<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1997
REGISTRATION NO. 333-24801
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
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, AND
TELEPHONE NUMBER, INCLUDING AREA TELEPHONE NUMBER, INCLUDING AREA CODE,
CODE, OF SMALL BUSINESS ISSUER'S OF AGENT FOR SERVICE)
PRINCIPAL EXECUTIVE OFFICES)
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COPIES TO:
DONALD T. LOCKE
HASKELL SLAUGHTER & YOUNG, L.L.C.
1200 AM SOUTH/HARBERT PLAZA
1901 SIXTH AVENUE NORTH
BIRMINGHAM, ALABAMA 35203
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement has been declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
PURSUANT TO RULE 429 OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
PROSPECTUS WHICH IS PART OF THIS REGISTRATION STATEMENT ALSO RELATES TO
REGISTRATION STATEMENT NO. 333-00674 AND POST-EFFECTIVE AMENDMENT NO. 1
THERETO.
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share........ 7,107,793 $0.90625 $ 6,441,437 (1)
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Common Stock Underlying
Warrants............... 1,432,283 $0.90625 $ 1,298,007 (1)
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Common Stock Issuable
Upon Conversion of
Series C Preferred
Stock Underlying
Warrants............... 135,000 $0.90625 $ 122,344 (1)
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Common Stock Issuable
Upon Conversion of
Series E Preferred
Stock.................. 7,830,740 $0.90625 $ 7,096,608 (1)
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Common Stock Issuable
Upon Conversion of
Series F Preferred
Stock.................. 3,176,092 $0.90625 $ 2,878,333 (1)
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Total................. 19,681,908(1) $0.90625 $17,836,729 $3,378.98(1)
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</TABLE>
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(1) Of the number of shares of Common Stock being registered in this
Registration Statement, a total of 7,377,756 shares of Common Stock have
previously been registered and the registration fees paid with the
Company's Registration Statement No. 333-00674 and Post-Effective
Amendment No. 1 thereto. The filing fee included with this Registration
Statement is for the additional 12,304,152 shares of the Company's Common
Stock registered herein (of which, 2405.86 has already been paid).
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low sales
prices per share of Common Stock as reported by the NASDAQ Small Cap
Market on May 30, 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 6, 1997
SI DIAMOND TECHNOLOGY, INC.
7,107,793 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 19,681,908 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 May 30, 1997, there were
7,107,793 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 $40,379. 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 May 30, 1997, the closing price of the Common Stock as
reported on the NASDAQ Small Cap Market was $0.9375 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 JUNE , 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.
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 three months ended March 31, 1997, the Company suffered a net loss
of $1,132,308. 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 1 month. 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
3
<PAGE>
economic conditions. Changes could occur to cause available resources to be
consumed before such time. The Company's plan is primarily dependent on
increasing revenues and raising additional funds through strategic partners,
additional debt offerings, or additional equity offerings. If adequate funds
are not available from operations or additional sources of financing, the
Company may have to reduce substantially or eliminate expenditures for
research and development, testing and production of its products or obtain
funds through arrangements with other entities that may require the Company to
relinquish rights to certain of its technologies or products. Such results
would materially and adversely affect the Company.
DEPENDENCE ON PRINCIPAL PRODUCTS
The Company's DFE technology is an emerging technology. The financial
condition and prospects of the Company are dependent upon market acceptance
and sales of the Company's DFE products and its Electronic Billboard.
Additional R&D needs to be conducted with respect to the DFE products and the
Electronic Billboard before marketing and sales efforts can be commenced.
Market acceptance of the Company's products will be dependent upon the
perception within the electronics and instrumentation industries of the
quality, reliability, performance, efficiency, breadth of application and
cost-effectiveness of the products. There can be no assurance that the Company
will be able to gain commercial market acceptance for its products or develop
other products for commercial use.
COMPETITION; POSSIBLE TECHNOLOGICAL OBSOLESCENCE
The display, semiconductor and coating system industries are highly
competitive and are characterized by rapid technological change. The Company's
existing and proposed products will compete with other existing products and
may compete against other developing technologies. Development by others of
new or improved products, processes or technologies may reduce the size of
potential markets for the Company's products. There can be no assurance that
such products, processes or technologies will not render the Company's
proposed products obsolete or less competitive. Many of the Company's
competitors have greater financial, managerial and technical resources than
the Company. The Company will be required to devote substantial financial
resources and effort to further R&D. There can be no assurance that the
Company will successfully differentiate its products from its competitors'
products or that the Company will be able to adapt to evolving markets and
technologies, develop new products or achieve and maintain technological
advantages.
TECHNOLOGIES SUBJECT TO LICENSES
As a licensee of certain research technologies, the Company has various
license agreements with Microelectronics and Computer Technology Corporation
("MCC") and Diagascrown, Inc., wherein the Company has acquired rights to
develop and commercialize certain research technologies. In certain cases,
agreements require the Company to pay royalties on sale of products developed
from the licensed technologies and fees on revenues from sublicensees, where
applicable, and to pay for the costs of filing and prosecuting patent
applications. The Company's principal license agreement with MCC requires the
Company to pay exclusivity fees under certain circumstances in order to
maintain the Company's exclusive rights under the MCC Agreement. Each
agreement is subject to termination by either party, upon notice, in the event
of certain defaults by the other party. The payment of such royalties may
adversely affect the future profitability of the Company.
NO ASSURANCE OF MARKET ACCEPTANCE
Since its inception, the Company has focused its product development efforts
on R&D of technologies that the Company believes will be a significant advance
over currently available technologies. The Company has limited experience in
manufacturing and marketing. The new management team that was put in place in
1996 has experience in manufacturing and marketing; however, with any new
technology there is a risk that the market may not appreciate the benefits or
recognize the potential applications of the technology. Market acceptance of
the Company's products will depend, in part, on the Company's ability to
convince potential customers of the advantages of such products as compared to
competitive products, and will also depend upon the Company's ability to train
manufacturers and others to use the Company's products. There can be no
assurance that the Company will be able to successfully market its proposed
products even if such products perform as anticipated.
4
<PAGE>
LIMITED MANUFACTURING CAPACITY AND EXPERIENCE
The Company has no established commercial manufacturing facilities in the
areas in which it is conducting its principal research. Its existing
manufacturing, while related, would not directly support manufacturing of the
proposed new products. The new management team that was put in place has
commercial manufacturing and marketing experience; however, the Company will
be required to either employ additional qualified personnel to establish
manufacturing facilities or enter into appropriate manufacturing agreements
with others. There is no assurance that the Company will be successful in
attracting experienced personnel or financing the cost of establishing
commercial manufacturing facilities, if required, or be capable of producing a
high quality product in quantity for sale at competitive prices.
MARKETING AND SALES UNCERTAINTIES
There can be no assurance that the DFE related products or the Electronic
Billboard will be successfully developed or that such products will be
commercially successful. The Company intends to establish a sales organization
to promote, market, and sell its products. To develop a sales organization
will require significant additional expenditures, management resources and
training time. There can be no assurance that the Company will be able to
establish such a sales organization.
UNPROVEN TECHNOLOGY; NEED FOR SYSTEM INTEGRATION
In order to prove that the Company's technologies work and will 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 three months ended
March 31, 1997 such contracts accounted for approximately $930,000,
$1,147,000, $820,000, $1,009,000, $2,869,000 and $332,000, respectively, or
approximately 99%, 89%, 41%, 33%, 50% and 33% 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 53% 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 May 30, 1997, there were 14,975,255 shares of Common Stock
outstanding, of which 10,725,145 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
7,107,793 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 May 30, 1997, the Company is
additionally obligated to register an additional 1,845,130 shares of its
Common Stock which are currently "restricted securities" in certain
circumstances.
In addition to the shares of Common Stock which are outstanding as of 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, 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 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.
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 19,681,908 shares of Common Stock
(of which 1,432,283 are Shares of Common Stock subject to issuance upon
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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 71% 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 May 30, 1997, the Company had
issued and outstanding 100 shares of its Series A Preferred Stock, 502 shares
of its Series E Preferred Stock and 1,700 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 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."
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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 with
the exercise by the BEG Selling Shareholders, the Series E Selling
Shareholders, the MCC Selling
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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 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.
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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 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).
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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 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
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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 the earlier of (i) the date the Commission declares the Registration
Statement, of which this Prospectus is a part, to be effective or (ii) 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.
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
14
<PAGE>
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.
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.
15
<PAGE>
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.
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 March 31, 1997, the Company would not have recognized a
preferred stock dividend.
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
issuable upon conversion of the Series F Preferred Stock as determined at the
time of such registration and to keep such Registration Statement effective
for one (1) year. Additionally, the Company agreed to pay all of the expenses
incident to the preparation and filing of the Registration Statement (other
than commissions and discounts of any underwriters, dealers or agents). The
Company also agreed to indemnify the Series F Selling Shareholders and any
underwriters they may utilize against certain civil liabilities, including
liabilities arising under the Securities Act. In addition, each Series F
Selling Shareholder agreed to indemnify the Company against civil liabilities,
including liabilities under the Securities Act, with respect to written
information furnished by the Series F Selling Shareholders to the Company.
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.
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.
16
<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
Gregory Morey........... 42,000 *
Dusseldorf S.A.......... 31,500 *
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>
17
<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 1.37%
BDM Federal, Inc........ 111,140 42,750 1.03%
International Technology
Exchange Corporation... 30,000 15,000 *
BEG SELLING SHAREHOLDERS
BEG Enterprises, Inc.
(4).................... 627,593 62,760 4.59%
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 3.91%
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>
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
ISSUABLE UPON
CONVERSION OF
SERIES C
PREFERRED STOCK,
SERIES E
NUMBER OF SHARES PREFERRED STOCK
NUMBER OF SHARES OF COMMON STOCK 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 13.42%
Nelson Partners......... 694,401 1,454,666 13.08%
Olympus Securities,
Ltd.................... 621,830 1,454,666 12.64%
Canadian Imperial
Holdings, Inc.......... 101,086 *
Gracechurch & Co........ 290,489 776,540 6.77%
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 4.47%
West Merchant Bank
Nominees Limited....... 779,661 4.95%
AG Super Fund Int'l
Partners............... 94,675 466,112 3.63%
GAM L.P................. 115,709 466,112 3.77%
Kessler-Asher Group,
Ltd.................... 100,476 *
LaRocque Trading Group
LLC.................... 209,307 46,870 1.71%
Charles Kucey........... 67,567 *
Cornerstone Capital,
Inc.................... 489,758 3.27%
NewSun Ltd.............. 202,399 1.35%
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 3.60%
David M. Klausmeyer..... 55,000 *
</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>
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 13.49%
Stanley B. Dickson...... 467,072 3.03%
FT Trading Co. ......... 373,658 2.43%
OTHER SELLING
SHAREHOLDERS
Lawrence I. Kravetz..... 70,400 *
BEG Enterprises, Inc. .. 65,034
Columbus Asset
Management, Ltd........ 20,000 *
Katherine D. Banks...... 35,000 *
Bien & Stock, Inc....... 150,000
Peter Moon.............. 20,625
Claude Cooke............ 31,372
IN Partnership, Inc..... 24,407
The Investor Relations
Company................ 30,000
Research Applications,
Inc.................... 150,000
TOTAL................. 7,107,793 1,432,283 11,141,832 71.44%
</TABLE>
- --------
* Less than 1 %
(1) The number of Shares of Common Stock issuable upon conversion of the Series
E Preferred Stock and the 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;--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 May 30, 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.
20
<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 and (v) Series F Preferred
Stock. At May 30, 1997, 14,975,255 shares of Common Stock, 100 shares of
Series A Preferred Stock, 502 shares of Series E Preferred Stock and 1,700
shares of Series F 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 100,275 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, there would be 26,832,362
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 and the Series F 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.
21
<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
22
<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 502 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 the earlier of (i) the date the Commission declares the Registration
Statement, of which this Prospectus is a part, to be effective or (ii) 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
23
<PAGE>
Debentures (the "Convertible Debentures") with respect to the modification of
the conversion rights of the Convertible Debentures, which in 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
24
<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 1,700 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.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 30, 1997, there were 14,975,255 shares of Common Stock
outstanding, of which 10,725,145 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
25
<PAGE>
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
7,107,793 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 May 30, 1997, the Company is
additionally obligated to register an additional 1,845,130 shares of its
Common Stock which are currently "restricted securities," in certain
circumstances.
In addition to the shares of Common Stock which are outstanding as of 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 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,
26
<PAGE>
or a group of shareholders, has sufficient voting power to elect all of the
directors to be elected every year, the Company's classified Board could have
the effect of requiring two successive annual meetings to replace a majority
of the Board of Directors and three annual meetings to replace the entire
Board of Directors. There is no cumulative voting with respect to the election
of directors.
The Company's Restated Articles also contain a provision which states that
with the sole exception of shares issued pursuant to the duly adopted stock
option plans of the Company, no shares of the Company's Preferred Stock shall
be issued or sold to any officer or director of the Company, or any
shareholder who directly or indirectly owns more than five percent (5%) of the
issued and outstanding voting stock of the Company, or any affiliate of such a
person, without the affirmative vote of a majority in interest of the
disinterested shareholders of the Company.
The Company's Restated Articles also contain provisions for the Series C
Preferred and the Series D Preferred Stock concerning certain anti-dilution
rights. (None of the Series C Preferred or Series D Preferred is outstanding
at this time). These provisions state that if the aggregate percentage
interest of the holder of the Series C Preferred or the Series D Preferred of
the Total Voting Power of the Company (defined in the Restated Articles to
mean the total voting power of all voting stock of the Company entitled to
vote at any meeting of the shareholders of the Company) is or would be reduced
as a result of an issuance by the Company of such voting stock (including any
issuance following conversion of any security convertible into or exchangeable
for voting stock or upon the exercise of any option, warrant, or other right
to acquire any voting stock) the Company shall notify the holders of the
Series C Preferred and Series D Preferred promptly after establishing the
material terms of such proposed issuance. In such notices, the Company shall
offer to sell to the holders of the Series C Preferred and the Series D
Preferred that number of shares of voting stock which, if so purchased, would
result in the retention by the holders of the Series C Preferred and Series D
Preferred of each of its aggregate percentage interest in the Total Voting
Power in effect immediately prior to such proposed reduction of its aggregate
interest. If such offer is accepted by the Series C Preferred holders or the
Series D Preferred holders within thirty (30) days following receipt of such
notice, the Company shall sell such shares to the holders of the Series C
Preferred or the Series D Preferred at a purchase price determined as provided
in the appropriate provisions of the Series C Preferred and the Series D
Preferred in the Restated Articles.
The Company shall not be obligated to deliver notices or offer voting stock
for sale pursuant to these provisions in respect of the following issuances of
voting stock: (a) pursuant to employee, director or consultant stock option,
purchase, bonus, exchange or other such plans or upon the exercise of options
or other rights 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.
27
<PAGE>
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.
28
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SHARES OFFERED HEREBY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Risk Factors............................................................... 3
Use of Proceeds............................................................ 10
Plan of Distribution and Selling Shareholders.............................. 10
Description of Capital Stock............................................... 21
Experts.................................................................... 28
Legal Opinions............................................................. 28
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SI DIAMOND
TECHNOLOGY,
INC.
[LOGO APPEARS HERE]
7,107,793 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
----------------
JUNE , 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.............. $ 3,379
Printing and engraving expenses.................................. 10,000
Legal fees and expenses.......................................... 12,500
Accounting fees and expenses..................................... 6,000
Blue sky fees and expenses....................................... 3,500
Miscellaneous.................................................... 5,000
-------
Total.......................................................... $40,379
=======
</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 HOUSTON, STATE OF TEXAS, ON JUNE 5, 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 June 5, 1997
____________________________________ Officer (Principal Executive
Marc W. Eller Officer and Director)
/s/ Douglas P. Baker Vice-President and Chief June 5, 1997
____________________________________ Financial Officer (Principal
Douglas P. Baker Financial Officer)
Lee B. Arberg* Directors June 5, 1997
Ronald J. Berman*
Philip C. Shaffer*
David R. Sincox*
Zvi Yaniv*
</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. The exhibits indicated by a double
asterisk (**) were previously filed with the Commission in the original
Registration Statement (No. 333-24801) on Form S-3 on April 8, 1997.
<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 as filed on May 1,
1997 with the Secretary of State of the State of
Texas.
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
27* Financial Data Schedule (Incorporated by reference from
previous filings)
</TABLE>
II-6
<PAGE>
AMENDMENT TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SI DIAMOND TECHNOLOGY, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act (the "TBCA"), the undersigned company adopts the following
Amendment (the "Amendment") to its Amended and Restated Articles of
Incorporation (the "Articles of Incorporation").
ARTICLE I
The name of the corporation is SI Diamond Technology, Inc. (the "Company").
ARTICLE II
The following Amendment to the Articles of Incorporation of the Company was
adopted by a vote of outstanding shares of holders of the Company's Series E
Preferred Stock at a properly called and convened meeting on May 1, 1997.
The description of the terms of the Company's Series E Preferred Stock, as
contained in Article Four, Division C-Series of Preferred Stock in the Company's
Articles of Incorporation is hereby deleted and replaced in its entirety as
follows:
"SERIES E PREFERRED STOCK
Section 1. Designation and Amount.
The shares of such series shall be designated as "Series E Preferred Stock"
(the "Series E Preferred Stock") and the number of shares constituting the
Series E Preferred Stock shall be 1,500. Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series E Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series E Preferred Stock.
Section 2. Rank.
The Series E Preferred Stock shall rank: (a) prior to all of the Company's
Common Stock, par value $.001 per share ("Common Stock"); (b) prior to any class
or series of capital stock of the Company hereafter created specifically ranking
by its terms junior to any Series E Preferred Stock of whatever subdivision
(collectively, with the Common Stock "Junior Securities"); (c) on parity with
the Company's Series A, Series C and Series D Preferred Stock, and any class or
<PAGE>
series of capital stock of the Company hereafter created specifically ranking by
its terms on parity with the Series E Preferred Stock ("Parity Securities") in
each case as to distributions of assets upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary (all such distributions
being referred to collectively as "Distributions").
Section 3. Dividends.
The Series E Preferred Stock will bear no dividends, and the holders of the
Series E Preferred Stock shall not be entitled to receive dividends on the
Series E Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of shares of Series E
Preferred Stock shall be entitled to receive, immediately after any
distributions to senior securities required by the Company's Amended and
Restated Articles of Incorporation (the "Articles of Incorporation") or any
statement of designation of preferences, and prior and in preference to any
distribution to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to the sum of (i) $10,000 for each
outstanding share of Series E Preferred Stock (the "Original Series E Issue
Price") and (ii) an amount equal to 8% of the Original Series E Issue Price per
annum for the period that has passed since the date of issuance of any Series E
Preferred Stock (such amount being referred to herein as the "Premium"). If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series E Preferred Stock and Parity Securities shall be
insufficient to permit the payment to such holders of the full preferential
amounts due to the holders of the Series E Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the holders of the
Series E Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Articles of Incorporation and any statement(s) of designation of
preferences.
(b) Upon the completion of the distribution required by subsection 4(a),
if assets remain in this Company, they shall be distributed to holders of Parity
Securities (unless holders of Parity Securities have received distributions
pursuant to subsection 4(a) above) and Junior Securities in accordance with the
Company's Articles of Incorporation including any duly adopted statement(s) of
designation of preferences.
(c) A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of, shall not be deemed to be
a liquidation, dissolution or winding up within the meaning of this Section 4,
but shall be treated pursuant to Section 7 hereof.
-2-
<PAGE>
Section 5. Conversion.
The record Holders of this Series E Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder of the Series E Preferred Stock
shall be entitled, as set forth below, and, subject to the Company's right of
redemption set forth in Section 6(a) below and the restrictions on conversion
set forth in Section 5(b) below, at the offices of the Company or any transfer
agent for the Series E Preferred Stock, to convert the shares of Series E
Preferred Stock held by such Holder into that number of fully-paid and
nonassessable shares of the Company's Common Stock at the Conversion Rate as set
forth below; provided that, except as required by Section 5(e) below, 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.
The number of shares of Common Stock into which this Series E Preferred
Stock may be converted is hereinafter referred to as the "Conversion Rate" for
such Series E Preferred Stock, and is computed as follows:
Number of shares issued upon conversion of one share of Series E Preferred
Stock
= [(.08)(N/365)(Issue Price)] + Issue Price
-------------------------------------------
Conversion Price
where
"N = the number of days between (i) the date that, in connection with the
consummation of the initial purchase of the Preferred Stock from the
Company, the escrow agent first had in its possession funds representing
full payment for the Preferred Stock for which conversion is being elected,
and (ii) the applicable date of conversion for the Preferred Stock for
which conversion is being elected.
"Issue Price = the Original Series E Issue Price, as defined in Section
4(a).
"Conversion Price = 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
-3-
<PAGE>
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 the Series E Preferred held by a Holder as of January 16, 1997.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price of the Company's Common Stock as reported by NASDAQ (or, if not
reported by NASDAQ, as reported by such other exchange or market where
traded).
Each Holder shall have the sole right to designate the shares of Series E
Preferred tendered for conversion pursuant to this Section 5(a) 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.
In the event of an automatic conversion of Series E Preferred shares
pursuant to Section 5(e) below the Company shall convert Low Fixed
Preferred Shares and High Fixed Preferred Shares by applying the applicable
High or Low Fixed Conversion Price to such conversions.
Notwithstanding the foregoing definition of "Conversion Price", if
Section 5(b)(i) below is in effect and has not been terminated pursuant to
Section 5(b)(iii) below, the Conversion Price shall be as set forth in
Section 5(b)(i).
(b) Restrictions on Conversion.
(i) Notwithstanding Section 5(b)(iv) below and unless this Section
5(b)(i) is terminated pursuant to Section 5(b)(iii) below, the
conversion of Series E Preferred Stock by each Holder of Series E
Preferred Stock pursuant to Section 5(a) above shall be limited as
follows:
(1) 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, the Conversion Price
which was in effect as of April 14, 1997.
(2) In addition to the shares of Series E Preferred Stock a
Holder may convert pursuant to Section 5(b)(i)(1) above, each
Holder shall be entitled to convert any and all remaining
shares of Series E Preferred Stock held by such Holder, in
all such cases, at a Conversion Price equal to $1.50.
-4-
<PAGE>
(ii) Consideration for Limitation on Conversions Pursuant to Section
5(b)(i). For each calendar month, commencing with April 1997 and
unless Section 5(b)(i) has been terminated pursuant to Section
5(b)(iii) below, if the average of the Closing Bid Prices of the
Company's Common Stock for all of the trading days for such
calendar month is less than $1.00, then the Company shall redeem
shares of Series E Preferred Stock held by each Holder in an
amount equal to the lesser of (1) 7% of the aggregate shares of
Series E Preferred Stock held by such Holder as of April 21,
1997, or (2) all shares of Series E Preferred Stock then held by
such Holder. The redemption price for such shares of Series E
Preferred Stock to be redeemed with respect to any month,
pursuant to the provisions of this Section 5(b)(ii) only, shall
be the Original Series E Issue Price plus the accrued Premium.
Payment for such redeemed shares of Series E Preferred Stock
shall be made within ten (10) business days after the last day
of such calendar month, at the option of the Company, in cash or
in shares of the 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). Any shares of Common Stock issued
pursuant to this Section 5(b)(ii) shall be included in the
Registration Statement (defined below).
(iii) Right of Recision and Termination by the Holders of the
Provisions of Section 5(b)(i). Notwithstanding anything to the
contrary, if:
(1) by the earlier of (a) the date the Securities and Exchange
Commission declares the Company's Registration Statement on
Form S-3 (the "Registration Statement"), which was filed on
April 8, 1997, to be effective under the Securities Act of
1933, as amended, or (b) June 9, 1997, the Company fails for
any reason or for no reason to enter into an agreement
binding upon all of the Holders 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
materially more adverse to the Company than the provisions
set forth in Sections 5(b)(i) and 5(b)(ii) above; or
(2) by May 6, 1997, the Company fails for any reason or for no
reason to enter into an agreement binding upon all of the
Holders of the Company's 8% Convertible Debentures issued
pursuant to Regulation S (the "Convertible Debentures")
which are outstanding as of April 21, 1997 or are issued
prior to or on May 6, 1997, with respect to the modification
of the conversion rights of the Convertible Debentures
which, in the good faith judgement of the
-5-
<PAGE>
Holders, is not materially more adverse to the Company than
the provisions set forth in Sections 5(b)(i) and 5(b)(ii)
above;
then, upon written notice to the Company by the Holders representing
75% or more of the outstanding shares of Series E Preferred Stock, the
terms set forth in Sections 5(b)(i) and 5(b)(ii) hereof shall be
rescinded, terminated and be void and of no legal effect and the
Holder's rights and obligations with respect to conversions of the
Series E Preferred Stock shall be governed by Section 5(b)(iv) below.
(iv) After February 14, 1997, and unless the provisions of Section 5(b)(i)
above are in effect, each Holder agrees to limit such Holder's
conversion of shares of Series E Preferred Stock as follows:
(1) after February 14, 1997, each Holder of Series E Preferred
Stock shall be entitled to convert up to one-third (1/3) of
the shares of Series E Preferred Stock held by such Holder as
of January 16, 1997;
(2) in addition to the shares of Series E Preferred Stock a
Holder may convert pursuant to Section 5(b)(iv)(1) 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;
(3) in addition to the shares of the Series E Preferred Stock a
Holder may convert pursuant to Sections 5(b)(iv)(1) and
5(b)(iv)(2) 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
(a) the number of days from March 15, 1997 through and
including such date, (b) .4067% and (c) the number of shares
of Series E Preferred Stock held by such Holder as of January
16, 1997.
(v) Increase in the Number of Registered Shares. The Company shall
take any and all action as is necessary or advisable to increase
the number of shares of the Company's Common Stock registered and
available for resale by the holders pursuant to the Registration
Statement to an amount equal to or greater than the maximum number
of shares of Common Stock which would be issued to all of Holders
upon a conversion of all of the shares of the Series E Preferred
Stock assuming a conversion at a Conversion Price of $1.00.
-6-
<PAGE>
Notwithstanding the provisions of this Section 5(b), each Holder may convert any
and all shares of the Series E Preferred Stock then held by such Holder at the
Conversion Price set forth in Section 5(a) 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;
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of this Series E Preferred Stock. In lieu of any
fractional share to which the Holder would otherwise be entitled, the Company
shall pay cash to such Holder in an amount equal to such fraction multiplied by
the Conversion Price then in effect with regard to such shares. In the case of
a dispute as to the calculation of the Conversion Rate, the Company's
calculation shall be deemed conclusive absent manifest error. In order to
convert Series E Preferred Stock into full shares of Common Stock, the Holder
shall surrender the certificate or certificates therefor, duly endorsed, by
either overnight courier or 2-day courier, to the office of the Company or of
any transfer agent for the Series E Preferred Stock, and shall give written
notice ("Notice of Conversion") to the Company at such office that he elects to
convert the same, the number of shares of Series E Preferred Stock so converted
and a calculation of the Conversion Rate (with an advance copy of the
certificate(s) and the notice by facsimile); provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless either the certificates evidencing
such Series E Preferred Stock are delivered to the Company or its transfer agent
as provided above, or the Holder notifies the Company or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates.
The Company shall use its best efforts to issue and deliver within three
(3) business days after delivery to the Company of such certificates, or after
such agreement and indemnification, to such Holder of Series E Preferred Stock
at the address of the Holder on the books of the Company, a certificate or
certificates for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid. The date on which conversion occurs (the "Date of
Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
faxed to the Company before midnight, New York City time, on the Date of
Conversion and (ii) that the stock certificates (the "Preferred Stock
Certificates") representing the Series E Preferred Stock to be converted are
received by the transfer agent or the Company within five (5) business days
thereafter. The person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date. If the
original Preferred Stock Certificates to be converted are not received by the
transfer agent or the Company within five (5) business days after the Date of
Conversion, the Notice of Conversion shall become null and void.
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<PAGE>
(d) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series E Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
shares of Series E Preferred Stock; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series E Preferred Stock, the
Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(e) Automatic Conversion. Each share of Series E Preferred Stock
outstanding on January 15, 1999 automatically shall be converted into Common
Stock on such date at the Conversion Price then in effect for such shares and
January 15, 1999 shall be deemed the Date of Conversion with respect to such
conversion.
(f) Adjustment to Fixed Conversion Prices.
In computing the Fixed Conversion Prices for purposes of Section 5(a) and the
Conversion Price pursuant to Section 5(b)(i)(2):
(i) If, prior to the conversion of all of the Series E Preferred
Stock, the number of outstanding shares of Common Stock is increased by a stock
split stock dividend, or other similar event, the High Fixed Conversion Price,
the Low Fixed Conversion Price and the Conversion Price as established in
Section 5(b)(i)(2) shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the High Fixed Conversion
Price, the Low Fixed Conversion Price and the Conversion Price as established in
Section 5(b)(i)(2) shall be proportionately increased.
(ii) If, prior to the conversion of all Series E Preferred Stock,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Company shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity, then the Holders of Series E Preferred Stock shall
thereafter have the right to purchase and receive upon conversion of Series E
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such shares of stock and/or securities as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
conversion of Series E Preferred Stock held by such Holders had such merger,
consolidation, exchange of shares, recapitalization or reorganization not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holders of the Series E Preferred Stock to the
end that the provisions hereof (including, without limitation, provisions for
adjustment of the Low Fixed
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<PAGE>
Conversion Price, the High Fixed Conversion Price, the Conversion Price pursuant
to Section 5(b)(i)(2) and of the number of shares issuable upon conversion of
the Series E Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any shares of stock or securities thereafter be
deliverable upon the exercise hereof. The Company shall not effect any
transaction described in this subsection 5(f) unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Holders of the Series E Preferred Stock such shares
of stock and/or securities as, in accordance with the foregoing provisions, the
Holders of the Series E Preferred Stock may be entitled to purchase.
(iii) If any adjustment under this Section 5(f) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share (on an aggregate basis) shall be disregarded
and the number of shares of Common Stock issuable upon conversion shall be the
next lower number of shares with the balance paid in cash.
Section 6. Redemption by Company.
(a) Company's Right to Redeem in Case of Conversion.
(i) In the event the Conversion Price shall be $3.00 or less per
share, the Company shall have the right, in its sole discretion, upon receipt of
a Notice of Conversion pursuant to Section 5, to redeem in whole or in part any
Series E Preferred Stock submitted for conversion, immediately prior to
conversion. If the Company elects to redeem some, but not all, of the Series E
Preferred Stock submitted for conversion, the Company shall redeem from among
the Series E Preferred Stock submitted by the various shareholders for
conversion on the applicable date, a pro-rata amount from each shareholder so
submitting Series E Preferred Stock for conversion.
(ii) Mechanics of Redemption. Any shareholder considering submitting
Series E Preferred Stock for conversion at such time as the Company's right of
redemption under Section 6(a) is or may be in effect may provide notice to the
Company of his possible desire to convert within five (5) business days of the
date of the notice, and ask the Company to determine whether or not the Company
would exercise its right of redemption if the Series E Preferred Stock were
submitted for conversion. The Company shall respond within two (2) business
days of the date of that notice, and state whether it would redeem the shares,
in whole or in part, or allow conversion into shares without redemption, which
election will be applicable to conversion by such shareholder within the next
five (5) business days after the date of the Company's response. Failure of the
Company to respond within the two-day period shall be deemed an election by the
Company not to redeem the shares covered by that notice if submitted for
conversion within the next five (5) business days. If the shareholder does not
provide advance notice of intention to convert as contemplated in this section
(ii), the Company shall effect each such redemption of shares submitted for
conversion by giving notice of its election to redeem, by facsimile within two
(2) business days following receipt of a Notice of Conversion from a Holder,
with a copy by 2-day courier, to (A) the Holder of Series E Preferred Stock
submitted for conversion at the address and
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<PAGE>
facsimile number of such Holder appearing in the Company's register for the
Series E Preferred Stock and (B) the Company's Transfer Agent. Such redemption
notice shall indicate whether the Company will redeem all or part of the Series
E Preferred Stock submitted for conversion and the applicable redemption price.
The Company shall not be entitled to exercise its right to redeem shares
submitted for conversion under this Section 6(a) unless it has (x) the full
amount of the redemption price, in cash, available in a demand or other
immediately available account in a bank or similar financial institution or (y)
immediately available credit facilities, in the full amount of the redemption
price, with a bank or similar financial institution on the date the redemption
notice is sent to shareholders.
(iii) Redemption Price. In the case of a redemption under this
Section 6(a), the redemption price shall equal:
= [[(.08)(N/365)(Issue Price)] + Issue Price] [Closing Bid Price]
-----------------------------------------------------------------
Conversion Price
where "N", "Issue Price," "Closing Bid Price" and "Conversion Price" have the
meanings set forth in Section 5 above.
The redemption price shall be paid to the Holder of Series E Preferred Stock
redeemed within ten (10) business days after the redemption; provided, however,
that the Company shall not be obligated to deliver any portion of such
redemption price unless either the certificates evidencing the Series E
Preferred Stock redeemed are delivered to the Company or its transfer agent as
provided in Section 5(c), or the Holder notifies the Company or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with such certificates.
(b) Company's Right to Call Redemption. The Company shall have the right
to redeem the Series E Preferred Stock on the following terms and conditions:
(i) The Company may redeem the Series E Preferred Stock at any time,
in its discretion, at the redemption price listed in 6(b)(iii) below. The
Company may elect to redeem some, but not all, of the Series E Preferred Stock,
but in no event less than $5,000,000 per redemption. If the Company elects to
redeem some, but not all, of the Series E Preferred Stock, the Company shall
redeem a pro-rata amount from among all the Series E Preferred Stock holders.
The holders of the Series E Preferred Stock shall have the right to convert
their Series E Preferred Stock until the redemption date.
(ii) Mechanics of Redemption. The Company shall effect each such
redemption by giving notice of its election to redeem, by facsimile with a copy
by 2-day courier, no less than twenty (20) business days prior to the intended
redemption date. Such redemption notice shall indicate whether the Company will
redeem all or part of the Series E Preferred Stock and the
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<PAGE>
applicable redemption price. The Company shall not be entitled to send any
notice of redemption and begin the redemption procedure unless it has (x) the
full amount of the redemption price, in cash, available in a demand or other
immediately available account in a bank or similar financial institution or (y)
immediately available credit facilities, in the full amount of the redemption
price, with a bank or similar financial institution on the date the redemption
notice is sent to shareholders. If the Company has met the requirements of the
preceding sentence, and the Holder has not submitted his Series E Preferred
Stock for redemption as required by this Section 6(b) by the redemption date,
the Company may pay the redemption price described in Section 6(b) (iii) below
and cancel the Series E Preferred Stock subject to the redemption notice, and
such redeemed Series E Preferred Stock shall be of no further validity, force or
effect. Nothing contained in this Section 6(b) shall limit a Holder's right to
receive Common Stock upon a conversion of shares of Series E Preferred Stock if
the Notice of Conversion with respect to such conversion is given by such Holder
to a courier during business hours for immediate delivery to the Company after
the date the Company has delivered to such Holder a notice of redemption
pursuant to this Section 6(b)(ii) but prior to the date fixed in such notice as
the date of redemption.
(iii) Redemption Price. In the case of a redemption under this
Section 6(b), the redemption price per share of Series E Preferred Stock shall
be as follows :
Redemption Date Elapsed Time since Last Closing
--------------- -------------------------------
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
For purposes of this paragraph, the "Stated Value" shall equal the Original
Series E Issue Price. The redemption price shall be paid to the Holder of Series
E Preferred Stock redeemed within 10 days of the date of such redemption to such
Holder; provided, however, that the Company shall not be obligated to deliver
any portion of such redemption price unless either the certificates evidencing
the Series E Preferred Stock redeemed are delivered to the Company or its
transfer agent as provided in Section 5(c), or the Holder notifies the Company
or its transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection with such certificates.
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<PAGE>
Section 7. Corporate Change.
In the event of a merger, reorganization, recapitalization or similar event
of or with respect to the Company (a "Corporate Change") (other than a Corporate
Change in which all or substantially all of the consideration received by the
holders of the Company's equity securities upon such Corporate Change consists
of cash or assets other than securities issued by the acquiring entity or any
affiliate thereof), this Series E Preferred Stock shall be assumed by the
acquiring entity and thereafter this Series E Preferred Stock shall be
convertible into such class and type of securities as the Holder would have
received had the Holder converted this Series E Preferred Stock immediately
prior to such Corporate Change.
Section 8. Voting Rights.
Except as otherwise provided by the Texas Business Corporation Act and
Section 9 below, the holders of the Series E 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 E Preferred Stock are then convertible using
the record date for the taking of such vote of shareholders as the date as of
which the Conversion Price is calculated. Holders of the Series E Preferred
Stock shall be entitled to notice of all shareholder meetings or written
consents with respect to which they would be entitled to vote, which notice
would be provided pursuant to the Company's by-laws and applicable statutes.
Section 9. Protective Provisions.
So long as shares of Series E Preferred Stock are outstanding, the Company
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series E Preferred Stock:
(a) alter or change the rights, preferences or privileges of the shares of
Series E Preferred Stock or any senior securities so as to affect
adversely the Series E Preferred Stock;
(b) create any new class or series of stock having a preference over the
Series E Preferred Stock with respect to Distributions (as defined in
Section 2 above); or
(c) do any act or thing not authorized or contemplated by this Designation
which would result in taxation of the holders of shares of the Series E
Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
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<PAGE>
Section 10. Status of Redeemed or Converted Stock.
In the event any shares of Series E Preferred Stock shall be redeemed or
converted pursuant to Section 5 or Section 6 hereof, the shares 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."
ARTICLE III
Pursuant to Article 4.03(C) of the TBCA, 542 shares of Series E Preferred
Stock of the Company were outstanding on the date referenced above and entitled
to vote on the amendment described in Article II.
ARTICLE IV
The number of shares voted for and against the Amendment described in
Article II above, by series, is as follows:
SERIES FOR AGAINST ABSTAIN
------ --- ------- -------
Series E Preferred Stock 427 115 ---
ARTICLE V
This Amendment does not involve any reclassification or cancellation of any
issued shares of the Company.
ARTICLE VI
This Amendment does not effect a change in the amount of stated capital of
the Company.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amendment to Amended
and Restated Articles of Incorporation of SI Diamond Technology, Inc. as of May
1, 1997.
SI DIAMOND TECHNOLOGY, INC.
By /s/ Douglas P. Baker
---------------------
Douglas P. Baker
Vice President and
Chief Financial Officer
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<PAGE>
EXHIBIT 5.1
HASKELL SLAUGHTER & YOUNG, L.L.C.
1200 AM SOUTH/HARBERT PLAZA
1901 SIXTH AVENUE NORTH
BIRMINGHAM, ALABAMA 35203
Board of Directors
SI Diamond Technology, Inc.
12100 Technology Boulevard
Austin, Texas 78727
Gentlemen:
We are acting as counsel to SI Diamond Technology, Inc., a Texas corporation
(the "Company"), in connection with the proposed offer and sale by certain
selling shareholders of up to 19,681,908 shares of Common Stock.
In our capacity as counsel to the Company, we have participated in the
preparation of the Registration Statement on Form S-3 of the Company, and
Amendment No. 1 thereto, with respect to the offer and sale of the Common
Stock (the "Registration Statement") which was filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "1933
Act"), and the General Rules and Regulations thereunder (the "Rules and
Regulations"). Capitalized terms used herein shall have the meanings ascribed
to them in the Registration Statement.
In connection with the opinions expressed below, we have examined a signed
copy of the Registration Statement, corporate records of the Company (on which
we have relied with respect to the accuracy of the material factual matters
covered thereby), and such other documents as we have deemed necessary or
appropriate for purposes of the opinions expressed below.
Based on the foregoing and subject to the qualifications and limitations set
forth below, we are of the opinion that (i) the shares of Common Stock held by
the Selling Shareholders are validly issued, fully paid and nonassessable;
(ii) the shares of Common Stock to be issued pursuant to the Warrants and the
Series C Warrants are validly authorized and, when such shares have been duly
delivered against payment as provided in the Warrants and the Series C
Warrants, such shares shall be validly issued, fully paid and nonassessable;
and (iii) the shares of Common Stock issuable upon conversion of shares of the
Company's Series C Preferred Stock, Series E Preferred Stock, 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.
Our opinion is limited in all respects to the substantive law of the State
of Texas and the federal law of the United States, and we assume no
responsibility as to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction. The opinion expressed in this letter is
rendered as of the date hereof, and we undertake no, and hereby disclaim any,
obligation to advise you of any changes in or new developments which might
affect matters or opinions set forth herein.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the statement made regarding us under the
caption "Legal Opinions" in the Prospectus included in the Registration
Statement.
Very truly yours,
/s/ Haskell Slaughter & Young, L.L.C.
-------------------------------------
Haskell Slaughter & Young, L.L.C.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Form S-3 (File 333-
24801) 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 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
June 5, 1997
