<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-78907
PROSPECTUS
SI DIAMOND TECHNOLOGY, INC.
5,573,460 SHARES OF COMMON STOCK
(PAR VALUE $.001 PER SHARE)
10,599,792 SHARES OF COMMON STOCK
UNDERLYING WARRANTS
The shareholders of SI Diamond Technology, Inc. identified on pages
20-21 may offer and sell the shares covered by this Prospectus from time to
time. The shares offered for sale:
- are presently outstanding, or will be issued as a result of
existing agreements, or
- underlie certain existing warrants to purchase common stock.
This offering is not being underwritten. The selling shareholders will
pay all underwriting discounts and selling commissions, if any, applicable to
the sale of the shares.
SI Diamond will receive the proceeds from the exercise of the warrants
but will not receive any proceeds from the sale of the shares of common stock by
the selling shareholders. SI Diamond will pay substantially all of the expenses
of the registration of the sale of the shares. SI Diamond has agreed to
indemnify certain of the selling shareholders against certain civil liabilities,
including liabilities under the Securities Act of 1933. See "Plan of
Distribution and Selling Shareholders."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN RISK
FACTORS WHICH YOU SHOULD CONSIDER. YOU SHOULD READ THE ENTIRE PROSPECTUS BEFORE
MAKING AN INVESTMENT DECISION.
SI Diamond's common stock is traded and quoted on the OTC Bulletin
Board under the symbol "SIDT". On November 19, 1999, the closing price of the
common stock as reported on the OTC Bulletin Board was $1.84375 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
The date of this Prospectus is November 29, 1999.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this
document and may not contain all the information important to you. You should
read carefully this entire document and the documents to which we have referred
you. Unless the context otherwise requires, the term "SI Diamond" or the
"Company" refers to SI Diamond Technology, Inc. and its subsidiaries.
THE COMPANY
The executive offices of SI Diamond are located at 3006 Longhorn
Boulevard, Suite 107, Austin, Texas 78758, and its telephone number is (512)
339-5020.
THE OFFERING
This prospectus relates to 16,173,252 shares of common stock, par value
$.001 per share, of SI Diamond Technology, Inc., a Texas corporation, which may
be offered for sale by certain shareholders of the Company from time to time.
The shares offered for sale:
- are presently outstanding, or will be issued as a result of
existing agreements, or
- underlie certain existing warrants to purchase common stock.
As of November 19, 1999, the Company had the following securities
outstanding covered by this Prospectus.
<TABLE>
<CAPTION>
SECURITY DESIGNATION AMOUNT OUTSTANDING (1)
-------------------- ----------------------
<S> <C>
Common stock 5,573,460
Common stock underlying warrants 10,599,792
</TABLE>
- -------------------
(1) This number represents either shares of common stock or the number of
shares of common stock into which the warrants are convertible as of
the date of this Prospectus.
See "Plan of Distribution and Selling Shareholders."
PLAN OF DISTRIBUTION
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 exchange 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 commission or discounts with
respect to a
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particular offer will be described 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 all of the expenses of the
registration of the shares. The selling shareholders must pay any commissions
and discounts of underwriters, dealers or agents. The Company has agreed to
indemnify certain of the selling shareholders against certain civil liabilities
under the Securities Act. See "Plan of Distribution and Selling Shareholders."
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 4 of this prospectus for a discussion of
certain factors related to the Company and the common stock offered in this
prospectus.
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RISK FACTORS
The common stock being offered hereby involves a high degree of risk.
You should carefully consider the following risk factors in addition to other
information contained in this prospectus in deciding whether to invest in our
shares of common stock.
OUR DFE PRODUCT DEVELOPMENT IS IN ITS EARLY STAGES AND THE OUTCOME IS UNCERTAIN
Our Diamond Field Emission ("DFE") technology, and any products that
use this technology, will require significant additional development,
engineering, testing and investment prior to commercialization. Our leading
potential DFE product is a cathode, or light source, intended for use in a
display. If the cathode is successful, a display using this cathode is also a
possibility. The cathode or display may not be successfully developed. If either
of these products is developed, it may not be possible to produce these products
in significant quantities at a price that is competitive with other similar
products.
THERE ARE NO CURRENT DFE PRODUCT REVENUES
We currently do not receive revenue from any products which we produce
that use our DFE technology. However, we have received revenue for continued
research on our DFE technology and licensing others to use our patented
technology. We may never receive revenue from the sale of products which we
produce that use our DFE technology.
OUR SUCCESS IS DEPENDENT ON OUR PRINCIPAL PRODUCTS
Our DFE technology is an emerging technology. Our financial condition
and prospects are dependent upon market acceptance and sales of our DFE products
and our electronic billboard and related electronic display products. Additional
research and development needs to be conducted on the DFE products before
marketing and sales efforts can be commenced. Market acceptance of our 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 we will be able to gain commercial market acceptance for our products or
develop other products for commercial use.
WE HAVE A HISTORY OF OPERATING LOSSES
We have a history of operating losses and have never had a profitable
year until 1999. We have incurred operating losses as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 NET INCOME (LOSS)
---------------------- -----------------
<S> <C>
1992 $ (1,630,978)
1993 $ (7,527,677)
1994 $ (7,255,420)
1995 $ (14,389,856)
1996 $ (13,709,006)
1997 $ (6,320,901)
1998 $ (3,557,548)
1999 (through September 30) $ 1,749,368
</TABLE>
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We may continue to incur additional operating losses for an extended
period of time as we continue to develop products. We do, however, expect to be
profitable in 1999. We may not be profitable beyond 1999. Wallace Sanders &
Company, independent auditors of the Company, have expressed substantial doubt
as to our ability to continue as a going concern based on these accumulated
losses from operations. See "Independent Auditors' Report." We have funded our
operations to date primarily through the proceeds from the sale of our debt and
equity securities. In order to continue our transition from a contract research
and development organization to an organization with ongoing operations, we
anticipate that substantial product development expenditures will continue to be
incurred.
WE HAVE FUTURE CAPITAL NEEDS AND THE SOURCE OF THAT FUNDING IS UNCERTAIN
We expect to continue to incur substantial expenses for research and
development, product testing, production, manufacturing, product marketing, and
administrative overhead. The majority of research and development expenditures
are for the development of our DFE technology and our electronic billboard
product. Products that use our DFE technology may not be available for
commercial sale or routine use for a period of one to two years. Our electronic
billboard product is available for sale at the present time. Commercialization
of our existing and proposed products will require additional capital in excess
of our current sources of funding. A shortage of capital may prevent us 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 our 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, we may be required to curtail our expansion and/or
seek additional financing from other sources. We may seek additional financing
through the offer of debt or equity or any combination of the two at any time.
We have developed a plan to allow us to maintain operations until we
are able to sustain ourselves on our own revenue. At the present time, we have
existing resources to sustain ourselves for a period of approximately six months
from the date of this Prospectus at current spending levels. We believe that we
have the ability to continue to raise short term funding, if necessary, to
enable us to continue operations until our plan can be completed. These
strategic partners could take the form of joint venture participants, licensors
of technology, investors, or any other form acceptable to the Company. We are
also concentrating on raising revenue by seeking customers for our electronic
billboard product, which has been developed.
Our 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. If adequate funds are not available from operations or
additional sources of financing, we may have to eliminate, or reduce
substantially, expenditures for research and development, testing and production
of our products. We may have to obtain funds through arrangements with other
entities that may require us to relinquish rights to certain of our technologies
or products. These actions could materially and adversely affect the Company.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS OBSOLETE AND WE MAY NOT
REMAIN COMPETITIVE
The display industry is highly competitive and is characterized by
rapid technological change. Our 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 our products. There is no assurance
that other products, processes or technologies will not render our proposed
products obsolete or less competitive. Most of our
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competitors have greater financial, managerial, distribution, production and
technical resources than us. We will be required to devote substantial financial
resources and effort to further research and development. There can be no
assurance that we will successfully differentiate our products from our
competitors' products, or that we will adapt to evolving markets and
technologies, develop new products, or achieve and maintain technological
advantages.
WE HAVE TECHNOLOGIES SUBJECT TO LICENSES
As a licensee of certain research technologies through various license
and assignment agreements with Microelectronics and Computer Technology
Corporation and DiaGasCrown, Inc., we have acquired rights to develop and
commercialize certain research technologies. In certain cases, agreements
require us to pay royalties on the sale of products developed from the licensed
technologies and fees on revenues from sublicensees. We also have to pay for the
costs of filing and prosecuting patent applications. 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 our future
profitability.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET
Since our inception, we have focused our product development and
research and development efforts on technologies that we believe will be a
significant advance over currently available technologies. 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 our
products will depend, in part, on our ability to convince potential customers of
the advantages of such products as compared to competitive products. It will
also depend upon our ability to train manufacturers to produce our product and
customers and others to use them. We currently have a limited marketing
organization and there is no assurance that we will be able to successfully
market our proposed products even if such products perform as anticipated.
WE HAVE LIMITED MANUFACTURING CAPACITY AND EXPERIENCE
We have recently acquired the assets and management of a company which
has experience in manufacturing electronic billboards and related products in
the areas in which we conduct our principal research. Members of the management
team of SI Diamond have commercial manufacturing and marketing experience in
other industries and with other products in the display industry; however, we
have only limited experience in manufacturing our proposed products. We are
focusing our efforts on licensing our technology to others for use in their
manufacturing processes. We intend to contract with qualified manufacturers for
assembly services related to our electronic billboard product, which is
currently under development. To the extent that any of our other products
require manufacturing facilities, we intend to contract with strategic partners
or other qualified manufacturers.
WE FACE CHALLENGES RELATING TO EXPANSION OF OUR PRODUCTION AND MANUFACTURING
FACILITIES
With the recent acquisition of the assets and management of a company
with experience in manufacturing electronic billboards and related products, we
must complete the remaining phases of integrating those assets and management
into SI Diamond. We are in the process of completing this integration and may
add additional facilities in the future. Expansion activities such as these are
subject to a number of risks, including the following:
- unforeseen environmental or engineering problems relating to
existing new facilities;
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- unavailable or late delivery of the advanced, and often
customized, equipment used in the production of our products;
- unavailability of funds necessary for expansion;
- work stoppages and delays; and
- delays in bringing production equipment on-line.
These and other risks may affect the ultimate cost and timing of this
integration of facilities and management, which could adversely affect our
business, results of operations and financial condition.
WE MAY NOT BE ABLE TO MARKET AND SELL OUR PRODUCTS
We intend to establish and develop a sales organization to promote,
market, and sell our products. This may require significant additional
expenditures, management resources, and training time. There can be no assurance
that we will be able to establish a successful sales organization.
WE ARE DEPENDENT ON THE AVAILABILITY OF MATERIALS AND SUPPLIERS
We anticipate that the materials to be used in producing our future
products will be purchased from outside vendors. In certain circumstances, we
may be required to bear the risk of material price fluctuations. We anticipate
that the majority of raw materials used in products to be manufactured by the
Company or its strategic partners will be readily available. However, there is
no assurance that these materials will be available in the future, or if
available, will be procurable at prices favorable to the Company or its
strategic partners.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
Our future success will depend on our ability to attract and retain
highly qualified scientific, technical and managerial personnel. Competition for
such personnel is intense. We may not be able to attract and retain all
personnel necessary for the development of our business. In addition, much of
the know-how and processes developed by the Company reside in our key scientific
and technical personnel. This know-how and these processes are not readily
transferable to other scientific and technical personnel. The loss of the
services of key scientific, technical and managerial personnel could have a
material adverse effect on us.
WE MAY NOT BE ABLE TO PROVIDE SYSTEM INTEGRATION
In order to prove that our technologies work and will produce a
complete product, we must ordinarily integrate a number of highly technical and
complicated subsystems into a fully-integrated prototype. There is no assurance
that we will be able to successfully complete the development work on any of our
proposed products or ultimately develop any marketable products.
WE MAY BE UNABLE TO ENFORCE OR DEFEND OUR OWNERSHIP AND USE OF OUR PROPRIETARY
TECHNOLOGY
Our ability to compete effectively with other companies will depend on
our ability to maintain the proprietary nature of our technology. Although we
have been awarded, have filed applications for, or have been licensed technology
under numerous patents, the degree of protection offered by these patents or the
likelihood that pending patents will be issued is uncertain. Competitors in both
the United States and foreign countries, many of which have substantially
greater resources and have made substantial investment in competing
technologies, may already have, or may apply for and obtain patents that will
prevent, limit or
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interfere with our ability to make and sell our products. Competitors may also
intentionally infringe on our patents. The defense and prosecution of patent
suits is 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 us to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require us to cease
selling our products. Although third parties have not asserted infringement
claims against us, there is no assurance that third parties will not assert such
claims in the future. Claims that our products infringe on the proprietary
rights of others are more likely to be asserted after commencement of commercial
sales incorporating our technology.
We also rely on unpatented proprietary technology, and there is no
assurance that others will not independently develop the same or similar
technology, or otherwise obtain access to our proprietary technology. To protect
our rights in these areas, we require all employees and most consultants,
advisors and collaborators to enter into confidentiality agreements. These
agreements may not provide meaningful protection for the our 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 we have attempted to protect proprietary
technology that we develop or acquire and will continue to attempt to protect
future proprietary technology through patents, copyrights and trade secrets, we
believe that our success will depend upon further innovation and technological
expertise.
OUR REVENUES HAVE BEEN DEPENDENT ON GOVERNMENT CONTRACTS IN THE PAST
In previous years, a significant part of our revenues were derived from
contracts with agencies of the United States government. Following is a summary
of those revenues in recent years:
<TABLE>
<CAPTION>
REVENUES FROM PERCENTAGE OF
YEAR ENDED DECEMBER 31 GOVERNMENT CONTRACTS TOTAL REVENUE
---------------------- -------------------- -------------
<S> <C> <C>
1992 $ 930,000 99%
1993 $ 1,147,000 89%
1994 $ 820,000 41%
1995 $ 1,009,000 33%
1996 $ 2,869,000 50%
1997 $ 854,000 24%
1998 $ 0 0%
1999 $ 0 0%
</TABLE>
We currently have no significant commitment for any future government
funding and do not intend to seek any government funding unless it directly
relates to achievement of our strategic objectives. To the extent that we are
unable to obtain funding from alternate sources, this could adversely affect our
ability to continue to perform research and development on our proposed
products.
Contracts involving the United States government are, or may be,
subject to various risks including, but not limited to, the following:
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- 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
- Potential disclosure of our confidential information to third
parties
- The failure or inability of the prime contractor to perform
its prime contract in circumstances where we are a
subcontractor
- The failure of the government to exercise options provided for
in the contracts
- The right of the government to obtain a non-exclusive, royalty
free, irrevocable world-wide license to technology developed
under contracts funded by the government if we fail to
continue to develop the technology
YEAR 2000 ISSUES MAY EXPOSE US TO LIABILITY
Some computers, software and other equipment include programming code
in which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of the systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900 rather than 2000.
These problems are widely expected to increase in frequency and severity as the
year 2000 approaches and are commonly referred to as the "Year 2000 Problem."
The Year 2000 Problem presents us potential risks including, but not
limited to, the following:
- Products sold to customers - We have had very limited product
sales to customers and believe that all products sold to
customers are Year 2000 compliant. We believe our risk in this
area is extremely limited.
- Internal Infrastructure - We have completed an internal
evaluation and have determined that all of our internal
systems will be Year 2000 compliant well prior to the end of
1999. We believe our risk in this area is extremely limited.
- Suppliers/third party relationships - There is no assurance
that our suppliers or other third parties that we rely on will
resolve any or all Year 2000 problems with their systems on a
timely basis. Since we have no significant suppliers of
product, we believe our risk is limited in this area.
- External Infrastructure - We are dependent on other entities
such as governmental units, utilities, banks, etc., that
maintain an external infrastructure necessary for us to
operate. Although we expect that such entities are addressing
and solving their Year 2000 problems, there no assurances that
these problems will be addressed and solved on a timely basis.
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WE ARE EXPOSED TO MATERIAL LITIGATION
We have been sued by a former customer of Plasmatron, one of our
subsidiaries, for damages that the former customer claims that it incurred as a
result of the alleged failure of the machine provided by Plasmatron to perform
as intended. Various trade creditors, as well as a former landlord, have also
filed suit to collect unpaid trade amounts due. We expect these items to be
resolved with no material impact on our financial statements. If we were to
become subject to a judgment that exceeds our ability to pay, that judgment
would have a material impact on our financial condition and could affect our
ability to continue in existence.
OUR OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS OWN OR CONTROL A LARGE NUMBER
OF SHARES
Officers, directors and principal shareholders of SI Diamond own, or
have the power to vote, in the aggregate, approximately 10.99% of the voting
stock of SI Diamond on an "as converted" basis. Due to the relatively large
number of shares owned by these shareholders and certain provisions of SI
Diamond'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 SI Diamond or effect other fundamental corporate
transactions if officers, directors and principal shareholders were to act as a
group.
THE MARKET FOR OUR COMMON STOCK IS VOLATILE
The market price of the shares of SI Diamond common stock, 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 prices of such securities currently rise and are 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 SI Diamond achieves earnings from the
sale of products, securities analysts may begin predicting quarterly earnings.
The failure of our earnings to meet analysts' expectations could result in a
significant rapid decline in the market price of our 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 OF OUR COMMON STOCK ARE ELIGIBLE FOR FUTURE SALE
As of November 19, 1999, there were 53,685,524 shares of SI Diamond
common stock outstanding, of which 45,429,047 shares of such common stock were
freely tradable without restriction or further registration under the Securities
Act by persons other than "affiliates" of SI Diamond. As of that date, the
remaining shares of SI Diamond 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 SI Diamond, 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 5,573,460 shares of common stock which are currently "restricted
securities"; and 10,599,792 shares of common stock which
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underlie existing warrants. SI Diamond 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.
In addition to the shares of common stock which are outstanding as of
November 19, 1999, 5,702,008 shares of common stock have been reserved for
issuance pursuant to our stock option plans. Approximately 10,599,792 shares of
common stock have also been reserved for issuance upon the exercise of warrants
that have been issued by SI Diamond and 1,421,479 shares of common stock have
been reserved for issuance upon conversion of the Company's Series G preferred
stock.
No prediction can be made as to the effect, if any, that future sales,
or the availability of shares of SI Diamond common stock for future sales, will
have on the market price prevailing from time to time. Sales of substantial
amounts of SI Diamond common stock by SI Diamond 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.
OTHER CLASSES OF CAPITAL STOCK HAVE PRIOR AND SUPERIOR RIGHTS
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 SI Diamond's preferred stock. As of November 19, 1999, SI Diamond had
issued and outstanding 1,150 shares of its Series G preferred stock, its only
series outstanding. Additionally, the holders of the 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, SI Diamond could issue shares of preferred stock at any
time having such prior and superior rights. See "Description of Capital Stock".
A POSSIBLE ADVERSE EFFECT ON THE PRICE OF OUR COMMON STOCK COULD RESULT FROM
SALES BY SELLING SHAREHOLDERS IN THE MARKET
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.
Upon registration in accordance with its obligations, the selling
shareholders will be permitted to sell up to 16,173,252 shares of common stock,
of which 10,599,792 are shares of common stock subject to issuance upon the
exercise of certain warrants. The shares (assuming the exercise of all warrants
subject to the Registration Statement) represent approximately 25.1% of the
shares of common stock outstanding on the date hereof. We will not receive any
proceeds from sales of shares held by such selling shareholders. SI Diamond will
receive the proceeds from the exercise of any warrants to purchase shares of
common stock. SI Diamond is unable to predict how much it will receive from the
exercise of the warrants held by the Vision Mark Selling Shareholder since the
price of such warrants shall be established, if at all, upon the achievement of
certain milestones by C&A Services, L.L.C. See "Plan of Distribution and Selling
Shareholder-Vision Mark Selling Shareholder." The exercise prices of all other
warrants range from $1.00 to $7.89 per share of SI Diamond's common stock. It is
unlikely that significant amounts of the warrants will be exercised until the
trading price of the common stock exceeds the exercise price of the warrants, if
at all.
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WE HAVE NEVER PAID DIVIDENDS
SI Diamond 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.
OUR RESTATED ARTICLES OF INCORPORATION AND BYLAWS MAY INHIBIT A TAKEOVER
SI Diamond's Restated Articles and Bylaws contain a number of
provisions which could make its acquisition by means of an unsolicited tender
offer, a proxy contest or otherwise, more difficult, including the following:
- 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;
- 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; and
- except in limited circumstances, no shares of our preferred
stock may be issued or sold to any officer or director of SI
Diamond or any shareholder owning more than five percent (5%)
of SI Diamond's common stock without the affirmative vote of a
majority of its disinterested shareholders.
See "Description of Capital Stock - Certain Provisions of the Articles of
Incorporation, Bylaws and Texas Law."
OUR RESTATED ARTICLES AND BYLAWS LIMIT OUR DIRECTORS' LIABILITY AND PROVIDE FOR
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SI Diamond's Restated Articles provide that a director will only be
liable to SI Diamond for the following:
- breaches of his duty of loyalty to SI Diamond and its
shareholders,
- acts or omissions not in good faith or which constitute a
breach of duty of a director of SI Diamond or involves
intentional misconduct or a knowing violation of law,
- 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,
- acts or omissions for which liability is specifically provided
by statute, and
- acts relating to unlawful stock purchases or payments of
dividends.
Thus, SI Diamond may be prevented from recovering damages for certain alleged
errors or omissions by its directors.
The Bylaws also provide that, under certain circumstances, SI Diamond
will indemnify its officers and directors for liabilities incurred in connection
with their good faith acts. Such an indemnification
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<PAGE> 13
payment might deplete our assets. While Texas law permits a shareholder to bring
a derivative action on behalf of a corporation, the law relating to the remedies
available to corporate shareholders is constantly changing. Shareholders who
have questions concerning the fiduciary obligations of the officers and
directors of SI Diamond should consult with independent legal counsel. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of SI Diamond pursuant
to the foregoing provisions, or otherwise, SI Diamond 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.
THERE ARE RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This prospectus contains some forward-looking statements.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They use words such as "anticipate",
"believe", "expect", "estimate", "project", "intend", "plan", and other words
and terms of similar meaning in connection with any discussion of future
operating or financial performance. In particular, these include statements
relating to future actions, prospective products or product approvals, future
performance or results of current and anticipated products, sales efforts,
expenses, the outcome of contingencies such as legal proceedings, and financial
results. From time to time, we also may provide oral or written forward-looking
statements in other materials we release to the public.
Any or all of our forward-looking statements in this report and in any
other public statements we make may turn out to be wrong. They can be affected
by inaccurate assumptions we might make or by known or unknown risks or
uncertainties. Many factors mentioned in the following discussion - for example,
product development, competition, and the availability of funding - will be
important in determining future results. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as the result of new information, future events, or
otherwise. You are advised, however, to consult any further disclosures we make
on related subjects in our 10-QSB, 8-K, and 10-KSB reports to the SEC. Also note
that we have provided the above cautionary discussion of risks, uncertainties,
and possibly inaccurate assumptions relevant to our business. These are factors
that we think could cause our actual results to differ materially from expected
and historical results. Other factors besides those listed above could also
adversely affect the Company. This discussion is provided as permitted by the
Private Securities Litigation Reform Act of 1995.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a Registration Statement on Form S-3 that we
filed with the Commission. This prospectus does not contain all of the
information in the Registration Statement. The Registration Statement contains
more information than this prospectus regarding SI Diamond and its common stock,
including exhibits and schedules. You can get a copy of the Registration
Statement from the SEC at the address below or from its internet site.
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy the documents we file with
the SEC at the SEC's public reference room at 450 Fifth Street, N.A., 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
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<PAGE> 14
Seven World Trade Center, New York, New York 10048. You should call
1-800-SEC-0330 for more information on the public reference room. You can
request copies of these documents upon payment of a duplicating fee by writing
to the SEC at the public reference section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Web site that contains
information regarding registrants at http:\\www.sec.gov.
SI Diamond's 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, 3rd Floor, Washington, D.C. 20006 or
obtained by calling the Nasdaq Public Reference Room Disclosure Group at
1-800-638-8241.
DOCUMENTS INCORPORATED BY REFERENCE
The Commission allows us to "incorporate" into this prospectus
information we file with the Commission in other documents. This means we can
disclose important information to you by referring to other documents which we
have filed and contain that information. The following documents, which have
been filed by SI Diamond with the Commission pursuant to the Exchange Act (File
No. 1-11602), are incorporated by reference in this prospectus and shall be
deemed to be a part hereof:
(1) SI Diamond's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998;
(2) SI Diamond's Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 1999;
(3) SI Diamond's Current Report on Form 10-QSB for the quarterly
period ended June 30, 1999;
(4) SI Diamond Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1999;
(5) SI Diamond's Current Report on Form 8-K dated as of February
3, 1999;
(6) SI Diamond's Current Report on Form 8-K dated as of April 16,
1999;
(7) SI Diamond's Current Report on Form 8-K/A dated as of April
16, 1999 (filed on September 27, 1999);
(8) SI Diamond's Current Report on Form 8-K dated as of September
3, 1999;
(9) SI Diamond's Current Report on Form 8-K/A dated as of
September 3, 1999 (filed on November 18, 1999);
(10) SI Diamond's Current Report on Form 8-K dated as of September
3, 1999 (filed on November 23, 1999)
(11) SI Diamond's Current Report on Form 8-K dated as of September
30, 1999;
(12) SI Diamond's Current Report on Form 8-K dated as of October
21, 1999; and
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<PAGE> 15
(13) The description of SI Diamond's common stock which is
contained in its Registration Statement on Form 8-A filed on
November 19, 1992, pursuant to Section 12 of the Securities
Exchange Act of 1934, including any amendment or report filed
for the purpose of updating such description.
We incorporate by reference all future documents we may file with the
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 until we terminate the offering of these shares. The information
that we incorporate by reference may include documents filed after the date of
this Prospectus which update and supersede the information you read in this
Prospectus.
You may request a copy of the documents incorporated by reference at no
cost. Requests for copies should be directed in writing or by telephone to:
SI Diamond Technology, Inc.
3006 Longhorn Boulevard, Suite 107
Austin, Texas 78758
Attention: Corporate Secretary
(Telephone: (512) 339-5020)
USE OF PROCEEDS
The selling shareholders will receive all of the net proceeds from the
sale of the shares of SI Diamond common stock sold. Pursuant to this prospectus,
SI Diamond will not receive any of the proceeds from the sale of the shares by
the selling shareholders. SI Diamond will receive the proceeds from the exercise
of the warrants, which proceeds will be used for working capital. SI Diamond is
unable to predict how much it will receive from its exercise of the warrants
held by the Vision Mark Selling Shareholder since the price of such warrants
shall be established, if at all, upon the achievement of certain milestones by
C&A Services, L.L.C. See "Plan of Distribution and Selling Shareholder - Vision
Mark Selling Shareholder." The exercise prices of all other warrants range from
$1.00 to $7.89 per share of SI Diamond's common stock. It is unlikely that
significant amounts of 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 registering the shares on behalf of the Selling
Shareholders. As used herein, "Selling Shareholders" includes donees and
pledgees selling shares received from a named Selling Shareholder after the date
of this Prospectus. The Selling Shareholders hold shares of SI Diamond's common
stock which are (1) currently "restricted securities", or (2) issuable upon
exercise of certain outstanding warrants to purchase shares of the Company's
common stock. All costs, expenses and fees in connection with the registration
of the shares offered hereby will be borne by the Company. Brokerage commissions
and similar selling expenses, if any, attributable to the sale of shares will be
borne by the Selling Shareholders.
Sales of shares may be effected by Selling Shareholders from time to
time in one or more types of transactions (which may include block transactions)
on the OTC Bulletin Board or any stock exchange on which the shares may be
listed in the future pursuant to and in accordance with the applicable rules of
such exchange, in negotiated transactions, through put or call options
transactions relating to the shares, through
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<PAGE> 16
short sales of shares, or a combination of such methods of sale, at market
prices prevailing at the time of sale, or at negotiated prices. Such
transactions may or may not involve brokers or dealers or underwriters. The
Selling Shareholders have advised the Company that they have not entered into
any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the Selling Shareholders.
The Selling Shareholders may effect such transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Shareholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers that act in connection
with the sale of shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. The Company has agreed to indemnify each Selling
Shareholder against certain liabilities, including liabilities arising under the
Securities Act. The Selling Shareholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
shares against certain liabilities, including liabilities arising under the
Securities Act.
Because Selling Shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Shareholders
will be subject to the prospectus delivery requirements of the Securities Act.
Resales and reoffers of the shares by the Selling Shareholders must also be
accompanied by the delivery of a copy of the prospectus. Copies of the
prospectus shall be delivered to each Selling Shareholder after the Registration
Statement, of which this prospectus is a part, is declared effective. 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 agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth in
the accompanying prospectus. Each Selling Shareholder shall also be informed of
the anti-manipulative rules under Regulation M promulgated pursuant to the
Exchange Act.
Selling Shareholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
They may also pledge shares as collateral for margin accounts, which shares can
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 in this prospectus. SI Diamond has filed
the Registration Statement, of which this prospectus forms a part, to comply
with the exercise by certain Selling Shareholders of demand registration rights
granted to such Selling Shareholders, and to comply with certain "piggyback"
registration rights granted to other Selling Shareholders.
Upon the Company being notified by a Selling Shareholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the Act,
disclosing (i) the name of each such Selling Shareholder and of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-
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<PAGE> 17
dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus and (vi) other facts material to the transaction. In addition,
upon SI Diamond being notified by a Selling Shareholder that a donee or pledgee
intends to sell more than 500 shares, a supplement to this Prospectus will be
filed.
SWARTZ SELLING SHAREHOLDERS
Effective in January 1996, the persons listed in the Selling
Shareholders Table as the Swartz Selling Shareholders received warrants to
purchase shares of the Company's common stock at $7.89 per share. These warrants
expire on January 7, 2000. Swartz allocated their warrants among certain of its
principals and employees. Swartz assisted SI Diamond as placement agent for its
Series E preferred stock, of which there are no shares currently outstanding.
SERIES G SELLING SHAREHOLDERS
In June 1997, the Series G Selling Shareholders received warrants to
purchase an aggregate of 850,000 shares of the Company's common stock at $1.00
per share. These warrants expire in August 2002. Of the warrants issued, 350,000
have been exercised and 500,000 remain outstanding.
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 and the associated
warrants and to keep such Registration Statement effective for one (1) year.
Additionally, SI Diamond 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). SI Diamond 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 SI Diamond against civil liabilities, including liabilities under the
Securities Act, with respect to written information furnished by the Series G
selling shareholders to SI Diamond.
NOTE SELLING SHAREHOLDERS
During 1998, SI Diamond issued a total of $1,005,000 of notes payable
to investors that were convertible into shares of the Company's common stock at
the option of the lenders, primarily at a rate of $0.25 per share, which
approximated the market price at the time the loans were made. All of these
notes have been converted into SI Diamond's common stock.
In January and February 1999, SI Diamond borrowed a total of $200,000
from a shareholder for working capital purposes. These short-term loans bore
interest at a rate of 15%, were secured by all assets of SI Diamond, and were
convertible into its common stock at rates ranging from $0.30 to $0.40 per
share. These conversion rates approximated the market price of SI Diamond's
common stock at the times the loans were arranged. These notes were converted
into shares of SI Diamond's common stock in February 1999.
OCTOBER 1998 WARRANT SELLING SHAREHOLDER
In 1998, SI Diamond issued $100,000 of 90-day notes which were payable
at a rate of 15% and secured by all assets of SI Diamond. These notes were
accompanied by warrants enabling the holders of these 90-day notes to purchase a
total of 400,000 shares of SI Diamond's common stock at $0.25 per share, which
approximated the market price of the common stock at the time of the loans.
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<PAGE> 18
VISION MARK SELLING SHAREHOLDER
On November 11, 1998, Electronic Billboard Technology, Inc. ("EBT"), a
wholly-owned subsidiary of SI Diamond entered into a Marketing Agent Agreement
with Vision Mark, L.L.C., a Texas limited liability company. Pursuant to the
marketing agreement, EBT appointed Vision Mark as a nonexclusive marketing
representative. In connection with the marketing agreement, SI Diamond entered
into a Consulting and Advisory Services Compensation Agreement with C&A
Services, L.L.C. ("C&A"). SI Diamond also agreed that at such time as EBT shall
enter into a letter of intent for the installation of certain of its operating
systems resulting from Vision Mark's representation of EBT, SI Diamond shall
issue C&A 300,000 shares of its common stock.
SI Diamond also issued warrants to purchase SI Diamond common stock to
C&A, which are exercisable upon the achievement of certain goals as described
below:
(1) Once EBT has received revenue from arrangements pursuant to
the Marketing Agent Agreement in the aggregate of $10,000,000, and for each
successive and cumulative $10,000,000 increment of revenue achieved pursuant to
the Marketing Agent Agreement, C&A may exercise warrants to purchase up to
250,000 shares of SI Diamond common stock at a purchase price equal to 50% of
the average closing price of SI Diamond common stock on the five business days
next preceding the date of the achievement of each $10,000,000 increment in
revenue from the Marketing Agent Agreement.
(2) Within 60 days following each annual anniversary of the
Marketing Agent Agreement, if the aggregate revenue from such agreement is at
least equal to $10,000,000 for each such annual period, C&A shall have the
additional right thereafter to exercise warrants to purchase shares of SI
Diamond common stock with respect to each such annual determination. If the
amount of revenue received pursuant to the Marketing Agent Agreement is equal
to, but not less than 25% of, the aggregate revenue of SI Diamond for each such
annual period, C&A may exercise warrants to purchase up to 100,000 shares of SI
Diamond common stock at a purchase price equal to 75% of the average closing
price of SI Diamond common stock on the five business days next preceding the
last business day of each such annual period. For each additional 1% above 25%
that the revenue received pursuant to the Marketing Agent Agreement contributed
to the aggregate SI Diamond annual revenue for such annual period, C&A may
exercise warrants to purchase up to 100,000 such additional shares of SI Diamond
common stock, in incremental amounts of 4,000 shares of SI Diamond common stock
each for each such additional 1% of revenue that the Marketing Agent Agreement
contributed to the aggregate revenue of SI Diamond for such annual period. These
warrants may be exercised at a purchase price equal to the average closing price
of SI Diamond common stock on the five business days next preceding the last
business day of such annual period, less a percentage equal to the sum of 25%
plus an additional 1% for each additional 1% over and above 25% (not to exceed,
in the aggregate, 50%) that the revenue achieved pursuant to the Marketing Agent
Agreement contributed to the aggregate SI Diamond revenue for such annual
period.
(3) SI Diamond also issued warrants to C&A to purchase an
additional 2,300,000 shares of SI Diamond's common stock upon the receipt by EBT
of each of $100,000,000 and $200,000,000, respectively, of cumulative revenue
from the Marketing Agent Agreement (for a maximum of 4,600,000 shares). The
purchase price for the shares subject to these warrants shall be equal to 50% of
the average closing price on the five business days next preceding the date on
the achievement of each of $100,000,000 and $200,000,000 of such cumulative
revenue by EBT.
Notwithstanding anything contained in the Consulting and Advisory
Services Compensation Agreement, the number of shares of SI Diamond common stock
received by C&A shall not exceed 10,000,000 shares, subject to adjustment in
certain circumstances.
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<PAGE> 19
SIGN BUILDERS SELLING SHAREHOLDERS
On September 3, 1999, SI Diamond entered into an Asset Purchase
Agreement by and among itself; SIDT, Inc., one of its indirect wholly-owned
subsidiaries; Sign Builders of America, Inc. ("SBOA"); and Sign Builders, Inc.,
a subsidiary of SBOA. In the Asset Purchase Agreement, SIDT, Inc., purchased the
assets subject to such agreement. In return SIDT, Inc., paid $150,000 in cash to
Sign Builders and $300,000 in cash to Lance Adams, the sole shareholder of SBOA.
SIDT, Inc. also executed a promissory note, guaranteed by SI Diamond, for
$450,000 payable to SBOA. $225,000 in principal of this note, plus accrued and
unpaid interest, is payable on March 3, 2000, and the remaining $225,000 in
principal of this note, plus accrued and unpaid interest, is due and payable on
September 3, 2000. At SBOA's election, on each loan payment date it may convert,
in whole or in part, principal and accrued interest of the note at $2.127 per
share. However, if the combined gross sales of SBOA and SIDT, Inc. for the 1999
calendar year does not exceed $3,000,000, then the note will be reduced $1.00 in
principal amount for each $2.00 that the actual gross sales of SBOA and SIDT,
Inc. fall below $3,000,000.00.
SI Diamond also issued a total of 423,132 shares of its common stock to
SBOA and Mr. Adams in its transaction. As part of the Asset Purchase Agreement,
SI Diamond agreed to register these shares on its current registration
statement. If SI Diamond is unable to accomplish this registration by March 3,
2000, SI Diamond will issue SBOA and Mr. Adams an additional number of shares of
SI Diamond common stock equal to 20 percent of the number of shares issued to
SBOA and Mr. Adams at closing. SI Diamond agreed to keep the registration
statement effective until September 3, 2000
OTHER SELLING SHAREHOLDERS
SI Diamond has agreed to give the shareholders listed herein as the
Other Selling Shareholders "piggyback" registration rights regarding shares
underlying certain warrants and shares held by these holders. Pursuant to these
"piggyback" rights, SI Diamond 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.
SELLING SHAREHOLDERS
This prospectus covers offers of the shares of common stock owned by
the Selling Shareholders. The following table lists the names of the selling
shareholders as well as (1) the number of shares of common stock, and (2) the
number of shares of common stock underlying existing warrants held as of
November 19, 1999. Because SI Diamond 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.
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<PAGE> 20
SELLING SHAREHOLDERS TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON OF COMMON
STOCK HELD AND STOCK UNDERLYING PERCENTAGE OF INTERESTS
OFFERED PURSUANT WARRANTS OFFERED PRIOR TO ANY SALES
TO THIS PURSUANT TO THIS MADE PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1)
----------- ---------- ---------- -------------
<S> <C> <C> <C>
SWARTZ SELLING SHAREHOLDERS
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 *
SERIES G SELLING SHAREHOLDERS
Joseph Shaffer and Cynthia Shaffer...... 25,000 *
James G. Petroff........................ 25,000 *
Mark S. Wagner.......................... 25,000 *
Chris S. Lawson......................... 25,000 *
Pinnacle Fund, L.P...................... 100,000 (2) *
Dan Cafolla............................. 12,500 *
Dan Cafolla Profit Sharing Plan......... 12,500 *
Klaich Animal Hospital, Ltd.
Amended Profit Sharing Plan......... 50,000 *
George Valassis......................... 100,000 *
Peerless Distributing Company........... 25,000 *
ARA ................................. 25,000 *
Nicholas Martin Living Trust............ 100,000 *
NOTE SELLING SHAREHOLDERS
Pinnacle Fund, L.P. .................... 1,221,021 (2) 2.27%
R.J. Berman............................. 202,792 *
Bill Clement............................ 202,507 *
Michael Denton, Jr...................... 305,014 *
Michael Scott Blechman Family Trust..... 830,904 1.55%
Gilbert Kitt............................ 210,000 *
Nick Martin Co.......................... 207,808 *
Nicholas Martin Living Trust............ 207,808
Dan Cafolla Profit Sharing Plan......... 105,301 *
Tom Hickey.............................. 389,795 *
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON OF COMMON
STOCK HELD AND STOCK UNDERLYING PERCENTAGE OF INTERESTS
OFFERED PURSUANT WARRANTS OFFERED PRIOR TO ANY SALES
TO THIS PURSUANT TO THIS MADE PURSUANT TO THIS
SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1)
----------- ---------- ---------- -------------
<S> <C> <C> <C>
OCTOBER 1998 WARRANT SELLING
SHAREHOLDER
Johnathon Drake......................... 99,900 *
VISION MARK SELLING
SHAREHOLDER
C&A Services, LLC....................... 300,000 (3) 9,700,000 (4) 15.70%
SIGN BUILDERS SELLING
SHAREHOLDERS
Sign Builders of America, Inc........... 329,101
Lance Adams............................. 94,030
OTHER SELLING SHAREHOLDERS
Katherine D. Banks...................... 5,000 80,000 *
James N. Perkins........................ 50,000 *
H. Scott Phillips....................... 50,000
Market Pathways......................... 40,000 *
John E. Palmer.......................... 7,500 *
H. Marcia Smolens....................... 7,500
Barry Kitt.............................. 125,000 *
Gilbert Kitt............................ 125,000 *
Pinnacle Fund, L.P...................... 538,979 (2) 1.00%
Sam Chawkin............................. 48,500 *
SFT Consulting.......................... 20,000 *
TOTAL............................... 5,573,460 10,599,792 25.1%
========== =========== ==========
</TABLE>
- --------------------
* Less than 1%
(1) This percentage was calculated including shares issuable upon the
exercise of warrants into shares of the Company's Common Stock.
(2) All combined, Pinnacle Fund, L.P. owns 1,860,000 shares (including
100,000 warrants), which represents 3.46% of the Company's outstanding
common stock.
(3) These 300,000 shares of SI Diamond Common Stock shall not be issued, if
at all, until the Company enters into a letter of intent for the
installation of certain of its operating systems resulting from Vision
Mark's representation of a subsidiary of SI Diamond.
(4) These warrants shall only be exercisable, if at all, upon the
achievement of certain milestones resulting from the representation of
SI Diamond by Vision Mark.
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<PAGE> 22
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of SI Diamond consists of 120,000,000
shares of common stock, par value $.001 per share, and 2,000,000 shares of
preferred stock, par value $1 per share. The preferred stock may be issued in
series and currently consists of the Series G preferred stock, of which 1,150
shares are issued and outstanding.
After giving effect to the conversion of all 10,599,792 warrants which
are subject to the prospectus, there would be 64,285,316 shares of common stock
issued and outstanding. Shares of common stock are reserved for issuance upon
exercise of warrants including all shares of common stock underlying certain
warrants included in this Prospectus. 5,702,008 additional shares are reserved
for issuance under SI Diamond's stock option plans and 1,421,479 additional
shares are reserved for issuance upon the conversion of the Series G preferred
stock.
COMMON STOCK
The holders of common stock are entitled to one vote per share, voting
with the holders of any other class of stock entitled to vote, without regard to
class, on all matters to be voted on by the shareholders, including the election
of directors. All issued and outstanding shares of common stock are fully paid
and nonassessable. The common stock is currently listed on the 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. 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 SI Diamond, 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 G preferred stock are
entitled to a liquidation preference.
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 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 SI Diamond or any shareholder who
directly or indirectly owns greater than five percent (5%) of the issued and
outstanding voting stock of SI Diamond or any affiliate of such persons, without
the affirmative vote of a majority in interest of the disinterested
shareholders. Under the Texas Business Corporation Act, each series of preferred
stock is entitled to vote as a class with respect to a proposed
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<PAGE> 23
amendment to SI Diamond's Restated Articles of Incorporation in certain
circumstances. As of November 19, 1999, the only preferred stock of SI Diamond
outstanding was its Series G preferred stock.
Series G preferred stock
There are 3,000 shares of Series G preferred stock currently authorized
for issuance, of which 1,150 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
the original issue price of the Series G preferred stock, plus an amount equal
to ten percent (10%) of the issue price per annum, by $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 on the record date for the taking of such vote of shareholders.
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 SI
Diamond, either voluntary or involuntary, 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 SI Diamond 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, 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 SI Diamond, the assets available for distribution 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. 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 SI Diamond available for distribution to
its shareholders.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 19, 1999, there were 53,685,524 shares of common stock
outstanding, of which 45,429,047 shares of common stock were freely tradable
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
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<PAGE> 24
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 SI Diamond, 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
- 5,573,460 shares of common stock which are currently
"restricted securities"; and
- 10,599,792 shares of common stock which underlie existing
warrants.
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.
In addition to the shares of common stock which are outstanding as of
November 19, 1999, 5,702,008 shares of common stock have been reserved for
issuance pursuant to SI Diamond's stock option plans and 1,421,479 shares have
been reserved for issuance upon the conversion of the Series G preferred stock.
10,599,792 shares of common stock have also been reserved for issuance upon
exercise of warrants that have been issued by SI Diamond (all of which are
subject to this prospectus).
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 SI Diamond 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, 12039 West Alameda Parkway, Lakewood,
Colorado 80228.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND TEXAS LAW
SI Diamond's Restated Articles currently contain provisions which could
be considered to have anti-takeover effects. First, the authorized and unissued
shares of SI Diamond's preferred stock and common stock could be used by
incumbent management to make more difficult and thereby discourage an attempt to
acquire control of SI Diamond, 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
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<PAGE> 25
directors, replace incumbent directors, accomplish certain business
combinations, or alter, amend, or replace provisions in SI Diamond'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, SI Diamond evaluates potential transactions and acquisitions,
which if consummated, may require the issuance of the unissued preferred stock
or unissued common stock.
SI Diamond'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, SI Diamond'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.
SI Diamond'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, no shares of SI Diamond's preferred stock shall be issued or sold
to any officer or director of SI Diamond, or any shareholder who directly or
indirectly owns more than five percent (5%) of the issued and outstanding voting
stock of SI Diamond, or any affiliate of such a person, without the affirmative
vote of a majority in interest of the disinterested shareholders of SI Diamond.
SI Diamond shall not be obligated to deliver notices or offer voting
stock for sale pursuant to these provisions in respect of the following
issuances of voting stock: (a) pursuant to employee, director or consultant
stock option, purchase, bonus, exchange or other such plans or upon the exercise
of options or other rights granted thereunder, and (b) in connection with
transactions in which shares of voting stock are issued to security holders of a
company being acquired by SI Diamond or to a company some or all of whose assets
are being acquired by SI Diamond.
The Restated Articles limit the liability of directors of SI Diamond in
their capacity as directors. Specifically, the directors of SI Diamond will not
be liable to SI Diamond or its shareholders for monetary damages for an act or
omission in a director's capacity as a director, except for liability for the
following:
- for any breach of the director's duty of loyalty to SI Diamond
or its shareholders,
- for any act or omission not in good faith which constitutes a
breach of duty of the director to SI Diamond or acts or
omissions which involve intentional misconduct or a knowing
violation of the law,
- 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,
- for an act or omission for which the liability of a director
is expressly provided for by an applicable statute, or
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<PAGE> 26
- for acts related to an unlawful stock repurchase or payment of
a dividend.
The overall effect of the provisions in SI Diamond's current Restated
Articles described above would be to make more difficult or discourage a merger,
tender, offer or proxy contest, even if such transaction or occurrence generally
is favorable to the interests of the shareholders, or they may delay or
frustrate the assumption of control by a holder of a large block of SI Diamond'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, 1998 and 1997 and
the consolidated statements of operations, stockholders' equity <deficit> and
cash flows for the years then ended, incorporated by reference in this
prospectus, have been incorporated herein in reliance on the report, which
includes an explanatory paragraph regarding SI Diamond's ability to continue as
a going concern, of Wallace Sanders & Company, 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 Kilpatrick Stockton LLP.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO GIVE YOU INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. THE SELLING SHAREHOLDERS ARE OFFERING TO SELL, AND SEEKING
OFFERS TO BUY, SHARES OF SI DIAMOND COMMON STOCK ONLY IN JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE SHARES.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Risk factors.......................................4
Where you can find more information...............13
Documents incorporated by reference...............14
Use of proceeds...................................15
Plan of distribution and selling shareholders.....15
Selling Shareholders table........................20
Description of capital stock......................22
Experts...........................................26
Legal Opinions....................................26
</TABLE>
SI DIAMOND
TECHNOLOGY,
INC.
[LOGO APPEARS HERE]
5,573,460 SHARES OF
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
10,599,792 SHARES OF
COMMON STOCK
UNDERLYING WARRANTS
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PROSPECTUS
----------
NOVEMBER 29, 1999
================================================================================
