<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1998
REGISTRATION STATEMENT NO. 333-40711
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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)
<TABLE>
<CAPTION>
STATE OF TEXAS 76-0273345
<S> <C>
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
DOUGLAS P. BAKER
SI DIAMOND TECHNOLOGY, INC. VICE-PRESIDENT AND CHIEF
12100 TECHNOLOGY BLVD. FINANCIAL OFFICER
AUSTIN, TEXAS 78727 SI DIAMOND TECHNOLOGY, INC.
(512) 331-6200 12100 TECHNOLOGY BLVD.
(ADDRESS, INCLUDING ZIP CODE, AND AUSTIN, TEXAS 78727
TELEPHONE NUMBER, INCLUDING AREA (512) 331-6200
CODE, OF SMALL BUSINESS ISSUER'S (NAME, ADDRESS, INCLUDING ZIP CODE,
PRINCIPAL EXECUTIVE OFFICES) AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
--------------------
COPIES TO:
DONALD T. LOCKE
GORDON O. JESPERSON
HASKELL SLAUGHTER & YOUNG
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 416 OF THE SECURITIES ACT THIS REGISTRATION STATEMENT
SHALL BE DEEMED TO COVER ADDITIONAL SECURITIES TO BE ISSUED TO PREVENT DILUTION
RESULTING FROM THE FLOATING EXERCISE PRICES AT WHICH CERTAIN SERIES OF THE
COMPANY'S PREFERRED STOCK ARE CONVERTIBLE INTO THE COMPANY'S COMMON STOCK.
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION FEE(1)
TO BE REGISTERED REGISTERED PER SHARE (2) PRICE (2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE $.001 PER SHARE........ 9,023,308 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK UNDERLYING WARRANTS............... 2,635,600 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ISSUABLE UPON CONVERSION OF
SERIES E PREFERRED STOCK....................... 6,905,411 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ISSUABLE UPON CONVERSION OF
SERIES F PREFERRED STOCK....................... 9,060,122 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ISSUABLE UPON CONVERSION OF
SERIES G PREFERRED STOCK....................... 1,842,448 N/A
===================================================================================================================================
TOTAL. . . . . . . . . . . . . . . . . . . . . 29,466,889(1) $0.42 $10,608,080 N/A
===================================================================================================================================
</TABLE>
(1) All shares of Common Stock being registered in this Registration statement
have previously been registered and the registration fees paid with the
Company's Registration Statement Nos. 333-00674, 333-24801, 333-38941 and
all post-effective amendments to these Registration Statements and
Registration NO. 333-40711.
(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 OTC Bulletin Board on
May 11, 1998.
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.
<PAGE> 2
PROSPECTUS
SI DIAMOND TECHNOLOGY, INC.
<TABLE>
<S> <C>
9,023,308 Shares of 6,905,411 Shares of
Common Stock Common Stock
(par value $.001 per share) Issuable Upon
Conversion of Series E Preferred Stock
2,635,600 SHARES OF
Common Stock 9,060,122 Shares of
Underlying Warrants Common Stock Issuable Upon
Conversion of Series F Preferred Stock
1,842,448 Shares of
Common Stock Issuable Upon
Conversion of Series G Preferred Stock
</TABLE>
This Prospectus relates to 29,466,889 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")
(Descriptions of all Warrants which are subject to this Prospectus, including
each Warrant's exercise price and expiration date, are contained in "Plan of
Distribution and Selling Shareholders".), (3) are issuable upon conversion of
outstanding shares of the Company's Series E Preferred Stock, (4) are issuable
upon conversion of outstanding shares of the Company's Series F Preferred Stock
or (5) are issuable upon conversion of outstanding shares of the Company's
Series G Preferred Stock. As of May 11, 1998, there were 9,023,308 outstanding
Shares of Common Stock, 2,635,600 Shares underlying the Warrants, 6,905,411
Shares issuable upon conversion of the Series E Preferred Stock, 9,060,122
Shares issuable upon conversion of the Series F Preferred Stock and 1,842,448
Shares issuable upon conversion of the Series G 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 OTC Bulletin Board 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.
See "Plan of Distribution and Selling Shareholders."
The Company will receive the proceeds from the exercise of the 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 $44,615. 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 7 FOR A DISCUSSION OF CERTAIN
FACTORS TO BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES.
The Common Stock is traded and quoted on the OTC Bulletin Board under
the symbol "SIDT". On May 11, 1998, the closing price of the Common Stock as
reported on the OTC Bulletin Board was $ ______ 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 May ____, 1998.
<PAGE> 3
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 OTC Bulletin Board 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:
2
<PAGE> 4
(1) The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 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).
3
<PAGE> 5
RECENT DEVELOPMENTS
On May 8, 1998, the Company closed a transaction to sell the majority
of the operating assets of its Diamond Tech One, Inc. ("DTO") subsidiary for a
total purchase price of $2.2 million, of which $1.8 million was payable at
closing and the remaining $400,000 was deposited into escrow. The escrowed
amount will be released upon the settlement of certain litigation by the
Company. The purchaser of these assets will also assume the building lease on
the DTO facility. The Company will retain all cash, accounts receivable, certain
equipment identified as excess, certain intangibles, and all liabilities.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
and notes thereto appearing elsewhere in this pro spectus. Unless the context
otherwise requires, as used herein, the term "SI Diamond" or the "Company"
refers to SI Diamond Technology, Inc. and its subsidiaries.
THE OFFERING
This prospectus relates to 29,466,889 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 outstanding shares of the Company's Series E
Preferred Stock, (4) are issuable upon conversion of outstanding shares of the
Company's Series F Preferred Stock or (5) are issuable upon conversion of
outstanding shares of the Company's Series G Preferred Stock. As of May 11,
1998, there were 9,023,308 outstanding Shares of Company's Common Stock ,
2,635,600 Shares underlying the Warrants 6,905,411 Shares issuable upon
conversion of the Series E Preferred Stock, 9,060,122 Shares issuable upon
conversion of Series F Preferred Stock and 1,842,448 Shares issuable upon
conversion of the Series G Preferred Stock, which Shares are all subject to this
Prospectus. See "Plan of Distribution and Selling Shareholders."
PLAN OF DISTRIBUTION
This offering is not being underwritten. The Selling Shareholders
directly, through agents desig nated 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 OTC Bulletin Board 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. In addition, any securities covered by this
Prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to this Prospectus. See "Plan of Distribution and
Selling Shareholders."
The Company will receive the proceeds from the exercise of the
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 44,615. The Company has agreed to
indemnify certain of the Selling Shareholders against certain civil liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See "Plan
of Distribution and Selling Shareholders."
SHARES CONVERTED AT DISCOUNT
Shares of the Company's Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock are convertible into the Company's Common
Stock at prices which are at a discount to prevailing market prices at the time
of conversion into the Company's Common Stock as described in the appropriate
5
<PAGE> 7
subsections of "Plan of Distribution and Selling Shareholders." Sales or offers
to sell shares of Common Stock converted from these Series of the Company's
Preferred Stock could adversely affect the price of and market for the Common
Stock.
SELLING SHAREHOLDERS AS UNDERWRITERS
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."
RISK FACTORS
See "Risk Factors" beginning on page 7 of this Prospectus for a
discussion of certain factors related to the Company and the Common Stock
offered hereby.
6
<PAGE> 8
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. These costs are
currently unquantifiable but are expected to be in excess of $5,000,000. Prior
to incurring these costs the Company intends to locate a strategic partner to
fund the majority of these costs. There is no guarantee, however, that these
estimates will reflect the actual costs incurred. 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. Failure of the DFE and
related products to generate significant revenue for the Company would
constitute a material adverse effect on the Company's future financial viability
and existence.
HISTORY OF OPERATING LOSSES; GOING CONCERN
For the year ended December 31, 1997, the Company suffered a net loss
of $6,320,901. 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, although it expects the magnitude of
those losses to decrease. 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 8, 1998, the Company has not yet achieved
profitability, has a working capital deficit and must obtain additional
financing 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 from 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, product marketing and administrative overhead. The Company expects
these expenses to exceed $2.4 million annually. There is no guarantee, however,
that these estimates will reflect the actual costs incurred. The majority of R&D
expenditures are for development of the Company's DFE technology. Further, the
Company believes that
7
<PAGE> 9
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.
It is anticipated that losses will continue throughout 1998 as the
Company continues to fund the development of its DFE technology and its
electronic billboard and related electronic display products. Increased
commercial revenues are anticipated in the Company's DTO subsidiary; however,
they will not be sufficient to offset the planned research and development
efforts and selling, general and administrative expenses. Significant sales from
the DFE products are not anticipated in 1998. The Company expects revenue from
its electronic billboard in the fourth quarter of 1998 and revenues from other
display products in the second quarter of 1998. Full commercial development of
the Company's DFE technology and electronic billboard and related electronic
display will require additional funds that may not be available at the terms
acceptable to the Company.
The Company has developed a plan (described below) to allow it to
maintain operations until the Company is able to sustain itself on its own
revenue. However, existing resources at current spending levels are only
available to allow the Company to survive on a day to day basis. The Company's
plan is primarily dependent on raising funds through strategic partners and debt
offerings as well as raising revenues. The major component of the plan is to
seek a strategic partner to inject significant capital into the Company's DTO
subsidiary. In September 1997, the Company retained an investment banker to
assist in that process and substantive discussions have been held with several
interested parties. It is likely that the result of this process will require
the Company to give up majority control and may result in a complete sale of the
subsidiary. It is anticipated that the proceeds to the Company from this
transaction would allow the Company to stabilize its financial condition by
allowing it to pay down debt and provide cash to fund future operations.
Furthermore, completion of such a transaction would allow the Company to
substantially decrease the cost of its remaining operations by allowing it to
reduce costs in numerous areas including facility, selling, general, and
administrative costs. This reduction in costs would mean that the Company would
require significantly reduced amounts of capital to fund its ongoing operations.
Management believes that it has the ability to raise short term funding, if
necessary, to enable it to continue operations until such a transaction can be
completed.
On May 8, 1998, the Company closed a transaction to sell the majority
of the operating assets of DTO for a total purchase price of $2.2 million, of
which $1.8 million was payable at closing and the remaining $400,000 was
deposited into escrow. The purchaser of the assets will also assume the building
lease on the DTO facility. The Company will retain all cash, accounts
receivable, certain equipment identified as excess, certain intangibles and all
liabilities. See "Recent Developments."
8
<PAGE> 10
In addition, the Company is seeking additional strategic partners to
invest in both its EBT and FEPET subsidiaries to allow these subsidiaries to
continue development of commercial products. It is anticipated that any such
strategic partners would receive a minority interest in the subsidiaries of not
more than 20% as a result of their investment. It is anticipated that the
Company would remain a majority interest of at least 80% in each of these
subdidiaries. It is the Company's plan that these investments would allow each
of these subsidiaries to continue to develop their products and bring them to
the level whereby each subsidiary is operating at break-even or better.
This plan is based on current development plans, current operating
plans, the current regulatory environment, historical experience in the
development of electronic products and general economic conditions. Changes
could occur which would cause certain assumptions on which this plan is based to
be no longer valid. The Company's plan is primarily dependent on increasing
revenues and raising additional funds through strategic partners and additional
debt 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 R&D, 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.
9
<PAGE> 11
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.
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.
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UNPROVEN TECHNOLOGY; NEED FOR SYSTEM INTEGRATION
In order to prove that the Company's technologies work and can produce
a complete product, the Company must ordinarily integrate a number of highly
technical and complicated subsystems into a fully-integrated prototype. There
can be no assurance that the Company will be able to successfully complete the
development work on any of its proposed products or ultimately develop any
marketable products.
DEPENDENCE UPON GOVERNMENT CONTRACTS
A significant portion of the Company's revenues has been derived from
contracts with agencies of the United States government. In the years ended
December 31, 1992, 1993, 1994, 1995, 1996, and 1997, such contracts accounted
for approximately $930,000, $1,147,000, $820,000, $1,009,000, $2,869,000 and
$854,000, respectively, or approximately 99%, 89%, 41%, 33%, 50% and 24% 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. The Company currently, however, has no significant commitment for any
government funding beyond December 31, 1997, and intends to seek only government
funding that direcly relates to projects associated with achievement of its
strategic objectives. To the extent that the Company is unable to obtain funding
from alternate sources, this will adversely affect the Company's ability to
continue to perform research and development on its existing and proposed
products;
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 or will not apply for and obtain
patents that will prevent, limit or interfere with the Company's ability to 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
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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. Other than the executive officers of the Company these key
personnel include Drs. Richard Fink, Ronald Robinder and Zhidan Tolt.
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 Company does not maintain key man insurance on any
of its executive officers or other key 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 29% of the voting stock
of the Company on an "as converted" basis. 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.
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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 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 CONVERTED AT DISCOUNT
Shares of the Company's Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock are convertible into the Company's Common
Stock at prices which are at a discount to prevailing market prices at the time
of conversion into the Company's Common Stock as described in the appropriate
subsections of "Plan of Distribution and Selling Shareholders." Sales or offers
to sell shares of Common Stock converted from these Series of the Company's
Preferred Stock could adversely affect the price of and market for the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 11, 1998, there were 36,363,967 shares of Common Stock
outstanding, of which 27,865,550 shares of Common Stock were freely tradeable
without restriction or further registration under the Securities Act by persons
other than "affiliates" of the Company. As of that date, the remaining shares of
Common Stock were deemed "restricted securities," as defined in Rule 144 under
the Securities Act, and may not be resold in the absence of registration under
the Securities Act or pursuant to an exemption from such registration, including
exemptions provided by Rule 144 under the Securities Act. Under Rule 144,
persons who have held securities for a period of at least one year may sell a
limited amount of such securities without registration under the Act. Rule 144
also permits, under certain circumstances, persons who are not affiliates of the
Company, to sell their restricted securities without quantity limitations once
they have completed a two-year holding period.
The Registration Statement, of which this Prospectus is a part,
pertains to 9,023,308 Shares of Common Stock which are currently "restricted
securities"; 2,635,600 Shares of Common Stock which underlie existing Warrants;
6,905,411 Shares of Common Stock which are issuable upon conversion of the
Series E Preferred Stock; 9,060,122 shares of Common Stock which are issuable
upon conversion of the Series F Preferred Stock; and 1,842,448 shares of Common
Stock which are issuable upon conversion of the Series G Preferred Stock. The
Company is obligated to maintain the effectiveness of the Registration Statement
for varying periods of time, pursuant to separate agreements with certain groups
of the Selling Shareholders. As of May 11, 1998, the Company is additionally
obligated to register an additional 1,230,130 shares of its Common Stock which
are currently "restricted securities" in certain circumstances.
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<PAGE> 15
In addition to the shares of Common Stock which are outstanding as of
May 11, 1998, 3,500,000 shares of Common Stock have been reserved for issuance
pursuant to the Company's stock option plans. Approximately 3,000,000 shares of
Common Stock have also been reserved for issuance upon the exercise of Warrants
that have been issued by the Company (2,635,600 of such shares have been
registered in the Registration Statement). Additionally, 125,275 shares of
Common Stock have been reserved for issuance upon conversion of the Company's
Series A Preferred Stock, 6,905,411 shares of Common Stock have been reserved
for issuance upon conversion of the Company's Series E Preferred Stock (the
"Series E Shares"), 9,060,122 shares of Common Stock have been reserved for
issuance upon conversion of the Company's Series F Preferred Stock (the "Series
F Shares") and 1,842,448 shares of Common Stock have been reserved for issuance
upon conversion of the Company's Series G Preferred Stock (the "Series G
Shares").
No prediction can be made as to the effect, if any, that future sales,
or the availability of shares of Common Stock for future sales, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Stock by the Company or by shareholders who hold "restricted securities,"
or the perception that such sales may occur, could adversely affect prevailing
market prices for the Common Stock.
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 29,466,889 shares of Common Stock
(of which 2,635,600 are Shares of Common Stock subject to issuance upon the
exercise of certain Warrants; 6,905,411 are Shares of Common Stock issuable upon
conversion of the Series E Shares; 9,060,122are Shares of Common Stock issuable
upon conversion of the Series F Shares and 1,842,448 are Shares of Common Stock
issuable upon conversion of the Series G Shares). The Shares (assuming the
exercise of all Warrants and conversion of all the Series E Shares, Series F
Shares and Series G Shares subject to the Registration Statement) represent
approximately 52% 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 . Assuming the exercise of all
Warrants which are subject to the Registration Statement of which this
Prospectus is a part, the Company would receive approximately $5,560,000 from
such exercises. The exercise prices of the Warrants range from $0.15 to $7.89
per share of the Company's Common Stock. It is unlikely that the Warrants will
be exercised until the trading price of the Common Stock exceeds the exercise
price of the 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 11, 1998, the Company had
issued and outstanding 100 shares of its Series A Preferred Stock, 75 shares of
its Series E Preferred Stock, 723 shares of its Series F Preferred Stock and
1700 shares of its
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Series G Preferred Stock. Additionally, the Company has authorized 75,000 shares
of Series C Preferred Stock and 90,000 shares of Series D Preferred Stock. No
shares of Series C Preferred Stock or Series D Preferred Stock are currently
outstanding. No current series of the Company's Preferred Stock has rights that
are prior and superior to the Common Stock with respect to dividends.
Additionally, only the holders of the Series A Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock are
entitled to a liquidation preference over the holders of the Common Stock. The
Board of Directors, however, has the authority to provide for the issuance of
additional shares of Preferred Stock in one or more additional series and such
shares may, in the Board's discretion, have prior and superior rights to receive
dividends or other payments with respect thereto. In light of its future capital
requirements, the Company could issue shares of Preferred Stock at any time
having such prior and superior rights. See "Description of Capital Stock".
LACK OF DIVIDENDS
The Company has never paid cash dividends on its equity securities and
does not intend to pay cash dividends in the foreseeable future. To the extent
the Company has earnings in the future, the Company intends to reinvest such
earnings in the business operations of the Company.
ANTITAKEOVER EFFECTS
The Company's Restated Articles and Bylaws contain a number of
provisions which could make the acquisition of the Company, by means of an
unsolicited tender offer, a proxy contest or otherwise, more difficult. Among
other things, (i) the Board is authorized to issue series of Preferred Stock
that could, depending on the terms of such series, impede the completion of a
merger, tender offer or other takeover attempt; (ii) the Board of Directors is
divided into three classes of directors, with the result that approximately
one-third of the Board of Directors are elected each year; (iii) except in
limited circumstances, no shares of the Company's Preferred Stock may be issued
or sold to any officer or director of the Company or any shareholder owning more
than five percent (5%) of the Company's Common Stock without the affirmative
vote of a majority of the disinterested shareholders of the Company; and (iv)
holders of Series C and Series D Preferred Stock have the right to acquire
additional shares in certain circumstances where the voting power of such
holders would be diluted. See "Description of Capital Stock--Certain Provisions
of the Articles of Incorporation, Bylaws and Texas Law."
LIMITATION OF REMEDIES; INDEMNIFICATION
The Company's Restated Articles provide that a director of the Company
will only be liable to the Company for (i) breaches of his duty of loyalty to
the Company and its shareholders, (ii) acts or omissions not in good faith or
which constitute a breach of duty of a director of the Company or involves
intentional misconduct or a knowing violation of law, (iii) transactions from
which a director receives an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, (iv)
acts or omissions for which liability is specifically provided by statute, and
(v) acts relating to unlawful stock purchases or payments of dividends. Thus,
the Company may be prevented from recovering damages for certain alleged errors
or omissions by its directors. The Bylaws also provide that, under certain
circumstances, the Company will indemnify its officers and directors for
liabilities incurred in connection with their good faith acts for the Company.
Such an indemnification payment might deplete the Company's assets. While Texas
law permits a shareholder to bring a derivative action on behalf of a
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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 , 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.
COMPUTER SYSTEMS/SOFTWARE -- YEAR 2000 ISSUES
The Year 2000 Issue if the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. All of this
software is prepackaged software that was purchased from outside vendors. These
vendors all have upgrades available which correct the Year 2000 issue. It is the
Company's plan to purchase the upgraded software, where required, prior to
December 31, 1998 to insure adequate time for implementation. The cost of these
upgrades will be negligible and is not expected to have a material effect on the
operations of the Company. If such upgrades were not installed on a timely
basis, the Year 2000 Issue could have a material impact on the operations of the
Company.
The Company has determined that it is not vulnerable to a third party's
failure to remediate its own Year 2000 Issues at either significant suppliers or
large customers. The Company has also determined that it has no exposure or
contingencies related to the Year 2000 Issue for the products it has sold.
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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 which proceeds will be used
for working capital. See "Plan of Distribution and Selling Shareholders."
Assuming the exercise of all Warrants which are subject to the Registration
Statement, of which this Prospectus is a part, the Company shall receive
approximately $5,560,000 upon such exercise. The exercise prices of the Warrants
range from $0.15 to $7.89 per share of the Company's Common Stock. It is
unlikely that the Warrants will be exercised until the trading price of the
Common Stock exceeds the exercise price of the 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, or (3) issuable upon
conversion of outstanding shares of the Company's Series E Preferred Stock,
Series F Preferred Stock or Series G Preferred Stock. This offering is not being
underwritten. The Selling Shareholders directly, through agents designated from
time to time, or through dealers or underwriters also to be designated, may sell
the Shares from time to time, in or through privately negotiated transactions,
or in one or more transactions, including block transactions, on the OTC
Bulletin Board 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.
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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 Shareholders, the December 1995 Selling Shareholders, the GH Selling
Shareholders, the Series F Selling Shareholders and the Series G Selling
Shareholders (each as defined below) of demand registration rights granted to
such Selling Shareholders, and to comply with certain "piggyback" registration
rights granted to other Selling Shareholders.
AUGUST 1993 SELLING SHAREHOLDERS
In August 1993, the Company issued 104,000 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. Warrants to purchase
52,000 shares of Common Stock were issued to the August 1993 Selling
Shareholders. These Warrants are exercisable at $5.65 per share of Common Stock
until June 30, 1998. The holders of these Shares and Warrants were granted
"piggyback" registration rights in which the Company agreed to have the Common
Stock held by the August 1993 Selling Shareholders, as well as the Common Stock
underlying their Warrants, included in the Registration Statement and to cause
such Registration Statement to become effective as soon as practicable.
EAST/WEST SELLING SHAREHOLDERS
In February 1995, the shareholders identified in the Selling
Shareholders Table as the East/West Selling Shareholders (the "East/West Selling
Shareholders") acquired 1,500,150 shares of Common Stock. The Company granted
"piggyback" 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.
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BEG SELLING SHAREHOLDERS
Effective June 20, 1995, the shareholders identified in the Selling
Shareholders Table as the BEG Selling Shareholders (the "BEG Selling
Shareholders") acquired 1,097,908 shares of the Company's Common Stock in an
exempt transaction under Regulation D. 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 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 was also the vice president and chairman of the board of BEG
Enterprises, Inc., a former BEG Selling Shareholder which has assisted the
Company within the past three years in its capital raising activities. Ronald J.
Berman, the president of BEG Enterprises, Inc. is also a director of the
Company.
MCC SELLING SHAREHOLDER
In connection with Amendment No. 2 to the Patent and Know-How
Cross-License Agreement ("Know-How Agreement") between MCC and the Company dated
January 19, 1995 the Company issued 340,717 shares of Common Stock of the
Company (the "MCC Shares"). The Company agreed to register the MCC Shares upon
demand and to keep such registration statement effective for a period of three
years. The MCC Shares are included in the Registration Statement. The Company is
required to pay all of the expenses in the preparation of the Registration
Statement (other than commissions and discounts of any underwriters, dealers or
agents).
THE DECEMBER 1995 SELLING SHAREHOLDERS
Effective December 1995, the shareholders identified in the Selling
Shareholders Table as the December 1995 Selling Shareholders (the "December 1995
Selling Shareholders") acquired 287,920 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. 28,792 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. These Warrants are exercisable at a price of $6.30 per
share until April 19, 1999. 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.
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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 1190 shares of the Company's Series E Preferred Stock in
an exempt transaction pursuant to Regulation D of the Securities Act. Swartz
Investments, Inc., assisted the Company as placement agent for the Series E
Preferred Stock. As part of this transaction, Swartz received Warrants to
purchase 144,792 shares of the Company's Common Stock at $7.89 per share. These
warrants expire on January 7, 2002. Swartz allocated these warrants among
certain of its principals and employees. These include Messrs. Swartz,
Kendricks, Hathorn, Bury, Bronnum, Hopkins, Krusen, Peteler and Bradford and
Enigma Investments Limited.
Subject to adjustment in certain circumstances (discussed below), 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 (10,000) of the
Series E Preferred Stock (the "Series E Issue Price") plus an amount equal to 8%
of the Series E Issue Price per annum from the date the escrow agent first had
in its possession the funds representing payment of the Series E Preferred Stock
to the conversion date by (ii) $1.50. Any shares of Series E Preferred Stock
outstanding on January 15, 1999, shall be automatically converted into the
Company's Common Stock on such date.
Notwithstanding the preceding paragraph, beginning with April 1997,
where the average of the closing bid prices of the Company's Common Stock for
all trading days for such calendar month is less than $1.00, the Company shall,
upon notice by the Series E Selling Shareholders, redeem shares of the Series E
Preferred Stock held by each holder in an amount equal to the lesser of (i) 7%
of the aggregate shares of Series E Preferred Stock held by such holder as of
April 21, 1997 or (ii) all shares of Series E Preferred Stock then held by such
holder.
Except pursuant to the automatic conversion of the Series E Preferred
Stock on January 15, 1999, 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 Company agreed at the time of sale of the Series E Preferred Stock
to register pursuant to the Registration Statement the shares of Common Stock
(i) issuable upon conversion of the Series E Preferred Stock as determined at
the time of such registration and (ii) upon exercise of the Swartz Warrants, and
to keep such Registration Statement effective until sixty (60) days after all
shares of Series E Preferred Stock shall have been converted. Additionally, the
Company agreed to pay all of the expenses incident to the preparation and filing
of the Registration Statement (other than commissions and discounts of any
underwriters, dealers or agents). The Company also agreed to indemnify the
Series E Selling Shareholders and any underwriters they may utilize against
certain civil liabilities, including liabilities arising under the
20
<PAGE> 22
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 for its services
as placement agent 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 at an
exercise price of $3.90 per share and the exercise period was extended by one
year. 169,754 of these Warrants expired in 1997 and the remaining 49,395
Warrants expire in 1999. Also in February 1996, the Company issued GH 150,000
Warrants in connection with a Regulation S offering by the Company in September
1994, which Warrants are exercisable at $3.90 per share until February 21, 1999,
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,
which Warrants are exercisable at $6.50 per share until February 21, 1999. The
Company also issued 55,000 Warrants in February 1996 to a former advisor of the
Company, which Warrants are exercisable at $5.50 per share until February 21,
1999. 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, a former Director and advisor to the Board
of Directors of the Company, have assisted the Company within the past three
years with its capital raising activities.
NOTE WARRANT SELLING SHAREHOLDERS
As of October 31, 1996, Diamond Tech One, Inc. ("DTO"), a wholly-owned
subsidiary of the Company, borrowed a total of $1,000,000 from the persons or
entities identified in the Selling Shareholder Table as the Note Warrant Selling
Shareholders (the "Note Warrant Selling Shareholders"). In addition, the Company
granted Warrants to each Note Warrant Selling Shareholder to purchase 50,000
shares of the Company's Common Stock at $1.00 per share at any time until June
1, 1998. These Warrants were issued in an exempt transaction under Regulation D
of the Securities Act. 100,000 of these Warrants have been exercised for Shares
of the Company's Common Stock. Under the terms of the agreement with the Note
Warrant Selling Shareholders, the Company granted 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.
21
<PAGE> 23
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 1700 shares of the Company's Series F Preferred Stock in
an exempt transaction pursuant to Regulation D of the Securities Act.
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 Series F Conversion Price
(the "Series F Conversion Price").
The Company and the Series F Preferred Stock shareholders reached a new
agreement in March 1998 ("The Series F March 1998 Agreement") whereby the Series
F Preferred Stock shareholders are allowed to convert one-sixth of the number of
Series F Preferred Stock held as of March 17, 1998, in each of the months from
March 1998 through August 1998. The Series F Conversion Price for each month
shall be the average closing bid price of the Company's Common Stock for the
preceding month, except that the Series F Conversion Price for March 1998 shall
be $0.15. The Company has the right to redeem the Series F Preferred Stock for
107.5% of the original purchase price. If a holder of Series F Preferred Stock
does not exercise his right to convert any one-sixth portion of the Series F
Preferred Stock held by such holder in any month between March 17 and August 31,
1998, such holder may, in addition to the one-sixth portion for such month, at
any time prior to August 31, 1998, submit a conversion notice for such prior
months' portion or portions which haven ot been converted at the same price as
would have applied should such one-sixth portion or portions been converted
pursuant to the terms of the Series F Preferred Stock. However, after August 31,
1998, the Holder of any left over one-sixth portions of Series F Preferred Stock
which were not converted prior to August 31, 1998, may convert any such
one-sixth portion or portions (with a maximum of one-sixth of the share
originally held being converted per month at the Series F Conversion Price that
is equal to the average of the closing bid price for the calendar month prior to
the date of receipt of the conversion notice relating to such portion converted
after August 31, 1998.
The Company agreed in the Series F March 1998 Agreement 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, to keep such Registration Statement effective for two (2) years
and to register not less than 150% of the number of shares into which the Series
F Preferred Stock is convertible on the date of filing of the Registration
Statement of which this Prospectus is a part. 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
22
<PAGE> 24
the Securities Act, with respect to written information furnished by the Series
F Selling Shareholders to the Company.
SERIES G SELLING SHAREHOLDERS
Effective in June 1997, the shareholders listed in the Selling
Shareholders Table as the Series G Selling Shareholders (the "Series G Selling
Shareholders") acquired 1700 shares of the Company's Series G Preferred Stock in
an exempt transaction pursuant to Regulation D of the Securities Act.
Subject to adjustment in certain circumstances, each share of Series G
Preferred Stock is conver tible into that number of shares of Common Stock
determined by dividing (i) the original issue price of the Series G Preferred
Stock (the "Series G Issue Price") plus an amount equal to 10% of the Series G
Issue Price per annum from the date the Series G Preferred Stock was issued to
the conversion date by (ii) $1.00.
In addition to the shares of Series G Preferred Stock issued in this
offering, the Series G Selling Shareholders also received Warrants to purchase
an aggregate of 850,000 shares of the Company's Com mon Stock at $1.00 per share
which expire in August 2002.
The Company agreed at the time of sale of the Series G Preferred Stock
to register pursuant to the Registration Statement the shares of Common Stock
issuable upon conversion of the Series G Preferred Stock as determined at the
time of such registration and to keep such Registration Statement effective for
one (1) year. Additionally, the Company agreed to pay all of the expenses
incident to the preparation and filing of the Registration Statement (other than
commissions and discounts of any underwriters, dealers or agents). The Company
also agreed to indemnify the Series G Selling Shareholders and any underwriters
they may utilize against certain civil liabilities, including liabilities
arising under the Securities Act. In addition, each Series G Selling Shareholder
agreed to indemnify the Company against civil liabilities, including liabilities
under the Securities Act, with respect to written information furnished by the
Series G Selling Shareholders to the Company.
OTHER SELLING SHAREHOLDERS
The Company has agreed to give the shareholders listed herein as the
Other Selling Shareholders (the "Other Selling Shareholders") "piggyback"
registration rights regarding shares underlying certain Warrants and Shares held
by these holders. These Warrants and Shares were acquired in transactions exempt
from the Securities Act. Pursuant to these "piggyback" rights, the Company
agreed to use its best efforts to have the Common Stock and the Common Stock
issuable upon the exercise of these Warrants included in the Registration
Statement, of which this Prospectus is a part. Mr. Kravetz, Columbus Assets
Management, Inc. and BEG Enterprises, Inc. have each assisted the Company with
its capital raising activities. Lawrence I. Kravitz has 105,587 options at
prices ranging from $3.90 to $6.78 per share, which options all expire on
February 1, 1999. BEG Enterprises, Inc. has 65,034 options, of which 50,000 are
exercisable at $6.30 per share and 15,034 are exercisable at $7.89 per share and
all of which expire on January 7, 2000. Columbus Asset Management, Inc. has
20,000 options at $5.45 per share which expire on August 7, 1998. Katherine D.
Banks has 95,000 options, 35,000 of which are exercisable at $2.000 per share
and expire on October 23, 2006 and 60,000 which are exercisable at $1.00 per
share and expire on July 2, 2002. Market Pathways has 205,000 options, 125,000
of which are exercisable at $0.68750 per
23
<PAGE> 25
share and which expire on October 1, 1998, 40,000 of which are exercisable at
$1.03125 per share and which expire on April 1, 1999, and 40,000 of which are
exercisable at $1.375 per share and which expire on October 1, 1999. John Palmer
and H. Marcia Smolen have 7500 options each at $1.00 per share which expire on
July 2, 2002. Valassis Enterprises, Inc. has 600,000 options at $0.15 per share
which expire in May 2003.
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 on conversion of the Company's Series
E Preferred Stock, (iv) the number of Shares of Common Stock issuable upon
conversion of the Company's Series F Preferred Stock and (v) the number of
Shares of Common Stock issuable upon conversion of the Company's Series G
Preferred Stock held as of the date of this Prospectus by the Selling
Shareholders, which are also the numbers of Shares which may be offered for sale
by each Selling Shareholder from time to time pursuant to this Prospectus.
Because the Company does not know how many Shares may be sold by the Selling
Shareholders pursuant to this Prospectus, no estimate can be given as to the
number of the Shares that will be held by the Selling Shareholders upon
termination of this offering.
SELLING SHAREHOLDERS TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
ISSUABLE UPON
CONVERSION OF
SERIES E
PREFERRED STOCK,
SERIES F
NUMBER OF SHARES NUMBER OF SHARES PREFERRED STOCK
OF COMMON OF COMMON AND SERIES G
STOCK HELD AND STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS
OFFERED PURSUANT WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES
TO THIS PURSUANT TO THIS TO THIS MADE PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
AUGUST 1993 SELLING SHAREHOLDERS
How & Co................................ 15,000 7,500 *
Barry Kitt.............................. 8,000 4,000 *
Gilbert Kitt............................ 4,000 *
Barney Cacioppo......................... 6,000 3,000 *
Peter and Ruth Medding.................. 2,500 *
Richard and Susan Goebel................ 2,000 *
Richard and Mary Pulciani............... 2,000 *
Albert Vivo............................. 2,000 *
Rocky and Genevieve Dazzo............... 2,000 *
Ben Chilcutt............................ 2,000 *
Claus Fichte............................ 4,000 2,000 *
Ronald Cacioppo......................... 1,000 *
James Cacioppo.......................... 1,000 *
John Church............................. 1,000 *
Argon Electric.......................... 2,000 1,000 *
Robert Watt............................. 1,000 *
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
ISSUABLE UPON
CONVERSION OF
SERIES E
PREFERRED STOCK,
SERIES F
NUMBER OF SHARES NUMBER OF SHARES PREFERRED STOCK
OF COMMON OF COMMON AND SERIES G
STOCK HELD AND STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS
OFFERED PURSUANT WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES
TO THIS PURSUANT TO THIS TO THIS MADE PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Sheldon Solomon Trust................... 2,000 1,000 *
Susan Oelsen............................ 2,000 *
Suzanne Kibort.......................... 2,000 1,000 *
George and Emma Kienberger.............. 2,000 1,000 *
Steven Tsengas.......................... 1,000 *
Malcolm Thomas.......................... 1,000 *
Bruce Sabel............................. 2,000 1,000 *
Gary Wright............................. 1,000 *
Richard Browning Trust.................. 2,000 1,000 *
Richard Hutter.......................... 1,000 *
L.P. David Orosz........................ 2,000 1,000 *
Ansford Party Ltd....................... 1,000 *
Ranleigh Party Ltd...................... 1,000 *
EAST/WEST SELLING SHAREHOLDERS
BDM Federal, Inc........................ 111,140 *
BEG SELLING SHAREHOLDERS
Bernice Berman.......................... 41,841 *
Gloria Felsenthal....................... 8,368 *
David Honigman.......................... 104,602 *
Norine H. Kielson Trust................. 20,920 *
RSP 3, L.P.............................. 3,000 *
Kaye Honigman Singer.................... 83,682 *
Robert A. Sprotte Money Purchase
Plan................................ 11,920 *
Robert A. Sprotte IRA................... 4,500 *
Sherry L. Sprotte IRA................... 4,500 *
VALASSIS Enterprises, L.P............... 52,301 *
MCC SELLING SHAREHOLDER
Microelectronics and Computer
Technology Corporation.............. 340,717 *
DECEMBER 1995 SELLING SHAREHOLDERS
Dr. Hal & Margaret Bozof................ 4,000 400 *
Gloria D. Freer......................... 5,000 500 *
Gary and Cheryl Kaplan.................. 3,000 300 *
Dr. Alan P. Lightman.................... 4,000 400 *
Dr. David Lightman...................... 4,000 400 *
Combined Turner Children's Trust........ 3,000 300 *
RSP 3, L.P.............................. 7,920 *
Pinnacle Fund, L.P...................... 10,000 *
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
ISSUABLE UPON
CONVERSION OF
SERIES E
PREFERRED STOCK,
SERIES F
NUMBER OF SHARES NUMBER OF SHARES PREFERRED STOCK
OF COMMON OF COMMON AND SERIES G
STOCK HELD AND STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS
OFFERED PURSUANT WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES
TO THIS PURSUANT TO THIS TO THIS MADE PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Michael S. Blechman Family Trust........ 38,100 3,810 *
Rock Financial Corporation.............. 4,762 *
SERIES E SELLING SHAREHOLDERS
Leonardo, L.P........................... 1,159,086 1,324,976 6.59%
Nelson Partners......................... 700,434 1,608,601 6.08%
Olympus Securities, Ltd................. 700,434 1,608,601 6.08%
Raphael, L.P............................ 287,623 1,324,976 4.28%
AG Super Fund Int'l Partners............ 289,421 473,206 2.07%
GAM L.P................................. 289,421 473,206 2.07%
LaRocque Trading Group LLC.............. 91,845 *
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...................... 259,395 *
David M. Klausmeyer..................... 55,000 *
NOTE WARRANT SELLING SHAREHOLDERS
Pinnacle Fund L.P....................... 50,000 *
Michael S. Blechman Family Trust........ 50,000 40,000 *
Valassis Enterprises L.P................ 50,000 *
N. Martin Co............................ 50,000 0 *
SERIES F SELLING SHAREHOLDERS
Thomas Kernaghan & Co. Limited.......... 947,168 7,518,773 19.29%
Stanley B. Dickson...................... 190,705 1,541,349 4.57%
SERIES G SELLING SHAREHOLDERS
William W. Gow.......................... 50,000 108,987 *
John Green Company...................... 50,000 108,932 *
SCG Cellular, Inc....................... 25,000 54,398 *
James G. Petroff........................ 25,000 54,384 *
Mark S. Wagner.......................... 25,000 54,357 *
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
ISSUABLE UPON
CONVERSION OF
SERIES E
PREFERRED STOCK,
SERIES F
NUMBER OF SHARES NUMBER OF SHARES PREFERRED STOCK
OF COMMON OF COMMON AND SERIES G
STOCK HELD AND STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS
OFFERED PURSUANT WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES
TO THIS PURSUANT TO THIS TO THIS MADE PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2)
----------- ---------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Chris S. Lawson......................... 25,000 54,357 *
Steve Airello........................... 25,000 54,357 *
Pinnacle Fund, L.P...................... 100,000 217,261 *
Daniel E. Cafolla....................... 12,500 27,151 *
Dan Cafolla & Associates, Inc.
Profit Sharing Plan................. 12,500 27,151 *
J. Brad Carter, M.D..................... 75,000 162,562 *
J. Brad Carter, M.D. IRA Account........ 25,000 53,973 *
Klaich Animal Hospital, Ltd.
Amended Profit Sharing Plan......... 50,000 108,356 *
George F. Valassis...................... 100,000 216,274 *
Peerless Distributing Company........... 25,000 53,535 *
ARA ................................. 25,000 53,535 *
Nicholas Marvin Living Trust............ 100,000 217,261 *
Michael Scott Bleckman
Family Trust........................ 100,000 215,617 *
OTHER SELLING SHAREHOLDERS
Lawrence I. Kravetz..................... 105,587 *
BEG Enterprises, Inc.................... 65,034 *
Columbus Asset Management, Ltd.......... 20,000 *
Katherine D. Banks...................... 95,000 *
Peter Moon.............................. 20,625 *
The Investor Relations Company.......... 3,000 *
Market Pathways......................... 205,000 *
John E. Palmer.......................... 7,500 *
H. Marcia Smolens....................... 7,500 *
Mary Ellery Calloway.................... 250,000 *
Barry Kitt.............................. 125,000 *
Gilbert Kitts........................... 125,000 *
Dr. Hal Bozof........................... 220,000 *
Felsenthal Investment Partnership....... 190,000 *
Pinnacle Fund, L.P...................... 2,529,800 6.50%
Valassis Enterprises.................... 600,000 1.62%
---------- ----------- --------- -------
TOTAL............................... 9,023,308 2,635,600 17,807,981 52.04%
</TABLE>
- --------------------
* Less than 1%
(1) The number of Shares of Common Stock issuable upon conversion of the
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock is subject to adjustment (upward or downward) based on fluctuations
in the market price of the Common Stock. See "Description of Capital
Stock--Preferred Stock--
27
<PAGE> 29
Series E Preferred Stock; --Series F Preferred Stock; --Series G
Preferred Stock." The number of such Shares included in this Prospectus
and in the table is the number of Shares into which the Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
were convertible as of May 11, 1998.
(2) This percentage was calculated including Shares issuable upon the
exercise of Warrants and conversion of Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, as applicable, into shares
of the Company's Common Stock.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 120,000,000
shares of Common Stock, par value $.001 per share (the "Common Stock"), and
2,000,000 shares of Preferred Stock, par value $1 per share (the "Preferred
Stock"). The Preferred Stock may be issued in series and currently consists of
(i) Series A Convertible Preferred Stock, (ii) Series C Preferred Stock, (iii)
Series D Preferred Stock, (iv) Series E Preferred Stock, (v) Series F Preferred
Stock and (vi) Series G Preferred Stock. At May 11, 1998, 36,363,967 shares of
Common Stock, 100 shares of Series A Preferred Stock, 75 shares of Series E
Preferred Stock, 723 shares of Series F Preferred Stock and 1,700 shares of
Series G Preferred Stock were issued and outstanding. No shares of Series C
Preferred Stock, or Series D Preferred Stock are currently outstanding. After
giving effect to the conversion of the Series A Preferred Stock into 125,275
shares of Common Stock, the conversion of the Series E Preferred Stock into
6,905,411 shares of Common Stock, the conversion of the Series F Preferred Stock
into 9,060,172 of Common Stock, and the conversion of the Series G Preferred
Stock into 1,842,448 shares of Common Stock, there would be shares of Common
Stock issued and outstanding. Additionally, approximately 3,000,000 shares of
Common Stock are reserved for issuance upon exercise of Warrants (including
2,635,600 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 share holders, 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 OTC
Bulletin Board.
Subject to any prior and superior rights of the Preferred Stock, the
holders of Common Stock are entitled to receive dividends when, and if, declared
by the Board of Directors from funds legally available therefor. Currently, no
series of Preferred Stock has rights that are prior and superior to the Common
Stock with respect to dividends.
In the event of any liquidation, dissolution or winding up of the
affairs of the Company, the holders of the Common Stock are entitled to receive,
pro rata, any assets of the Company remaining after payment has been made in
full to the holders of any series of Preferred Stock with a liquidation
preference. Currently, only the holders of the Series A Preferred Stock, the
Series E Preferred Stock, the Series F Preferred Stock and the Series G
Preferred Stock are entitled to a liquidation preference, while the holders of
Series C Preferred Stock and Series D Preferred Stock have no priority over the
holders of Common Stock with respect to liquidation distributions.
28
<PAGE> 30
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.
Series A Preferred Stock
There are currently issued and outstanding 100 shares of the Series A
Preferred Stock, which is the total number currently authorized for issuance.
Each outstanding share of the Series A Preferred Stock is currently convertible
into 1252.75 shares of Common Stock, subject to adjustment in certain circum
stances. 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 liquida tion 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. 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, Bylaws and Texas Law."
The holders of Series C Preferred Stock have no preferential
29
<PAGE> 31
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, Bylaws 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 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 75 shares are issued and outstanding. Subject
to adjustment in certain circumstances, each share of Series E Preferred Stock
is convertible into that number of shares of Common Stock determined by dividing
(i) the original issue price of the Series E Preferred Stock (the "Issue Price")
plus an amount equal to 8% of the Issue Price per annum from the date the escrow
agent first had in its possession the funds representing payment of the Series E
Preferred Stock to the conversion date by (ii) $1.50. Any shares of Series E
Preferred Stock outstanding on January 15, 1999, shall be automatically
converted into Common Stock on such date. In the event any shares of the Series
E Preferred Stock are converted or redeemed pursuant to their terms, the shares
of Series E Preferred Stock so converted or redeemed shall be canceled, shall
return to the status of authorized but unissued Preferred Stock of no designated
series, and shall not be issuable by the Company as Series E Preferred Stock.
30
<PAGE> 32
Notwithstanding the preceding paragraph, for each calendar month,
beginning with April 1997, where the average of the closing bid prices of the
Company's Common Stock for all trading days for such calendar month is less than
$1.00, the Company shall, upon notice by the Series E Selling Shareholders,
redeem shares of the Series E Preferred Stock held by each holder in an amount
equal to the lesser of (i) 7% of the aggregate shares of Series E Preferred
Stock held by such holder as of April 21, 1997, or (ii) all shares of Series E
Preferred Stock then held by such holder.
Except pursuant to the automatic conversion of the Series E Preferred
Stock on January 15, 1997, in no event shall any Holder be entitled to convert
shares of Series E Preferred Stock which, upon conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by such Holder and
its affiliates to exceed 4.9% of the outstanding shares of the Company's Common
Stock following such conversion. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by a Holder and
its affiliates shall include the shares of Common Stock issuable upon conversion
of the shares of Series E Preferred Stock with respect to which the
determination of such proviso is being made, but shall exclude the shares of
Common Stock which would be issuable upon conversion of the remaining
unconverted portion of the Series E Preferred Stock beneficially owned by such
Holder and its affiliates. Except as set forth in the preceding sentence, for
purposes of this paragraph, "beneficial ownership" shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.
Except as otherwise required by law, the holders of the Series E
Preferred Stock are entitled to vote on all matters with the holders of Common
Stock and are entitled to one vote for every share of Common Stock into which
the holders' Series E Preferred Stock is convertible. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Series E Preferred Stock are entitled to receive the
liquidation price of $10,000 plus 8% per annum from the date of issuance, before
any distribution is made to the holders of Common Stock or any other series of
Preferred Stock ranking junior as to liquidation rights of the Series E
Preferred Stock. The holders of Series E Preferred Stock are not entitled to
receive dividends.
In the event that at the time of a requested conversion by a holder of
Series E Preferred Stock, the conversion price is $3 or less per share, the
Company has the right to redeem all or part of the shares at a redemption price
per share equal to (i) the number of shares of Common Stock into which each
share is convertible times (ii) the closing bid price per share of the Common
Stock. The Company additionally has the right to redeem all or part of the
Series E Preferred Stock at any time, but in no event may redeem less than
$5,000,000 per redemption. In the event that the Company elects to effect such a
redemption, the redemption price per share of Series E Preferred Stock shall be
as follows:
<TABLE>
<CAPTION>
Redemption Value Elapsed Time Since Last 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>
31
<PAGE> 33
"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 723 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 Series F Conversion Price.
The holders of Series F Preferred Stock are allowed to convert
one-sixth of the number of Series F Preferred stock held as of March 17, 1998,
in each of the months from March 1998 through August 1998. The Series F
Conversion Price for each month shall be the average closing bid price of the
Company's Common Stock for the preceding month, except that the Series F
Conversion Price for March 1998 shall be $0.15. The Company has the right to
redeem the Series F Preferred Stock for 107.5% of the original purchase price.
If a holder of Series F Preferred Stock does not exercise his right to convert
any one-sixth portion of the Series F Preferred Stock held by such holder in any
month between March 17 and August 31, 1998, such holder may, in addition to the
one-sixth portion for such month, at any time prior to August 31, 1998, submit a
conversion notice for such prior months' portion or portions which have not been
converted at the same price as would have applied should such one-sixth portion
or portions been converted pursuant to the terms of the Series F Preferred
Stock. However, after August 31, 1998, the Holder of any left over one-sixth
portions of Series F Preferred Stock which were not converted prior to August
31, 1998, may convert any such one-sixth portion or portions (with a maximum
one-sixth of the shares originally held being converted per month) at the Series
F Conversion Price that is equal to the average of the closing bid price for the
calendar month prior to the date of receipt of the conversion notice relating to
such portion converted after August 31, 1998.
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
32
<PAGE> 34
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 ss. 305 of the Internal Revenue Code, as amended.
Series G Preferred Stock
There are 3,000 shares of Series G Preferred Stock currently authorized
for issuance, of which 1,700 shares are issued and outstanding. Subject to
adjustment in certain circumstances, each share of Series G Preferred Stock is
convertible into that number of shares of Common Stock determined by dividing
(i) the original issue price of the Series G Preferred Stock (the "Series G
Issue Price") plus an amount equal to ten percent (10%) of the Series G Issue
Price from the date of the Series G Preferred Stock being converted to the
conversion date by (ii) $1.00.
Except as provided by law, the holders of Series G Preferred Stock
shall be entitled to a number of votes equal to the number of shares of Common
Stock into which their respective shares of Series G Preferred Stock are then
convertible using the record date for the taking of such vote of shareholders as
the date as of which the Conversion Price is calculated. Holders of Series G
Preferred Stock shall be entitled to notice of all shareholders meetings or
written consents with respect to which they would be entitled to vote.
In the event of any liquidation, dissolution or winding-up of the
Company, either voluntary or involuntary (a "Liquidation"), the holders of
shares of the Series G Preferred Stock then issued and outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its shareholders, whether from capital, surplus or earnings, before any
payment shall be made to the holders of shares of the Common Stock or upon any
other series of Preferred Stock of the Company with a liquidation preference
subordinate to the liquidation preference of the Series A or Series E or Series
F Preferred Stock, an amount per share equal to the sum of (i) the Stated Value
and (ii) an amount equal to ten percent (10%) of the Stated Value multiplied by
the fraction N/365, where N equals the number of days elapsed since the issue
date of the Series G Preferred Stock. If, upon any Liquidation of the Company,
the assets of the Company available for distribution to its shareholders shall
be insufficient to pay the holders of shares of the Series G Preferred Stock and
the holders of any other series of Preferred Stock with a liquidation preference
equal to the liquidation preference of the Series G Preferred Stock the full
amounts to which they shall respectively be entitled, the holders of shares of
the Series G Preferred Stock and the holders of any other series of Preferred
Stock with liquidation preference equal to the liquidation preference of the
Series G Preferred Stock shall receive all of the assets of the Company
available for distribution and each such holder of shares of the Series G
Preferred Stock and the holders of any other series of Preferred Stock with a
liquidation preference equal to the liquidation preference of the Series G
Preferred Stock shall share ratably in any distribution in accordance with the
amounts due such shareholders. In the event of Liquidation, the Series G
Preferred Stock shall be subordinate to Series A, Series E and Series F
Preferred Stock. After payment shall have been made to the holders of shares of
the Series G Preferred Stock of the full amount to which they shall be entitled,
as aforesaid, the holders of shares of the Series G Preferred Stock shall be
entitled to no further distributions thereon and the holders of shares of the
Common Stock and of shares of any other series of stock of the Company shall be
entitled to share, according to their respective rights and preferences, in all
remaining assets of the Company available for distribution to its shareholders.
33
<PAGE> 35
SHARES ELIGIBLE FOR FUTURE SALE
As of May 11, 1998, there were 36,363,967 shares of Common Stock
outstanding, of which 27,865,550 shares of Common Stock were freely tradeable
without restriction or further registration under the Securities Act by persons
other than "affiliates" of the Company. As of that date, the remaining shares of
Common Stock were deemed "restricted securities," as defined in Rule 144 under
the Securities Act, and may not be resold in the absence of registration under
the Securities Act or pursuant to an exemption from such registration, including
exemptions provided by Rule 144 under the Securities Act. Under Rule 144,
persons who have held securities for a period of at least one year may sell a
limited amount of such securities without registration under the Securities Act.
Rule 144 also permits, under certain circumstances, persons who are not
affiliates of the Company, to sell their restricted securities without quantity
limitations once they have completed a two-year holding period.
The Registration Statement, of which this Prospectus is a part,
pertains to 9,023,308 Shares of Common Stock which are currently "restricted
securities"; 2,635,600 Shares of Common Stock which underlie existing Warrants;
6,905,411 Shares of Common Stock which are issuable upon conversion of the
Series E Preferred Stock, 9,060,122 shares of Common Stock which are issuable
upon conversion of the Series F Preferred Stock and 1,842,448 shares of Common
Stock which are issuable upon conversion of the Series G Preferred Stock. The
Company is obligated to maintain the effectiveness of the Registration Statement
for varying periods of time, pursuant to separate agreements with certain groups
of the Selling Shareholders. As of May 11, 1998, the Company is additionally
obligated to register an additional 1,230,130 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 11, 1998, 3,500,000 shares of Common Stock have been reserved for issuance
pursuant to the Company's stock option plans. Approximately 3,000,000 shares of
Common Stock have also been reserved for issuance upon exercise of Warrants that
have been issued by the Company (2,635,600 of such shares have been registered
in the Registration Statement). Additionally, 125,725 shares of Common Stock
have been reserved for issuance upon conversion of the Company's Series A
Preferred Stock, 6,905,411 shares of Common Stock have been reserved for
issuance upon conversion of the Series E Preferred Stock, 9,060,122 shares of
Common Stock have been reserved for issuance upon conversion of the Series F
Preferred Stock and 1,842,448 shares of Common Stock have been reserved for
issuance upon conversion of the Series G Preferred Stock.
No prediction can be made as to the effect, if any, that future sales,
or the availability of shares of Common Stock for future sales, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Stock by the Company or by shareholders who hold "restricted securities,"
or the perception that such sales may occur, could adversely affect prevailing
market prices for the Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American
Securities Transfer, Incorporated, 938 Quail Street, Suite 101, Lakewood,
Colorado 80215.
34
<PAGE> 36
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND TEXAS LAW
The Company's Restated Articles currently contain provisions which
could be considered to have anti-takeover effects. First of all, the authorized
and unissued shares of the Company's Preferred Stock (the "Unissued Preferred
Stock") and Common Stock (the "Unissued Common Stocks") could be used by
incumbent management to make more difficult and thereby discourage an attempt to
acquire control of the Company, even though some shareholders may deem such an
acquisition desirable. For example, the shares of Unissued Preferred Stock and
Unissued Common Stock could be privately placed with purchasers who might
support the Board of Directors in opposing a hostile takeover bid. The issuance
of the Unissued Preferred Stock with voting rights and/or the Unissued Common
Stock could also be used to dilute the stock ownership and voting power of a
third party seeking to remove directors, replace incumbent directors, accomplish
certain business combinations, or alter, amend, or replace provisions in the
Company's Restated Articles. To the extent that it impedes any such attempt, the
Unissued Preferred Stock and Unissued Common Stock may serve to perpetuate
current management. From time to time, the Company evaluates potential
transactions and acquisitions, which if consummated, may require the issuance of
the Unissued Preferred Stock or Unissued Common Stock.
The Company's Restated Articles require a classified Board of Directors
pursuant to which only one-third (1/3) of the Board of Directors is elected each
year for a term of three years. Therefore, even when a shareholder, or a group
of shareholders, has sufficient voting power to elect all of the directors to be
elected every year, the Company's classified Board could have the effect of
requiring two successive annual meetings to replace a majority of the Board of
Directors and three annual meetings to replace the entire Board of Directors.
There is no cumulative voting with respect to the election of directors.
The Company's Restated Articles also contain a provision which states
that with the sole exception of shares issued pursuant to the duly adopted stock
option plans of the Company, no shares of the Com pany's Preferred Stock shall
be issued or sold to any officer or director of the Company, or any share holder
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
35
<PAGE> 37
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 securityholders 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 trans action or occurrence
generally is favorable to the interests of the shareholders, or they may delay
or frustrate the assumption of control by a holder of a large block of the
Company's securities and the removal of incumbent management, even if such
removal may be beneficial to the shareholders.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and
the consolidated state ments of operations, stockholders' equity and cash flows
for each of the two years in the period ended December 31, 1997, 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.
36
<PAGE> 38
===============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR 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 STOCKHOLDERS. 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 PROSPEC TUS 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
Recent Developments............................................................................................. 4
Summary ....................................................................................................... 5
Risk Factors.................................................................................................... 7
Use of Proceeds................................................................................................. 17
Plan of Distribution and Selling
Shareholders. ......................................................................................... 17
Selling Shareholders Table...................................................................................... 24
Description of Capital Stock.................................................................................... 28
Experts ....................................................................................................... 36
Legal Opinions.................................................................................................. 36
</TABLE>
SI DIAMOND
TECHNOLOGY,
INC.
[LOGO APPEARS HERE]
9,023,308 SHARES OF
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
2,635,600 SHARES OF
COMMON STOCK
UNDERLYING WARRANTS
6,905,411 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES E
PREFERRED STOCK
9,060,122 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES F
PREFERRED STOCK
1,842,448 SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION OF SERIES G
PREFERRED STOCK
----------
PROSPECTUS
----------
MAY ____, 1998
================================================================================
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated fees and expenses payable in connection with this
offering, all of which are payable by the Company, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..................................$ 4,115.00
Printing and engraving expenses...................................................... 10,000.00
Legal fees and expenses.............................................................. 17,500.00
Accounting fees and expenses......................................................... 10,000.00
Miscellaneous........................................................................ 3,000.00
-------------
Total..........................................................................$ 44,615.00
=============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02A(16) and Article 2.01-1 of the Texas Business Corporation
Act and Article VIII of the Company's Bylaws provide the Company with broad
powers and authority to indemnify its directors and officers and to purchase and
maintain insurance for such purposes. Pursuant to such statutory and Bylaw
provisions, the Company has purchased insurance against certain costs of
indemnification that may be incurred by it and its officers and directors. See
"Item 17. Undertakings" for a description of the Securities and Exchange
Commission's position regarding such indemnification provisions.
Additionally, Article Seven(C) of the Company's Restated Articles,
provides that a director of the Company is not liable to the Company or its
shareholders for monetary damages for any act or omission in the director's
capacity as director except that Article Seven(C) does not eliminate or limit
the liability of a director for (i) breaches of his duty of loyalty to the
Company and its shareholders, (ii) acts or omissions not in good faith or which
constitute a breach of duty of a director of the Company or involves intentional
misconduct or a knowing violation of law, (iii) transactions from which a
director receives an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office, (iv) acts or
omissions for which liability is specifically provided by statute, and (v) acts
relating to unlawful stock purchases or payments of dividends.
Article Seven(C) also provides that any subsequent amendments to Texas
statutes that further limit the liability of directors will inure to the benefit
of the directors, without any further action by shareholders. Any repeal or
modification of Article Seven(C) shall not adversely affect any right of
protection of a director of the Company existing at the time of the repeal or
modification.
The foregoing discussion is not intended to be exhaustive and is
qualified in its entirety by each of such documents and such statutes.
ITEM 16. EXHIBITS
See Index to Exhibits on page II-6 for a descriptive response to this
item.
II-1
<PAGE> 40
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) 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)(1)(i) and (a)(1)(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
II-2
<PAGE> 41
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 provi sions, 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 Securities Act of 1933 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 42
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON BEHALF OF THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED,
IN THE CITY OF AUSTIN, STATE OF TEXAS, ON MAY 11, 1998.
SI DIAMOND TECHNOLOGY, INC.
By /s/ Marc W. Eller
-----------------------------------
Marc W. Eller
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Marc W. Eller and Douglas P. Baker, and
each or either of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any subsequent
registration statements relating to the offering to which this Registration
Statement relates, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and Agents or either of them. or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Marc W. Eller Chairman of the Board of May 11, 1998
- -------------------------------------------- Directors and
Marc W. Eller Chief Executive Officer
(Principal Executive Officer)
/s/ Dr. Zvi Yaniv President and May 11, 1998
- -------------------------------------------- Chief Operating Officer
Dr. Zvi Yaniv and Director
/s/ Douglas P. Baker Vice President and May 11, 1998
- -------------------------------------------- Chief Financial Officer
Douglas P. Baker (Principal Financial Officer)
/s/ Lee B. Arberg Director May 11, 1998
- --------------------------------------------
Lee B. Arberg
</TABLE>
II-4
<PAGE> 43
<TABLE>
<S> <C> <C>
/s/ Ronald J. Berman Director May 11, 1998
- --------------------------------------------
Ronald J. Berman
/s/ Philip C. Shaffer Director May 11, 1998
- --------------------------------------------
Philip C. Shaffer
/s/ David R. Sincox Director May 11, 1998
- --------------------------------------------
David R. Sincox
Director
- --------------------------------------------
Igor Leontiev
</TABLE>
II-5
<PAGE> 44
INDEX TO EXHIBITS
The exhibits indicated by an asterisk (*) are incorporated by reference
from previous filings with the Commission. The exhibits indicated by a dagger
(+) will be filed by amendment.
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGES
<S> <C> <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 Company's 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)).
</TABLE>
II-6
<PAGE> 45
<TABLE>
<S> <C>
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. 1-1602)).
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)).
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)).
</TABLE>
II-7
<PAGE> 46
<TABLE>
<S> <C>
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).
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)).
</TABLE>
II-8
<PAGE> 47
<TABLE>
<S> <C>
4.28* Form of Regulation D Subscription Agreement by and between the
Company and the Holders of the Company's Series F Preferred
Stock (Exhibit 4.3 to the Company's Current Report on Form 8-K
dated as of March 7, 1997 (File No. 1-11602)).
4.29* Form of Registration Rights Agreement by and between the Company
and Holders of the Company's Series F Preferred Stock (Exhibit
4.4 to the Company's Current Report on Form 8-K dated as of
March 7, 1997 (File No. 1-11602)).
4.30* Form of Subscription Agreement by and between the Company and
Holders of the Company's 8% Convertible Debentures (Exhibit 4.1
to the Company's Current Report on Form 8-K dated as of March 7,
1997 (File No. 1-11602)).
4.31* Form of the Company's 8% Convertible Debenture (Exhibit 4.2 to
the Company's Current Report on Form 8-K dated as of March 7,
1997 (File No. 1-11602)).
4.32* Certificate of Amendment to the Company's Amended and Restated
Articles of Incorporation (amending the Company's Series E
Preferred Stock) as filed on May 1, 1997, with the Secretary of
State of the State of Texas (Exhibit 4.32 to the Company's
Registra tion Statement on Form S-3 (No. 333-24801) dated June
6, 1997).
4.33* Statement of Resolutions Establishing and Designating the
Company's Series G Preferred Stock, as filed with the Secretary
of State of the State of Texas on June 11, 1997 (Exhibit 3.1 to
the Company's Current Report on Form 8-K, dated as of July 25,
1997 (File No. 1-11602)).
4.34* Amendment to Amended and Restated Articles of Incorporation of
the Company (amending the Company's Series F Preferred Stock)
as filed with the Secretary of State of the State of Texas on
August 4, 1997 (Exhibit 3(I).2 to the Company's Current Report on
Form 8-K dated August 4, 1997 (File No. 1-11602)).
4.35* Form of Regulation D Subscription Agreement by and between the
Company and Holders of the Company's Series G Preferred Stock
(Exhibit 4.2 to the Company's Current Report on Form 8-K dated
as of July 25, 1997)).
4.36* Form of Registration Rights Agreement by and between the Company
and the Holders of the Company's Series G Preferred Stock
(Exhibit 4.2 to the Company's Current Report on Form 8-K dated
as of July 25, 1997)).
4.37* Form of Warrant by and between the Company and Holders of the
Company's Series G Preferred Stock (Exhibit 4.3 to the Company's
Current Report on Form 8-K dated as of July 25, 1997 (File No.
1-11602).
</TABLE>
II-9
<PAGE> 48
<TABLE>
<S> <C>
4.38 Amendment to Amended and Restated Articles of Incorporation of
the Company (amending the Company's Series F Preferred Stock) as
filed with the Secretary of State of the State of Texas on March
25, 1998.
5.1 Opinion of Haskell Slaughter & Young, L.L.C., as to certain legal
aspects of the offering.
23.1 Consent of Haskell Slaughter & Young, L.L.C. (included in Exhibit
5.1).
23.2+ Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney (set forth on the signature page of this
Registration Statement).
</TABLE>
II-10
<PAGE> 1
EXHIBIT 4.38
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 Corporation 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
"Corporation").
ARTICLE II
The following Amendment to the Articles of Incorporation of the
Corporation was adopted by unanimous written consent of the holders of the
outstanding shares of the Corporation's Series F Preferred Stock dated March 17,
1998.
The description of the terms of the Corporation's Series F Preferred
Stock, as contained in the Statement of Resolutions of the Board of Directors of
the Corporation Establishing and Designating Series of Preferred Stock as
"Series F Preferred Stock", as filed on March 10, 1997, with the Secretary of
State of the State of Texas, which is part of the Corporation's Articles of
Incorporation, and as amended by the Amendment to the Articles of Incorporation,
dated August 4, 1997, is hereby deleted and replaced in its entirety as follows:
"SERIES F PREFERRED STOCK
Section 1. Designation, Amount, Par Value, Stated Value, Accretion
Rate, Purchase Price and Certificates.
(a) The shares of such series shall be designated as "Series F
Preferred Stock" (the "Series F Preferred Stock") and the number of shares
constituting the Series F Preferred Stock shall be 2,500. 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 F 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
Corporation convertible into Series F Preferred Stock.
<PAGE> 2
(b) Each share of Series F Preferred Stock shall have a par value of
$1.00, and a stated value (face amount) of One Thousand Dollars ($1,000) (the
"Stated Value"), with an accretion rate of four percent (4%) per annum on the
Stated Value as set forth herein.
(c) The Series F Preferred Stock shall be offered at a purchase price
of One Thousand Dollars ($1,000) per share.
(d) Certificates representing the shares of Series F Preferred Stock
purchased shall be issued by the Corporation to the purchasers immediately upon
acceptance of the subscriptions to purchase such shares.
Section 2. Dividends.
The Series F Preferred Stock will bear no dividends, and the holders of
the Series F Preferred Stock shall not be entitled to receive dividends on the
Series F Preferred Stock.
Section 3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding-up of the
Corporation, either voluntary or involuntary (a "Liquidation"), the holders of
shares of Series F Preferred Stock then issued and outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its shareholders, whether from capital, surplus or earnings, before any payment
shall be made to the holders of shares of the Common Stock or upon any other
series of Preferred Stock of the Corporation with a liquidation preference
subordinate to the liquidation preference of the Series A or Series E Preferred
Stock, an amount per share equal to the sum of (i) $1,000 and (ii) an amount
equal to four percent (4%) of $1,000 multiplied by the fraction N/365, where N
equals the number of days elapsed since the issue date of the Series F Preferred
Stock. If, upon any Liquidation of the Corporation, the assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of shares of the Series F Preferred Stock and the holders of
any other series of Preferred Stock with a liquidation preference equal to the
liquidation preference of the Series F Preferred Stock the full amounts to which
they shall respectively be entitled, the holders of shares of Series F Preferred
Stock and the holders of any other series of Preferred Stock with a liquidation
preference equal to the liquidation preference of the Series F Preferred Stock
shall share ratably in any distribution in accordance with the amounts due such
shareholders. In the event of a Liquidation, the Series F Preferred Stock shall
be subordinate to Series A and Series E Preferred Stock.
(b) After payment shall have been made to the holders of the Series F
Preferred Stock of the full amount to which they shall be entitled, as
aforesaid, the holders of shares of the Series F Preferred Stock shall be
entitled to no further distributions thereon and the holders of shares of the
Common Stock and of shares of any other series of stock of the Corporation shall
be entitled to share, according to their respective rights and preferences, in
all remaining assets of the Corporation available for distribution to its
shareholders.
2
<PAGE> 3
(c) A merger or consolidation of the Corporation with or into any other
corporation, or a sale, lease, exchange or transfer of all or any part of the
assets of the Corporation which shall not in fact result in the Liquidation (in
whole or in part) of the Corporation and the distribution of its assets to its
shareholders shall not be deemed to be a Liquidation (in whole or in part) of
the Corporation.
Section 4. Conversion.
The record Holders of this Series F Preferred Stock shall have
conversion rights as follows (the "Conversion Rights").
(a) Right to Convert.
The record Holders of each share of Series F Preferred Stock shall be
entitled, as set forth below, and subject to the restrictions on conversion set
forth in Section 4(e) below, to convert the shares of Series F Preferred Stock
held by such Holder into that number of fully-paid and nonassessable shares of
the Corporation's Common Stock (the "Conversion Shares") at the Conversion Rate
as set forth below.
(b) Mechanics of Conversion.
Each holder of Series F Preferred Stock who desires to convert the same
into shares of Common Stock shall provide notice ("Conversion Notice") via
telecopy (facsimile) on a business day, during business hours in Austin, Texas,
to the Corporation, and a facsimile of the Conversion Notice shall be
transmitted to the Corporation's Transfer Agent at the same time as transmission
is made to the Corporation. On the same day, the original Conversion Notice
shall be delivered to the Corporation, but the certificate(s) representing the
Series F Preferred Stock for which conversion is elected, shall be delivered to
the Transfer Agent by international courier, duly endorsed. The later of the
date upon which the Corporation receives the original Conversion Notice or the
date the Transfer Agent receives the Certificates representing the Series F
Preferred Stock for which conversion is elected, shall be a "Notice Date."
Upon receipt by the Corporation of a Conversion Notice, as provided
above, the Corporation shall immediately send to the holder, via telecopy
(facsimile), a confirmation of receipt of the Conversion Notice which shall
specify that the Conversion Notice has been received and the name and telephone
number of a contact person at the Corporation whom the holder should contact
regarding information related to the conversion. The Corporation shall use all
reasonable efforts to issue and deliver within three (3) business days after the
Notice Date, to such holder of Series F Preferred Stock at the address of the
holder on the stock books of the Corporation, a certificate or certificates for
the number of shares of Common Stock to which the holder shall be entitled as
aforesaid; provided that the original shares of Series F Preferred Stock to be
converted are received by the transfer agent or the Corporation within three (3)
business days after the receipt of the original Conversion Notice and the
person(s) entitled to receive the
3
<PAGE> 4
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder(s) of such shares of Common Stock on the Notice
Date. If the original certificate(s) representing the shares of Series F
Preferred Stock to be converted are not received by the transfer agent or the
Corporation within three (3) business days after the receipt of the original
Conversion Notice, the Conversion Notice shall become null and void.
(c) Conversion Dates.
Subject to the restrictions on conversion set forth in Section 4(e)
below, the shares of Series F Preferred Stock shall become convertible into
shares of Common Stock at any time. The date on which a Conversion Notice is
transmitted by facsimile to the Corporation shall be referred to as a
"Conversion Date."
(d) Conversion Formula/Conversion Price.
Each share of Series F Preferred Stock shall be convertible into the
number of shares of Common Stock in accordance with the following formula (the
"Conversion Formula"):
Number of shares of Common Stock issued upon conversion of one share of
Series F Preferred Stock
= [(.04) x (N/365) x (1,000)] + 1,000
------------------------------------
Conversion Price
where
N = the number of days between (i) the issue date of the
Series F Preferred Stock being converted, and (ii)
the Notice Date.
Conversion Price = the average of the Closing Bid Price for
the calendar month prior to the date of the
receipt of the Conversion Notice to the
Company via telecopy (facsimile), except
the first installment convertible in the
month of March 1998, for February 1998,
shall be convertible immediately at $.15
per share of Common Stock.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price on the OTC Bulletin Board, or if no longer traded thereon, the
closing bid price on the principal national securities exchange on which the
Common Stock is so traded.
(e) Restrictions on Conversion.
(i) Notwithstanding the foregoing in this Section 4, the
conversion of Series F Preferred Stock by each Holder of
Series F Preferred Stock pursuant to Section 4(a) above shall
be limited as follows:
4
<PAGE> 5
(1) Each Holder shall only be entitled to convert by
submitting a Conversion Notice up to one-sixth
(16.667%) of the aggregate number of shares of Series
F Preferred Stock held by such Holder as of March 17,
1998, in equal monthly installments beginning with
March 1998 and ending August 31, 1998. These shares
shall be converted at the Conversion Price as
calculated pursuant to Section 4(d) of this Statement
of Resolutions, as amended to date.
(2) If a Holder of Series F Preferred Stock does not
exercise his right to convert any one-sixth portion
of the Series F Preferred Stock held by such Holder
in any month between March 17 and August 31, 1998,
such Holder may, in addition to the one-sixth portion
for such month, at any time prior to August 31, 1998,
submit a Conversion Notice for such prior month's
portion or portions which have not been converted at
the same price as would have applied should such
one-sixth portion or portions been converted pursuant
to the terms of Section 4(e)(i). However, after
August 31, 1998, the Holders of any left over
one-sixth portions of Series F Preferred Stock, which
were not converted prior to August 31, 1998, may
convert any such one-sixth portion or portions (with
a maximum of one-sixth of the shares originally held
being converted per month) at the Conversion Price
that is equal to the average of the Closing Bid Price
for the calendar month prior to the date of receipt
of the Conversion Notice relating to such portion
converted after August 31, 1998.
(ii) Consideration for Restrictions on Conversion Pursuant to
Section 4(e)(i).
For shares of Series F Preferred Stock submitted to
the Company under the terms of Section 4(e)(i), the Company
shall have the option of redeeming the shares submitted upon a
notice to the Holders within one (1) business day of the
receipt of the original Conversion Notice from the Holder
exercising the rights of Section 4(e)(i) by sending a
facsimile notice thereof to the Holder. The Company shall also
have the option of redeeming all remaining outstanding shares
of Series F Preferred Stock at any time upon one (1) business
day's notice to the Holder of the Series F Preferred Stock.
The Company may redeem the Series F Preferred Stock by
payment, in whole or in part, by wire transfer to the Holder's
account. If the Company does exercise its option to redeem,
the redemption price shall be the equivalent of 107.5% of the
original value of the Series F Preferred Stock and shall be
paid in cash or good funds in U.S. dollars. The payment of any
redemption price pursuant to the terms of this provision shall
be delivered to the Holder of Series F Preferred Stock by the
later of ten (10) business days from the receipt by such
Holder of Series F Preferred Stock of notice of redemption by
the Company or one (1) business day after receipt by the
Company's transfer agent of the shares of the Series F
Preferred Stock to which such redemption is applicable. If the
payment of any redemption price is not timely made, the
Company's redemption shall be null and void and the Company
shall not have the
5
<PAGE> 6
right to effectuate a redemption during that calendar month
and the immediately following calendar month.
(iii) Any shares of Common Stock issued pursuant to these
provisions shall be included in the Registration Statement
which covers the shares of Common Stock into which the Series
F Preferred Stock are convertible. The Company shall keep the
Registration Statement current for a period of two (2) years
from March 17, 1998. The Company shall within sixty (60) days
of March 17, 1998, file such necessary amendments to the
existing Registration Statement to register not less than 150%
of the number of shares into which the Series F Preferred
Stock would be convertible on the date of filing such amended
Registration Statement. Such Registration Statement, as
amended, shall also state that, in accordance with Rules 416
and 457 of the Securities Act of 1933, it shall cover such
indeterminate number of additional shares as may become
issuable upon conversion of the Series F Preferred Stock.
(iv) The Company is under no present or future obligation to
renegotiate any conversion terms of its Series F Preferred
Stock with the Holders thereof.
(f) Lost or Stolen Certificates.
Upon receipt by the Corporation of evidence reasonably satisfactory to
it of the loss, destruction, theft or mutilation of any Series F Preferred Stock
certificates (the "Certificates") and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Certificates, if
mutilated, the Corporation shall execute and deliver new Series F Preferred
Stock Certificates of like tenor and date. However, the Corporation shall not be
obligated to re-issue such lost or stolen Series F Preferred Stock Certificates
if the holder thereof contemporaneously requests the Corporation to convert such
Series F Preferred Stock into Common Stock, in which event the Corporation shall
be entitled to rely on an affidavit of loss, destruction or theft of the Series
F Preferred Stock Certificate (and the receipt of indemnity or security
reasonably satisfactory to the Corporation) or, in the case of mutilation,
tender of the mutilated certificate, and shall issue the Conversion Shares.
(g) Automatic Conversion.
Each share of Series F Preferred Stock outstanding on March 10, 1999
shall be converted automatically into Common Stock on such date in accordance
with the Conversion Formula and the Conversion Price then in effect, and March
10, 1999 shall be deemed to be the Notice Date and Conversion Date with respect
to such conversion.
(h) No Fractional Shares.
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<PAGE> 7
If any conversion of the Series F Preferred Stock would create a
fractional share of Common Stock, no fractional shares shall be issued, and an
equivalent of the fractional share shall be paid in cash.
(i) Reservation of Stock Issuable Upon Conversion.
The Corporation 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 shares of the Series F 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 the Series F 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 the Series F Preferred Stock, the Corporation 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.
(j) Adjustment to Conversion Price.
(1) If, prior to the conversion of all shares of Series F
Preferred Stock, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, or other similar event, the
Conversion Price 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 Conversion
Price shall be proportionately increased.
(2) If, prior to the conversion of all shares of Series F
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 Corporation 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 Corporation or
another entity, then the holders of Series F Preferred Stock shall
thereafter have the right to purchase and receive upon conversion of
shares of Series F 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 shares of
Series F 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 F Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion
of the Series F Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or
securities
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<PAGE> 8
thereafter deliverable upon the exercise hereof. The Corporation shall
not effect any transaction described in this subsection unless the
resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligation to deliver to the holders
of the Series F Preferred Stock such shares of stock and/or securities
as, in accordance with the foregoing provisions, the holders of the
Series F Preferred Stock may be entitled to purchase.
(3) If any adjustment under this subsection would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, no fractional shares shall be issued upon
conversion, and an equivalent of the fractional share shall be paid in
cash.
Section 5. Voting Rights.
Except as otherwise provided below or by the Texas Business Corporation
Act, the holders of the Series F Preferred Stock shall have no voting power
whatsoever, and no holder of Series F Preferred Stock shall vote or otherwise
participate in any proceeding in which actions shall be taken by the Corporation
or the shareholders thereof or be entitled to notification as to any meeting of
the Board of Directors or the shareholders.
Notwithstanding the above, the Corporation shall provide holders of the
Series F Preferred Stock ("Holders") with notification of any meeting of the
shareholders regarding any major corporate events affecting the Corporation. In
the event of any taking by the Corporation of a record of its shareholders for
the purpose of determining shareholders who are entitled to receive payment of
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property
(including by way of merger, consolidation or reorganization), or to receive any
other right, or for the purpose of determining shareholders who are entitled to
vote in connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or any proposed liquidation,
dissolution or winding up of the Corporation, the Corporation shall mail a
notice to the Holders, at least ten (10) days prior to the record date specified
therein, of the date on which any such record is to be taken for the purpose of
such dividend, distribution, right or other event, and a brief statement
regarding the amount and character of such dividend, distribution, right or
other event to the extent known at such time.
To the extent that, under Texas law, the vote of the Holders, voting
separately as a class, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the Holders of at least a
majority of the shares of the Series F Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of the shares as
required by Texas law of Series F Preferred Stock (except as otherwise may be
required under Texas law) shall constitute the approval of such action by the
class. To the extent that under Texas law the Holders are entitled to vote on a
matter with the holders of Common Stock, voting together as one (1) class, each
share of Series F Preferred Stock shall be entitled to a number of votes equal
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<PAGE> 9
to the number of shares of Common Stock into which it is 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. The Holders shall also 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
Corporation's by-laws and applicable statutes.
Section 6. Protective Provisions.
So long as shares of Series F Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by law) of the Holders of at least seventy-five percent
(75%) of the then outstanding shares of Series F Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series
F Preferred Stock so as to affect adversely the Series F Preferred Stock;
(b) create any new class or series of stock or issue any capital stock
senior to or having a preference over or parity with the Series F Preferred
Stock with respect to payments upon Liquidation or increase the number of
authorized shares of Series F Preferred Stock or change the Stated Value
thereof; or
(c) do any act or thing not authorized or contemplated by this
Resolution which would result in taxation of the holders of shares of the Series
F 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).
Section 7. Status of Converted Stock.
In the event that any shares of Series F Preferred Stock shall be
converted pursuant to Section 4 hereof, the shares so converted shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated class or series, and shall not be issuable by the Corporation
as Series F Preferred Stock.
Section 8. Taxes.
All shares of Common Stock issued upon conversion of Series F Preferred
Stock will be validly issued, fully paid and nonassessable. The Corporation
shall pay any and all documentary stamp or similar issue or transfer taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of Series F Preferred Stock pursuant hereto. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that in which the Series F Preferred Stock so converted were
registered, and no such issue or
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<PAGE> 10
delivery shall be made unless and until the person requesting such transfer has
paid to the Corporation that such tax has been paid or that no such tax is
payable."
ARTICLE III
Pursuant to Article 4.03(C) of the TBCA, 1081 shares of Series F
Preferred Stock of the Corporation 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:
<TABLE>
<CAPTION>
SERIES FOR AGAINST ABSTAIN
------ --- ------- -------
<S> <C> <C> <C>
Series F Preferred Stock 1081 0 0
</TABLE>
ARTICLE V
This Amendment does not involve any reclassification or cancellation of
any issued shares of the Corporation.
ARTICLE VI
This Amendment does not effect a change in the amount of stated capital
of the Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to
Amended and Restated Articles of Incorporation of SI Diamond Technology, Inc. as
of March 24, 1998.
SI DIAMOND TECHNOLOGY, INC.
By /s/ Douglas P. Baker
--------------------------------------
Douglas P. Baker
Senior Vice President
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<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF HASKELL SLAUGHTER & YOUNG L.L.C. APPEARS HERE]
May 11, 1998
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 23,837,111 shares of Common Stock.
In our capacity as counsel to the Company, we have participated in the
preparation of the Registration Statement on Form S-3 of the Company with
respect to the offer and sale of the Common Stock (the "Registration
Statement") which was filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "1933 Act"), and the General Rules
and Regulations thereunder (the "Rules and Regulations"). Capitalized terms
used herein shall have the meanings ascribed to them in the Registration
Statement.
In connection with the opinions expressed below, we have examined a
signed copy of the Registration Statement, corporate records of the Company
(on which we have relied with respect to the accuracy of the material factual
matters covered thereby), and such other documents as we have deemed necessary
or appropriate for purposes of the opinions expressed below.
Based on the foregoing and subject to the qualifications and
limitations set forth below, we are of the opinion that (i) the shares of
Common Stock held by the Selling Shareholders are validly issued, fully paid
and nonassessable; (ii) the shares of Common Stock to be issued pursuant to
the Warrants are validly authorized and, when such shares have been duly
delivered against payment as provided in the 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 E Preferred
Stock, Series F Preferred Stock, and Series G Preferred Stock, when such
shares have been delivered as provided in the applicable provisions of the
Company's Amended and Restated Articles of incorporation, shall be validly
issued, fully paid and nonassessable.
Our opinion is limited in all respects to the substantive law of the
State of Texas and the federal law of the United States, and we assume no
responsibility as to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction. The opinion expressed in this letter is
rendered as of the date hereof, and we undertake no, and hereby disclaim any,
obligation to advise you of any changes in or new developments which might
affect matters or opinions set forth herein.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the statement made regarding me under the
caption "Legal Opinions" in the Prospectus included in the Registration
Statement.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ DONALD T. LOCKE
--------------------------------------
Donald T. Locke
