD OF HASKELL SLAUGHTER & YOUNG L.L.P. APPEARS HERE]
EXHIBIT 5.1
Board of Directors
SI Diamond Technology, Inc.
12100 Technology Boulevard
Austin, Texas 78727
Gentlemen:
We are acting as counsel to SI Diamond technology, Inc., a Texas
corporation (the "Company"), in connection with the proposed offer and sale by
certain selling shareholders of up to 35,853,598 shares of Common Stock.
In our capacity as counsel to the Company, we have participated in the
preparation of the Registration Statement on Form S-3 of the Company with
respect to the offer and sale of the Common Stock (the "Registration Statement")
which was filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), and the General Rules and Regulations
thereunder (the "Rules and Regulations"). Capitalized terms used herein shall
have the meanings ascribed to them in the Registration Statement.
In connection with the opinions expressed below, we have examined a signed
copy of the Registration Statement, corporate records of the Company (on which
we have relied with respect to the accuracy of the material factual matters
covered thereby), and such other documents as we have deemed necessary or
appropriate for purposes of the opinions expressed below.
Based on the foregoing and subject to the qualifications and limitations
set forth below, we are of the opinion that (i) the shares of Common Stock held
by the Selling Shareholders are validly issued, fully paid and nonassessable;
(ii) the shares of Common Stock to be issued pursuant to the Warrants and the
Series C Warrants are validly authorized and, when such shares have been duly
delivered against payment as provided in the Warrants and the Series C Warrants,
such shares shall be validly issued, fully paid and nonassessable; and (iii) the
shares of Common Stock issuable upon conversion of shares of the Company's
Series C Preferred Stock, Series E Preferred Stock, Series F Preferred Stock,
and Series G Preferred Stock, when such shares have been delivered as
provided in the applicable provisions of the Company's Amended and Restated
Articles of Incorporation, shall be validly issued, fully paid and
nonassessable.
Our opinion is limited in all respects to the substantive law of the State
of Texas and the federal law of the United States, and we assume no
responsibility as to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction. The opinion expressed in this letter is rendered
as of the date hereof, and we undertake no, and hereby disclaim any, obligation
to advise you of any changes in or new developments which might affect matters
or opinions set forth herein.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the statement made regarding me under the caption
"Legal Opinions" in the Prospectus included in the Registration Statement.
Very truly yours,
Haskell Slaughter & Young L.L.P.
By: /s/ DONALD T. LOCKE
___________________________
Donald T. Locke
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-3 of our report, which includes an explanatory paragraph regarding
the Company's ability to continue as a going concern, datedMarch 27, 1997, on
our audits of the consolidated financial statements of SI Diamond Technology,
Inc. and Subsidiaries. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
Austin, Texas
November 20, 1997
