<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 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)
---------------
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. [X] 333-24801
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(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share........ 7,364,765 $0.48438 $3,567,345 $1,081.01
- ----------------------------------------------------------------------------------------
</TABLE>
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(1) 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 October 22, 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>
EXPLANATORY NOTE
This registration statement is being filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, ("Rule 462(b)") to register an additional
7,364,765 Shares included in the Company's registration statement on Form S-3
(File No. 333-24801). Pursuant to Rule 462(b), the contents of the
registration statement on Form S-3 (File No. 333-24801) of SI Diamond
Technology, Inc., including the exhibits thereto, are incorporated by
reference into this registration statement. This registration statement
includes the Registration Statement facing page, this page, an updated
Prospectus, the signature page, an exhibit index, an accountants' consent and
Exhibit 5 legal opinion.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1997
PROSPECTUS
SI DIAMOND TECHNOLOGY, INC.
14,472,558 SHARES OF 135,000 SHARES OF
COMMON STOCK COMMON STOCK
(PAR VALUE $.001 PER ISSUABLE UPON
SHARE) 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.
----------
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 , 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 Current Report on Form 8-K dated July 25, 1997.
(5) The Company's Current Report on Form 8-K dated August 4, 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).
2
<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 six months ended June 30, 1997, the Company suffered a net loss of
($2,860,202). 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 funding by the October 1997 Selling Shareholders. See "Plan of
Distribution and Selling Shareholders--October 1997 Selling Shareholders."
This estimate is based on current development plans, current operating plans,
the current regulatory environment, historical experience in the development
of electronic products and general economic conditions. Changes could occur to
cause
3
<PAGE>
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 six months ended
June 30, 1997 such contracts accounted for approximately $930,000, $1,147,000,
$820,000, $1,009,000, $2,869,000 and $594,000, respectively, or approximately
99%, 89%, 41%, 33%, 50% and 21% 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 60% 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
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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 October 20, 1997, there were 19,324,353 shares of Common Stock
outstanding, of which 14,305,031 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
two years 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 three-year holding period.
The Registration Statement, of which this Prospectus is a part, pertains to
14,472,558 Shares of Common Stock which are currently "restricted securities";
1,432,283 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; 7,830,740 Shares of Common Stock which are issuable upon
conversion of the Series E Preferred Stock; and 3,176,092 shares of Common
Stock which are issuable upon conversion of the Series F 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 October 20, 1997, the
Company is additionally obligated to register an additional 3,545,130 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 May
30, 1997, 3,500,000 shares of Common Stock have been reserved for issuance
pursuant to the Company's stock option plans. 2,217,249 shares of Common Stock
have also been reserved for issuance upon the exercise of Warrants that have
been issued by the Company (1,432,283 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), 7,830,740 shares of Common Stock have been reserved
for issuance upon conversion of the Company's Series E Preferred Stock (the
"Series E Shares"), and 3,176,092 shares of Common Stock have been reserved
for issuance upon conversion of the Company's Series F Preferred Stock (the
"Series F 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 27,046,673 shares of Common Stock
(of which 1,432,283 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; 7,830,740
are Shares of Common Stock issuable upon conversion of the Series E Shares;
and 3,176,092 are Shares of Common Stock issuable upon conversion of the
Series F 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 69% 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 October 21, 1997, the Company
had issued and outstanding 100 shares of its Series A Preferred Stock, 260
shares of its Series E Preferred Stock, and 1,250 shares of its Series F
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 and Series F 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. Among other
things, (i) the Board is authorized to issue series of Preferred Stock that
could, depending on the
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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, (4) issuable upon conversion of outstanding shares
of the Company's Series E Preferred Stock, or (5) issuable upon conversion of
outstanding shares of the Company's Series F 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 and the Series F 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.
CONVERTIBLE DEBENTURE SELLING SHAREHOLDERS
The Company issued its 10% Convertible Subordinated Debentures ("Convertible
Debentures") in October, November and December 1992 in exempt transactions to
those shareholders identified in the Selling Shareholders Table herein as the
Convertible Debenture Selling Shareholders (the "Convertible Debenture Selling
Shareholders"). The Convertible Debentures were all converted into Shares of
the Company's Common Stock. The Convertible Debenture Selling Shareholders
were given "piggy-back" registration rights pursuant to which the Company
agreed to use its best efforts to have the Common Stock issuable upon the
conversion of the Convertible Debentures included in the Registration
Statement and to cause such Registration Statement to become effective as soon
as practicable.
DEBENTURE WARRANT SELLING SHAREHOLDERS
In December 1992, the Company issued its 10% Subordinated Debentures in an
exempt transaction. In connection with such issuance, those shareholders
identified in the Selling Shareholders Table herein as the Debenture Warrant
Selling Shareholders (the "Debenture Warrant Selling Shareholders") were
issued Warrants that gave them the right to purchase Shares of the Company's
Common Stock. All of these Warrants have been exercised for Shares of the
Company's Common Stock. The holders of these Warrants were given "piggy-back"
registration rights pursuant to which the Company agreed to use its best
efforts to have the Common Stock issuable upon the exercise of these Warrants
included in and registered in the Registration Statement and to cause such
Registration Statement to become effective as soon as practicable.
Greg Morey, one of the Debenture Warrant Selling Shareholders, is an
affiliate of GH Securities Ltd. ("GH"). GH has been utilized by the Company at
various times within the past three (3) years in its capital raising
activities.
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
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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.
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. In addition, Lawrence I. Kravetz, one of the BEG Selling
Shareholders, has assisted the Company within the past three (3) years with
its capital raising activities.
MCC SELLING SHAREHOLDER
On October 17, 1995, the Company issued Microelectronics and Computer
Technology Corporation ("MCC") 223,256 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
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Company is also obligated to issue an additional 340,717 shares of Common
Stock of the Company (collectively with the 223,256 shares described above,
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 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) the conversion price, which is either (x) the
lesser of $1.875 (the "Low Fixed Conversion Price") or 85% of the average
closing bid price of the Company's Common Stock for the five (5) trading days
immediately preceding the date of conversion, as defined below, for one-third
(1/3) of the shares (the "Low Fixed Preferred Shares") of Series E Preferred
held by a holder as of January 16, 1997 or (y) the lesser of $2.75 (the "High
Fixed Conversion Price") or 85% of the average closing bid price of the
Company's Common Stock for the five (5) trading days immediately preceding the
date of conversion for the remaining two-thirds (2/3) of the shares (the
"High Fixed Preferred Shares") of Series E Preferred held by a holder as of
January 16, 1997. Each holder shall have the sole right to designate the
shares of Series E Preferred tendered for conversion pursuant by such holder
as Low Fixed Preferred Shares, High Fixed Preferred Shares or any combination
of Low Fixed Preferred Shares and High Fixed Preferred Shares by providing the
Company with notice thereof in the notice of conversion delivered by such
holder to the Company in connection with such conversion. 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, if this paragraph and its terms are
in effect and have not been terminated pursuant to the terms of the Company's
Amended and Restated Articles of Incorporation, as amended (the "Articles of
Incorporation"), each holder shall be entitled to convert up to 12% of the
aggregate shares of
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Series E Preferred Stock held by such holder as of April 21, 1997 at $0.6429.
In addition to the number of shares of Series E Preferred Stock a holder may
convert pursuant to the preceding sentence, each holder shall be entitled to
convert any and all remaining shares of Series E Preferred Stock held by such
holder at a conversion price of $1.50. Furthermore, if the terms of this
paragraph have not been terminated pursuant to the terms of the Company's
Articles of Incorporation, then 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 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.
If by June 9, 1997, the Company has not entered into an agreement binding on
all of the Company's Series F Preferred Stock with respect to the modification
of the conversion rights of the Company's Series F Preferred Stock, which in
the good faith judgement of the holders, is not more materially adverse to the
Company than the provisions set forth in the preceding paragraph, or if by May
6, 1997, the Company fails to enter into an agreement binding on all of the
holders of the Company's 8% Convertible Debentures (the "Convertible
Debentures") with respect to the modification of the conversion rights of the
Convertible Debentures, which in the good faith judgement of the holders of
the Series E Preferred Stock is not materially more adverse to the Company
than the provisions set forth in the preceding paragraph relating to the
Series E Preferred Stock; then upon written notice to the Company by the
holders of 75% or more of the outstanding shares of Series E Preferred Stock,
the terms set forth in the preceding paragraph shall be void and the
obligations with respect to the conversions of the Series E Preferred Stock
shall be as follows:
(i) after February 14, 1997, each holder of Series E Preferred shall be
entitled to convert up to one-third (1/3) of the shares of Series E
Preferred held by such holder as of January 16, 1997 using the
appropriate High Fixed Conversion Price and Low Fixed Conversion Price
as designated above;
(ii) in addition to the shares of Series E Preferred a holder may convert
pursuant to (i) above, after March 15, 1997, each holder shall be
entitled to convert up to 12.5% of the shares of Series E Preferred
held by such holder as of January 16, 1997 using the appropriate High
Fixed Conversion Price and Low Fixed Conversion Price as designated
above;
(iii) in addition to the shares of the Series E Preferred a holder may
convert pursuant to (i) and (ii) above, each holder shall be entitled
to convert on any date after March 15, 1997, a cumulative number of
shares of Series E Preferred equal to the product of (i) the number
of days from March 15, 1997 through and including such date, (ii)
.4067% and (iii) the number of shares of Series E Preferred Stock
held by such holder as of January 16, 1997 using the appropriate High
Fixed Conversion Price and Low Fixed Conversion Price as designated
above.
Each holder may convert any and all shares of the Series E Preferred then
held by such holder at any time after either (x) the average of the closing
bid prices of the Company's Common Stock for five consecutive trading days
exceeds $3.00 or (y) Marc W. Eller ceases to be employed by the Company in
substantially the same capacity as he occupied as of January 16, 1997. If this
provision becomes effective pursuant to the terms of the Company's Articles of
Incorporation, the Series E Preferred Shares shall be convertible at the
appropriate Low Fixed Conversion Price or High Fixed Conversion Price as
designated above.
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.
14
<PAGE>
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, 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"). All of the
promissory notes made payable to the Note Warrant Selling Shareholders were
guaranteed by the Company. 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.
15
<PAGE>
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) the conversion price, which is the lesser of $1.75
or 80% of the average closing bid price for the Company's Common Stock for the
ten (10) trading days immediately preceding the conversion date. Upon
conversion, if the conversion price is $.75 or less, the Company shall have
the right to redeem in cash by paying the holder an amount equal to the number
of shares of Common Stock that would have been received had conversion taken
place multiplied by the conversion price.
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 the holder 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
16
<PAGE>
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.
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 is 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
shall receive 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 shall be 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. On November
5, 1997, and 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 Lawrence I. Kravetz, Columbus Asset
Management, Ltd. ("Columbus"), Katherine D. Banks and BEG Enterprises, Inc.
("BEG") "piggy-back" registration rights regarding shares underlying certain
Warrants held by Mr. Kravetz (the "Kravetz Warrants"), Columbus (the "Columbus
Warrants"), Ms. Banks (the "Banks Warrants") and BEG (the "BEG Warrants").
Pursuant to these "piggy-back" rights, the Company agreed to use its best
efforts to have the Common Stock issuable upon the exercise of the Kravetz
Warrants, the Columbus Warrants, the Banks Warrants and the BEG 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.
The Company has also agreed to give Bien & Stock, Inc. ("Bien & Stock"),
Peter Moon ("Moon"), Claude Cooke ("Cooke"), IN Partnership, Inc. ("IN"), The
Investor Relations Company ("Investor Relations") and Research Applications,
Inc. ("Research") "piggy-back" registration rights regarding shares of the
Company's Common Stock held by each of these holders. Pursuant to these
"piggy-back" rights, the Company agreed to use its best efforts to have the
Common Stock held by these holders included in the Registration Statement, of
which this Prospectus is a part.
17
<PAGE>
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 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 and (v) the number of Shares of Common Stock issuable upon
conversion of the Company's Series F 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.
18
<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 AND SERIES F
OF COMMON STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS
HELD AND OFFERED WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES MADE
PURSUANT TO THIS PURSUANT TO THIS TO THIS PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
CONVERTIBLE DEBENTURE
SELLING SHAREHOLDERS
Robert G. Minor (3)..... 31,500 *
Chris Thollaug and
Suzanne Stephanik...... 50,038 *
The Sunday School Board
of the Southern Baptist
Convention Retirement
Plan................... 84,405 *
DEBENTURE WARRANT
SELLING SHAREHOLDERS
Dusseldorf S.A.......... 31,500 10,000 *
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............ 8,000 4,000 *
Barney Cacioppo......... 6,000 3,000 *
Peter and Ruth Medding.. 5,000 2,500 *
Richard and Susan
Goebel................. 2,000 *
Richard and Mary
Pulciani............... 2,000 *
Albert Vivo............. 4,000 2,000 *
Rocky and Genevieve
Dazzo.................. 2,000 2,000 *
Ben Chilcutt............ 4,000 2,000 *
Claus Fichte............ 4,000 2,000 *
Ronald Cacioppo......... 2,000 1,000 *
James Cacioppo.......... 2,000 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 *
</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 AND SERIES F
OF COMMON STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS
HELD AND OFFERED WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES MADE
PURSUANT TO THIS PURSUANT TO THIS TO THIS PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Steven Tsengas.......... 2,000 1,000 *
Malcolm Thomas.......... 2,000 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 *
EAST/WEST SELLING
SHAREHOLDERS
East/West Technology
Partners, Ltd.......... 128,880 77,250 *
BDM Federal, Inc........ 111,140 42,750 *
International Technology
Exchange Corporation... 30,000 15,000 *
BEG SELLING SHAREHOLDERS
BEG Enterprises, Inc.
(4).................... 627,593 62,760 3.56%
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.............. 12,552 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)............. 52,301 5,230 *
Probitas Fund L.P....... 51,867 *
Lawrence I. Kravetz..... 5,187 *
MCC SELLING SHAREHOLDER
Microelectronics and
Computer Technology
Corporation............ 563,973 22,326 3.03%
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 *
</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 AND SERIES F
OF COMMON STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS
HELD AND OFFERED WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES MADE
PURSUANT TO THIS PURSUANT TO THIS TO THIS PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Combined Turner
Children's Trust....... 3,000 300 *
RSP 3, L.P.............. 79,200 7,920 *
Pinnacle Fund, L.P...... 100,000 10,000 *
Michael S. Blechman
Family Trust........... 38,100 3,810 *
Rock Financial
Corporation............ 47,619 4,762 *
SERIES E SELLING
SHAREHOLDERS
Leonardo, L.P........... 461,001 1,787,991 10.65%
Nelson Partners......... 694,401 1,454,666 10.03%
Olympus Securities,
Ltd.................... 621,830 1,454,666 9.99%
Canadian Imperial
Holdings, Inc.......... 101,086 *
Gracechurch & Co........ 290,489 776,540 5.31%
Amadeus Fund, L.P....... 13,645 *
Amadeus Offshore Fund,
Ltd.................... 77,323 *
Diversified Strategies
Fund, L.P.............. 22,742 *
Raphael, L.P............ 97,370 598,122 3.00%
West Merchant Bank
Nominees Limited....... 779,661 3.87%
AG Super Fund Int'l
Partners............... 94,675 466,112 2.35%
GAM L.P................. 115,709 466,112 2.94%
Kessler-Asher Group,
Ltd.................... 100,476 *
LaRocque Trading Group
LLC.................... 209,307 46,870 1.30%
Charles Kucey........... 67,567 *
Cornerstone Capital,
Inc.................... 489,758 2.53%
NewSun Ltd.............. 202,399 1.05%
OTA Limited Partnership. 109,364 *
KA Trading L.P.......... 85,294 *
Capital Ventures
International.......... 134,731 *
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...... 125,000 429,149 2.81%
David M. Klausmeyer..... 55,000 *
</TABLE>
21
<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 AND SERIES F
OF COMMON STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS
HELD AND OFFERED WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES MADE
PURSUANT TO THIS PURSUANT TO THIS TO THIS PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
NOTE WARRANT SELLING
SHAREHOLDERS
Pinnacle Fund L.P. ..... 100,000 *
Michael S. Blechman
Family Trust........... 50,000 50,000 *
Valassis Enterprises
L.P. .................. 100,000 *
N. Martin Co. .......... 50,000 50,000 *
SERIES F SELLING
SHAREHOLDERS
Thomas Kernaghan & Co.
Limited................ 2,335,362 10.78%
Stanley B. Dickson...... 467,072 2.36%
FT Trading Co. ......... 373,658 1.93%
OCTOBER 1997 SELLING
SHAREHOLDERS
[To Come]
OTHER SELLING
SHAREHOLDERS
Lawrence I. Kravetz..... 70,400 *
BEG Enterprises, Inc. .. 65,034
Columbus Asset
Management, Ltd........ 20,000 *
Katherine D. Banks...... 35,000 *
Peter Moon.............. 20,625
Claude Cooke............ 9,372
IN Partnership, Inc..... 24,407
The Investor Relations
Company................ 30,000
Research Applications,
Inc.................... 150,000
---------- --------- ---------- -----
TOTAL................. 14,472,558 1,432,283 11,141,832 68.89%
</TABLE>
- --------
* Less than 1 %
(1) The number of Shares of Common Stock issuable upon conversion of the Series
E Preferred Stock and Series F 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 and;--Series F 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 and Series F Preferred Stock were
convertible as of October 21, 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 and Series F Preferred Stock, as applicable, into shares of the
Company's Common Stock.
(3) Mr. Minor also owns an additional 6,213 shares of Common Stock purchased on
the open market, which are not subject to this Prospectus.
(4) 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.
(5) Mark S. and Frances A. Wagner also own an additional 19,400 shares of the
Company's Common Stock jointly; The Frances A. Wagner Trust also owns an
additional 36,000 shares of the Company's Common Stock; and an additional
10,875 shares of the Company's Common Stock are held by trusts for Mr. and
Mrs. Wagner's minor children. All of the shares described in this footnote
were purchased on the open market and are not subject to this Prospectus.
22
<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 October 21, 1997, 19,324,353 shares of
Common Stock, 100 shares of Series A Preferred Stock, 260 shares of Series E
Preferred Stock, 1,250 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 7,830,740
shares of Common Stock and the conversion of the Series F Preferred Stock into
3,176,092 of Common Stock, and the conversion of the Series G Preferred Stock
into 1,700,000 shares of Common Stock, there would be 40,271,225 shares of
Common Stock issued and outstanding. Additionally, 2,217,249 shares of Common
Stock are reserved for issuance upon exercise of Warrants (including 1,432,283
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.
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<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 1002.75 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
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<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 260 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) the conversion
price, which is either (x) the lesser of $1,875 (the "Low Fixed Conversion
Price") or 85% of the average closing bid price of the Company's Common Stock
for the five (5) trading days immediately preceding the Date of Conversion, as
defined below, for one-third ( 1/3) of the shares (the "Low Fixed Preferred
Shares") of Series E Preferred held by a holder as of January 16, 1997 or (y)
the lesser of $3.00 (the "High Fixed Conversion Price") or 85% of the average
closing bid price of the Company's Common Stock for the five (5) trading days
immediately preceding the date of conversion for the remaining two-thirds (
2/3) of the shares (the "High Fixed Preferred Shares") of Series E Preferred
held by a holder as of January 16, 1997. Each holder shall have the sole right
to designate the shares of Series E Preferred tendered for conversion by such
Holder as Low Fixed Preferred Shares, High Fixed Preferred Shares or any
combination of Low Fixed Preferred Shares and High Fixed Preferred Shares by
providing the Company with notice thereof in the notice of conversion delivered
by such holder to the Company in connection with such conversion. 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, if this paragraph and its terms are
in effect and have not been terminated pursuant to the terms of the Company's
Amended and Restated Articles of Incorporation, as amended (the "Articles of
Incorporation"), each holder shall be entitled to convert up to 12% of the
aggregate shares of Series E Preferred Stock held by such holder as of April
21, 1997 at $0.6429. In addition to the number of shares of Series E Preferred
Stock a holder may convert pursuant to the preceding sentence, each holder
shall be entitled to convert any and all remaining shares of Series E Preferred
Stock held by such holder at a conversion price of $1.50. Furthermore, if the
terms of this paragraph have not been terminated pursuant to the terms of the
Company's Articles of Incorporation, then 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 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.
If by June 9, 1997, the Company has not entered into an agreement binding on
all of the Company's Series F Preferred Stock with respect to the modification
of the conversion rights of the Company's Series F Preferred Stock, which, in
the good faith judgement of the holders, is not more materially adverse to the
Company than the provisions set forth in the preceding paragraph, or if by May
6, 1997, the Company fails to enter into an agreement binding on all of the
holders of the Company's 8% Convertible Debentures (the "Convertible
Debentures") with respect to the modification of the conversion rights of the
Convertible Debentures, which in
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<PAGE>
its good faith judgement of the holders of the Series E Preferred Stock is not
materially more adverse to the Company than the provisions set forth in the
preceding paragraph relating to the Series E Preferred Stock; then upon written
notice to the Company by the holders of 75% or more of the outstanding shares
of Series E Preferred Stock, the terms set forth in the preceding paragraph
shall be void and the obligations with respect to the conversions of the Series
E Preferred Stock shall be as follows:
(i) after February 14, 1997, each holder of Series E Preferred shall be
entitled to convert up to one-third ( 1/3) of the shares of Series E
Preferred held by such holder as of January 16, 1997 using the appropriate
High Fixed Conversion Price and Low Fixed Conversion Price as designated
above;
(ii) in addition to the shares of Series E Preferred a holder may convert
pursuant to (i) above, after March 15, 1997, each holder shall be entitled
to convert up to 12.5% of the shares of Series E Preferred Stock held by
such holder as of January 16, 1997 using the appropriate High Fixed
Conversion Price and Low Fixed Conversion Price as designated above;
(iii) in addition to the shares of the Series E Preferred a Holder may
convert pursuant to (i) and (ii) above, each holder shall be entitled to
convert on any date after March 15, 1997, a cumulative number of shares of
Series E Preferred Stock equal to the product of (i) the number of days
from March 15, 1997 through and including such date, (ii) .4067% and (iii)
the number of shares of Series E Preferred Stock held by such holder as of
January 16, 1997 using the appropriate High Fixed Conversion Price and Low
Fixed Conversion Price as designated above.
Each holder may convert any and all shares of the Series E Preferred then
held by such holder at any time after either (x) the average of the closing bid
prices of the Company's Common Stock for five consecutive trading days exceeds
$3.00 or (y) Marc W. Eller ceases to be employed by the Company in
substantially the same capacity as he occupied as of January 16, 1997. If this
provision becomes effective pursuant to the terms of the Company's Articles of
Incorporation, the Series E Preferred Shares shall be convertible at the
appropriate Low Fixed Conversion Price or High Fixed Conversion Price as
designated above.
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.
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
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<PAGE>
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 1,250 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) the conversion price, which is the lesser of (x)
$1.75 or (y) 80% of the ten (10) day trading average of the closing bid price
prior to the conversion date.
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) the Conversion Price, which is equal to $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
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<PAGE>
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 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 October 21, 1997, there were 19,324,353 shares of Common Stock
outstanding, of which 14,305,031 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 two years 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 three-year holding period.
The Registration Statement, of which this Prospectus is a part, pertains to
14,472,558 Shares of Common Stock which are currently "restricted securities";
1,432,283 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; 7,830,740 Shares of Common Stock which are issuable upon
conversion of the Series E Preferred Stock and 3,176,092 shares of Common Stock
which are issuable upon conversion of the Series F 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 October 20, 1997, the Company is additionally
obligated to register an additional 3,545,130 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 October
21, 1997, 3,500,000 shares of Common Stock have been reserved for issuance
pursuant to the Company's stock option plans. 2,217,249
28
<PAGE>
shares of Common Stock have also been reserved for issuance upon exercise of
Warrants that have been issued by the Company (1,432,283 of such shares have
been registered in the Registration Statement). Additionally, 100,275 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 Company's Series C Preferred Stock (135,000 of
which are included in the Registration Statement) underlying the Series C
Warrants, 7,830,740 shares of Common Stock have been reserved for issuance upon
conversion of the Series E Preferred Stock and 3,176,092 shares of Common Stock
have been reserved for issuance upon conversion of the Series F 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.
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
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<PAGE>
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 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.
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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 APPEARS HERE]
14,472,558 SHARES OF
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
1,432,283 SHARES OF
COMMON STOCK
UNDERLYING WARRANTS
135,000 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES C
PREFERRED STOCK
UNDERLYING WARRANTS
7,830,740 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES E
PREFERRED STOCK
3,176,092 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES F
PREFERRED STOCK
----------------
PROSPECTUS
----------------
OCTOBER , 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............... $ 4,460
Printing and engraving expenses................................... 12,500
Legal fees and expenses........................................... 17,000
Accounting fees and expenses...................................... 8,000
Blue sky fees and expenses........................................ 3,500
Miscellaneous..................................................... 5,000
-------
Total........................................................... $50,460
=======
</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 OCTOBER 28, 1997.
SI DIAMOND TECHNOLOGY, INC.
/s/ Marc W. Eller
By __________________________________
Marc W. Eller
Chairman and Chief Executive Officer
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 and Chief Executive October 28, 1997
____________________________________ Officer (Principal Executive
Marc W. Eller Officer and Director)
/s/ Douglas P. Baker Vice-President and Chief October 28, 1997
____________________________________ Financial Officer (Principal
Douglas P. Baker Financial Officer)
Lee B. Arberg* Directors October 28, 1997
Ronald J. Berman*
Philip C. Shaffer*
David R. Sincox*
Zvi Yaniv*
Walter Cunningham*
Robert Johnson*
</TABLE>
*By:/s/ Douglas P. Baker
Douglas P. Baker, (Attorney-in-Fact)
II-3
<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-4
<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-5
<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.
4.39 Form of Registration Rights Agreement by and between
the Company and the October 1997 Selling Shareholders
dated as of October 27, 1997.
4.40 Form of Warrant by and between the Company and the
October 1997 Selling Shareholders.
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 (Incorporated by reference from
Registration Statement No. 333-24801 dated as of June
6, 1997)
27* Financial Data Schedule (Incorporated by reference from
previous filings)
</TABLE>
II-6
<PAGE>
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY
OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL, STATE
OR FOREIGN SECURITIES AUTHORITIES, NOR HAVE ANY SUCH AUTHORITIES REVIEWED OR
DETERMINED THE ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK, INCLUDING BUT NOT
LIMITED TO THOSE RISK FACTORS IDENTIFIED IN THE COMPANY'S FORM S-3S FILED DURING
1997. INVESTORS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT TERMS AND
CONDITIONS OF THE PROPOSED INVESTMENT AND THEIR OWN ASSESSMENT OF THE RISKS
INVOLVED.
This Regulation D Securities Subscription Agreement (the "Agreement") is
executed by the undersigned (the "Subscriber") in connection with the offer to
the Subscriber of, and the subscription by the Subscriber for, shares of Common
Stock, $.001 par value per share (the "Common Stock"), of SI DIAMOND TECHNOLOGY,
INC., a Texas corporation (the "Company"). The Company is offering to qualified
investors (the "Offering"). The Subscriber agrees to fund $500,000 to the
Company upon the execution of this Agreement by the Subscriber, its acceptance
by the Company and the delivery of a stock certificate to the entity designated
by the Subscriber representing the number of shares of Common Stock identified
in the next sentence. The Subscriber shall receive that number of shares of
Common Stock resulting from the division of the $500,000 by a value 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 date of this Agreement. In
addition, the Subscriber shall also receive one warrant ("Warrant") for each
share of Common Stock as calculated pursuant to the sentence above. The
purchase price of each Warrant received by the Subscriber shall be 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 this
Agreement. On November 5, 1997 and on the first business day of December 1997
and on the first business day for each month thereafter up to and including
April 1998, the Subscriber 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 such successive month. In
addition,
<PAGE>
the Subscriber 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 this Agreement. A form of Warrant is attached to this
Agreement as Exhibit "E."
The terms of the Common Stock are set forth in the Company's Amended and
Restated Articles of Incorporation attached hereto as Exhibit A. The
solicitation of this Subscription by the Company, and, if accepted by the
Company, the sale of the shares of Common Stock subscribed for, are being made
in reliance upon the provisions of Regulation D ("Regulation D") promulgated
under the Securities Act of 1933, as amended (the "Securities Act").
The undersigned Subscriber and the Company, upon acceptance of this
Agreement, hereby agree as follows:
1. Offering
1.1 Offer to Subscribe; Purchase Price and Closing; and Placement Fees.
Subject to satisfaction of the conditions to the closing of a purchase and
sale of Common Stock as to each purchaser of Common Stock (the "Closing") set
forth in Section 1.2 below, the Subscriber hereby offers to subscribe for and
purchase shares of Common Stock pursuant to the terms and conditions of this
Agreement.
1.2 Conditions to Subscriber's Obligations. The Subscriber's obligations
hereunder are conditioned upon the occurrence of all of the following:
(a) other than as described on Schedule 1.2 attached hereto, there have
been no material adverse changes in the Company's business prospects or
financial condition since the date of the last balance sheet included in the
Disclosure Documents (as defined below in Section 4.2);
(b) the representations and warranties of the Company shall be true and
correct in all material respects on the date of Closing, as if made on such
date; and
(c) the Subscription Agreement has been accepted by the Company.
2. Representations and Warranties of the Subscriber. The Subscriber
hereby represents and warrants to the Company as follows (which representations
and warranties shall be true as of the date of Closing):
2
<PAGE>
2.1 Accredited Investor. The Subscriber hereby represents and warrants to
the Company that it is an "accredited investor," as defined in Rule 501 of
Regulation D, and has marked the applicable box set forth in Section 9 of this
Agreement signifying such status.
2.2 Investment Experience; Access to Information; Independent
Investigation.
2.2.1 Access to Information. The Subscriber or its professional advisor
has been granted the opportunity to ask questions of and receive answers from
representatives of the Company, and its officers, directors, employees and
agents concerning the terms and conditions of the Offering, and the Company and
its business and prospects, and to obtain any additional information which the
Subscriber or its professional advisor deems necessary to verify the accuracy of
the information received. The foregoing, however, does not limit or modify the
Subscriber's right to rely upon representations and warranties of the Company in
Section 4 of this Agreement.
2.2.2 Ability to Evaluate. The Subscriber has such knowledge and
experience in financial and business matters that it is fully capable of
evaluating the merits and risks of an investment in the Company, including
without limitation those set forth in the Disclosure Documents (as defined below
in Section 4.2).
2.2.3 Disclosure Documents. The Subscriber has received and reviewed the
Disclosure Documents (as defined below in Section 4.2). The foregoing, however,
does not limit or modify the Subscriber's right to rely upon the representations
and warranties of the Company in Section 4 of this Agreement.
2.2.4 Investment Experience; Fend for Self. The Subscriber has
substantial experience in investing in securities and has made investments in
securities other than those of the Company. The Subscriber acknowledges that it
is able to fend for itself in the transaction contemplated by this Agreement and
that it has the ability to bear the economic risk of its investment in the
Company. The Subscriber has not been organized for the purpose of investing in
securities of the Company.
2.2.5 Not an Affiliate. The Subscriber is not an officer, director or
"affiliate" (as that term is defined in Rule 415 of the Securities Act) of the
Company.
2.3 Exempt Offering Under Regulation D
2.3.1 Investment; No Distribution. The Subscriber is acquiring the shares
of Common Stock subscribed for (the "Common Stock") solely for investment
purposes for the Subscriber's own account (or for beneficiaries' accounts over
which the Subscriber has investment discretion but no discretionary authority as
to voting or disposition) and not with a view to a distribution of all or any
part thereof. The Subscriber is aware that there are legal and practical limits
on its ability to sell or dispose of the Common Stock and the shares of Common
Stock
3
<PAGE>
underlying the Warrants (collectively, the "Securities"), and therefore, that
the Subscriber must bear the economic risk of its investment for an indefinite
period of time. The Subscriber has adequate means of providing for its current
needs and anticipated contingencies and has no need for liquidity of this
investment. The Subscriber's commitment to illiquid investments is reasonable
in relation to its net worth.
2.3.2 No General Solicitation. The shares of Common Stock were not
offered to the Subscriber through, and the Subscriber is not aware of, any form
of general solicitation or general advertising, including, without limitation,
(i) any advertisement, articles, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
2.3.3 No Registration of Common Stock. The Subscriber understands that
the shares of Common Stock are not registered and therefore are "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering, and
that, under such laws and applicable regulations, such securities may not be
transferred or resold without registration under the Securities Act or pursuant
to an exemption therefrom. In this connection, the Subscriber represents that
it is familiar with Rule 144 under the Securities Act, as presently in effect,
and understands the resale limitations imposed thereby and by the Securities
Act.
2.3.4 Disposition. Without in any way limiting the representations set
forth above, the Subscriber further agrees not to make any disposition of all or
any portion of the Securities unless and until:
(a) There is then in effect a registration statement under the Securities
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) The Subscriber shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, the Subscriber shall have furnished the Company with
an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of the Securities under the Securities
Act.
2.4 Due Authorization.
2.4.1 Authority. The Subscriber, if executing this Subscription Agreement
in a representative or fiduciary capacity, has full power and authority to
execute and deliver this Subscription Agreement and each other document referred
to herein for which a signature is required in such capacity and on behalf of
the subscribing individual, partnership, trust, estate,
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corporation or other entity for whom or which the Subscriber is executing this
Subscription Agreement.
2.4.2 Due Authorization. The Subscriber is duly and validly organized,
validly existing and in good standing as such entity under the laws of the
jurisdiction of its organization, with full power and authority to purchase the
Common Stock subscribed for and to execute and deliver this Agreement.
3. Acknowledgements. The Subscriber is aware of the following:
3.1 Risks of Investment. The Subscriber recognizes that investment in the
Company involves certain risks, including the potential loss of the Subscriber's
investment herein. The Subscriber recognizes that this Agreement and the
exhibits hereto do not purport to contain all the information which would be
contained in a registration statement under the Securities Act;
3.2 No Government Approval. The Subscriber acknowledges that no federal,
state or foreign agency has passed upon or reviewed the terms and conditions of
the Offering or made any finding or determination as to the fairness of the
Offering;
3.3 Restrictions on Transfer. The Subscriber may not sell, transfer,
assign, pledge or otherwise dispose of all or any portion of the Securities in
the absence of either an effective registration statement or an exemption from
the registration requirements of the Securities Act and applicable state
securities law;
3.4 Exempt Transaction. The Common Stock is being offered and sold in
reliance on specific exemptions from the registration requirements of federal
and state law and the Subscriber's representations, warranties, agreements,
acknowledgements and applicability of such exemptions and the suitability of the
Subscriber to acquire such Common Stock.
3.5 Legends. It is understood that any certificates evidencing the Common
Stock shall bear the following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement under
those securities laws or an opinion of counsel, reasonable satisfactory to
the Company, that the sale or transfer is pursuant to an exemption to the
registration requirements of those securities laws."
4. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Subscriber, except as
disclosed in the Disclosure Documents or otherwise disclosed to Subscriber,
which representations and warranties shall be true as of the date of acceptance
of this Agreement by the Company and as of Closing:
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4.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, and has all requisite corporate power and authority to
carry on its business as now conducted and as currently proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending
or, to its knowledge, threatened or contemplated investigation or administrative
or legal proceeding by the Internal Revenue Service, the taxing authorities of
any state or local jurisdiction, or the Securities and Exchange Commission, or
any state securities commission, or any other governmental entity, which are
required to be disclosed in the Disclosure Documents and have not been
disclosed.
4.2 Corporate Condition. The Company has timely filed all forms, and
reports and documents with the Securities and Exchange Commission required to be
filed by it under the Securities Exchange Act 1934, as amended (the "Exchange
Act") through the date hereof (collectively,the "SEC Reports"). Each of the SEC
Reports, at the time filed, complied in all material respects with the
requirements of the Exchange Act. The Company has made available to the
Subscriber a copy of the Company's Form 10-KSB/A for the fiscal year ended
December 31, 1996, and a copy of the Company's Forms 10-QSB, 8-K and S-3 filed
by the Company since January 1, 1997 (the "Most Recent Filings Report"). Other
than as set forth in Schedule 4.2 attached hereto and made a part hereof, there
have been no material adverse changes in the Company's business, prospects,
operations or financial condition since the date of the Most Recent Filings
Report. The SEC Reports, together with Schedule 4.2 and any other documents
listed on Schedule 4.2(a) attached hereto and made a part hereof and furnished
herewith by the Company to the Subscriber are referred to collectively as the
"Disclosure Documents." The financial statements contained in the Disclosure
Documents have been prepared in accordance with generally accepted accounting
principles, consistently applied, and fairly present in all material respects
the consolidated financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended. Without limiting the foregoing,
there are no material liabilities, contingent or actual that are not disclosed
in the Disclosure Documents (other than liabilities incurred by the Company in
the ordinary course of its business, consistent with its past practice, after
the periods covered by the Disclosure Documents). The Company has paid all
material taxes which are due, except for taxes which it reasonably disputes.
There is no material claim, litigation, or administrative proceeding pending,
or, to the best of the Company's knowledge, threatened or contemplated against
the Company, except as disclosed in the Disclosure Documents. This Agreement
and the Disclosure Documents do not contain any untrue statement of material
fact and do not omit to state any material fact required to be stated therein or
herein necessary to make the statements contained therein or herein not
misleading in the light of the circumstances under which they were made.
4.3 Authorization. All corporate action on the part of the Company
by its officers, directors and shareholders necessary for the authorization,
execution and delivery of this
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Agreement, the performance of all obligations of the Company hereunder and the
authorization, issuance and delivery of the Common Stock and reservation for
issuance of the Common Stock obtainable on exercise of the Warrants have been
taken, and this Agreement and the Registration Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their terms; provided, however that enforceability is subject to: (i)
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance, and similar federal and state laws affecting the rights and remedies
of creditors generally, and (ii) general principles of equity limiting the
availability of equitable remedies (including but not limited to the remedy of
specific performance), whether considered in a proceeding at law or in equity.
The Company has obtained all consents and approvals required for it to execute,
deliver and perform this Agreement and the Registration Rights Agreement.
4.4 Valid Issuance of Common Stock. The Common Stock, when issued,
sold and delivered in accordance with the terms hereof, for the consideration
expressed herein, will be validly issued, fully paid and nonassessable and,
based in part upon the representations of the Subscriber in this Agreement, will
be issued in compliance with all applicable federal and state securities laws.
The shares of Common Stock underlying the Warrants when issued upon exercise
shall be duly and validly issued and outstanding, fully paid and nonassessable,
and based in part on the representations and warranties of the Subscriber, will
be issued in compliance with all applicable U.S. federal and state securities
laws. The Securities will be issued free of any preemptive rights.
4.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Amended and Restated Articles of
Incorporation or Bylaws as amended and in effect on and as of the date of this
Agreement or of any material provision of any material instrument or contract to
which it is a party or by which it is bound or, to its knowledge, of any
provision of any federal or state judgment, writ, decree, order, statute, rule
or governmental regulation applicable to the Company, which would have a
material adverse effect on the Company's business or prospects, except as
described in the Disclosure Documents. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
will not result in any such violation or be in conflict with or constitute, with
or without the passage of time and giving of notice, either a default under any
such provision, instrument or contract or an event which results in the creation
of any lien, charge or encumbrance upon any assets of the Company.
4.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, and has a class of securities registered under
Section 12 or Section 15 of the Exchange Act. When requested by the Subscriber,
the Company shall furnish copies of reports filed by the Company with the
Securities and Exchange Commission.
4.7 Use of Proceeds. As of the date hereof, the Company expects to
use the proceeds from the Offering (less fees and expenses) for the purposes set
forth on Exhibit D hereto.
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These purposes are estimates and are subject to change, but represent the
Company's good faith best estimate of anticipated uses.
4.8 Compliance with Laws. As of the date hereof, the conduct of the
business of the Company complies in all material respects with all material
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable thereto. The Company has not received notice of any alleged
violation of any statute, law, regulations, ordinance, rule, judgement, order or
decree from any governmental authority. The Company shall comply with all
applicable securities laws with respect to the Offering.
4.9 No Rights of Participation. No person or entity, including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the Offering which has not been waived.
4.10 Disclosures. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed in the Disclosure Documents that (a) could reasonably be expected to
have a material adverse effect on the business, financial condition or results
of operations of the Company, or which could reasonably be expected to
materially and adversely affect the properties or assets of the Company or (b)
could reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement and the
issuance of the Securities.
4.11 Representations True and Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive the Closing and the issuance of the Common Stock and
the Warrants.
4.12 Termination Date of Offering. In no event shall the Closing
occur later than October _____, 1997, with any extension based upon an agreement
between the Company and the Subscriber.
5. Covenants of the Company
5.1 Independent Auditors. The Company shall, until at least three
(3) years after the date of the Closing, maintain as its independent auditors an
accounting firm authorized to practice before the Securities and Exchange
Commission.
5.2 Corporate Existence and Taxes. The Company shall, until at least
three (3) years after the date of the Closing, maintain its corporate existence
in good standing (provided, however, that the foregoing covenant shall not
prevent the Company from entering into any merger or corporate reorganization so
long as the surviving entity in such transaction, if not the
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<PAGE>
Company, assumes all of the Company's obligations with respect to the
Securities) and shall pay all its taxes when due, except for taxes which the
Company disputes.
5.3 Registration of Conversion Shares. The Company will register the
shares of Common Stock and shares of Common Stock underlying the Warrants on the
terms of the Registration Rights Agreement (substantially in the form attached
as Exhibit B).
5.4 Filings with Securities and Exchange Commission. The Company
shall provide the Subscriber with copies of its annual reports on Form 10-KSB,
quarterly reports on Form 10-QSB and current reports on Form 8-K for as long as
the Common Stock remains outstanding.
5.5 Opinion of Counsel. Purchasers of the Common Stock shall, upon
purchase, receive an opinion letter from Haskell Slaughter & Young, L.L.C.,
counsel to the Company, substantially in the form Legal Opinion attached hereto
as Exhibit C.
5.6 Removal of Legend Upon Registration. The restrictive legend
described in Section 3.5 above will be removed from the Common Stock after the
Registration Statement is effective and when the stock is to be sold.
5.7 Listing. The Company shall use its best efforts to maintain the
listing of its Common Stock on the Nasdaq SmallCap Stock Market or another
national securities exchange or national quotation system.
6. Miscellaneous
6.1 Representations and Warranties Survive the Closing; Severability.
The Subscriber's and the Company's representations and warranties shall survive
the Closing of the transaction provided for hereby notwithstanding any due
diligence investigation made by or on behalf of the party seeking to rely
thereon. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
6.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Neither party may assign its rights hereunder without the
prior written consent of the other parties.
6.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Texas without respect to conflict of laws.
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6.4 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
6.5 Titles and Subtitles; Gender. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
6.6 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or the Subscriber pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile (with a hard copy to follow by overnight or two (2)
day courier), addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing.
6.7 Expenses. Each of the Company and the Subscriber shall pay all
costs and expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
6.8 Entire Agreement; Written Amendments Required. This Agreement,
the Common Stock certificates, the Warrants, the Registration Rights Agreement
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein. Neither this Agreement nor any terms hereof may
be amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7. Subscription and Wiring Instructions; Irrevocability.
7.1 Subscription
(a) Wire transfer of Subscription Funds. Subscriber shall send a
signed Subscription Agreement by facsimile to the Company at (512) 250-2807, and
its subscription funds by wire transfer, to the Company as follows:
Bank: Texas Commerce Bank
P. O. Box 2558
Houston, Texas 77252-8063
Ph. (713) 216-7000
Account Name: SI Diamond Technology, Inc.
Account No.: 081-00053751
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ABA Routing No.: 113000609
(b) Irrevocable Subscription. The Subscriber hereby acknowledges and
agrees, subject to the provisions of any applicable laws providing for the
refund of subscription amounts submitted by the Subscriber, that this Agreement
is irrevocable and that the Subscriber is not entitled to cancel, terminate or
revoke this Agreement; provided, however, that if the conditions to Closing are
not satisfied or if the Disclosure Documents are discovered prior to Closing to
contain statements which are materially inaccurate, or omit statements of
material facts, the Subscriber may revoke or cancel this Agreement.
(c) Company's Right to Reject Subscription. This Agreement shall be
accepted by the Company when the Company countersigns this Agreement. The
Subscriber hereby confirms that the Company has full right in its sole
discretion to accept or reject the subscription of the Subscriber, in whole or
in part, provided that, if the Company decides to reject such subscription, the
Company must do so promptly and in writing. In the case of rejection, the
Company will promptly return any rejected payments and (if rejected in whole)
copies of all executed subscription documents (including without limitation this
Agreement) to Subscriber.
7.2 Acceptance of Subscription. In the case of acceptance of this
subscription, ownership of the number of securities being purchased hereby will
pass to the Subscriber upon the Closing.
7.3 Subscriber to Forward Original Signed Subscription Agreement to
Company. The Subscriber agrees to courier to the Company its original inked
signed Subscription Agreement within three (3) days after faxing said signed
Agreement to the Company.
8. Number of Shares and Purchase Price. The undersigned Subscriber
hereby subscribes for and agrees to purchase $3,500,000 of the Company's Common
Stock in accordance with Section 1 and the terms of this Agreement.
9. Accredited Investor. The Subscriber is (please check applicable box):
(a) [ ] a corporation, business trust, or partnership not formed for
the specific purpose of acquiring the securities offered, with total assets in
excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person who has such
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knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment.
(c) [ ] an individual, who
[ ] is a director, executive officer or general partner of the
issuer of the securities being offered or sold or a director, executive officer
or general partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each of
the two most recent years or joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable expectation of reaching the
same income level in the current year.
(d) [ ] an entity, each owner of which is an entity described in (a)
or (b) above or is an individual described in (c) above.
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
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<PAGE>
IN WITNESS WHEREOF, the undersigned Subscriber does hereby execute this
Agreement this _______ day of October, 1997.
- -------------------------------- --------------------------------------
Name of Company You Represent EXACT NAME IN WHICH YOU WANT
(if applicable) THE SECURITIES TO BE REGISTERED
DELIVERY INSTRUCTIONS:
- -------------------------------- --------------------------------------
Your Signature Please type or print address where your
security is to be delivered
ATTN:
- -------------------------------- ---------------------------------
Your Name: Please Print
- --------------------------------- --------------------------------------
Title/Representative Capacity Street Address
(if applicable)
- --------------------------------- --------------------------------------
Place of Execution of this City, State or Province, Country,
Agreement Offshore Postal Code
--------------------------------------
Telephone Number
--------------------------------------
Facsimile Number
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<PAGE>
ACCEPTANCE BY COMPANY:
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AND THE COMPANY AGREES TO BE
BOUND BY THE TERMS AND CONDITIONS THEREOF THIS _____ DAY OF
_______________________, 1997.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
---------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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EXHIBIT "A"
-----------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
[NOT INCLUDED]
15
<PAGE>
EXHIBIT "B"
-----------
FORM OF REGISTRATION RIGHTS AGREEMENT
[NOT INCLUDED]
16
<PAGE>
EXHIBIT "C"
-----------
FORM OPINION OF COUNSEL
[NOT INCLUDED]
17
<PAGE>
EXHIBIT "D"
-----------
USE OF PROCEEDS
[NOT INCLUDED]
18
<PAGE>
EXHIBIT "E"
-----------
FORM OF WARRANT
[NOT INCLUDED]
19
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
October _____, 1997, by and between SI Diamond Technology, Inc., a Texas
corporation (the "Company") and the subscribers (hereinafter referred to as
"Subscribers" or "Investors") to the Company's offering ("Offering") of its
Common Stock pursuant to the Regulation D Securities Subscription Agreements
between the Company and the Subscribers (the "Subscription Agreements").
1. Definitions. For purposes of this Agreement:
(a) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act") and
pursuant to Rule 415 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means the shares of the Company's
Common Stock, together with any capital stock issued in replacement of, in
exchange for or otherwise in respect of such Common Stock (the "Common Stock"),
or issuable or issued upon exercise of the Warrants ("Warrants") issued to
Subscribers in the Offering (as defined in the Subscription Agreement);
(c) The number of shares of "Registrable Securities then outstanding" shall
be determined by the number of shares of Common Stock which have been issued or
are issuable upon exercise of the Warrants at the time of such determination;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The term "Initiating Holders" means (i) any holders of Common Stock
purchased pursuant to the Subscription Agreement.
(f) The terms "Offering" and "Closing" shall have the meanings ascribed to
them in the Subscription Agreement.
2. REQUIRED REGISTRATION.
(a) Prior to or concurrent with the Closing of the Offering, the Company
shall have effective a registration statement ("Registration Statement") on Form
S-3 (or other suitable form, at the Company's discretion but subject to the
reasonable approval of the Investors), covering the resale of all shares of
Registrable Securities then outstanding.
<PAGE>
(b) The Registration Statement shall be done as a "shelf" registration
statement under Rule 415, and shall be maintained effective until the
distribution described in the Registration Statement is completed or as
otherwise provided in Section 4(c).
3. OBLIGATIONS TO INCREASE THE NUMBER OF AVAILABLE SHARES. In the event
that the number of shares available under a registration statement filed
pursuant to Section 2 is insufficient to cover all of the Registrable Securities
then outstanding, the Company shall amend that registration statement, or file a
new registration statement, or both, so as to cover all shares of Registrable
Securities then outstanding. The Company shall file such amendment or new
registration within thirty (30) days of the date the registration statement
filed under Section 2 is insufficient to cover all the shares of Registrable
Securities then outstanding.
4. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) With respect to any Registration Statement filed pursuant to this
Agreement, keep such registration statement effective until the earlier of (i)
the date upon which the Holders of Registrable Securities covered by such
registration statement shall have sold such Registrable Securities; or (ii) one
(1) year after the date of the Closing of the Offering.
(d) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(e) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders of the Registrable
Securities covered by such registration statement, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions.
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<PAGE>
(f) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request.
(g) Provide Holders with written notice of the date that a registration
statement registering the resale of the Registrable Securities is declared
effective by the SEC.
(h) Provide Holders and their representatives the opportunity to conduct a
reasonable due diligence inquiry of Company's pertinent financial and other
records and make available its officers, directors and employees for questions
regarding such information as it relates to information contained in the
registration statement, subject to all information received by the Holders and
their representatives being kept confidential.
(i) Provide Holders and their representatives the opportunity to review the
registration statement and all amendments thereto a reasonable period of time
prior to their filing with the SEC.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held
by them, and the intended method of disposition of such securities as shall be
required to effect the registration of their Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
6. EXPENSES OF REGISTRATION. All expenses, other than underwriting
discounts and commissions and fees and expenses of counsel to the selling
Holders, incurred in connection with the registrations pursuant to Section 2,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, shall be borne by the Company.
7. INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any underwriter
(as defined in the Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Act or the Securities
Exchange Act of 1934, as amended (the " 1934 Act"),
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<PAGE>
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
by the Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder, severally and not
jointly, will indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any underwriter and
any other Holder selling securities in such registration statement or any of its
directors or officers or any person who controls such Holder, against any
losses, claims, damages, or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, or underwriter or controlling
person, or other such Holder or director, officer or controlling person may
become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company and any such
director, officer, controlling person, underwriter or controlling person, other
Holder, officer, director, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
7(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 7(b) exceed the net
purchase price of securities sold by such Holder under the registration
statement.
4
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential conflicting interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 7.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 7 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and each holder of Registrable Securities
agree to contribute to the aggregate claims, losses, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the holders of Registrable Securities may be subject in such
proportion as is appropriate to reflect the relative fault of the Company and
the holders in connection with the statements or omissions which resulted in
such Losses; provided, however, that in no case shall any holder be responsible
for any amount in excess of the net purchase price of securities sold by it
under the registration statement. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the holders. The Company and the
holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person who
controls a holder of Registrable Securities within the meaning of either the Act
or the 1934 Act and each director, officer, partner, employee and agent of a
holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the 1934
Act and each director of the Company, and each officer of the Company who has
signed the registration statement, shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
5
<PAGE>
(e) The obligations of the Company and Holders under this Section 7 shall
survive the redemption and conversion, if any, of the Preferred Stock, the
completion of any offering of Registrable Securities in a registration statement
under this Agreement, and otherwise.
8. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of SEC Rule 144, the
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
9. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of seventy-five percent (75%) of
the Registrable Securities provided that the amendment treats all Holders
equally. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company.
10. NOTICES. All notices required or permitted under this Agreement shall
be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: 12100 Technology Blvd., Austin, Texas 78727,
Telephone No. (512) 250-2709, Facsimile No. (512) 250-2807, and (ii) the Holders
at their respective last address as the party shall have furnished in writing as
a new address to be entered on such register. Any notice, except as otherwise
provided in this Agreement, shall be made by fax and shall be deemed given at
the time of transmission of the fax.
11. TERMINATION. This Agreement shall terminate on the earlier to occur of
(a) the date that is one (1) year from the date of the Closing or (b) the date
the resale by Holders of all Registrable Securities described in any
registration statement filed pursuant to this Agreement is completed; but
without prejudice to (i) the parties' rights and obligations arising from
breaches
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<PAGE>
of this Agreement occurring prior to such termination or (ii) other
indemnification obligations under this Agreement.
12. ASSIGNMENT. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, a writing executed by such transferee
agreeing to be bound as a Holder by the terms of this Agreement); and provided
further that the Company may transfer its rights and obligations under this
Agreement to a purchaser of all or a substantial portion of its business if the
obligations of the Company under this Agreement are assumed in connection with
such transfer, either by merger or other operation of law (which may include
without limitation a transaction whereby the Registrable Shares are converted
into securities of the successor in interest) or by specific assumption executed
by the transferee.
13. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to conflict
of laws.
(b) Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
(c) Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any holder of any Registrable Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereunder occurring, nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default thereafter occurring.
Any waiver, permit, consent or approval of any kind or character on the part of
any holder of any breach or default under this Agreement, or any waiver on the
part of any party of any provisions of conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Investors,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
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<PAGE>
(e) Severability. In the case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
The foregoing Registration Rights Agreement is hereby executed as of the
date first above written.
SI DIAMOND TECHNOLOGY, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Title:
--------------------------
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<PAGE>
INVESTOR(S)
- -----------------------------------
Investor's Name
By:
--------------------------------
(Signature)
Name:
------------------------------
Title:
-----------------------------
Address:
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
9
<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT MADE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY
OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
WARRANT
SI DIAMOND TECHNOLOGY, INC.
The Transferability of this Warrant is Restricted
as Provided in Article 3
FOR GOOD AND VALUABLE consideration, the receipt of which is hereby
acknowledged by SI DIAMOND TECHNOLOGY, INC., 12100 Technology Boulevard, Austin,
Texas 78727, a Texas corporation (the "Company"), _____________________
("Holder") is hereby granted the right to purchase, at the initial exercise
price of $_____ per share, _______ shares of the Company's common stock, $.001
par value (the "Common Shares").
Subject to the further terms hereof, this Warrant shall be exercisable in
whole or in part at any time and from time to time prior to 5:00 p.m. on
_______________. This Warrant shall be exercisable only in the event that the
exercise is for, at a minimum, the lesser of (i) 10,000 Common Shares or (ii)
the remaining number of Common Shares which the registered holder of this
Warrant has the right to purchase thereunder. Upon the expiration of the
applicable period for exercise of this Warrant, this Warrant shall no longer
entitle the holder thereof to acquire any shares of Common Shares or any other
security of the Company. For the purposes of this Warrant, "Affiliates" or
"Affiliate" of Holder shall mean any person or entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with Holder. "Control" in, of or by an Affiliate
requires ownership of more than fifty percent (50%) of (i) voting stock of a
company which issued voting stock, or (ii) ownership interest in any enterprise;
an entity or person is an Affiliate only as long as control exists.
This Warrant initially is exercisable in whole or part as provided above at
a price of $____ per Share payable by wire transfer of collected funds, subject
to adjustment as provided in Article 5 hereof. Upon surrender of this Warrant,
with the annexed Subscription Form duly executed, together with payment of the
Purchase Price (as hereinafter defined) for the Common Shares purchased, at the
offices of the Company, the registered holder of this Warrant shall be entitled
to receive a certificate or certificates for all the Common Shares.
<PAGE>
1. EXERCISE OF WARRANT
The purchase rights represented by this Warrant are exercisable at the option of
the Holder hereof, in whole Common Shares only (but not as to fractional Common
Shares underlying this Warrant), during any period in which this Warrant may be
exercised as set forth above.
If this Warrant is exercised in part only, the Company, upon surrender of this
Warrant for cancellation, shall execute and deliver a new Warrant of like tenor
evidencing the right of the holder to purchase the balance of the Common Shares
purchasable hereunder.
2. ISSUANCE OF CERTIFICATES
Upon the exercise of this Warrant, the issuance of certificates for Common
Shares underlying this Warrant shall be made forthwith (and in any event within
five business days thereafter) without charge to the Holder hereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 3
hereof) be issued in the name of, or in such names as may be directed by, the
Holder hereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The certificates
representing the Common Shares underlying this Warrant shall be executed on
behalf of the Company by the manual or facsimile signature of one of the present
or any future Chairman or President of the Company and any present or future
Vice President or Secretary of the Company. Upon transfer of this Warrant in
whole or in part to an Affiliate of Holder, such transferee shall be entitled to
all the rights of a Holder hereof.
3. RESTRICTION ON TRANSFER OF WARRANT AND COMMON SHARES
The Holder of this Warrant, by its acceptance hereof, covenants and agrees that
this Warrant and the Common Shares are being acquired as an investment and not
with a view to the distribution thereof, and that the Warrant may not be
exercised, and neither the Warrant nor the Shares may be sold, transferred,
assigned, hypothecated or otherwise disposed of (other than to an Affiliate of
Holder), in whole or in part unless in the opinion of counsel reasonably
concurred in by the Company's counsel such transfer is in compliance with all
applicable securities laws, after which this Warrant and the Common Shares shall
again be subject to the restrictions contained in this Article 3.
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<PAGE>
4. PRICE
4.1. Initial and Adjusted Purchase Price. The initial purchase price shall
be $____ per Share. The adjusted purchase price shall be the price which shall
result from time to time from any and all adjustments of the initial purchase
price in accordance with the provisions of Article 5 hereof.
4.2. Purchase Price. The term "Purchase Price" herein shall mean the
initial purchase price or the adjusted purchase price, depending upon the
context.
5. ADJUSTMENTS OF PURCHASE PRICE AND NUMBER OF COMMON SHARES
5.1. Subdivision and Combination
In case the Company shall at any time subdivide or combine the
outstanding Common Shares, the Purchase Price shall forthwith be proportionately
decreased in the case of subdivision or increased in the case of combination.
5.2. Reclassification, Consolidation, Merger, etc.
In case of any reclassification or change of the outstanding Common
Shares (other than a change in par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), or in the case of
any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding Common Shares, except a change as a result of a
subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder of this Warrant shall
thereafter have the right to purchase upon the exercise of this Warrant the kind
and number of shares of stock and other securities and property receivable upon
such reclassification, change, consolidation, merger, sale or conveyance as if
the Holder were the owner of the Common Shares underlying this Warrant
immediately prior to any such events at the Purchase Price in effect immediately
prior to the record date for such reclassification, change, consol idation,
merger, sale or conveyance as if such Holder had exercised this Warrant.
6. EXCHANGE AND REPLACEMENT OF WARRANT
This Warrant is exchangeable without expense, upon the surrender hereof by the
registered Holder at the principal executive office of the Company for new
Warrants of like tenor and date representing in the aggregate the right to
purchase the same number of Common
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<PAGE>
Shares as are purchasable hereunder in such denominations as shall be designated
by the Holder hereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant.
7. ELIMINATION OF FRACTIONAL INTERESTS
The Company shall not be required to issue certificates representing fractions
of Common Shares on the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated.
8. RESERVATION AND LISTING OF SECURITIES
The Company shall at all times reserve and keep available out of its authorized
Common Shares, solely for the purpose of issuance upon the exercise of this
Warrant, such number of Common Shares as shall be issuable upon the exercise
hereof and thereof. The Company covenants and agrees that, upon exercise of
this Warrant and payment of the Purchase Price therefor, all Shares issuable
upon such exercise shall be duly and validly issued, fully paid and non-
assessable. The Company shall cause all Common Shares issuable upon exercise of
this Warrant to be registered under the Securities Act of 1933, freely tradeable
and listed (subject to official notice of issuance) on all securities exchanges
on which the Common Shares may then be listed and/or quoted on NASDAQ, if any.
9. NOTICES
All notices, requests, consents and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered, or mailed by
registered or certified mail, return receipt requested:
9.1. If to the registered Holder of this Warrant, to the address of such
Holder as shown on the books of the Company; or
9.2. If to the Company, to the address set forth on the first page of this
Warrant or to such other address as the Company may designate by notice to the
Holders.
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<PAGE>
10. SUCCESSORS
All the covenants, agreements, representations and warranties contained in this
Warrant shall bind the parties hereto and their respective heirs, executors,
administrators, distributors, successors and assigns. Assignability of
registration rights is limited under the terms of this Warrant.
11. HEADINGS
The Article and Section headings in this Warrant are inserted for purposes
of convenience and shall have no substantive effect.
12. LAW GOVERNING
This Warrant shall be construed and enforced in accordance with, and governed
by, the laws of the State of Texas.
WITNESS the seal of the Company and the signature of its duly authorized
Officer.
SI DIAMOND TECHNOLOGY, INC.
[ SEAL ] By:
-----------------------------------
Trey Fecteau
Senior Vice President
Page 5
<PAGE>
[Letterhead of Haskell Slaughter & Young]
EXHIBIT 5.1
Board of Directors
SI Diamond Technology, Inc.
12100 Technology Boulevard
Austin, Texas 78727
Gentlemen:
I am 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 27,046,673 shares of Common Stock.
In my capacity as counsel to the Company, I 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, I have examined a
signed copy of the Registration Statement, corporate records of the Company (on
which I have relied with respect to the accuracy of the material factual matters
covered thereby), and such other documents as I 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, I am 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, and Series F Preferred Stock
are validly authorized and, when such shares have been delivered as provided in
the applicable provisions of the Company's Amended and Restated Articles of
Incorporation, such shares shall be validly issued, fully paid and
nonassessable.
My opinion is limited in all respects to the substantive law of the
State of Texas and the federal law of the United States, and I 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 I 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.
I 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,
/s/ DONALD T. LOCKE
------------------------------------
Donald T. Locke
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion 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, dated March 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
October 27, 1997
