-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AoSTIZPoW2VQBfkZG6U1JD5ocxibItRj7D3N5hmgUGJ7MStzeEn3VUxSBlhGhX0H Ou5XqG+1rBiMXgiIwKdaWA== 0000899243-97-002023.txt : 19971030 0000899243-97-002023.hdr.sgml : 19971030 ACCESSION NUMBER: 0000899243-97-002023 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19971029 SROS: BSE SROS: NASD SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SI DIAMOND TECHNOLOGY INC CENTRAL INDEX KEY: 0000891417 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 760273345 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-38941 FILM NUMBER: 97702362 BUSINESS ADDRESS: STREET 1: 12100 TECHNOLOGY BOULEVARD CITY: AUSTIN STATE: TX ZIP: 78727 BUSINESS PHONE: 5123310200 MAIL ADDRESS: STREET 1: 12100 TECHNOLOGY BOULEVARD CITY: AUSTIN STATE: TX ZIP: 78727 S-3 1 FORM S-3 (ORIGINAL FILING) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SI DIAMOND TECHNOLOGY, INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) STATE OF TEXAS 76-0273345 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) DOUGLAS P. BAKER VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SI DIAMOND TECHNOLOGY, INC. SI DIAMOND TECHNOLOGY, INC. 12100 TECHNOLOGY BOULEVARD 12100 TECHNOLOGY BOULEVARD AUSTIN, TEXAS 78727 AUSTIN, TEXAS 78727 (512) 331-6200 (512) 331-6200 (ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF SMALL BUSINESS ISSUER'S CODE, OF AGENT FOR SERVICE) PRINCIPAL EXECUTIVE OFFICES) --------------- COPIES TO: DONALD T. LOCKE HASKELL SLAUGHTER & YOUNG, L.L.C. 1200 AM SOUTH/HARBERT PLAZA 1901 SIXTH AVENUE NORTH BIRMINGHAM, ALABAMA 35203 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement has been declared effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. [X] 333-24801 If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED MAXIMUM TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------- Common Stock, par value $.001 per share........ 7,364,765 $0.48438 $3,567,345 $1,081.01 - ----------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c), based on the average of the high and low sales prices per share of Common Stock as reported by the NASDAQ Small Cap Market on October 22, 1997. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE This registration statement is being filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, ("Rule 462(b)") to register an additional 7,364,765 Shares included in the Company's registration statement on Form S-3 (File No. 333-24801). Pursuant to Rule 462(b), the contents of the registration statement on Form S-3 (File No. 333-24801) of SI Diamond Technology, Inc., including the exhibits thereto, are incorporated by reference into this registration statement. This registration statement includes the Registration Statement facing page, this page, an updated Prospectus, the signature page, an exhibit index, an accountants' consent and Exhibit 5 legal opinion. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE + +WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES + +LAWS OF ANY SUCH JURISDICTION. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED OCTOBER 28, 1997 PROSPECTUS SI DIAMOND TECHNOLOGY, INC. 14,472,558 SHARES OF 135,000 SHARES OF COMMON STOCK COMMON STOCK (PAR VALUE $.001 PER ISSUABLE UPON SHARE) CONVERSION OF SERIES C PREFERRED STOCK UNDERLYING WARRANTS 1,432,283 SHARES OF 7,830,740 SHARES OF COMMON STOCK COMMON STOCK UNDERLYING WARRANTS ISSUABLE UPON CONVERSION OF SERIES E PREFERRED STOCK 3,176,092 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES F PREFERRED STOCK This Prospectus relates to 27,046,673 shares (the "Shares") of Common Stock, par value $.001 per share (the "Common Stock"), of SI Diamond Technology, Inc., a Texas corporation (the "Company"), which may be offered for sale by certain shareholders of the Company (the "Selling Shareholders") from time to time. The Shares offered for sale are: (1) presently outstanding, (2) underlie certain existing warrants to purchase Common Stock (the "Warrants"), (3) are issuable upon conversion of shares of the Company's Series C Preferred Stock underlying certain existing preferred stock warrants (the "Series C Warrants"), (4) are issuable upon conversion of outstanding shares of the Company's Series E Preferred Stock, or (5) are issuable upon conversion of outstanding shares of the Company's Series F Preferred Stock. As of October 21, 1997, there were 14,472,558 outstanding Shares of Common Stock, 1,432,283 Shares underlying the Warrants, 135,000 Shares issuable upon conversion of the Series C Preferred Stock underlying the Series C Warrants, 7,830,740 Shares issuable upon conversion of the Series E Preferred Stock, and 3,176,092 Shares issuable upon conversion of the Series F Preferred Stock which Shares are all subject to this Prospectus. See "Plan of Distribution and Selling Shareholders." The Company's principal executive offices are located at 12100 Technology Boulevard, Austin, Texas 78727 and its telephone number is (512) 331-6200. This offering is not being underwritten. The Selling Shareholders directly, through agents designated by them from time to time or through dealers or underwriters also to be designated, may sell the Shares from time to time, in or through privately negotiated transactions, or in one or more transactions, including block transactions, on the NASDAQ Small Cap Market, the Boston Stock Exchange or the Pacific Stock Exchange or on any stock exchange on which the Shares may be listed in the future pursuant to and in accordance with the applicable rules of such exchanges or otherwise. The selling price of the Shares may be at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. To the extent required, the specific Shares to be sold, the names of the Selling Shareholders, the respective purchase prices and public offering prices, the names of any such agent, dealer or underwriter and any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying Prospectus Supplement. See "Plan of Distribution and Selling Shareholders." The Company will receive the proceeds from the exercise of the Warrants and the Series C Warrants, but will not receive any proceeds from the sale of the Shares by the Selling Shareholders. The Company has agreed to pay substantially all of the expenses of this offering (other than commissions and discounts of underwriters, dealers or agents), which are estimated at $50,460. The Company has agreed to indemnify certain of the Selling Shareholders against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Plan of Distribution and Selling Shareholders." The Selling Shareholders and any broker-dealers, agents or underwriters that participate with the Selling Shareholders in the distribution of any of the Shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any commissions received by them and any profit on the resale of the Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. See "Plan of Distribution and Selling Shareholders." SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES. The Common Stock is traded and quoted on the NASDAQ Small Cap Market under the symbol "SIDT". On October 21, 1997, the closing price of the Common Stock as reported on the NASDAQ Small Cap Market was $0.53125 per share. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------- THE DATE OF THIS PROSPECTUS IS OCTOBER , 1997. NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OFFERED HEREBY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-3 (the "Registration Statement") under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Materials filed with the Commission by the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; and at the Regional Offices of the Commission at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60606-2511; and Seven World Trade Center, New York, New York 10048. Copies of such material can also be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission also maintains a Web site that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. The address of such site is http://www.sec.gov. The Common Stock is included in the NASDAQ Small Cap Market under the symbol "SIDT." Reports, proxy and information statements and other information concerning the Company can be inspected at the National Association of Securities Dealers, Inc., 1735 K Street, N.W., 3rd Floor, Washington, D.C. 20006 or obtained by calling the Nasdaq Public Reference Room Disclosure Group at (800) 638-8241. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by the Company with the Commission pursuant to the Exchange Act (File No. 1-11602), are incorporated by reference in this Prospectus and shall be deemed to be a part hereof: (1) The Company's Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 1996. (2) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 1997. (3) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended June 30, 1997. (4) The Company's Current Report on Form 8-K dated July 25, 1997. (5) The Company's Current Report on Form 8-K dated August 4, 1997. All documents subsequently filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering made by this Prospectus shall be deemed to be incorporated herein by reference and to be a part hereof from the date of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, upon written or oral request of any such person, a copy of any or all of the documents referred to above that have been incorporated by reference in this Prospectus (not including exhibits to the documents that are incorporated by reference unless such exhibits are specifically incorporated by reference into such documents). Requests for such copies should be directed in writing or by telephone to SI Diamond Technology, Inc., 12100 Technology Boulevard, Austin, Texas 78727, Attention: Corporate Secretary (Telephone: (512) 331-6200). 2 RISK FACTORS The Common Stock being offered hereby involves a high degree of risk. Prospective investors should carefully consider the following risk factors in addition to other information contained in this Prospectus in evaluating an investment in the shares of Common Stock offered hereby. EARLY STAGE OF DFE PRODUCT DEVELOPMENT; NO DFE PRODUCT REVENUES; DFE PRODUCT UNCERTAINTY The Company's Diamond Field Emission ("DFE") technology and products resulting therefrom will require significant additional development, engineering, testing and investment prior to commercialization. The Company's leading potential DFE product is the Diamond Field Emission Lamp ("DFEL"). If the DFEL is successful, the Diamond Field Emission Display ("DFED") is also a possibility. There can be no assurance that either the DFEL or DFED will be successfully developed, be capable of being produced in commercial quantities on a cost-effective basis or be successfully marketed. HISTORY OF OPERATING LOSSES; GOING CONCERN For the six months ended June 30, 1997, the Company suffered a net loss of ($2,860,202). For the years ended December 31, 1992, 1993, 1994, 1995 and 1996, the Company suffered net losses of $1,630,978, $7,527,677, $7,255,420, $14,389,856 and $13,709,006, respectively. The Company expects to continue to incur additional operating losses for an extended period of time as it continues to develop products for commercialization and there can be no assurance that the Company will be profitable in the future. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements stating that as of March 27, 1997, the Company has not yet achieved profitability, has a working capital deficit and must obtain additional capital to fund its ongoing operations. As a result, there is substantial doubt about the Company's ability to continue as a going concern. The Company's operations to date have been primarily financed by the proceeds of the sale of equity securities of the Company and from revenues generated from research and development conducted for third parties; although since the second quarter of 1994, revenues from commercial services and product sales have exceeded those earned through such research and development ("R&D") activities. In order to continue its transition from a contract research and development organization into a company with viable operations, the Company anticipates substantial product development expenditures for the foreseeable future. FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING The Company expects to incur substantial expenses for R&D, product testing, production, manufacturing, product marketing and administrative overhead. The majority of R&D expenditures are for development of the Company's DFE technology. Further, the Company believes that certain proposed products may not be available for commercial sale or routine use for a period of one to two years. Therefore, it is anticipated that the commercialization of the Company's existing and proposed products will require additional capital in excess of the Company's other current sources of funding. The combined effect of the foregoing may prevent the Company from achieving profitability for an extended period of time. Because the timing and receipt of revenues from the sale of products will be tied to the achievement of certain product development, testing, manufacturing and marketing objectives which cannot be predicted with certainty, there may be substantial fluctuations in the Company's results of operations. If revenues do not increase as rapidly as anticipated, or if product development and testing and marketing require more funding than anticipated, the Company may be required to curtail its expansion and/or seek additional financing from other sources. The Company may seek such additional financing through the offer of debt or equity, joint venture financing, or any combination thereof at any time. The Company has developed a plan to maintain operations for 12-18 months after the date of this Registration Statement. However, existing resources at current spending levels are only available for approximately seven months after the funding by the October 1997 Selling Shareholders. See "Plan of Distribution and Selling Shareholders--October 1997 Selling Shareholders." This estimate is based on current development plans, current operating plans, the current regulatory environment, historical experience in the development of electronic products and general economic conditions. Changes could occur to cause 3 available resources to be consumed before such time. The Company's plan is primarily dependent on increasing revenues and raising additional funds through strategic partners, additional debt offerings, or additional equity offerings. If adequate funds are not available from operations or additional sources of financing, the Company may have to reduce substantially or eliminate expenditures for research and development, testing and production of its products or obtain funds through arrangements with other entities that may require the Company to relinquish rights to certain of its technologies or products. Such results would materially and adversely affect the Company. DEPENDENCE ON PRINCIPAL PRODUCTS The Company's DFE technology is an emerging technology. The financial condition and prospects of the Company are dependent upon market acceptance and sales of the Company's DFE products and its Electronic Billboard. Additional R&D needs to be conducted with respect to the DFE products and the Electronic Billboard before marketing and sales efforts can be commenced. Market acceptance of the Company's products will be dependent upon the perception within the electronics and instrumentation industries of the quality, reliability, performance, efficiency, breadth of application and cost- effectiveness of the products. There can be no assurance that the Company will be able to gain commercial market acceptance for its products or develop other products for commercial use. COMPETITION; POSSIBLE TECHNOLOGICAL OBSOLESCENCE The display, semiconductor and coating system industries are highly competitive and are characterized by rapid technological change. The Company's existing and proposed products will compete with other existing products and may compete against other developing technologies. Development by others of new or improved products, processes or technologies may reduce the size of potential markets for the Company's products. There can be no assurance that such products, processes or technologies will not render the Company's proposed products obsolete or less competitive. Many of the Company's competitors have greater financial, managerial and technical resources than the Company. The Company will be required to devote substantial financial resources and effort to further R&D. There can be no assurance that the Company will successfully differentiate its products from its competitors' products or that the Company will be able to adapt to evolving markets and technologies, develop new products or achieve and maintain technological advantages. TECHNOLOGIES SUBJECT TO LICENSES As a licensee of certain research technologies, the Company has various license agreements with Microelectronics and Computer Technology Corporation ("MCC") and Diagascrown, Inc., wherein the Company has acquired rights to develop and commercialize certain research technologies. In certain cases, agreements require the Company to pay royalties on sale of products developed from the licensed technologies and fees on revenues from sublicensees, where applicable, and to pay for the costs of filing and prosecuting patent applications. The Company's principal license agreement with MCC requires the Company to pay exclusivity fees under certain circumstances in order to maintain the Company's exclusive rights under the MCC Agreement. Each agreement is subject to termination by either party, upon notice, in the event of certain defaults by the other party. The payment of such royalties may adversely affect the future profitability of the Company. NO ASSURANCE OF MARKET ACCEPTANCE Since its inception, the Company has focused its product development efforts on R&D of technologies that the Company believes will be a significant advance over currently available technologies. The Company has limited experience in manufacturing and marketing. The new management team that was put in place in 1996 has experience in manufacturing and marketing; however, with any new technology there is a risk that the market may not appreciate the benefits or recognize the potential applications of the technology. Market acceptance of the Company's products will depend, in part, on the Company's ability to convince potential customers of the advantages of such products as compared to competitive products, and will also depend upon the Company's ability to train manufacturers and others to use the Company's products. There can be no assurance that the Company will be able to successfully market its proposed products even if such products perform as anticipated. 4 LIMITED MANUFACTURING CAPACITY AND EXPERIENCE The Company has no established commercial manufacturing facilities in the areas in which it is conducting its principal research. Its existing manufacturing, while related, would not directly support manufacturing of the proposed new products. The new management team that was put in place has commercial manufacturing and marketing experience; however, the Company will be required to either employ additional qualified personnel to establish manufacturing facilities or enter into appropriate manufacturing agreements with others. There is no assurance that the Company will be successful in attracting experienced personnel or financing the cost of establishing commercial manufacturing facilities, if required, or be capable of producing a high quality product in quantity for sale at competitive prices. MARKETING AND SALES UNCERTAINTIES There can be no assurance that the DFE related products or the Electronic Billboard will be successfully developed or that such products will be commercially successful. The Company intends to establish a sales organization to promote, market, and sell its products. To develop a sales organization will require significant additional expenditures, management resources and training time. There can be no assurance that the Company will be able to establish such a sales organization. UNPROVEN TECHNOLOGY; NEED FOR SYSTEM INTEGRATION In order to prove that the Company's technologies work and can produce a complete product, the Company must ordinarily integrate a number of highly technical and complicated subsystems into a fully-integrated prototype. There can be no assurance that the Company will be able to successfully complete the development work on any of its proposed products or ultimately develop any marketable products. DEPENDENCE UPON GOVERNMENT CONTRACTS A significant portion of the Company's revenues has been derived from contracts with agencies of the United States government. In the years ended December 31, 1992, 1993, 1994, 1995 and 1996, and for the six months ended June 30, 1997 such contracts accounted for approximately $930,000, $1,147,000, $820,000, $1,009,000, $2,869,000 and $594,000, respectively, or approximately 99%, 89%, 41%, 33%, 50% and 21% of the Company's total revenues for each of those periods. The Company's contracts involving the United States government are or may be subject to various risks, including unilateral termination for the convenience of the government, reduction or modification in the event of changes in the government's requirements or budgetary constraints, increased or unexpected costs causing losses or reduced profits under fixed-price contracts or unallowable costs under cost reimbursement contracts, risks of potential disclosure of the Company's confidential information to third parties, the failure or inability of the prime contractor to perform its prime contract in circumstances where the Company is a subcontractor, the failure of the government to exercise options provided for in the contracts and the exercise of "march-in" rights by the government. March-in rights refer to the right of the government or government agency to exercise a non-exclusive, royalty-free, irrevocable, worldwide license to any technology developed under contracts funded by the government if the contractor fails to continue to develop the technology. The programs in which the Company participates may extend for several years but are normally funded on an annual basis. There can be no assurance that the government will continue its commitment to programs to which the Company's development projects are applicable or that the Company can compete successfully to obtain funding available pursuant to such programs. A reduction in, or discontinuance of, such commitment or of the Company's participation in these programs would have a material adverse effect on the Company's business, operating results and financial condition. PATENTS AND OTHER INTELLECTUAL PROPERTY The Company's ability to compete effectively with other companies will depend, in part, on the ability of the Company to maintain the proprietary nature of its technology. Although the Company has been awarded, has filed applications for or has been licensed technology under numerous patents, there can be no assurance as to the degree of protection offered by these patents or as to the likelihood that pending patents will be issued. There can be no assurance that competitors in both the United States and foreign countries, many of which have substantially greater resources and have made substantial investments in competing technologies, have not already or will not apply for and obtain patents that will prevent, limit or interfere with the Company's ability to 5 make and sell its products. There can also be no assurance that competitors will not intentionally or unintentionally infringe the Company's patents. The defense and prosecution of patent suits are both costly and time-consuming, even if the outcome is favorable to the Company. In foreign countries, the expenses associated with such proceedings can be prohibitive. In addition, there is an inherent unpredictability in obtaining and enforcing patents in foreign countries. An adverse outcome in the defense of a patent suit could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from third parties or require the Company to cease selling its products. Although third parties have not asserted infringement claims against the Company, there can be no assurance that third parties will not assert such claims in the future. Claims that the Company's products infringe on the proprietary rights of others are more likely to be asserted after commencement of commercial sales incorporating the Company's technology. The Company also relies on unpatented proprietary technology, and there can be no assurance that others may not independently develop the same or similar technology or otherwise obtain access to the Company's proprietary technology. To protect its rights in these areas, the Company requires all employees and most consultants, advisors and collaborators to enter into confidentiality agreements. There can be no assurance that these agreements will provide meaningful protection for the Company's trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. While the Company has attempted to protect proprietary technology it may develop or acquire and will attempt to protect future developed proprietary technology through patents, copyrights and trade secrets, it believes that its success will depend more upon further innovation and technological expertise. AVAILABILITY OF MATERIALS AND DEPENDENCE ON SUPPLIERS It is anticipated that materials to be used by the Company in producing its future products will be purchased by the Company from outside vendors and, in certain circumstances, the Company may be required to bear the risk of material price fluctuations. It is anticipated by the Company's management that the majority of raw materials to be used in products to be manufactured by the Company will be readily available. However, there can be no assurance that such materials will be available in the future or if available will be procurable at prices which will be favorable to the Company. DEPENDENCE ON KEY PERSONNEL The future success of the Company will depend in large part on its ability to attract and retain highly qualified scientific, technical and managerial personnel. Competition for such personnel is intense and there can be no assurance that the Company will be able to attract and retain all personnel necessary for the development of its business. In addition, much of the know- how and processes developed by the Company reside in its key scientific and technical personnel and such know-how and processes are not readily transferable to other scientific and technical personnel. The loss of the services of key scientific, technical and managerial personnel could have a material adverse effect on the Company. CONCENTRATION OF OWNERSHIP Officers, directors and principal shareholders of the Company own, or have the power to vote, in the aggregate, approximately 60% of the voting stock of the Company. Due to the relatively large number of shares owned by these shareholders and certain provisions of the Company's Amended and Restated Articles of Incorporation ("the Restated Articles") and Bylaws, it may be difficult for other shareholders to cause a change in control of the Company or effect other fundamental corporate transactions if officers, directors and principal shareholders were to act as a group. VOLATILITY OF MARKET FOR SHARES The market price of the Shares, like that of the common stock of many emerging technology companies has fluctuated significantly in recent years and will likely continue to fluctuate in the future. The price of such 6 securities currently rises and is expected to continue to rise rapidly in response to certain events, such as announcements concerning product developments, licenses and patents, although the outcome of such events may not be fully determined. Similarly, prices of such securities may fall rapidly if unfavorable results are encountered in product development or market acceptance. In the event that the Company achieves earnings from the sale of products, securities analysts may begin predicting quarterly earnings. The failure of the Company's earnings to meet analysts' expectations could result in a significant rapid decline in the market price of the Company's Common Stock. In addition, the stock market has experienced and continues to experience extreme price and volume fluctuations which have affected the market price of the equity securities of many technology companies and which have often been unrelated to the operating performance of those companies. Such broad market fluctuations, as well as general economic and political conditions, may adversely affect the market price of the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE As of October 20, 1997, there were 19,324,353 shares of Common Stock outstanding, of which 14,305,031 shares of Common Stock were freely tradeable without restriction or further registration under the Securities Act by persons other than "affiliates" of the Company. As of that date, the remaining shares of Common Stock were deemed "restricted securities," as defined in Rule 144 under the Securities Act, and may not be resold in the absence of registration under the Securities Act or pursuant to an exemption from such registration, including exemptions provided by Rule 144 under the Securities Act. Under Rule 144, persons who have held securities for a period of at least two years may sell a limited amount of such securities without registration under the Act. Rule 144 also permits, under certain circumstances, persons who are not affiliates of the Company, to sell their restricted securities without quantity limitations once they have completed a three-year holding period. The Registration Statement, of which this Prospectus is a part, pertains to 14,472,558 Shares of Common Stock which are currently "restricted securities"; 1,432,283 Shares of Common Stock which underlie existing Warrants; 135,000 Shares of Common Stock which are issuable upon conversion of the Series C Preferred Stock; 7,830,740 Shares of Common Stock which are issuable upon conversion of the Series E Preferred Stock; and 3,176,092 shares of Common Stock which are issuable upon conversion of the Series F Preferred Stock. The Company is obligated to maintain the effectiveness of the Registration Statement for varying periods of time, pursuant to separate agreements with certain groups of the Selling Shareholders. As of October 20, 1997, the Company is additionally obligated to register an additional 3,545,130 shares of its Common Stock which are currently "restricted securities" in certain circumstances. In addition to the shares of Common Stock which are outstanding as of May 30, 1997, 3,500,000 shares of Common Stock have been reserved for issuance pursuant to the Company's stock option plans. 2,217,249 shares of Common Stock have also been reserved for issuance upon the exercise of Warrants that have been issued by the Company (1,432,283 of such shares have been registered in the Registration Statement). Additionally, 125,275 shares of Common Stock have been reserved for issuance upon conversion of the Company's Series A Preferred Stock, 750,000 shares of Common Stock have been reserved for issuance upon conversion of the Series C Preferred Stock underlying the Series C Warrants (the "Series C Shares") (135,000 of such shares have been registered in the Registration Statement), 7,830,740 shares of Common Stock have been reserved for issuance upon conversion of the Company's Series E Preferred Stock (the "Series E Shares"), and 3,176,092 shares of Common Stock have been reserved for issuance upon conversion of the Company's Series F Preferred Stock (the "Series F Shares"). No prediction can be made as to the effect, if any, that future sales, or the availability of shares of Common Stock for future sales, will have on the market price prevailing from time to time. Sales of substantial amounts of Common Stock by the Company or by shareholders who hold "restricted securities," or the perception that such sales may occur, could adversely affect prevailing market prices for the Common Stock. 7 POSSIBLE ADVERSE EFFECT OF SALES BY SELLING SHAREHOLDERS ON THE MARKET FOR AND THE PRICE OF THE COMMON STOCK Upon registration in accordance with its obligations, the Selling Shareholders will be permitted to sell up to 27,046,673 shares of Common Stock (of which 1,432,283 are Shares of Common Stock subject to issuance upon the exercise of certain Warrants; 135,000 are Shares of Common Stock issuable upon conversion of the Series C Shares underlying the Series C Warrants; 7,830,740 are Shares of Common Stock issuable upon conversion of the Series E Shares; and 3,176,092 are Shares of Common Stock issuable upon conversion of the Series F Shares). The Shares (assuming the exercise of all Warrants and conversion of all the Series C Shares, Series E Shares and Series F Shares subject to the Registration Statement) represent approximately 69% of the shares of Common Stock outstanding on the date hereof. The Company will not receive any proceeds from sales of Shares held by such Selling Shareholders. The Company will receive the proceeds from the exercise of any Warrants to purchase Shares of Common Stock or the exercise of any Series C Warrants to purchase shares of the Company's Series C Preferred Stock (which are convertible into Common Stock). Assuming the exercise of all Warrants and Series C Warrants which are subject to the Registration Statement of which this Prospectus is a part, the Company would receive approximately $5,600,000 from such exercises. The exercise prices of the Warrants and the Series C Warrants range from $1.00 to $7.89 per share of the Company's Common Stock. It is unlikely that the Warrants or the Series C Warrants will be exercised until the trading price of the Common Stock exceeds the exercise price of the Warrants or the Series C Warrants, if at all. Sales of or offers to sell substantial blocks of Common Stock currently held by certain shareholders, or the perception by investors, investment professionals or securities analysts of the possibility that such sales may occur, could adversely affect the price of and market for the Common Stock. PRIOR AND SUPERIOR RIGHTS OF OTHER CLASSES OF CAPITAL STOCK The rights of holders of the Common Stock to receive dividends or other payments with respect thereto are subject to any prior and superior rights of holders of the Company's Preferred Stock. As of October 21, 1997, the Company had issued and outstanding 100 shares of its Series A Preferred Stock, 260 shares of its Series E Preferred Stock, and 1,250 shares of its Series F Preferred Stock. Additionally, the Company has authorized 75,000 shares of Series C Preferred Stock and 90,000 shares of Series D Preferred Stock. No shares of Series C Preferred Stock or Series D Preferred Stock are currently outstanding; however, Series C Warrants are outstanding to purchase 75,000 shares of Series C Preferred Stock. No current series of the Company's Preferred Stock has rights that are prior and superior to the Common Stock with respect to dividends. Additionally, only the holders of the Series A Preferred Stock, Series E Preferred Stock and Series F Preferred Stock are entitled to a liquidation preference over the holders of the Common Stock. The Board of Directors, however, has the authority to provide for the issuance of additional shares of Preferred Stock in one or more additional series and such shares may, in the Board's discretion, have prior and superior rights to receive dividends or other payments with respect thereto. In light of its future capital requirements, the Company could issue shares of Preferred Stock at any time having such prior and superior rights. See "Description of Capital Stock". LACK OF DIVIDENDS The Company has never paid cash dividends on its equity securities and does not intend to pay cash dividends in the foreseeable future. To the extent the Company has earnings in the future, the Company intends to reinvest such earnings in the business operations of the Company. ANTITAKEOVER EFFECTS The Company's Restated Articles and Bylaws contain a number of provisions which could make the acquisition of the Company, by means of an unsolicited tender offer, a proxy contest or otherwise, more difficult. Among other things, (i) the Board is authorized to issue series of Preferred Stock that could, depending on the 8 terms of such series, impede the completion of a merger, tender offer or other takeover attempt; (ii) the Board of Directors is divided into three classes of directors, with the result that approximately one-third of the Board of Directors are elected each year; (iii) except in limited circumstances, no shares of the Company's Preferred Stock may be issued or sold to any officer or director of the Company or any shareholder owning more than five percent (5%) of the Company's Common Stock without the affirmative vote of a majority of the disinterested shareholders of the Company; and (iv) holders of Series C and Series D Preferred Stock have the right to acquire additional shares in certain circumstances where the voting power of such holders would be diluted. See "Description of Capital Stock--Certain Provisions of the Articles of Incorporation, Bylaws and Texas Law." LIMITATION OF REMEDIES; INDEMNIFICATION The Company's Restated Articles provide that a director of the Company will only be liable to the Company for (i) breaches of his duty of loyalty to the Company and its shareholders, (ii) acts or omissions not in good faith or which constitute a breach of duty of a director of the Company or involves intentional misconduct or a knowing violation of law, (iii) transactions from which a director receives an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office, (iv) acts or omissions for which liability is specifically provided by statute, and (v) acts relating to unlawful stock purchases or payments of dividends. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions by its directors. The Bylaws also provide that, under certain circumstances, the Company will indemnify its officers and directors for liabilities incurred in connection with their good faith acts for the Company. Such an indemnification payment might deplete the Company's assets. While Texas law permits a shareholder to bring a derivative action on behalf of a corporation, the law relating to the remedies available to corporate shareholders is constantly changing. Shareholders who have questions concerning the fiduciary obligations of the officers and directors of the Company should consult with independent legal counsel. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward- looking statements involve risks and uncertainty, including without limitation, the uncertainty of additional funding, the development of other technologies, the ability of the Company to acquire manufacturing facilities and marketing and sales expertise, the ability of the Company to attract and retain highly qualified personnel, as well as general market conditions and the degree and nature of competition. Where any such forward-looking statement includes a statement of the assumptions or basis underlying such forward- looking statement, the Company cautions that, while it believes such assumptions or basis to be reasonable and makes them in good faith, assumed facts or basis almost always vary from actual results, and the differences between assumed facts or basis and actual results can be material, depending upon the circumstances. Where in any forward-looking statement, the Company or its management expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement or expectation or belief will result or be achieved or accomplished. 9 USE OF PROCEEDS The Selling Shareholders will receive all of the net proceeds from the sale of the Shares. The Company will not receive any of the proceeds from the sale of the Shares by the Selling Shareholders. The Company will receive the proceeds from the exercise of the Warrants and the Series C Warrants, which proceeds will be used for working capital. See "Plan of Distribution and Selling Shareholders." Assuming the exercise of all Warrants and Series C Warrants which are subject to the Registration Statement, of which this Prospectus is a part, the Company shall receive approximately $5,600,000 upon such exercise. The exercise prices of the Warrants and the Series C Warrants range from $1.00 to $7.89 per share of the Company's Common Stock. It is unlikely that the Warrants or the Series C Warrants will be exercised until the trading price of the Common Stock exceeds the exercise price of the Warrants or the Series C Warrants, if at all. PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS GENERAL The Company is filing the Registration Statement, of which this Prospectus is a part, to permit transactions with respect to certain shares of the Company's Common Stock, which are (1) currently "restricted securities" held by the Selling Shareholders, (2) issuable upon exercise of certain outstanding Warrants to purchase shares of the Company's Common Stock, (3) issuable upon conversion of shares of the Company's Series C Preferred Stock underlying certain Series C Warrants, (4) issuable upon conversion of outstanding shares of the Company's Series E Preferred Stock, or (5) issuable upon conversion of outstanding shares of the Company's Series F Preferred Stock. This offering is not being underwritten. The Selling Shareholders directly, through agents designated from time to time, or through dealers or underwriters also to be designated, may sell the Shares from time to time, in or through privately negotiated transactions, or in one or more transactions, including block transactions, on the NASDAQ Small Cap Market, the Boston Stock Exchange, the Pacific Stock Exchange or on any stock exchanges on which the Shares may be listed in the future pursuant to and in accordance with the applicable rules of such exchanges. The selling price of the Shares may be at market prices prevailing at the time of sale, at prices relating to such prevailing market prices or at negotiated prices. Further, the Selling Shareholders are not restricted as to the number of shares which may be sold at any one time, and it is possible that a significant number of shares could be sold at the same time, which may have a depressive effect on the market price of the Company's Common Stock. To the extent required by applicable law, the specific Shares to be sold, the names of the Selling Shareholders, the respective purchase prices and public offering prices, the names of any such agent, dealer or underwriters, and any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying Prospectus. Resales or reoffers of the Shares by the Selling Shareholders must be accompanied by the delivery of a copy of this Prospectus. Copies of this Prospectus shall be delivered to each Selling Shareholder after the Registration Statement, of which this Prospectus is a part, is declared effective. Each Selling Shareholder shall also be informed that the anti-manipulative rules under the Exchange Act (Rules 10b-6 and 10b-7) may apply to their sales in the market, and each Selling Shareholder shall also be sent a copy of Rules 10b-6 and 10b-7, as well as a copy of the Commission's Release No. 34-23611 which discusses these rules and their application in certain circumstances, with a copy of this Prospectus. The Selling Shareholders and any underwriters, dealers or agents that participate in the distribution of the Shares may be deemed to be underwriters, and any profit on the sale of the Shares by them and any discounts, commissions or concessions received by any such underwriters, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. The Selling Shareholders may also sell such Shares pursuant to Rule 144 promulgated under the Securities Act, or may pledge shares as collateral for margin accounts, and such shares could be resold pursuant to the terms of such accounts. There can be no assurance that the Selling Shareholders will sell any or all of the Shares offered by them hereunder. The Company has filed the Registration Statement of which this Prospectus forms a part to comply 10 with the exercise by the BEG Selling Shareholders, the Series E Selling Shareholders, the MCC Selling Shareholders, the December 1995 Selling Shareholders, the GH Selling Shareholders and the Series F Selling Shareholders (each as defined below) of demand registration rights granted to such Selling Shareholders, and to comply with certain "piggy-back" registration rights granted to other Selling Shareholders. CONVERTIBLE DEBENTURE SELLING SHAREHOLDERS The Company issued its 10% Convertible Subordinated Debentures ("Convertible Debentures") in October, November and December 1992 in exempt transactions to those shareholders identified in the Selling Shareholders Table herein as the Convertible Debenture Selling Shareholders (the "Convertible Debenture Selling Shareholders"). The Convertible Debentures were all converted into Shares of the Company's Common Stock. The Convertible Debenture Selling Shareholders were given "piggy-back" registration rights pursuant to which the Company agreed to use its best efforts to have the Common Stock issuable upon the conversion of the Convertible Debentures included in the Registration Statement and to cause such Registration Statement to become effective as soon as practicable. DEBENTURE WARRANT SELLING SHAREHOLDERS In December 1992, the Company issued its 10% Subordinated Debentures in an exempt transaction. In connection with such issuance, those shareholders identified in the Selling Shareholders Table herein as the Debenture Warrant Selling Shareholders (the "Debenture Warrant Selling Shareholders") were issued Warrants that gave them the right to purchase Shares of the Company's Common Stock. All of these Warrants have been exercised for Shares of the Company's Common Stock. The holders of these Warrants were given "piggy-back" registration rights pursuant to which the Company agreed to use its best efforts to have the Common Stock issuable upon the exercise of these Warrants included in and registered in the Registration Statement and to cause such Registration Statement to become effective as soon as practicable. Greg Morey, one of the Debenture Warrant Selling Shareholders, is an affiliate of GH Securities Ltd. ("GH"). GH has been utilized by the Company at various times within the past three (3) years in its capital raising activities. IPO WARRANT SELLING SHAREHOLDERS In the Company's initial public offering (the "IPO") completed in February 1993, the Company issued a total of 100,000 Warrants to purchase shares of the Company's Common Stock as part of the underwriter's compensation to the persons identified in the Selling Shareholders Table as the IPO Warrant Selling Shareholders (the "IPO Warrant Selling Shareholders"). Pursuant to the terms of these Warrants, the Company agreed to give notice of its intention to file certain registration statements to such holders and give them an opportunity to be included in such registration statements. The number of Shares of Common Stock underlying the Warrants issued in such IPO are included in the Registration Statement, and the Company agreed to pay all expenses in the preparation of the Registration Statement (other than commissions and discounts of any underwriters, dealers or agents). The Company also agreed to indemnify the IPO Warrant Selling Shareholders and any underwriters they utilize against certain civil liabilities, including liabilities arising under the Securities Act. All of the IPO Warrant Selling Shareholders have been utilized within the past three (3) years by the Company in its capital raising activities. AUGUST 1993 SELLING SHAREHOLDERS In August 1993, the Company issued shares of its Common Stock in an exempt offering under Regulation D of the Securities Act to those shareholders identified in the Selling Shareholders Table as the August 1993 Selling Shareholders (the "August 1993 Selling Shareholders"). Each August 1993 Selling Shareholder was also issued one (1) Warrant for every two (2) shares of Common Stock that were purchased in this transaction. The 11 holders of these Shares and Warrants were granted "piggy-back" registration rights in which the Company agreed to have the Common Stock held by the August 1993 Selling Shareholders, as well as the Common Stock underlying their Warrants, included in the Registration Statement and to cause such Registration Statement to become effective as soon as practicable. EAST/WEST SELLING SHAREHOLDERS In February 1995, the shareholders identified in the Selling Shareholders Table as the East/West Selling Shareholders (the "East/West Selling Shareholders") acquired shares of Common Stock as well as Series C Warrants to acquire shares of the Company's Series C Preferred Stock, which are further convertible into shares of the Company's Common Stock. The Company granted "piggy-back" registration rights to the East/West Selling Shareholders with respect to such Shares in the event of the registration of any of the Company's equity securities, except in certain circumstances, and agreed to keep any such registration with respect to the East/West Selling Shareholders effective for a period of at least six months. Additionally, the Company agreed to pay all of the expenses incident to the preparation and filing of the Registration Statement (other than commissions and discounts of any underwriters, dealers or agents). The Company also agreed to indemnify the East/West Selling Shareholders and any underwriters they may utilize against certain civil liabilities, including liabilities arising under the Securities Act. In addition, each East/West Selling Shareholder agreed to indemnify the Company against certain civil liabilities, including liabilities under the Securities Act, with respect to written information furnished by the East/West Selling Shareholders to the Company. East/West Technology Partners, Ltd., an East/West Selling Shareholder, and its representatives, have assisted the Company in the past three years in its capital raising activities. BEG SELLING SHAREHOLDERS Effective June 20, 1995, the shareholders identified in the Selling Shareholders Table as the BEG Selling Shareholders (the "BEG Selling Shareholders") acquired shares of the Company's Common Stock in an exempt transaction. Pursuant to the Subscription Agreement and Purchaser Questionnaires with respect to such transactions, the Company was required to file the Registration Statement with respect to the Common Stock acquired by the BEG Selling Shareholders and keep such Registration Statement effective for a period of three (3) years. The number of Shares of Common Stock underlying certain Warrants issued to the BEG Selling Shareholders are also included in the Registration Statement, of which this Prospectus is a part. The Company agreed to pay all of the expenses in the preparation of the Registration Statement (other than commissions and discounts of any underwriters, dealers or agents). The Company also agreed to indemnify the BEG Selling Shareholders and any underwriters they utilize against certain civil liabilities, including liabilities arising under the Securities Act. In addition, each BEG Selling Shareholder agreed to indemnify the Company against certain civil liabilities, including liabilities under the Securities Act, with respect to written information furnished by the BEG Selling Shareholders to the Company. Marc W. Eller became a director of the Company on November 15, 1995 and the Company's Chairman of the Board and Chief Executive Officer on July 26, 1996. Mr. Eller is also the vice-president and chairman of the board of BEG Enterprises, Inc., a BEG Selling Shareholder which has assisted the Company within the past three years in its capital raising activities. Ronald J. Berman, the president of BEG Enterprises, Inc. is also a director of the Company. In addition, Lawrence I. Kravetz, one of the BEG Selling Shareholders, has assisted the Company within the past three (3) years with its capital raising activities. MCC SELLING SHAREHOLDER On October 17, 1995, the Company issued Microelectronics and Computer Technology Corporation ("MCC") 223,256 shares of the Common Stock of the Company in payment of an exchangeable note arising in connection with Amendment No. 2 to the Patent and Know-How Cross-License ("Know-How Agreement") Agreement between MCC and the Company dated January 19, 1995. Pursuant to the Know-How Agreement the 12 Company is also obligated to issue an additional 340,717 shares of Common Stock of the Company (collectively with the 223,256 shares described above, the "MCC Shares").The Company also issued Warrants on January 19, 1996 to MCC (the "MCC Warrants") to purchase 22,326 shares of the Company's Common Stock. The Company agreed to register the MCC Shares and the shares underlying the MCC Warrants upon demand and to keep such registration statement effective for a period of three years. The MCC Shares and the shares underlying the MCC Warrants are included in the Registration Statement. The Company is required to pay all of the expenses in the preparation of the Registration Statement (other than commissions and discounts of any underwriters, dealers or agents). THE DECEMBER 1995 SELLING SHAREHOLDERS Effective December 1995, the shareholders identified in the Selling Shareholders Table as the December 1995 Selling Shareholders (the "December 1995 Selling Shareholders") acquired shares of the Company's Common Stock in an exempt transaction. Upon demand by the December 1995 Selling Shareholders, the Company was required to file the Registration Statement with respect to the Shares acquired by such Selling Shareholders and keep such Registration Statement effective for a period of three (3) years. The number of shares of Common Stock underlying certain Warrants issued to the December 1995 Selling Shareholders are also included in the Registration Statement, of which this Prospectus is a part. The Company agreed to pay all of the expenses in the preparation of the Registration Statement (other than commissions and discounts of any underwriters, dealers or agents). The Company also agreed to indemnify the December 1995 Selling Shareholders and any underwriters they utilize against certain civil liabilities, including liabilities arising under the Securities Act. SERIES E SELLING SHAREHOLDERS Effective in January 1996, the shareholders listed in the Selling Shareholders Table as the Series E Selling Shareholders (the "Series E Selling Shareholders") acquired shares of the Company's Series E Preferred Stock in an exempt transaction pursuant to Regulation D of the Securities Act. In connection with such transaction, the Company additionally issued warrants to several individuals connected with Swartz Investments, Inc. to purchase shares of the Company's Common Stock (the "Swartz Warrants"). Swartz Investments, Inc., assisted the Company as placement agent for the Series E Preferred Stock. Subject to adjustment in certain circumstances, each share of Series E Preferred Stock is convertible into that number of shares of Common Stock determined by dividing (i) the original issue price of the Series E Preferred Stock (the "Series E Issue Price") plus an amount equal to 8% of the Series E Issue Price per annum from the date the escrow agent first had in its possession the funds representing payment of the Series E Preferred Stock to the conversion date by (ii) the conversion price, which is either (x) the lesser of $1.875 (the "Low Fixed Conversion Price") or 85% of the average closing bid price of the Company's Common Stock for the five (5) trading days immediately preceding the date of conversion, as defined below, for one-third (1/3) of the shares (the "Low Fixed Preferred Shares") of Series E Preferred held by a holder as of January 16, 1997 or (y) the lesser of $2.75 (the "High Fixed Conversion Price") or 85% of the average closing bid price of the Company's Common Stock for the five (5) trading days immediately preceding the date of conversion for the remaining two-thirds (2/3) of the shares (the "High Fixed Preferred Shares") of Series E Preferred held by a holder as of January 16, 1997. Each holder shall have the sole right to designate the shares of Series E Preferred tendered for conversion pursuant by such holder as Low Fixed Preferred Shares, High Fixed Preferred Shares or any combination of Low Fixed Preferred Shares and High Fixed Preferred Shares by providing the Company with notice thereof in the notice of conversion delivered by such holder to the Company in connection with such conversion. Any shares of Series E Preferred Stock outstanding on January 15, 1999 shall be automatically converted into the Company's Common Stock on such date. Notwithstanding the preceding paragraph, if this paragraph and its terms are in effect and have not been terminated pursuant to the terms of the Company's Amended and Restated Articles of Incorporation, as amended (the "Articles of Incorporation"), each holder shall be entitled to convert up to 12% of the aggregate shares of 13 Series E Preferred Stock held by such holder as of April 21, 1997 at $0.6429. In addition to the number of shares of Series E Preferred Stock a holder may convert pursuant to the preceding sentence, each holder shall be entitled to convert any and all remaining shares of Series E Preferred Stock held by such holder at a conversion price of $1.50. Furthermore, if the terms of this paragraph have not been terminated pursuant to the terms of the Company's Articles of Incorporation, then for each calendar month, beginning with April 1997, where the average of the closing bid prices of the Company's Common Stock for all trading days for such calendar month is less than $1.00 the Company shall redeem shares of the Series E Preferred Stock held by each holder in an amount equal to the lesser of (i) 7% of the aggregate shares of Series E Preferred Stock held by such holder as of April 21, 1997 or (ii) all shares of Series E Preferred Stock then held by such holder. If by June 9, 1997, the Company has not entered into an agreement binding on all of the Company's Series F Preferred Stock with respect to the modification of the conversion rights of the Company's Series F Preferred Stock, which in the good faith judgement of the holders, is not more materially adverse to the Company than the provisions set forth in the preceding paragraph, or if by May 6, 1997, the Company fails to enter into an agreement binding on all of the holders of the Company's 8% Convertible Debentures (the "Convertible Debentures") with respect to the modification of the conversion rights of the Convertible Debentures, which in the good faith judgement of the holders of the Series E Preferred Stock is not materially more adverse to the Company than the provisions set forth in the preceding paragraph relating to the Series E Preferred Stock; then upon written notice to the Company by the holders of 75% or more of the outstanding shares of Series E Preferred Stock, the terms set forth in the preceding paragraph shall be void and the obligations with respect to the conversions of the Series E Preferred Stock shall be as follows: (i) after February 14, 1997, each holder of Series E Preferred shall be entitled to convert up to one-third (1/3) of the shares of Series E Preferred held by such holder as of January 16, 1997 using the appropriate High Fixed Conversion Price and Low Fixed Conversion Price as designated above; (ii) in addition to the shares of Series E Preferred a holder may convert pursuant to (i) above, after March 15, 1997, each holder shall be entitled to convert up to 12.5% of the shares of Series E Preferred held by such holder as of January 16, 1997 using the appropriate High Fixed Conversion Price and Low Fixed Conversion Price as designated above; (iii) in addition to the shares of the Series E Preferred a holder may convert pursuant to (i) and (ii) above, each holder shall be entitled to convert on any date after March 15, 1997, a cumulative number of shares of Series E Preferred equal to the product of (i) the number of days from March 15, 1997 through and including such date, (ii) .4067% and (iii) the number of shares of Series E Preferred Stock held by such holder as of January 16, 1997 using the appropriate High Fixed Conversion Price and Low Fixed Conversion Price as designated above. Each holder may convert any and all shares of the Series E Preferred then held by such holder at any time after either (x) the average of the closing bid prices of the Company's Common Stock for five consecutive trading days exceeds $3.00 or (y) Marc W. Eller ceases to be employed by the Company in substantially the same capacity as he occupied as of January 16, 1997. If this provision becomes effective pursuant to the terms of the Company's Articles of Incorporation, the Series E Preferred Shares shall be convertible at the appropriate Low Fixed Conversion Price or High Fixed Conversion Price as designated above. Except pursuant to the automatic conversion of the Series E Preferred Stock on January 15, 1997, in no event shall any Holder be entitled to convert shares of Series E Preferred Stock which, upon conversion, would cause the aggregate number of shares of Common Stock beneficially owned by such Holder and its affiliates to exceed 4.9% of the outstanding shares of the Company's Common Stock following such conversion. For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by a Holder and its affiliates shall include the shares of Common Stock issuable upon conversion of the shares of Series E Preferred Stock with respect to which the determination of such proviso is being made, but shall exclude the shares of Common Stock which would be issuable upon conversion of the remaining unconverted portion of the Series E Preferred Stock beneficially owned by such Holder and its affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph, "beneficial ownership" shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. 14 Upon the conversion of the Series E Preferred Stock, the Company will account for the difference between the conversion price and the trading price on the conversion date as a preferred stock dividend. Assuming the conversion had taken place on December 31, 1996, the Company would have recognized a preferred stock dividend of approximately $1,090,000, which would have resulted in a net loss per common share of ($1.39) for the year ended December 31, 1996. The Company agreed at the time of sale of the Series E Preferred Stock to register pursuant to the Registration Statement the shares of Common Stock (i) issuable upon conversion of the Series E Preferred Stock as determined at the time of such registration and (ii) upon exercise of the Swartz Warrants, and to keep such Registration Statement effective until sixty (60) days after all shares of Series E Preferred Stock shall have been converted. Additionally, the Company agreed to pay all of the expenses incident to the preparation and filing of the Registration Statement (other than commissions and discounts of any underwriters, dealers or agents). The Company also agreed to indemnify the Series E Selling Shareholders and any underwriters they may utilize against certain civil liabilities, including liabilities arising under the Securities Act. In addition, each Series E Selling Shareholder agreed to indemnify the Company against certain civil liabilities, including liabilities under the Securities Act, with respect to written information furnished by the Series E Selling Shareholders to the Company. GH SELLING SHAREHOLDERS GH Securities, Ltd. ("GH") was issued 219,149 Warrants in connection with the Company's offerings under Regulation S of the Securities Act in August, September, October and November 1993. In February 1996, these 219,149 Warrants were repriced and reissued to GH. Also in February 1996, the Company issued GH 150,000 Warrants in connection with a Regulation S offering by the Company in September 1994 and an additional 60,000 Warrants for the termination of certain contractual obligations arising out of the Company's initial public offering in early 1993. The Company also issued 55,000 Warrants in February 1996 to a former advisor of the Company. In connection with these transactions of the Company in February 1996, the Shareholders identified in the Selling Shareholders Table as the GH Selling Shareholders (the "GH Selling Shareholders") entered into a Rights Agreement in which the Company gave demand registration rights to the GH Selling Shareholders. The Company agreed to use its best efforts to file the Registration Statement, of which this Prospectus is a part, with respect to the Shares and the Shares underlying certain Warrants held by the GH Selling Shareholders and to cause such Registration Statement to become effective and remain effective for a period of three (3) years. The Company agreed to pay all of the expenses in the preparation for the Registration Statement (other than commissions and discounts of any underwriters, dealers or agents). The Company also agreed to indemnify the GH Selling Shareholders and any underwriters they utilized against certain civil liabilities, including liabilities arising under the Securities Act. In addition, each GH Selling Shareholder agreed to indemnify the Company against certain civil liabilities, including liabilities under the Securities Act, with respect to written information furnished by the GH Selling Shareholders to the Company. GH and David M. Klausmeyer have assisted the Company within the past three years with its capital raising activities. NOTE WARRANT SELLING SHAREHOLDERS As of October 31, 1996, Diamond Tech One, Inc. ("DTO"), a wholly owned subsidiary of the Company, borrowed a total of $1,000,000 from the persons or entities identified in the Selling Shareholder Table as the Note Warrant Selling Shareholders (the "Note Warrant Selling Shareholders"). All of the promissory notes made payable to the Note Warrant Selling Shareholders were guaranteed by the Company. In addition, the Company granted Warrants to each Note Warrant Selling Shareholder to purchase 50,000 shares of the Company's Common Stock at $1.00 per share at any time until June 1, 1998. These Warrants were issued in an exempt transaction under Regulation D of the Securities Act. 100,000 of these Warrants have been exercised for Shares of the Company's Common Stock. Under the terms of the agreement with the Note Warrant Selling Shareholders, the Company is obligated to grant each of these shareholders additional warrants to purchase up to 50,000 shares of the Company's Common Stock on the same terms as those of the original grant of Warrants to the Note Warrant Selling Shareholders. 15 The Company also agreed that within 15 days of the issuance date of the Warrants to the Note Warrant Selling Shareholders it would file a Registration Statement, of which this Prospectus is a part, to include the shares of Common Stock underlying these Warrants. The Company also agreed to keep such Registration Statement effective until June 1, 1998. SERIES F SELLING SHAREHOLDERS Effective in March 1997, the shareholders listed in the Selling Shareholders Table as the Series F Selling Shareholders (the "Series F Selling Shareholders") acquired shares of the Company's Series F Preferred Stock in an exempt transaction pursuant to Regulation D of the Securities Act. Subject to adjustment in certain circumstances, each share of Series F Preferred Stock is convertible into that number of shares of Common Stock determined by dividing (i) the original issue price of the Series F Preferred Stock (the "Series F Issue Price") plus an amount equal to 4% of the Series F Issue Price per annum from the date the Series F Preferred Stock was issued to the conversion date by (ii) the conversion price, which is the lesser of $1.75 or 80% of the average closing bid price for the Company's Common Stock for the ten (10) trading days immediately preceding the conversion date. Upon conversion, if the conversion price is $.75 or less, the Company shall have the right to redeem in cash by paying the holder an amount equal to the number of shares of Common Stock that would have been received had conversion taken place multiplied by the conversion price. For each calendar month, commencing with July 1997, if the average of the closing bid prices of the Company's Common Stock for all the trading days for such calendar month is less than $1.00, then the holder may have the Company redeem shares of the Series F Preferred Stock held by such holder in an amount equal to the lesser of (1) 7% of the aggregate shares of Series F Preferred Stock held by such holder as of July 14, 1997, or (2) all shares of Series F Preferred Stock then held by such holder. For shares of Series F Preferred Stock submitted to the Company under the terms of this provision, the Company shall have the option of redeeming the shares submitted upon notice to the holders within one (1) business day of the receipt of notice from the holder exercising the rights of this provision. If the Company does exercise its option to redeem, the redemption price shall be the equivalent of 115% of the sum of the original Series F Issue Price plus any accrued interest under the terms of the Series F Certificate of Designation, as amended. If the Company does not exercise its right to redeem under this provision, then the shares of Series F Preferred Stock shall be converted into shares of the Company's Common Stock (valued at the average of the closing bid prices of the Company's Common Stock for all trading days for such calendar month). The payment of such redemption price or the shares of Common Stock to be received upon conversion pursuant to the terms of this provision shall be delivered to the holder of Series F Preferred Stock within ten (10) business days of the receipt by the Company of notice from such holder exercising his rights under the terms of this provision. In addition, pursuant to the terms of the Series F Certificate of Designation, since the closing bid price of the Company's Common Stock did not exceed $1.50 by October 12, 1997, the Company is obligated to renegotiate the conversion terms of the Series F Preferred Stock with its holders. Upon the conversion of the Series F Preferred Stock, the Company will account for the difference between the conversion price and the trading price on a conversion date as a preferred stock dividend. Assuming the conversion had taken place on June 30, 1997, the Company would not have recognized a preferred stock dividend. The Company agreed at the time of sale of the Series F Preferred Stock to register pursuant to the Registration Statement the shares of Common Stock issuable upon conversion of the Series F Preferred Stock as determined at the time of such registration and to keep such Registration Statement effective for one (1) year. Additionally, the Company agreed to pay all of the expenses incident to the preparation and filing of the Registration Statement (other than commissions and discounts of any underwriters, dealers or agents). The Company also agreed to indemnify the Series F Selling Shareholders and any underwriters they may utilize against certain civil liabilities, including liabilities arising under the Securities Act. In addition, each Series F 16 Selling Shareholder agreed to indemnify the Company against civil liabilities, including liabilities under the Securities Act, with respect to written information furnished by the Series F Selling Shareholders to the Company. OCTOBER 1997 SELLING SHAREHOLDERS Effective in October 1997, the shareholders listed in the Selling Shareholders Table as the October 1997 Selling Shareholders (the "October 1997 Selling Shareholders") acquired shares of the Company's Common Stock in an exempt transaction pursuant to Regulation D of the Securities Act. Pursuant to the terms of the subscription agreement between the October 1997 Selling Shareholders and the Company, the October 1997 Selling Shareholders agreed to fund $500,000 to the Company upon the execution of the subscription agreement and the delivery of a stock certificate to the entity designated by the October 1997 Selling Shareholders representing the number of shares of the Company's Common Stock resulting from the division of the $500,000 by a value which is equal to 65% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the date of the subscription agreement. In addition, the October 1997 Selling Shareholders shall receive one Warrant for each share of Common Stock as calculated pursuant to the sentence above. The purchase price of each Warrant received by the October 1997 Selling Shareholders shall be the equivalent of 115% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the date of the subscription agreement. On November 5, 1997, and on the first business of day December 1997 and on the first business day for each month thereafter up to and including April 1998, the October 1997 Selling Shareholders shall purchase an additional $500,000 of the Company's Common Stock at a price which shall be equal to 65% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the issuance date in each of those successive months. In addition, the October 1997 Selling Shareholders shall also receive one Warrant for each share of Common Stock as calculated in the above sentence. The purchase price for each of these Warrants shall be 115% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the first business day of each month pursuant to the terms of the subscription agreement. Under the terms of the registration rights agreement between the Company and the October 1997 Selling Shareholders, the Company is obligated either prior or concurrent with the closing of this offering to have this Registration Statement on Form S-3 filed covering the resale of all of the October 1997 Selling Shareholders shares of Common Stock. OTHER SELLING SHAREHOLDERS The Company has agreed to give Lawrence I. Kravetz, Columbus Asset Management, Ltd. ("Columbus"), Katherine D. Banks and BEG Enterprises, Inc. ("BEG") "piggy-back" registration rights regarding shares underlying certain Warrants held by Mr. Kravetz (the "Kravetz Warrants"), Columbus (the "Columbus Warrants"), Ms. Banks (the "Banks Warrants") and BEG (the "BEG Warrants"). Pursuant to these "piggy-back" rights, the Company agreed to use its best efforts to have the Common Stock issuable upon the exercise of the Kravetz Warrants, the Columbus Warrants, the Banks Warrants and the BEG Warrants included in the Registration Statement, of which this Prospectus is a part. Mr. Kravetz, Columbus and BEG have each assisted the Company within the past three (3) years with its capital raising activities. The Company has also agreed to give Bien & Stock, Inc. ("Bien & Stock"), Peter Moon ("Moon"), Claude Cooke ("Cooke"), IN Partnership, Inc. ("IN"), The Investor Relations Company ("Investor Relations") and Research Applications, Inc. ("Research") "piggy-back" registration rights regarding shares of the Company's Common Stock held by each of these holders. Pursuant to these "piggy-back" rights, the Company agreed to use its best efforts to have the Common Stock held by these holders included in the Registration Statement, of which this Prospectus is a part. 17 SELLING SHAREHOLDERS This Prospectus covers offers from time to time of the Shares of Common Stock owned by the Selling Shareholders. Set forth below are the names of the Selling Shareholders as well as (i) the number of Shares of Common Stock, (ii) the number of Shares of Common Stock underlying existing Warrants, (iii) the number of Shares of Common Stock issuable upon conversion of shares of the Company's Series C Preferred Stock underlying the Series C Warrants, (iv) the number of Shares of Common Stock issuable on conversion of the Company's Series E Preferred Stock and (v) the number of Shares of Common Stock issuable upon conversion of the Company's Series F Preferred Stock held as of the date of this Prospectus by the Selling Shareholders, which are also the numbers of Shares which may be offered for sale by each Selling Shareholder from time to time pursuant to this Prospectus. Because the Company does not know how many Shares may be sold by the Selling Shareholders pursuant to this Prospectus, no estimate can be given as to the number of the Shares that will be held by the Selling Shareholders upon termination of this offering. 18 SELLING SHAREHOLDERS TABLE
NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES C PREFERRED STOCK, SERIES E NUMBER OF SHARES PREFERRED STOCK NUMBER OF SHARES OF COMMON STOCK AND SERIES F OF COMMON STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS HELD AND OFFERED WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES MADE PURSUANT TO THIS PURSUANT TO THIS TO THIS PURSUANT TO THIS SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2) ----------- ---------------- ---------------- ---------------- ----------------------- CONVERTIBLE DEBENTURE SELLING SHAREHOLDERS Robert G. Minor (3)..... 31,500 * Chris Thollaug and Suzanne Stephanik...... 50,038 * The Sunday School Board of the Southern Baptist Convention Retirement Plan................... 84,405 * DEBENTURE WARRANT SELLING SHAREHOLDERS Dusseldorf S.A.......... 31,500 10,000 * IPO WARRANT SELLING SHAREHOLDERS GH Securities, Ltd...... 45,000 * Lawrence I. Kravetz..... 30,000 * Fritz Volker............ 15,000 * Frank J. Ingersoll...... 9,000 * George Dullnig & Co..... 1,000 * AUGUST 1993 SELLING SHAREHOLDERS How & Co................ 15,000 7,500 * Barry Kitt.............. 8,000 4,000 * Gilbert Kitt............ 8,000 4,000 * Barney Cacioppo......... 6,000 3,000 * Peter and Ruth Medding.. 5,000 2,500 * Richard and Susan Goebel................. 2,000 * Richard and Mary Pulciani............... 2,000 * Albert Vivo............. 4,000 2,000 * Rocky and Genevieve Dazzo.................. 2,000 2,000 * Ben Chilcutt............ 4,000 2,000 * Claus Fichte............ 4,000 2,000 * Ronald Cacioppo......... 2,000 1,000 * James Cacioppo.......... 2,000 1,000 * John Church............. 1,000 * Argon Electric.......... 2,000 1,000 * Robert Watt............. 1,000 * Sheldon Solomon Trust... 2,000 1,000 * Susan Oelsen............ 2,000 * Suzanne Kibort.......... 2,000 1,000 * George and Emma Kienberger............. 2,000 1,000 *
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NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES C PREFERRED STOCK, SERIES E NUMBER OF SHARES PREFERRED STOCK NUMBER OF SHARES OF COMMON STOCK AND SERIES F OF COMMON STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS HELD AND OFFERED WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES MADE PURSUANT TO THIS PURSUANT TO THIS TO THIS PURSUANT TO THIS SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2) ----------- ---------------- ---------------- ---------------- ----------------------- Steven Tsengas.......... 2,000 1,000 * Malcolm Thomas.......... 2,000 1,000 * Bruce Sabel............. 2,000 1,000 * Gary Wright............. 1,000 * Richard Browning Trust.. 2,000 1,000 * Richard Hutter.......... 1,000 * L.P. David Orosz........ 2,000 1,000 * Ansford Party Ltd....... 1,000 * Ranleigh Party Ltd...... 1,000 * EAST/WEST SELLING SHAREHOLDERS East/West Technology Partners, Ltd.......... 128,880 77,250 * BDM Federal, Inc........ 111,140 42,750 * International Technology Exchange Corporation... 30,000 15,000 * BEG SELLING SHAREHOLDERS BEG Enterprises, Inc. (4).................... 627,593 62,760 3.56% Bernice Berman.......... 41,841 4,185 * Gloria Felsenthal....... 8,368 837 * Kirk Gibson Revocable Trust.................. 20,920 2,092 * David Honigman.......... 104,602 10,461 * Norine H. Kielson Trust. 20,920 2,092 * RSP 3, L.P.............. 12,552 1,255 * Kaye Honigman Singer.... 83,682 8,369 * Robert A. Sprotte Money Purchase Plan.......... 11,920 1,192 * Robert A. Sprotte IRA... 4,500 450 * Sherry L. Sprotte IRA... 4,500 450 * VALASSIS Enterprises, L. P...................... 52,301 5,230 * Mark S. and Francis A. Wagner (5)............. 52,301 5,230 * Probitas Fund L.P....... 51,867 * Lawrence I. Kravetz..... 5,187 * MCC SELLING SHAREHOLDER Microelectronics and Computer Technology Corporation............ 563,973 22,326 3.03% DECEMBER 1995 SELLING SHAREHOLDERS Dr. Hal & Margaret Bozof.................. 4,000 400 * Gloria D. Freer......... 5,000 500 * Gary and Cheryl Kaplan.. 3,000 300 * Dr. Alan P. Lightman.... 4,000 400 * Dr. David Lightman...... 4,000 400 *
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NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES C PREFERRED STOCK, SERIES E NUMBER OF SHARES PREFERRED STOCK NUMBER OF SHARES OF COMMON STOCK AND SERIES F OF COMMON STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS HELD AND OFFERED WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES MADE PURSUANT TO THIS PURSUANT TO THIS TO THIS PURSUANT TO THIS SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2) ----------- ---------------- ---------------- ---------------- ----------------------- Combined Turner Children's Trust....... 3,000 300 * RSP 3, L.P.............. 79,200 7,920 * Pinnacle Fund, L.P...... 100,000 10,000 * Michael S. Blechman Family Trust........... 38,100 3,810 * Rock Financial Corporation............ 47,619 4,762 * SERIES E SELLING SHAREHOLDERS Leonardo, L.P........... 461,001 1,787,991 10.65% Nelson Partners......... 694,401 1,454,666 10.03% Olympus Securities, Ltd.................... 621,830 1,454,666 9.99% Canadian Imperial Holdings, Inc.......... 101,086 * Gracechurch & Co........ 290,489 776,540 5.31% Amadeus Fund, L.P....... 13,645 * Amadeus Offshore Fund, Ltd.................... 77,323 * Diversified Strategies Fund, L.P.............. 22,742 * Raphael, L.P............ 97,370 598,122 3.00% West Merchant Bank Nominees Limited....... 779,661 3.87% AG Super Fund Int'l Partners............... 94,675 466,112 2.35% GAM L.P................. 115,709 466,112 2.94% Kessler-Asher Group, Ltd.................... 100,476 * LaRocque Trading Group LLC.................... 209,307 46,870 1.30% Charles Kucey........... 67,567 * Cornerstone Capital, Inc.................... 489,758 2.53% NewSun Ltd.............. 202,399 1.05% OTA Limited Partnership. 109,364 * KA Trading L.P.......... 85,294 * Capital Ventures International.......... 134,731 * Eric S. Swartz.......... 55,702 * Michael C. Kendrick..... 55,702 * P. Bradford Hathorn..... 5,000 * Lance T. Bury........... 5,000 * Dwight B. Bronnum....... 1,500 * Robert L. Hopkins....... 1,500 Charles Krusen.......... 4,867 * Enigma Investments Limited................ 1,521 * David K. Peteler........ 3,000 * S. Edward Bradford...... 11,000 * GH SELLING SHAREHOLDERS GH Securities, Ltd...... 125,000 429,149 2.81% David M. Klausmeyer..... 55,000 *
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NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES C PREFERRED STOCK, SERIES E NUMBER OF SHARES PREFERRED STOCK, NUMBER OF SHARES OF COMMON STOCK AND SERIES F OF COMMON STOCK UNDERLYING PREFERRED STOCK PERCENTAGE OF INTERESTS HELD AND OFFERED WARRANTS OFFERED OFFERED PURSUANT PRIOR TO ANY SALES MADE PURSUANT TO THIS PURSUANT TO THIS TO THIS PURSUANT TO THIS SHAREHOLDER PROSPECTUS PROSPECTUS PROSPECTUS(1) PROSPECTUS(2) ----------- ---------------- ---------------- ---------------- ----------------------- NOTE WARRANT SELLING SHAREHOLDERS Pinnacle Fund L.P. ..... 100,000 * Michael S. Blechman Family Trust........... 50,000 50,000 * Valassis Enterprises L.P. .................. 100,000 * N. Martin Co. .......... 50,000 50,000 * SERIES F SELLING SHAREHOLDERS Thomas Kernaghan & Co. Limited................ 2,335,362 10.78% Stanley B. Dickson...... 467,072 2.36% FT Trading Co. ......... 373,658 1.93% OCTOBER 1997 SELLING SHAREHOLDERS [To Come] OTHER SELLING SHAREHOLDERS Lawrence I. Kravetz..... 70,400 * BEG Enterprises, Inc. .. 65,034 Columbus Asset Management, Ltd........ 20,000 * Katherine D. Banks...... 35,000 * Peter Moon.............. 20,625 Claude Cooke............ 9,372 IN Partnership, Inc..... 24,407 The Investor Relations Company................ 30,000 Research Applications, Inc.................... 150,000 ---------- --------- ---------- ----- TOTAL................. 14,472,558 1,432,283 11,141,832 68.89%
- -------- * Less than 1 % (1) The number of Shares of Common Stock issuable upon conversion of the Series E Preferred Stock and Series F Preferred Stock is subject to adjustment (upward or downward) based on fluctuations in the market price of the Common Stock. See "Description of Capital Stock--Preferred Stock--Series E Preferred Stock and;--Series F Preferred Stock." The number of such Shares included in this Prospectus and in the table is the number of Shares into which the Series E Preferred Stock and Series F Preferred Stock were convertible as of October 21, 1997. (2) This percentage was calculated including Shares issuable upon the exercise of Warrants and conversion of Series C Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, as applicable, into shares of the Company's Common Stock. (3) Mr. Minor also owns an additional 6,213 shares of Common Stock purchased on the open market, which are not subject to this Prospectus. (4) Ronald J. Berman, a director of the Company and the president of BEG Enterprises, Inc., also owns an additional 94,250 shares of the Company's Common Stock purchased on the open market, which are not subject to this Prospectus. (5) Mark S. and Frances A. Wagner also own an additional 19,400 shares of the Company's Common Stock jointly; The Frances A. Wagner Trust also owns an additional 36,000 shares of the Company's Common Stock; and an additional 10,875 shares of the Company's Common Stock are held by trusts for Mr. and Mrs. Wagner's minor children. All of the shares described in this footnote were purchased on the open market and are not subject to this Prospectus. 22 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 120,000,000 shares of Common Stock, par value $.001 per share (the "Common Stock"), and 2,000,000 shares of Preferred Stock, par value $1 per share (the "Preferred Stock"). The Preferred Stock may be issued in series and currently consists of (i) Series A Convertible Preferred Stock, (ii) Series C Preferred Stock, (iii) Series D Preferred Stock, (iv) Series E Preferred Stock, (v) Series F Preferred Stock and (vi) Series G Preferred Stock. At October 21, 1997, 19,324,353 shares of Common Stock, 100 shares of Series A Preferred Stock, 260 shares of Series E Preferred Stock, 1,250 shares of Series F Preferred Stock and 1,700 shares of Series G Preferred Stock were issued and outstanding. No shares of Series C Preferred Stock, or Series D Preferred Stock are currently outstanding; however, Series C Warrants are outstanding to purchase 75,000 shares of Series C Preferred Stock. After giving effect to the conversion of the Series A Preferred Stock into 125,275 shares of Common Stock, the conversion of the Series C Preferred Stock underlying existing Series C Warrants into 750,000 shares of Common Stock (135,000 of which are included in the Registration Statement), the conversion of the Series E Preferred Stock into 7,830,740 shares of Common Stock and the conversion of the Series F Preferred Stock into 3,176,092 of Common Stock, and the conversion of the Series G Preferred Stock into 1,700,000 shares of Common Stock, there would be 40,271,225 shares of Common Stock issued and outstanding. Additionally, 2,217,249 shares of Common Stock are reserved for issuance upon exercise of Warrants (including 1,432,283 Shares of Common Stock underlying certain Warrants included in this Prospectus) that have been issued by the Company, and 3,500,000 shares are reserved for issuance under the Company's stock option plans. COMMON STOCK The holders of Common Stock are entitled to one vote per share, voting with the holders of any other class of stock entitled to vote, without regard to class, on all matters to be voted on by the shareholders, including the election of directors. All issued and outstanding shares of Common Stock are fully paid and nonassessable. The Common Stock is currently listed on the Boston and Pacific Stock Exchanges and quoted on the NASDAQ Small Cap Market ("NASDAQ"). Subject to any prior and superior rights of the Preferred Stock, the holders of Common Stock are entitled to receive dividends when, and if, declared by the Board of Directors from funds legally available therefor. Currently, no series of Preferred Stock has rights that are prior and superior to the Common Stock with respect to dividends. In the event of any liquidation, dissolution or winding up of the affairs of the Company, the holders of the Common Stock are entitled to receive, pro rata, any assets of the Company remaining after payment has been made in full to the holders of any series of Preferred Stock with a liquidation preference. Currently, only the holders of the Series A Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock are entitled to a liquidation preference, while the holders of Series C Preferred Stock and Series D Preferred Stock have no priority over the holders of Common Stock with respect to liquidation distributions. PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more series as may be established and designated from time to time by the Board of Directors by resolution. The voting powers, preferences and relative, participating, optional and other special rights and the qualifications, limitations or restrictions of any series of Preferred Stock shall be as is stated in the resolution or resolutions of the Board of Directors that provides for the designation of such series. With the exception of shares issued pursuant to any duly adopted stock option plan of the Company, no shares of Preferred Stock may be issued to any officer or director of the Company or any shareholder who directly or indirectly owns greater than five percent (5%) of the issued and outstanding voting stock of the Company or any affiliate of such persons, without the affirmative vote of a majority in interest of the disinterested shareholders of the Company. Under the Texas Business Corporation Act, each series of Preferred Stock is entitled to vote as a class with respect to a proposed amendment to the Company's Restated Articles of Incorporation (the "Restated Articles") in certain circumstances. 23 Series A Preferred Stock There are currently issued and outstanding 100 shares of the Series A Preferred Stock, which is the total number currently authorized for issuance. Each outstanding share of the Series A Preferred Stock is currently convertible into 1002.75 shares of Common Stock, subject to adjustment in certain circumstances. Except as otherwise required by law, the holders of the Series A Preferred Stock are entitled to vote on all matters with the holders of the Common Stock and are entitled to one vote for every share of Common Stock into which the holders' Series A Preferred Stock is convertible. The holders of Series A Preferred Stock have no preferential dividend rights and are entitled to share in any dividends declared on the Common Stock based on the number of shares of Common Stock into which the shares of Series A Preferred Stock are convertible. In the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock are entitled to receive the liquidation price of $1,000 per share before any distribution is made to the holders of Common Stock or any other series of Preferred Stock ranking junior as to liquidation rights as to the Series A Preferred Stock. Holders of Series A Preferred Stock also are entitled to share equally in any liquidation distributions to the holders of Common Stock based on the number of shares of Common Stock into which the shares of Series A Preferred Stock are convertible. The Company has no redemption rights or obligations with respect to the Series A Preferred Stock. Without the consent of all holders of Series A Preferred Stock, the Company may not alter any provision of (i) the Bylaws of the Company or (ii) the Restated Articles so as to adversely affect the rights of the holders thereof. Series C Preferred Stock There are currently no outstanding shares of the Series C Preferred Stock; however, 75,000 shares are authorized for issuance pursuant to outstanding Series C Warrants. Each share of Series C Preferred Stock is convertible into ten (10) shares of Common Stock, subject to adjustment in certain circumstances. Except as otherwise required by law, the holders of the Series C Preferred Stock are entitled to vote on all matters with the holders of the Common Stock and are entitled to one vote for every share of Common Stock into which the holders' Series C Preferred Stock is convertible. In order to maintain the voting power of the shares of Series C Preferred Stock, the holders thereof are entitled to purchase additional shares of the Company's voting securities upon the Company's issuance of additional shares of voting securities in certain circumstances. See "--Certain Provisions of the Articles of Incorporation, By-Laws and Texas Law." The holders of Series C Preferred Stock have no preferential dividend rights and are entitled to share in any dividends declared on the Common Stock based on the number of shares of Common Stock into which the shares of Series C Preferred Stock are convertible. Holders of Series C Preferred Stock have no preference with respect to any distributions in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, but are entitled to share equally with the holders of the Common Stock based on the number of shares of Common Stock into which the shares of Series C Preferred Stock are convertible. The Company has no redemption rights or obligations with respect to the Series C Preferred Stock. Without the mutual consent of the Board of Directors of the Company and holders of not less than a majority of all outstanding shares of Series C Preferred Stock, none of the rights of the holders of Series C Preferred Stock may be altered. Series D Preferred Stock There are currently no outstanding shares of the Series D Preferred Stock; however, 90,000 shares are authorized for issuance. Each share of Series D Preferred Stock is convertible into ten (10) shares of Common Stock, subject to adjustment in certain circumstances. Except as otherwise required by law, the holders of the Series D Preferred Stock are entitled to vote on all matters with the holders of the Common Stock and are entitled to one vote for every share of Common Stock into which the holders' Series D Preferred Stock is convertible. In order to maintain the voting power of the shares of Series D Preferred Stock, the holders thereof are entitled to purchase additional shares of the Company's voting securities upon the Company's issuance of additional shares of voting securities in certain circumstances. See "--Certain Provisions of the Articles of Incorporation, By-Laws and Texas Law." The holders of Series D Preferred Stock have no preferential dividend rights and are entitled to share in any dividends declared on the Common Stock based on the number of shares of Common 24 Stock into which the shares of Series D Preferred Stock are convertible. Holders of Series D Preferred Stock have no preference with respect to any distributions in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, but are entitled to share equally with the holders of the Common Stock based on the number of shares of Common Stock into which the shares of Series C Preferred Stock are convertible. The Company has no redemption rights or obligations with respect to the Series D Preferred Stock. Without the mutual consent of the Board of Directors of the Company and holders of not less than a majority of all outstanding shares of Series D Preferred Stock, none of the rights of the holders of Series D Preferred Stock may be altered. Series E Preferred Stock There are 1,500 shares of the Series E Preferred Stock currently authorized for issuance, of which 260 shares are issued and outstanding. Subject to adjustment in certain circumstances, each share of Series E Preferred Stock is convertible into that number of shares of Common Stock determined by dividing (i) the original issue price of the Series E Preferred Stock (the "Issue Price") plus an amount equal to 8% of the Issue Price per annum from the date the escrow agent first had in its possession the funds representing payment of the Series E Preferred Stock to the conversion date by (ii) the conversion price, which is either (x) the lesser of $1,875 (the "Low Fixed Conversion Price") or 85% of the average closing bid price of the Company's Common Stock for the five (5) trading days immediately preceding the Date of Conversion, as defined below, for one-third ( 1/3) of the shares (the "Low Fixed Preferred Shares") of Series E Preferred held by a holder as of January 16, 1997 or (y) the lesser of $3.00 (the "High Fixed Conversion Price") or 85% of the average closing bid price of the Company's Common Stock for the five (5) trading days immediately preceding the date of conversion for the remaining two-thirds ( 2/3) of the shares (the "High Fixed Preferred Shares") of Series E Preferred held by a holder as of January 16, 1997. Each holder shall have the sole right to designate the shares of Series E Preferred tendered for conversion by such Holder as Low Fixed Preferred Shares, High Fixed Preferred Shares or any combination of Low Fixed Preferred Shares and High Fixed Preferred Shares by providing the Company with notice thereof in the notice of conversion delivered by such holder to the Company in connection with such conversion. Any shares of Series E Preferred Stock outstanding on January 15, 1999 shall be automatically converted into Common Stock on such date. In the event any shares of the Series E Preferred Stock are converted or redeemed pursuant to their terms, the shares of Series E Preferred Stock so converted or redeemed shall be canceled, shall return to the status of authorized but unissued Preferred Stock of no designated series, and shall not be issuable by the Company as Series E Preferred Stock. Notwithstanding the preceding paragraph, if this paragraph and its terms are in effect and have not been terminated pursuant to the terms of the Company's Amended and Restated Articles of Incorporation, as amended (the "Articles of Incorporation"), each holder shall be entitled to convert up to 12% of the aggregate shares of Series E Preferred Stock held by such holder as of April 21, 1997 at $0.6429. In addition to the number of shares of Series E Preferred Stock a holder may convert pursuant to the preceding sentence, each holder shall be entitled to convert any and all remaining shares of Series E Preferred Stock held by such holder at a conversion price of $1.50. Furthermore, if the terms of this paragraph have not been terminated pursuant to the terms of the Company's Articles of Incorporation, then for each calendar month, beginning with April 1997, where the average of the closing bid prices of the Company's Common Stock for all trading days for such calendar month is less than $1.00, the Company shall redeem shares of the Series E Preferred Stock held by each holder in an amount equal to the lesser of (i) 7% of the aggregate shares of Series E Preferred Stock held by such holder as of April 21, 1997 or (ii) all shares of Series E Preferred Stock then held by such holder. If by June 9, 1997, the Company has not entered into an agreement binding on all of the Company's Series F Preferred Stock with respect to the modification of the conversion rights of the Company's Series F Preferred Stock, which, in the good faith judgement of the holders, is not more materially adverse to the Company than the provisions set forth in the preceding paragraph, or if by May 6, 1997, the Company fails to enter into an agreement binding on all of the holders of the Company's 8% Convertible Debentures (the "Convertible Debentures") with respect to the modification of the conversion rights of the Convertible Debentures, which in 25 its good faith judgement of the holders of the Series E Preferred Stock is not materially more adverse to the Company than the provisions set forth in the preceding paragraph relating to the Series E Preferred Stock; then upon written notice to the Company by the holders of 75% or more of the outstanding shares of Series E Preferred Stock, the terms set forth in the preceding paragraph shall be void and the obligations with respect to the conversions of the Series E Preferred Stock shall be as follows: (i) after February 14, 1997, each holder of Series E Preferred shall be entitled to convert up to one-third ( 1/3) of the shares of Series E Preferred held by such holder as of January 16, 1997 using the appropriate High Fixed Conversion Price and Low Fixed Conversion Price as designated above; (ii) in addition to the shares of Series E Preferred a holder may convert pursuant to (i) above, after March 15, 1997, each holder shall be entitled to convert up to 12.5% of the shares of Series E Preferred Stock held by such holder as of January 16, 1997 using the appropriate High Fixed Conversion Price and Low Fixed Conversion Price as designated above; (iii) in addition to the shares of the Series E Preferred a Holder may convert pursuant to (i) and (ii) above, each holder shall be entitled to convert on any date after March 15, 1997, a cumulative number of shares of Series E Preferred Stock equal to the product of (i) the number of days from March 15, 1997 through and including such date, (ii) .4067% and (iii) the number of shares of Series E Preferred Stock held by such holder as of January 16, 1997 using the appropriate High Fixed Conversion Price and Low Fixed Conversion Price as designated above. Each holder may convert any and all shares of the Series E Preferred then held by such holder at any time after either (x) the average of the closing bid prices of the Company's Common Stock for five consecutive trading days exceeds $3.00 or (y) Marc W. Eller ceases to be employed by the Company in substantially the same capacity as he occupied as of January 16, 1997. If this provision becomes effective pursuant to the terms of the Company's Articles of Incorporation, the Series E Preferred Shares shall be convertible at the appropriate Low Fixed Conversion Price or High Fixed Conversion Price as designated above. Except pursuant to the automatic conversion of the Series E Preferred Stock on January 15, 1997, in no event shall any Holder be entitled to convert shares of Series E Preferred Stock which, upon conversion, would cause the aggregate number of shares of Common Stock beneficially owned by such Holder and its affiliates to exceed 4.9% of the outstanding shares of the Company's Common Stock following such conversion. For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by a Holder and its affiliates shall include the shares of Common Stock issuable upon conversion of the shares of Series E Preferred Stock with respect to which the determination of such proviso is being made, but shall exclude the shares of Common Stock which would be issuable upon conversion of the remaining unconverted portion of the Series E Preferred Stock beneficially owned by such Holder and its affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph, "beneficial ownership" shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Except as otherwise required by law, the holders of the Series E Preferred Stock are entitled to vote on all matters with the holders of Common Stock and are entitled to one vote for every share of Common Stock into which the holders' Series E Preferred Stock is convertible. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Series E Preferred Stock are entitled to receive the liquidation price of $10,000 plus 8% per annum from the date of issuance, before any distribution is made to the holders of Common Stock or any other series of Preferred Stock ranking junior as to liquidation rights of the Series E Preferred Stock. The holders of Series E Preferred Stock are not entitled to receive dividends. In the event that at the time of a requested conversion by a holder of Series E Preferred Stock, the conversion price is $3 or less per share, the Company has the right to redeem all or part of the shares at a redemption price per share equal to (i) the number of shares of Common Stock into which each share is convertible times (ii) the closing bid price per share of the Common Stock. The Company additionally has the 26 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:
ELAPSED TIME SINCE LAST REDEMPTION PRICE CLOSING ---------------- ------------------------------ 130% of Stated Value 90 days--6 months 125% of Stated Value 6 months and 1 day--12 months 120% of Stated Value 12 months and 1 day--18 months 115% of Stated Value 18 months and 1 day--24 months 110% of Stated Value 24 months and 1 day--30 months 105% of Stated Value 30 months and 1 day--36 months
"Stated Value" is defined as the Issue Price of the Series E Preferred Stock plus an amount equal to 8% of such price from the date of issuance. Without the consent of the holders of not less than a majority of all outstanding shares of Series E Preferred Stock, the Company may not (i) alter the rights of the holders of Series E Preferred Stock, (ii) create any new class or series of Preferred Stock with prior rights with respect to distributions or (iii) do any act not authorized by the Company's Restated Articles which would result in the taxation of the holders of Series E Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended. Series F Preferred Stock There are 2,500 shares of the Series F Preferred Stock currently authorized for issuance, of which 1,250 shares are issued and outstanding. Subject to adjustment in certain circumstances, each share of Series F Preferred Stock is convertible into that number of shares of Common Stock determined by dividing (i) the original issue price of the Series F Preferred Stock (the "Series F Issue Price") plus an amount equal to four percent (4%) of the Series F Issue Price from the issue date of the Series F Preferred Stock being converted to the conversion date by (ii) the conversion price, which is the lesser of (x) $1.75 or (y) 80% of the ten (10) day trading average of the closing bid price prior to the conversion date. Except as otherwise required by law, the holders of the Series F Preferred Stock shall have no voting power. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Series F Preferred Stock are entitled to receive the liquidation price of $1,000 per share plus four percent (4%) per annum from the date of issuance, before any distribution is made to the holders of Common Stock or any other series of Preferred Stock ranking junior as to liquidation rights of the Series F Preferred Stock. The Series F Preferred Stock shall be subordinate to the Series A Preferred Stock and Series E Preferred Stock for liquidation purposes. The holders of the Series F Preferred Stock are not entitled to receive dividends. Without the consent of the holders of not less than seventy five percent (75%) of all outstanding shares of Series F Preferred Stock, the Company may not (i) alter rights, preferences or privileges of the Series F Preferred Stock so as to adversely affect the Series F Preferred Stock (ii) create any new class of Preferred Stock senior to or having a preference over the Series F Preferred Stock with respect to payments upon liquidation or (iii) do any act or thing not authorized by the Company's Restated Articles which would result in taxation of the holders of Series F Preferred Stock under (S) 305 of the Internal Revenue Code, as amended. Series G Preferred Stock There are 3,000 shares of Series G Preferred Stock currently authorized for issuance, of which 1,700 shares are issued and outstanding. Subject to adjustment in certain circumstances, each share of Series G Preferred Stock is convertible into that number of shares of Common Stock determined by dividing (i) the original issue price of the Series G Preferred Stock (the "Series G Issue Price") plus an amount equal to ten percent (10%) of the Series G Issue Price from the date of the Series G Preferred Stock being converted to the conversion date by (ii) the Conversion Price, which is equal to $1.00. Except as provided by law, the holders of Series G Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which their respective shares of Series G Preferred Stock 27 are then convertible using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. Holders of Series G Preferred Stock shall be entitled to notice of all shareholders meetings or written consents with respect to which they would be entitled to vote. In the event of any liquidation, dissolution or winding-up of the Corporation, either voluntary or involuntary (a "Liquidation"), the holders of shares of the Series G Preferred Stock then issued and outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders, whether from capital, surplus or earnings, before any payment shall be made to the holders of shares of the Common Stock or upon any other series of Preferred Stock of the Corporation with a liquidation preference subordinate to the liquidation preference of the Series A or Series E or Series F Preferred Stock, an amount per share equal to the sum of (i) the Stated Value and (ii) an amount equal to ten percent (10%) of the Stated Value multiplied by the fraction N/365, where N equals the number of days elapsed since the issue date of the Series G Preferred Stock. If, upon any Liquidation of the Corporation, the assets of the Corporation available for distribution to its shareholders shall be insufficient to pay the holders of shares of the Series G Preferred Stock and the holders of any other series of Preferred Stock with a liquidation preference equal to the liquidation preference of the Series G Preferred Stock the full amounts to which they shall respectively be entitled, the holders of shares of the Series G Preferred Stock and the holders of any other series of Preferred Stock with liquidation preference equal to the liquidation preference of the Series G Preferred Stock shall receive all of the assets of the Corporation available for distribution and each such holder of shares of the Series G Preferred Stock and the holders of any other series of Preferred Stock with a liquidation preference equal to the liquidation preference of the Series G Preferred Stock shall share ratably in any distribution in accordance with the amounts due such shareholders. In the event of Liquidation, the Series G Preferred Stock shall be subordinate to Series A, Series E and Series F Preferred Stock. After payment shall have been made to the holders of shares of the Series G Preferred Stock of the full amount to which they shall be entitled, as aforesaid, the holders of shares of the Series G Preferred Stock shall be entitled to no further distributions thereon and the holders of shares of the Common Stock and of shares of any other series of stock of the Corporation shall be entitled to share, according to their respective rights and preferences, in all remaining assets of the Corporation available for distribution to its shareholders. SHARES ELIGIBLE FOR FUTURE SALE As of October 21, 1997, there were 19,324,353 shares of Common Stock outstanding, of which 14,305,031 shares of Common Stock were freely tradeable without restriction or further registration under the Securities Act by persons other than "affiliates" of the Company. As of that date, the remaining shares of Common Stock were deemed "restricted securities," as defined in Rule 144 under the Securities Act, and may not be resold in the absence of registration under the Securities Act or pursuant to an exemption from such registration, including exemptions provided by Rule 144 under the Securities Act. Under Rule 144, persons who have held securities for a period of at least two years may sell a limited amount of such securities without registration under the Securities Act. Rule 144 also permits, under certain circumstances, persons who are not affiliates of the Company, to sell their restricted securities without quantity limitations once they have completed a three-year holding period. The Registration Statement, of which this Prospectus is a part, pertains to 14,472,558 Shares of Common Stock which are currently "restricted securities"; 1,432,283 Shares of Common Stock which underlie existing Warrants; 135,000 Shares of Common Stock which are issuable upon conversion of the Series C Preferred Stock; 7,830,740 Shares of Common Stock which are issuable upon conversion of the Series E Preferred Stock and 3,176,092 shares of Common Stock which are issuable upon conversion of the Series F Preferred Stock. The Company is obligated to maintain the effectiveness of the Registration Statement for varying periods of time, pursuant to separate agreements with certain groups of the Selling Shareholders. As of October 20, 1997, the Company is additionally obligated to register an additional 3,545,130 shares of its Common Stock which are currently "restricted securities," in certain circumstances. In addition to the shares of Common Stock which are outstanding as of October 21, 1997, 3,500,000 shares of Common Stock have been reserved for issuance pursuant to the Company's stock option plans. 2,217,249 28 shares of Common Stock have also been reserved for issuance upon exercise of Warrants that have been issued by the Company (1,432,283 of such shares have been registered in the Registration Statement). Additionally, 100,275 shares of Common Stock have been reserved for issuance upon conversion of the Company's Series A Preferred Stock, 750,000 shares of Common Stock have been reserved for issuance upon conversion of the Company's Series C Preferred Stock (135,000 of which are included in the Registration Statement) underlying the Series C Warrants, 7,830,740 shares of Common Stock have been reserved for issuance upon conversion of the Series E Preferred Stock and 3,176,092 shares of Common Stock have been reserved for issuance upon conversion of the Series F Preferred Stock. No prediction can be made as to the effect, if any, that future sales, or the availability of shares of Common Stock for future sales, will have on the market price prevailing from time to time. Sales of substantial amounts of Common Stock by the Company or by shareholders who hold "restricted securities," or the perception that such sales may occur, could adversely affect prevailing market prices for the Common Stock. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Securities Transfer, Incorporated, 938 Quail Street, Suite 101, Lakewood, Colorado 80215. CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION, BY-LAWS AND TEXAS LAW The Company's Restated Articles currently contain provisions which could be considered to have anti-takeover effects. First of all, the authorized and unissued shares of the Company's Preferred Stock (the "Unissued Preferred Stock") and Common Stock (the "Unissued Common Stocks") could be used by incumbent management to make more difficult and thereby discourage an attempt to acquire control of the Company, even though some shareholders may deem such an acquisition desirable. For example, the shares of Unissued Preferred Stock and Unissued Common Stock could be privately placed with purchasers who might support the Board of Directors in opposing a hostile takeover bid. The issuance of the Unissued Preferred Stock with voting rights and/or the Unissued Common Stock could also be used to dilute the stock ownership and voting power of a third party seeking to remove directors, replace incumbent directors, accomplish certain business combinations, or alter, amend, or replace provisions in the Company's Restated Articles. To the extent that it impedes any such attempt, the Unissued Preferred Stock and Unissued Common Stock may serve to perpetuate current management. From time to time, the Company evaluates potential transactions and acquisitions, which if consummated, may require the issuance of the Unissued Preferred Stock or Unissued Common Stock. The Company's Restated Articles require a classified Board of Directors pursuant to which only one-third ( 1/3) of the Board of Directors is elected each year for a term of three years. Therefore, even when a shareholder, or a group of shareholders, has sufficient voting power to elect all of the directors to be elected every year, the Company's classified Board could have the effect of requiring two successive annual meetings to replace a majority of the Board of Directors and three annual meetings to replace the entire Board of Directors. There is no cumulative voting with respect to the election of directors. The Company's Restated Articles also contain a provision which states that with the sole exception of shares issued pursuant to the duly adopted stock option plans of the Company, no shares of the Company's Preferred Stock shall be issued or sold to any officer or director of the Company, or any shareholder who directly or indirectly owns more than five percent (5%) of the issued and outstanding voting stock of the Company, or any affiliate of such a person, without the affirmative vote of a majority in interest of the disinterested shareholders of the Company. The Company's Restated Articles also contain provisions for the Series C Preferred and the Series D Preferred Stock concerning certain anti-dilution rights. (None of the Series C Preferred or Series D Preferred is 29 outstanding at this time). These provisions state that if the aggregate percentage interest of the holder of the Series C Preferred or the Series D Preferred of the Total Voting Power of the Company (defined in the Restated Articles to mean the total voting power of all voting stock of the Company entitled to vote at any meeting of the shareholders of the Company) is or would be reduced as a result of an issuance by the Company of such voting stock (including any issuance following conversion of any security convertible into or exchangeable for voting stock or upon the exercise of any option, warrant, or other right to acquire any voting stock) the Company shall notify the holders of the Series C Preferred and Series D Preferred promptly after establishing the material terms of such proposed issuance. In such notices, the Company shall offer to sell to the holders of the Series C Preferred and the Series D Preferred that number of shares of voting stock which, if so purchased, would result in the retention by the holders of the Series C Preferred and Series D Preferred of each of its aggregate percentage interest in the Total Voting Power in effect immediately prior to such proposed reduction of its aggregate interest. If such offer is accepted by the Series C Preferred holders or the Series D Preferred holders within thirty (30) days following receipt of such notice, the Company shall sell such shares to the holders of the Series C Preferred or the Series D Preferred at a purchase price determined as provided in the appropriate provisions of the Series C Preferred and the Series D Preferred in the Restated Articles. The Company shall not be obligated to deliver notices or offer voting stock for sale pursuant to these provisions in respect of the following issuances of voting stock: (a) pursuant to employee, director or consultant stock option, purchase, bonus, exchange or other such plans or upon the exercise of options or other rights granted thereunder, and (b) in connection with transactions in which shares of voting stock are issued to security holders of a company being acquired by the Company or to a company some or all of whose assets are being acquired by the Company. The Restated Articles limit the liability of directors of the Company in their capacity as directors. Specifically, the directors of the Company will not be liable to the Company or its shareholders for monetary damages for an act or omission in a director's capacity as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its shareholders, (ii) for any act or omission not in good faith which constitutes a breach of duty of the director to the Company or acts or omissions which involve intentional misconduct or a knowing violation of the law, (iii) for transactions from which a director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office, (iv) for an act or omission for which the liability of a director is expressly provided for by an applicable statute, or (v) for acts related to an unlawful stock repurchase or payment of a dividend. The overall effect of the provisions in the Company's current Restated Articles described above would be to make more difficult or discourage a merger, tender, offer or proxy contest, even if such transaction or occurrence generally is favorable to the interests of the shareholders, or they may delay or frustrate the assumption of control by a holder of a large block of the Company's securities and the removal of incumbent management, even if such removal may be beneficial to the shareholders. EXPERTS The consolidated balance sheets as of December 31, 1996 and 1995 and the consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1996, incorporated by reference in this prospectus, have been incorporated herein in reliance on the report, which includes an explanatory paragraph regarding the Company's ability to continue as a going concern, of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. LEGAL OPINIONS Certain legal matters in connection with the Common Stock offered hereby have been passed upon for the Company by Haskell Slaughter & Young, L.L.C. 30 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OFFERED HEREBY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. ---------------- TABLE OF CONTENTS
PAGE ---- Available Information...................................................... 2 Incorporation of Certain Documents by Reference............................ 2 Risk Factors............................................................... 3 Use of Proceeds............................................................ 10 Plan of Distribution and Selling Shareholders.............................. 10 Description of Capital Stock............................................... 22 Experts.................................................................... 29 Legal Opinions............................................................. 29
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SI DIAMOND TECHNOLOGY, INC. [LOGO APPEARS HERE] 14,472,558 SHARES OF COMMON STOCK (PAR VALUE $.001 PER SHARE) 1,432,283 SHARES OF COMMON STOCK UNDERLYING WARRANTS 135,000 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES C PREFERRED STOCK UNDERLYING WARRANTS 7,830,740 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES E PREFERRED STOCK 3,176,092 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES F PREFERRED STOCK ---------------- PROSPECTUS ---------------- OCTOBER , 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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: Securities and Exchange Commission registration fee............... $ 4,460 Printing and engraving expenses................................... 12,500 Legal fees and expenses........................................... 17,000 Accounting fees and expenses...................................... 8,000 Blue sky fees and expenses........................................ 3,500 Miscellaneous..................................................... 5,000 ------- Total........................................................... $50,460 =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article 2.02A(16) and Article 2.01-1 of the Texas Business Corporation Act and Article VIII of the Company's Bylaws provide the Company with broad powers and authority to indemnify its directors and officers and to purchase and maintain insurance for such purposes. Pursuant to such statutory and Bylaw provisions, the Company has purchased insurance against certain costs of indemnification that may be incurred by it and its officers and directors. See "Item 17. Undertakings" for a description of the Securities and Exchange Commission's position regarding such indemnification provisions. Additionally, Article Seven(C) of the Company's Restated Articles, provides that a director of the Company is not liable to the Company or its shareholders for monetary damages for any act or omission in the director's capacity as director except that Article Seven(C) does not eliminate or limit the liability of a director for (i) breaches of his duty of loyalty to the Company and its shareholders, (ii) acts or omissions not in good faith or which constitute a breach of duty of a director of the Company or involves intentional misconduct or a knowing violation of law, (iii) transactions from which a director receives an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office, (iv) acts or omissions for which liability is specifically provided by statute, and (v) acts relating to unlawful stock purchases or payments of dividends. Article Seven (C) also provides that any subsequent amendments to Texas statutes that further limit the liability of directors will inure to the benefit of the directors, without any further action by shareholders. Any repeal or modification of Article Seven (C) shall not adversely affect any right of protection of a director of the Company existing at the time of the repeal or modification. The foregoing discussion is not intended to be exhaustive and is qualified in its entirety by each of such documents and such statutes. ITEM 16. EXHIBITS See Index to Exhibits on page II-4 for a descriptive response to this item. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; II-1 (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. Provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON BEHALF OF THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN, STATE OF TEXAS, ON OCTOBER 28, 1997. SI DIAMOND TECHNOLOGY, INC. /s/ Marc W. Eller By __________________________________ Marc W. Eller Chairman and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Marc W. Eller Chairman and Chief Executive October 28, 1997 ____________________________________ Officer (Principal Executive Marc W. Eller Officer and Director) /s/ Douglas P. Baker Vice-President and Chief October 28, 1997 ____________________________________ Financial Officer (Principal Douglas P. Baker Financial Officer) Lee B. Arberg* Directors October 28, 1997 Ronald J. Berman* Philip C. Shaffer* David R. Sincox* Zvi Yaniv* Walter Cunningham* Robert Johnson*
*By:/s/ Douglas P. Baker Douglas P. Baker, (Attorney-in-Fact) II-3 INDEX TO EXHIBITS The exhibits indicated by an asterisk (*) are incorporated by reference from previous filings with the Commission.
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBIT PAGES ------- ---------------------- ------------ 4.1* Amended and Restated Articles of Incorporation of the Company as filed on February 14, 1997 with the Secretary of State of the State of Texas (Exhibit 3.1 to the Company's Current Report on Form 8-K dated as of February 14, 1997 (File No. 1-11602)). 4.2* Statement of Resolutions Establishing and Designating the Series F Preferred Stock of the Company as filed with the Secretary of State of the State of Texas on March 10, 1997 (Exhibit 3.2 to the Company's Current Report on Form 8-K dated as of March 7, 1997) (File No. 1-11602)). 4.3* Form of Certificate for Shares of the Company's Common Stock (Exhibit 4.1 to the Company's Registration Statement on Form SB-2 (No. 33-51466-FW) dated January 7, 1993). 4.4* Form of Convertible Subordinated Debenture Agreement (Exhibit 10.18 to the Company's Registration Statement on Form SB-2 (No. 33-51466-FW) dated January 7, 1993) 4.5* Form of Subordinated Debenture Agreement with Attached Warrants (Exhibit 10.17 to the Company's Registration Statement on Form SB-2 (No. 33-51466-FW) dated January 7, 1993). 4.6* Form of Underwriter's Warrant (Exhibit 1.4 to the Company's Registration on Form SB-2 (No. 33-51466-FW) dated January 7, 1993). 4.7* Form of Subscription Agreement for the sale of Units, each consisting of two shares of the Company's Common Stock and one Warrant (June 1993) to purchase one share of Common Stock. (Exhibit 4.7 to the Companys' Registration Statement on Form S-3 dated January 19, 1996 (File No. 1-11602)). 4.8* Form of Warrant (June 1993) to purchase shares of the Company's Common Stock. (Exhibit 4.8 to the Company's Registration Statement on Form S-3 dated January 19, 1996 (File No. 1-11602)). 4.9* Option, Share and Warrant Purchase Agreement dated February 9, 1995 by and between the Company and Diagascrown, Inc. (Exhibit 10.1 to the Company's Report on Form 10-QSB for the fiscal quarter ended March 31, 1995 (File No. 111602)). 4.10* Warrant granted to East/West Technology Partners, Ltd. to purchase 13,500 shares of the Company's Series C Preferred Stock (Exhibit 10.3 to the Company's Report on Form 10-QSB for the fiscal quarter ended March 31, 1995 (File No. 1-11602)). 4.11* Form of Subscription Agreement and Purchaser Questionnaire by and between the Company and purchasers of the Company's Common Stock effective as of June 20, 1995 (Exhibit 4.1 to the Company's Report on Form 10-QSB for the fiscal quarter ended June 30, 1995 (File No. 1-11602)). 4.12* Form of Warrant (BEG) to purchase shares of the Company's Common Stock in connection with the Form of Subscription Agreement and Purchase Questionnaire by and between the Company and the purchasers of the Company's Common Stock dated as of June 20, 1995. (Exhibit 4.12 to the Company's Registration Statement on Form S-3 dated January 19, 1996) (File No. 1-11602)). 4.13* Form of Placement Agreement dated as of July 19, 1995 by and between the Company and Columbus Asset Management Limited (Exhibit 4.2 to the Company's Report on Form 10-QSB for the fiscal quarter ended September 30, 1995 (File No. 1-11602)).
II-4
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBIT PAGES ------- ---------------------- ------------ 4.14* Form of Warrant in connection with Placement Agreement dated as of July 19, 1995 by and between the Company and Columbus Asset Management (Exhibit 4.3 to the Company's Report on Form 10-QSB for the fiscal quarter ended September 30, 1995 (File No. 1-11602)). 4.15* Amendment No. 3 to the Patent and Know-How Cross- License Agreement executed on October 17, 1995 between the Company and Microelectronics & Computer Technology Corporation. (Exhibit 4.15 to the Company's Registration Statement (No. 333-00674) on Form S-3 dated January 26, 1996 (File No. 1-11602)). 4.16* Form of Subscription Agreement and Purchaser Questionnaire in connection with the Company's $1.5 million private placement of its Common Stock (Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of January 19, 1996 (File No. 1-11602)). 4.17* Form of Regulation D Subscription Agreement in connection with the private placement of the Company's Series E Preferred Stock. (Exhibit 4.2 to the Company's Current Report on Form 8-K dated as of January 19, 1996) (File No. 1-11602)). 4.18* Form of Registration Rights Agreement in connection with the private placement of the Company's Series E Preferred Stock (Exhibit 4.3 to the Company's Current Report on Form 8-K dated as of January 19, 1996) (File No. 1-11602). 4.19* Form of Warrant Issued to Swartz Investments, Inc. (Exhibit 4.5 to the Company's Current Report on Form 8-K dated as of January 19, 1996 (File No. 1-11602)). 4.20* Amendment No. 2 to the Patent and Know-How Cross License Agreement dated January 19, 1995 (Exhibit 10.8 to the Company's Report on Form 10-QSB for the fiscal quarter ended March 31, 1995 (File No. 1-11602)). 4.21* Form of Certificate for Shares of the Company's Series C Preferred Stock (Exhibit 4.1 to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 1995 (File No. 1-11602)). 4.22* Underwriting Agreement dated as of August 27, 1993, and effective as of September 7, 1993 between the Company and GH Securities, Ltd. (Exhibit 4.1 to the Company's Report on Form 10-QSB for the fiscal quarter ended September 30, 1995 (File No. 1-11602)). 4.23* Warrant to Purchase 150,000 shares of Common Stock at $3.90 per share issued to GH Securities, Ltd. exercisable at any time on or before February 21, 1999. (Exhibit 4.18 to the Company's Report on Form 10-KSB for the fiscal year ended December 31, 1995. (File No. 1-11602)) 4.24* Rights Agreement dated February 21, 1996, among the Company, GH Securities, Ltd. and David Klausmeyer (Exhibit 4.19 to the Company's Report on Form 10-KSB for the fiscal year ended December 31, 1995 (File No. 1-11602)). 4.25* Warrant to Purchase 60,000 shares of Common Stock at $6.50 per share issued to GH Securities, Ltd. exercisable any time on or before February 21, 1999 (Exhibit 4.20 to the Company's Report on Form 10-KSB for the fiscal year ended December 31, 1995 (File No. 1-11602)). 4.26* Warrant to purchase 55,000 shares of Common Stock at $5.50 per share issued to David M. Klausmeyer exercisable any time on or before February 21, 1999 (Exhibit 4.21 to the Company's Report on Form 10-KSB for the fiscal year ended December 31, 1995).
II-5
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBIT PAGES ------- ---------------------- ------------ 4.27* Form of Warrant (October 1996) to purchase shares of the Company's Common Stock (Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 30, 1996 (File No. 1-11602)) 4.28* Form of Regulation D Subscription Agreement by and between the Company and the Holders of the Company's Series F Preferred Stock (Exhibit 4.3 to the Company's Current Report on Form 8-K dated as of March 7, 1997 (File No. 1-11602)). 4.29* Form of Registration Rights Agreement by and between the Company and Holders of the Company's Series F Preferred Stock (Exhibit 4.4 to the Company's Current Report on Form 8-K dated as of March 7, 1997 (File No. 1-11602)). 4.30* Form of Subscription Agreement by and between the Company and Holders of the Company's 8% Convertible Debentures (Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of March 7, 1997 (File No. 1-11602)). 4.31* Form of the Company's 8% Convertible Debenture (Exhibit 4.2 to the Company's Current Report on Form 8-K dated as of March 7, 1997 (File No. 1-11602)). 4.32* Certificate of Amendment to the Company's Amended and Restated Articles of Incorporation (amending the Company's Series E Preferred Stock) as filed on May 1, 1997 with the Secretary of State of the State of Texas (Exhibit 4.32 to the Company's Registration Statement on Form S-3 (No. 333-24801) dated June 6, 1997). 4.33* Amendment to Amended and Restated Articles of Incorporation of the Company (amending the Company's Series F Preferred Stock) as filed with the Secretary of State of the State of Texas on August 4, 1997 (Exhibit 3(I).2 to the Company's Current Report on Form 8-K dated August 4, 1997 (File No. 1-11602)). 4.34* Statement of Resolutions Establishing and Designating the Company's Series G Preferred Stock, as filed with the Secretary of State of the State of Texas on June 11, 1997 (Exhibit 3.1 to the Company's Current Report on Form 8-K, dated as of July 25, 1997 (File No. 1- 11602)). 4.35* Form of Regulation D Subscription Agreement by and between the Company and Holders of the Company's Series G Preferred Stock (Exhibit 4.2 to the Company's Current Report on Form 8-K dated as of July 25, 1997)). 4.36* Form of Registration Rights Agreement by and between the Company and the Holders of the Company's Series G Preferred Stock (Exhibit 4.2 to the Company's Current Report on Form 8-K dated as of July 25, 1997)). 4.37* Form of Warrant by and between the Company and Holders of the Company's Series G Preferred Stock (Exhibit 4.3 to the Company's Current Report on Form 8-K dated as of July 25, 1997 (File No. 1-11602). 4.38 Form of Regulation D Subscription Agreement by and between the Company and the October 1997 Selling Shareholders dated as of October 27, 1997. 4.39 Form of Registration Rights Agreement by and between the Company and the October 1997 Selling Shareholders dated as of October 27, 1997. 4.40 Form of Warrant by and between the Company and the October 1997 Selling Shareholders. 5.1 Opinion of Haskell Slaughter & Young, L.L.C., as to certain legal aspects of the offering. 23.1 Consent of Haskell Slaughter & Young, L.L.C. (included in Exhibit 5.1) 23.2 Consent of Coopers & Lybrand L.L.P. 24* Powers of Attorney (Incorporated by reference from Registration Statement No. 333-24801 dated as of June 6, 1997) 27* Financial Data Schedule (Incorporated by reference from previous filings)
II-6 EX-4.38 2 EXHIBIT 4.38 REGULATION D SUBSCRIPTION AGREEMENT THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS. THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL, STATE OR FOREIGN SECURITIES AUTHORITIES, NOR HAVE ANY SUCH AUTHORITIES REVIEWED OR DETERMINED THE ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK, INCLUDING BUT NOT LIMITED TO THOSE RISK FACTORS IDENTIFIED IN THE COMPANY'S FORM S-3S FILED DURING 1997. INVESTORS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT TERMS AND CONDITIONS OF THE PROPOSED INVESTMENT AND THEIR OWN ASSESSMENT OF THE RISKS INVOLVED. This Regulation D Securities Subscription Agreement (the "Agreement") is executed by the undersigned (the "Subscriber") in connection with the offer to the Subscriber of, and the subscription by the Subscriber for, shares of Common Stock, $.001 par value per share (the "Common Stock"), of SI DIAMOND TECHNOLOGY, INC., a Texas corporation (the "Company"). The Company is offering to qualified investors (the "Offering"). The Subscriber agrees to fund $500,000 to the Company upon the execution of this Agreement by the Subscriber, its acceptance by the Company and the delivery of a stock certificate to the entity designated by the Subscriber representing the number of shares of Common Stock identified in the next sentence. The Subscriber shall receive that number of shares of Common Stock resulting from the division of the $500,000 by a value which shall be equal to 65% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the date of this Agreement. In addition, the Subscriber shall also receive one warrant ("Warrant") for each share of Common Stock as calculated pursuant to the sentence above. The purchase price of each Warrant received by the Subscriber shall be the equivalent of 115% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the date of this Agreement. On November 5, 1997 and on the first business day of December 1997 and on the first business day for each month thereafter up to and including April 1998, the Subscriber shall purchase an additional $500,000 of the Company's Common Stock at a price which shall be equal to 65% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the issuance date in each such successive month. In addition, the Subscriber shall also receive one Warrant for each share of Common Stock as calculated in the above sentence. The purchase price for each of these Warrants shall be 115% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the first business day of each month pursuant to the terms of this Agreement. A form of Warrant is attached to this Agreement as Exhibit "E." The terms of the Common Stock are set forth in the Company's Amended and Restated Articles of Incorporation attached hereto as Exhibit A. The solicitation of this Subscription by the Company, and, if accepted by the Company, the sale of the shares of Common Stock subscribed for, are being made in reliance upon the provisions of Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The undersigned Subscriber and the Company, upon acceptance of this Agreement, hereby agree as follows: 1. Offering 1.1 Offer to Subscribe; Purchase Price and Closing; and Placement Fees. Subject to satisfaction of the conditions to the closing of a purchase and sale of Common Stock as to each purchaser of Common Stock (the "Closing") set forth in Section 1.2 below, the Subscriber hereby offers to subscribe for and purchase shares of Common Stock pursuant to the terms and conditions of this Agreement. 1.2 Conditions to Subscriber's Obligations. The Subscriber's obligations hereunder are conditioned upon the occurrence of all of the following: (a) other than as described on Schedule 1.2 attached hereto, there have been no material adverse changes in the Company's business prospects or financial condition since the date of the last balance sheet included in the Disclosure Documents (as defined below in Section 4.2); (b) the representations and warranties of the Company shall be true and correct in all material respects on the date of Closing, as if made on such date; and (c) the Subscription Agreement has been accepted by the Company. 2. Representations and Warranties of the Subscriber. The Subscriber hereby represents and warrants to the Company as follows (which representations and warranties shall be true as of the date of Closing): 2 2.1 Accredited Investor. The Subscriber hereby represents and warrants to the Company that it is an "accredited investor," as defined in Rule 501 of Regulation D, and has marked the applicable box set forth in Section 9 of this Agreement signifying such status. 2.2 Investment Experience; Access to Information; Independent Investigation. 2.2.1 Access to Information. The Subscriber or its professional advisor has been granted the opportunity to ask questions of and receive answers from representatives of the Company, and its officers, directors, employees and agents concerning the terms and conditions of the Offering, and the Company and its business and prospects, and to obtain any additional information which the Subscriber or its professional advisor deems necessary to verify the accuracy of the information received. The foregoing, however, does not limit or modify the Subscriber's right to rely upon representations and warranties of the Company in Section 4 of this Agreement. 2.2.2 Ability to Evaluate. The Subscriber has such knowledge and experience in financial and business matters that it is fully capable of evaluating the merits and risks of an investment in the Company, including without limitation those set forth in the Disclosure Documents (as defined below in Section 4.2). 2.2.3 Disclosure Documents. The Subscriber has received and reviewed the Disclosure Documents (as defined below in Section 4.2). The foregoing, however, does not limit or modify the Subscriber's right to rely upon the representations and warranties of the Company in Section 4 of this Agreement. 2.2.4 Investment Experience; Fend for Self. The Subscriber has substantial experience in investing in securities and has made investments in securities other than those of the Company. The Subscriber acknowledges that it is able to fend for itself in the transaction contemplated by this Agreement and that it has the ability to bear the economic risk of its investment in the Company. The Subscriber has not been organized for the purpose of investing in securities of the Company. 2.2.5 Not an Affiliate. The Subscriber is not an officer, director or "affiliate" (as that term is defined in Rule 415 of the Securities Act) of the Company. 2.3 Exempt Offering Under Regulation D 2.3.1 Investment; No Distribution. The Subscriber is acquiring the shares of Common Stock subscribed for (the "Common Stock") solely for investment purposes for the Subscriber's own account (or for beneficiaries' accounts over which the Subscriber has investment discretion but no discretionary authority as to voting or disposition) and not with a view to a distribution of all or any part thereof. The Subscriber is aware that there are legal and practical limits on its ability to sell or dispose of the Common Stock and the shares of Common Stock 3 underlying the Warrants (collectively, the "Securities"), and therefore, that the Subscriber must bear the economic risk of its investment for an indefinite period of time. The Subscriber has adequate means of providing for its current needs and anticipated contingencies and has no need for liquidity of this investment. The Subscriber's commitment to illiquid investments is reasonable in relation to its net worth. 2.3.2 No General Solicitation. The shares of Common Stock were not offered to the Subscriber through, and the Subscriber is not aware of, any form of general solicitation or general advertising, including, without limitation, (i) any advertisement, articles, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. 2.3.3 No Registration of Common Stock. The Subscriber understands that the shares of Common Stock are not registered and therefore are "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering, and that, under such laws and applicable regulations, such securities may not be transferred or resold without registration under the Securities Act or pursuant to an exemption therefrom. In this connection, the Subscriber represents that it is familiar with Rule 144 under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 2.3.4 Disposition. Without in any way limiting the representations set forth above, the Subscriber further agrees not to make any disposition of all or any portion of the Securities unless and until: (a) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) The Subscriber shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, the Subscriber shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of the Securities under the Securities Act. 2.4 Due Authorization. 2.4.1 Authority. The Subscriber, if executing this Subscription Agreement in a representative or fiduciary capacity, has full power and authority to execute and deliver this Subscription Agreement and each other document referred to herein for which a signature is required in such capacity and on behalf of the subscribing individual, partnership, trust, estate, 4 corporation or other entity for whom or which the Subscriber is executing this Subscription Agreement. 2.4.2 Due Authorization. The Subscriber is duly and validly organized, validly existing and in good standing as such entity under the laws of the jurisdiction of its organization, with full power and authority to purchase the Common Stock subscribed for and to execute and deliver this Agreement. 3. Acknowledgements. The Subscriber is aware of the following: 3.1 Risks of Investment. The Subscriber recognizes that investment in the Company involves certain risks, including the potential loss of the Subscriber's investment herein. The Subscriber recognizes that this Agreement and the exhibits hereto do not purport to contain all the information which would be contained in a registration statement under the Securities Act; 3.2 No Government Approval. The Subscriber acknowledges that no federal, state or foreign agency has passed upon or reviewed the terms and conditions of the Offering or made any finding or determination as to the fairness of the Offering; 3.3 Restrictions on Transfer. The Subscriber may not sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Securities in the absence of either an effective registration statement or an exemption from the registration requirements of the Securities Act and applicable state securities law; 3.4 Exempt Transaction. The Common Stock is being offered and sold in reliance on specific exemptions from the registration requirements of federal and state law and the Subscriber's representations, warranties, agreements, acknowledgements and applicability of such exemptions and the suitability of the Subscriber to acquire such Common Stock. 3.5 Legends. It is understood that any certificates evidencing the Common Stock shall bear the following legend: "The securities represented hereby have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws, nor the securities laws of any other jurisdiction. They may not be sold or transferred in the absence of an effective registration statement under those securities laws or an opinion of counsel, reasonable satisfactory to the Company, that the sale or transfer is pursuant to an exemption to the registration requirements of those securities laws." 4. Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Subscriber, except as disclosed in the Disclosure Documents or otherwise disclosed to Subscriber, which representations and warranties shall be true as of the date of acceptance of this Agreement by the Company and as of Closing: 5 4.1 Organization, Good Standing, and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, and has all requisite corporate power and authority to carry on its business as now conducted and as currently proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the business or properties of the Company and its subsidiaries taken as a whole. The Company is not the subject of any pending or, to its knowledge, threatened or contemplated investigation or administrative or legal proceeding by the Internal Revenue Service, the taxing authorities of any state or local jurisdiction, or the Securities and Exchange Commission, or any state securities commission, or any other governmental entity, which are required to be disclosed in the Disclosure Documents and have not been disclosed. 4.2 Corporate Condition. The Company has timely filed all forms, and reports and documents with the Securities and Exchange Commission required to be filed by it under the Securities Exchange Act 1934, as amended (the "Exchange Act") through the date hereof (collectively,the "SEC Reports"). Each of the SEC Reports, at the time filed, complied in all material respects with the requirements of the Exchange Act. The Company has made available to the Subscriber a copy of the Company's Form 10-KSB/A for the fiscal year ended December 31, 1996, and a copy of the Company's Forms 10-QSB, 8-K and S-3 filed by the Company since January 1, 1997 (the "Most Recent Filings Report"). Other than as set forth in Schedule 4.2 attached hereto and made a part hereof, there have been no material adverse changes in the Company's business, prospects, operations or financial condition since the date of the Most Recent Filings Report. The SEC Reports, together with Schedule 4.2 and any other documents listed on Schedule 4.2(a) attached hereto and made a part hereof and furnished herewith by the Company to the Subscriber are referred to collectively as the "Disclosure Documents." The financial statements contained in the Disclosure Documents have been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly present in all material respects the consolidated financial condition of the Company as of the dates of the balance sheets included therein and the consolidated results of its operations and cash flows for the periods then ended. Without limiting the foregoing, there are no material liabilities, contingent or actual that are not disclosed in the Disclosure Documents (other than liabilities incurred by the Company in the ordinary course of its business, consistent with its past practice, after the periods covered by the Disclosure Documents). The Company has paid all material taxes which are due, except for taxes which it reasonably disputes. There is no material claim, litigation, or administrative proceeding pending, or, to the best of the Company's knowledge, threatened or contemplated against the Company, except as disclosed in the Disclosure Documents. This Agreement and the Disclosure Documents do not contain any untrue statement of material fact and do not omit to state any material fact required to be stated therein or herein necessary to make the statements contained therein or herein not misleading in the light of the circumstances under which they were made. 4.3 Authorization. All corporate action on the part of the Company by its officers, directors and shareholders necessary for the authorization, execution and delivery of this 6 Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance and delivery of the Common Stock and reservation for issuance of the Common Stock obtainable on exercise of the Warrants have been taken, and this Agreement and the Registration Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms; provided, however that enforceability is subject to: (i) applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance, and similar federal and state laws affecting the rights and remedies of creditors generally, and (ii) general principles of equity limiting the availability of equitable remedies (including but not limited to the remedy of specific performance), whether considered in a proceeding at law or in equity. The Company has obtained all consents and approvals required for it to execute, deliver and perform this Agreement and the Registration Rights Agreement. 4.4 Valid Issuance of Common Stock. The Common Stock, when issued, sold and delivered in accordance with the terms hereof, for the consideration expressed herein, will be validly issued, fully paid and nonassessable and, based in part upon the representations of the Subscriber in this Agreement, will be issued in compliance with all applicable federal and state securities laws. The shares of Common Stock underlying the Warrants when issued upon exercise shall be duly and validly issued and outstanding, fully paid and nonassessable, and based in part on the representations and warranties of the Subscriber, will be issued in compliance with all applicable U.S. federal and state securities laws. The Securities will be issued free of any preemptive rights. 4.5 Compliance with Other Instruments. The Company is not in violation or default of any provisions of its Amended and Restated Articles of Incorporation or Bylaws as amended and in effect on and as of the date of this Agreement or of any material provision of any material instrument or contract to which it is a party or by which it is bound or, to its knowledge, of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which would have a material adverse effect on the Company's business or prospects, except as described in the Disclosure Documents. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. 4.6 Reporting Company. The Company is subject to the reporting requirements of the Exchange Act, and has a class of securities registered under Section 12 or Section 15 of the Exchange Act. When requested by the Subscriber, the Company shall furnish copies of reports filed by the Company with the Securities and Exchange Commission. 4.7 Use of Proceeds. As of the date hereof, the Company expects to use the proceeds from the Offering (less fees and expenses) for the purposes set forth on Exhibit D hereto. 7 These purposes are estimates and are subject to change, but represent the Company's good faith best estimate of anticipated uses. 4.8 Compliance with Laws. As of the date hereof, the conduct of the business of the Company complies in all material respects with all material statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto. The Company has not received notice of any alleged violation of any statute, law, regulations, ordinance, rule, judgement, order or decree from any governmental authority. The Company shall comply with all applicable securities laws with respect to the Offering. 4.9 No Rights of Participation. No person or entity, including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the Offering which has not been waived. 4.10 Disclosures. There is no fact known to the Company (other than general economic conditions known to the public generally) that has not been disclosed in the Disclosure Documents that (a) could reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of the Company, or which could reasonably be expected to materially and adversely affect the properties or assets of the Company or (b) could reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to this Agreement and the issuance of the Securities. 4.11 Representations True and Correct. The foregoing representations, warranties and agreements are true, correct and complete in all material respects, and shall survive the Closing and the issuance of the Common Stock and the Warrants. 4.12 Termination Date of Offering. In no event shall the Closing occur later than October _____, 1997, with any extension based upon an agreement between the Company and the Subscriber. 5. Covenants of the Company 5.1 Independent Auditors. The Company shall, until at least three (3) years after the date of the Closing, maintain as its independent auditors an accounting firm authorized to practice before the Securities and Exchange Commission. 5.2 Corporate Existence and Taxes. The Company shall, until at least three (3) years after the date of the Closing, maintain its corporate existence in good standing (provided, however, that the foregoing covenant shall not prevent the Company from entering into any merger or corporate reorganization so long as the surviving entity in such transaction, if not the 8 Company, assumes all of the Company's obligations with respect to the Securities) and shall pay all its taxes when due, except for taxes which the Company disputes. 5.3 Registration of Conversion Shares. The Company will register the shares of Common Stock and shares of Common Stock underlying the Warrants on the terms of the Registration Rights Agreement (substantially in the form attached as Exhibit B). 5.4 Filings with Securities and Exchange Commission. The Company shall provide the Subscriber with copies of its annual reports on Form 10-KSB, quarterly reports on Form 10-QSB and current reports on Form 8-K for as long as the Common Stock remains outstanding. 5.5 Opinion of Counsel. Purchasers of the Common Stock shall, upon purchase, receive an opinion letter from Haskell Slaughter & Young, L.L.C., counsel to the Company, substantially in the form Legal Opinion attached hereto as Exhibit C. 5.6 Removal of Legend Upon Registration. The restrictive legend described in Section 3.5 above will be removed from the Common Stock after the Registration Statement is effective and when the stock is to be sold. 5.7 Listing. The Company shall use its best efforts to maintain the listing of its Common Stock on the Nasdaq SmallCap Stock Market or another national securities exchange or national quotation system. 6. Miscellaneous 6.1 Representations and Warranties Survive the Closing; Severability. The Subscriber's and the Company's representations and warranties shall survive the Closing of the transaction provided for hereby notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 6.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Neither party may assign its rights hereunder without the prior written consent of the other parties. 6.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Texas without respect to conflict of laws. 9 6.4 Execution in Counterparts Permitted. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one (1) instrument. 6.5 Titles and Subtitles; Gender. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. The use in this Agreement of a masculine, feminine or neither pronoun shall be deemed to include a reference to the others. 6.6 Written Notices, Etc. Any notice, demand or request required or permitted to be given by the Company or the Subscriber pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally, or by facsimile (with a hard copy to follow by overnight or two (2) day courier), addressed to the parties at the addresses and/or facsimile telephone number of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. 6.7 Expenses. Each of the Company and the Subscriber shall pay all costs and expenses that it respectively incurs, with respect to the negotiation, execution, delivery and performance of this Agreement. 6.8 Entire Agreement; Written Amendments Required. This Agreement, the Common Stock certificates, the Warrants, the Registration Rights Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein. Neither this Agreement nor any terms hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 7. Subscription and Wiring Instructions; Irrevocability. 7.1 Subscription (a) Wire transfer of Subscription Funds. Subscriber shall send a signed Subscription Agreement by facsimile to the Company at (512) 250-2807, and its subscription funds by wire transfer, to the Company as follows: Bank: Texas Commerce Bank P. O. Box 2558 Houston, Texas 77252-8063 Ph. (713) 216-7000 Account Name: SI Diamond Technology, Inc. Account No.: 081-00053751 10 ABA Routing No.: 113000609 (b) Irrevocable Subscription. The Subscriber hereby acknowledges and agrees, subject to the provisions of any applicable laws providing for the refund of subscription amounts submitted by the Subscriber, that this Agreement is irrevocable and that the Subscriber is not entitled to cancel, terminate or revoke this Agreement; provided, however, that if the conditions to Closing are not satisfied or if the Disclosure Documents are discovered prior to Closing to contain statements which are materially inaccurate, or omit statements of material facts, the Subscriber may revoke or cancel this Agreement. (c) Company's Right to Reject Subscription. This Agreement shall be accepted by the Company when the Company countersigns this Agreement. The Subscriber hereby confirms that the Company has full right in its sole discretion to accept or reject the subscription of the Subscriber, in whole or in part, provided that, if the Company decides to reject such subscription, the Company must do so promptly and in writing. In the case of rejection, the Company will promptly return any rejected payments and (if rejected in whole) copies of all executed subscription documents (including without limitation this Agreement) to Subscriber. 7.2 Acceptance of Subscription. In the case of acceptance of this subscription, ownership of the number of securities being purchased hereby will pass to the Subscriber upon the Closing. 7.3 Subscriber to Forward Original Signed Subscription Agreement to Company. The Subscriber agrees to courier to the Company its original inked signed Subscription Agreement within three (3) days after faxing said signed Agreement to the Company. 8. Number of Shares and Purchase Price. The undersigned Subscriber hereby subscribes for and agrees to purchase $3,500,000 of the Company's Common Stock in accordance with Section 1 and the terms of this Agreement. 9. Accredited Investor. The Subscriber is (please check applicable box): (a) [ ] a corporation, business trust, or partnership not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000. (b) [ ] any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person who has such 11 knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment. (c) [ ] an individual, who [ ] is a director, executive officer or general partner of the issuer of the securities being offered or sold or a director, executive officer or general partner of a general partner of that issuer. [ ] has an individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeding $1,000,000. [ ] had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. (d) [ ] an entity, each owner of which is an entity described in (a) or (b) above or is an individual described in (c) above. The undersigned acknowledges that this Agreement and the subscription represented hereby shall not be effective unless accepted by the Company as indicated below. 12 IN WITNESS WHEREOF, the undersigned Subscriber does hereby execute this Agreement this _______ day of October, 1997. - -------------------------------- -------------------------------------- Name of Company You Represent EXACT NAME IN WHICH YOU WANT (if applicable) THE SECURITIES TO BE REGISTERED DELIVERY INSTRUCTIONS: - -------------------------------- -------------------------------------- Your Signature Please type or print address where your security is to be delivered ATTN: - -------------------------------- --------------------------------- Your Name: Please Print - --------------------------------- -------------------------------------- Title/Representative Capacity Street Address (if applicable) - --------------------------------- -------------------------------------- Place of Execution of this City, State or Province, Country, Agreement Offshore Postal Code -------------------------------------- Telephone Number -------------------------------------- Facsimile Number 13 ACCEPTANCE BY COMPANY: THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AND THE COMPANY AGREES TO BE BOUND BY THE TERMS AND CONDITIONS THEREOF THIS _____ DAY OF _______________________, 1997. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Attest: --------------------------------- Name: ----------------------------------- Title: ---------------------------------- 14 EXHIBIT "A" ----------- AMENDED AND RESTATED ARTICLES OF INCORPORATION [NOT INCLUDED] 15 EXHIBIT "B" ----------- FORM OF REGISTRATION RIGHTS AGREEMENT [NOT INCLUDED] 16 EXHIBIT "C" ----------- FORM OPINION OF COUNSEL [NOT INCLUDED] 17 EXHIBIT "D" ----------- USE OF PROCEEDS [NOT INCLUDED] 18 EXHIBIT "E" ----------- FORM OF WARRANT [NOT INCLUDED] 19 EX-4.39 3 EXHIBIT 4.39 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of October _____, 1997, by and between SI Diamond Technology, Inc., a Texas corporation (the "Company") and the subscribers (hereinafter referred to as "Subscribers" or "Investors") to the Company's offering ("Offering") of its Common Stock pursuant to the Regulation D Securities Subscription Agreements between the Company and the Subscribers (the "Subscription Agreements"). 1. Definitions. For purposes of this Agreement: (a) The term "register", "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933 (the "Act") and pursuant to Rule 415 under the Act or any successor rule, and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means the shares of the Company's Common Stock, together with any capital stock issued in replacement of, in exchange for or otherwise in respect of such Common Stock (the "Common Stock"), or issuable or issued upon exercise of the Warrants ("Warrants") issued to Subscribers in the Offering (as defined in the Subscription Agreement); (c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock which have been issued or are issuable upon exercise of the Warrants at the time of such determination; (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any permitted assignee thereof; (e) The term "Initiating Holders" means (i) any holders of Common Stock purchased pursuant to the Subscription Agreement. (f) The terms "Offering" and "Closing" shall have the meanings ascribed to them in the Subscription Agreement. 2. REQUIRED REGISTRATION. (a) Prior to or concurrent with the Closing of the Offering, the Company shall have effective a registration statement ("Registration Statement") on Form S-3 (or other suitable form, at the Company's discretion but subject to the reasonable approval of the Investors), covering the resale of all shares of Registrable Securities then outstanding. (b) The Registration Statement shall be done as a "shelf" registration statement under Rule 415, and shall be maintained effective until the distribution described in the Registration Statement is completed or as otherwise provided in Section 4(c). 3. OBLIGATIONS TO INCREASE THE NUMBER OF AVAILABLE SHARES. In the event that the number of shares available under a registration statement filed pursuant to Section 2 is insufficient to cover all of the Registrable Securities then outstanding, the Company shall amend that registration statement, or file a new registration statement, or both, so as to cover all shares of Registrable Securities then outstanding. The Company shall file such amendment or new registration within thirty (30) days of the date the registration statement filed under Section 2 is insufficient to cover all the shares of Registrable Securities then outstanding. 4. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) With respect to any Registration Statement filed pursuant to this Agreement, keep such registration statement effective until the earlier of (i) the date upon which the Holders of Registrable Securities covered by such registration statement shall have sold such Registrable Securities; or (ii) one (1) year after the date of the Closing of the Offering. (d) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (e) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders of the Registrable Securities covered by such registration statement, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2 (f) As promptly as practicable after becoming aware of such event, notify each Investor of the happening of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to each Investor as such Investor may reasonably request. (g) Provide Holders with written notice of the date that a registration statement registering the resale of the Registrable Securities is declared effective by the SEC. (h) Provide Holders and their representatives the opportunity to conduct a reasonable due diligence inquiry of Company's pertinent financial and other records and make available its officers, directors and employees for questions regarding such information as it relates to information contained in the registration statement, subject to all information received by the Holders and their representatives being kept confidential. (i) Provide Holders and their representatives the opportunity to review the registration statement and all amendments thereto a reasonable period of time prior to their filing with the SEC. 5. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with regard to each selling Holder that such selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities or to determine that registration is not required pursuant to Rule 144 or other applicable provision of the Act. 6. EXPENSES OF REGISTRATION. All expenses, other than underwriting discounts and commissions and fees and expenses of counsel to the selling Holders, incurred in connection with the registrations pursuant to Section 2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, shall be borne by the Company. 7. INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the officers and directors of each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the " 1934 Act"), 3 against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will reimburse each such Holder, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, officer, director, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter and any other Holder selling securities in such registration statement or any of its directors or officers or any person who controls such Holder, against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such director, officer, controlling person, or underwriter or controlling person, or other such Holder or director, officer or controlling person may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company and any such director, officer, controlling person, underwriter or controlling person, other Holder, officer, director, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 7(b) exceed the net purchase price of securities sold by such Holder under the registration statement. 4 (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of one such counsel to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflicting interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 7. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 7 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and each holder of Registrable Securities agree to contribute to the aggregate claims, losses, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Company and one or more of the holders of Registrable Securities may be subject in such proportion as is appropriate to reflect the relative fault of the Company and the holders in connection with the statements or omissions which resulted in such Losses; provided, however, that in no case shall any holder be responsible for any amount in excess of the net purchase price of securities sold by it under the registration statement. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or by the holders. The Company and the holders agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person who controls a holder of Registrable Securities within the meaning of either the Act or the 1934 Act and each director, officer, partner, employee and agent of a holder shall have the same rights to contribution as such holder, and each person who controls the Company within the meaning of either the Act or the 1934 Act and each director of the Company, and each officer of the Company who has signed the registration statement, shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). 5 (e) The obligations of the Company and Holders under this Section 7 shall survive the redemption and conversion, if any, of the Preferred Stock, the completion of any offering of Registrable Securities in a registration statement under this Agreement, and otherwise. 8. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company, if true, that it has complied with the reporting requirements of SEC Rule 144, the Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration. 9. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of seventy-five percent (75%) of the Registrable Securities provided that the amendment treats all Holders equally. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder, each future Holder, and the Company. 10. NOTICES. All notices required or permitted under this Agreement shall be made in writing signed by the party making the same, shall specify the section under this Agreement pursuant to which it is given, and shall be addressed if to (i) the Company at: 12100 Technology Blvd., Austin, Texas 78727, Telephone No. (512) 250-2709, Facsimile No. (512) 250-2807, and (ii) the Holders at their respective last address as the party shall have furnished in writing as a new address to be entered on such register. Any notice, except as otherwise provided in this Agreement, shall be made by fax and shall be deemed given at the time of transmission of the fax. 11. TERMINATION. This Agreement shall terminate on the earlier to occur of (a) the date that is one (1) year from the date of the Closing or (b) the date the resale by Holders of all Registrable Securities described in any registration statement filed pursuant to this Agreement is completed; but without prejudice to (i) the parties' rights and obligations arising from breaches 6 of this Agreement occurring prior to such termination or (ii) other indemnification obligations under this Agreement. 12. ASSIGNMENT. No assignment, transfer or delegation, whether by operation of law or otherwise, of any rights or obligations under this Agreement by the Company or any Holder, respectively, shall be made without the prior written consent of the majority in interest of the Holders or the Company, respectively; provided that the rights of a Holder may be transferred to a subsequent holder of the Holder's Registrable Securities (provided such transferee shall provide to the Company, a writing executed by such transferee agreeing to be bound as a Holder by the terms of this Agreement); and provided further that the Company may transfer its rights and obligations under this Agreement to a purchaser of all or a substantial portion of its business if the obligations of the Company under this Agreement are assumed in connection with such transfer, either by merger or other operation of law (which may include without limitation a transaction whereby the Registrable Shares are converted into securities of the successor in interest) or by specific assumption executed by the transferee. 13. MISCELLANEOUS. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without giving effect to conflict of laws. (b) Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. (c) Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any holder of any Registrable Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereunder occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any party of any provisions of conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to any holder, shall be cumulative and not alternative. (d) Counterparts. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7 (e) Severability. In the case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The foregoing Registration Rights Agreement is hereby executed as of the date first above written. SI DIAMOND TECHNOLOGY, INC. By: ----------------------------- Name: --------------------------- Title: -------------------------- Title: -------------------------- 8 INVESTOR(S) - ----------------------------------- Investor's Name By: -------------------------------- (Signature) Name: ------------------------------ Title: ----------------------------- Address: - ----------------------------------- - ----------------------------------- - ----------------------------------- - ----------------------------------- 9 EX-4.40 4 EXHIBIT 4.40 THE SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY. WARRANT SI DIAMOND TECHNOLOGY, INC. The Transferability of this Warrant is Restricted as Provided in Article 3 FOR GOOD AND VALUABLE consideration, the receipt of which is hereby acknowledged by SI DIAMOND TECHNOLOGY, INC., 12100 Technology Boulevard, Austin, Texas 78727, a Texas corporation (the "Company"), _____________________ ("Holder") is hereby granted the right to purchase, at the initial exercise price of $_____ per share, _______ shares of the Company's common stock, $.001 par value (the "Common Shares"). Subject to the further terms hereof, this Warrant shall be exercisable in whole or in part at any time and from time to time prior to 5:00 p.m. on _______________. This Warrant shall be exercisable only in the event that the exercise is for, at a minimum, the lesser of (i) 10,000 Common Shares or (ii) the remaining number of Common Shares which the registered holder of this Warrant has the right to purchase thereunder. Upon the expiration of the applicable period for exercise of this Warrant, this Warrant shall no longer entitle the holder thereof to acquire any shares of Common Shares or any other security of the Company. For the purposes of this Warrant, "Affiliates" or "Affiliate" of Holder shall mean any person or entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with Holder. "Control" in, of or by an Affiliate requires ownership of more than fifty percent (50%) of (i) voting stock of a company which issued voting stock, or (ii) ownership interest in any enterprise; an entity or person is an Affiliate only as long as control exists. This Warrant initially is exercisable in whole or part as provided above at a price of $____ per Share payable by wire transfer of collected funds, subject to adjustment as provided in Article 5 hereof. Upon surrender of this Warrant, with the annexed Subscription Form duly executed, together with payment of the Purchase Price (as hereinafter defined) for the Common Shares purchased, at the offices of the Company, the registered holder of this Warrant shall be entitled to receive a certificate or certificates for all the Common Shares. 1. EXERCISE OF WARRANT The purchase rights represented by this Warrant are exercisable at the option of the Holder hereof, in whole Common Shares only (but not as to fractional Common Shares underlying this Warrant), during any period in which this Warrant may be exercised as set forth above. If this Warrant is exercised in part only, the Company, upon surrender of this Warrant for cancellation, shall execute and deliver a new Warrant of like tenor evidencing the right of the holder to purchase the balance of the Common Shares purchasable hereunder. 2. ISSUANCE OF CERTIFICATES Upon the exercise of this Warrant, the issuance of certificates for Common Shares underlying this Warrant shall be made forthwith (and in any event within five business days thereafter) without charge to the Holder hereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Article 3 hereof) be issued in the name of, or in such names as may be directed by, the Holder hereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The certificates representing the Common Shares underlying this Warrant shall be executed on behalf of the Company by the manual or facsimile signature of one of the present or any future Chairman or President of the Company and any present or future Vice President or Secretary of the Company. Upon transfer of this Warrant in whole or in part to an Affiliate of Holder, such transferee shall be entitled to all the rights of a Holder hereof. 3. RESTRICTION ON TRANSFER OF WARRANT AND COMMON SHARES The Holder of this Warrant, by its acceptance hereof, covenants and agrees that this Warrant and the Common Shares are being acquired as an investment and not with a view to the distribution thereof, and that the Warrant may not be exercised, and neither the Warrant nor the Shares may be sold, transferred, assigned, hypothecated or otherwise disposed of (other than to an Affiliate of Holder), in whole or in part unless in the opinion of counsel reasonably concurred in by the Company's counsel such transfer is in compliance with all applicable securities laws, after which this Warrant and the Common Shares shall again be subject to the restrictions contained in this Article 3. Page 2 4. PRICE 4.1. Initial and Adjusted Purchase Price. The initial purchase price shall be $____ per Share. The adjusted purchase price shall be the price which shall result from time to time from any and all adjustments of the initial purchase price in accordance with the provisions of Article 5 hereof. 4.2. Purchase Price. The term "Purchase Price" herein shall mean the initial purchase price or the adjusted purchase price, depending upon the context. 5. ADJUSTMENTS OF PURCHASE PRICE AND NUMBER OF COMMON SHARES 5.1. Subdivision and Combination In case the Company shall at any time subdivide or combine the outstanding Common Shares, the Purchase Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 5.2. Reclassification, Consolidation, Merger, etc. In case of any reclassification or change of the outstanding Common Shares (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding Common Shares, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holder of this Warrant shall thereafter have the right to purchase upon the exercise of this Warrant the kind and number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holder were the owner of the Common Shares underlying this Warrant immediately prior to any such events at the Purchase Price in effect immediately prior to the record date for such reclassification, change, consol idation, merger, sale or conveyance as if such Holder had exercised this Warrant. 6. EXCHANGE AND REPLACEMENT OF WARRANT This Warrant is exchangeable without expense, upon the surrender hereof by the registered Holder at the principal executive office of the Company for new Warrants of like tenor and date representing in the aggregate the right to purchase the same number of Common Page 3 Shares as are purchasable hereunder in such denominations as shall be designated by the Holder hereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant. 7. ELIMINATION OF FRACTIONAL INTERESTS The Company shall not be required to issue certificates representing fractions of Common Shares on the exercise of this Warrant, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated. 8. RESERVATION AND LISTING OF SECURITIES The Company shall at all times reserve and keep available out of its authorized Common Shares, solely for the purpose of issuance upon the exercise of this Warrant, such number of Common Shares as shall be issuable upon the exercise hereof and thereof. The Company covenants and agrees that, upon exercise of this Warrant and payment of the Purchase Price therefor, all Shares issuable upon such exercise shall be duly and validly issued, fully paid and non- assessable. The Company shall cause all Common Shares issuable upon exercise of this Warrant to be registered under the Securities Act of 1933, freely tradeable and listed (subject to official notice of issuance) on all securities exchanges on which the Common Shares may then be listed and/or quoted on NASDAQ, if any. 9. NOTICES All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered, or mailed by registered or certified mail, return receipt requested: 9.1. If to the registered Holder of this Warrant, to the address of such Holder as shown on the books of the Company; or 9.2. If to the Company, to the address set forth on the first page of this Warrant or to such other address as the Company may designate by notice to the Holders. Page 4 10. SUCCESSORS All the covenants, agreements, representations and warranties contained in this Warrant shall bind the parties hereto and their respective heirs, executors, administrators, distributors, successors and assigns. Assignability of registration rights is limited under the terms of this Warrant. 11. HEADINGS The Article and Section headings in this Warrant are inserted for purposes of convenience and shall have no substantive effect. 12. LAW GOVERNING This Warrant shall be construed and enforced in accordance with, and governed by, the laws of the State of Texas. WITNESS the seal of the Company and the signature of its duly authorized Officer. SI DIAMOND TECHNOLOGY, INC. [ SEAL ] By: ----------------------------------- Trey Fecteau Senior Vice President Page 5 EX-5.1 5 EXHIBIT 5.1 [Letterhead of Haskell Slaughter & Young] EXHIBIT 5.1 Board of Directors SI Diamond Technology, Inc. 12100 Technology Boulevard Austin, Texas 78727 Gentlemen: I am acting as counsel to SI Diamond Technology, Inc., a Texas corporation (the "Company"), in connection with the proposed offer and sale by certain selling shareholders of up to 27,046,673 shares of Common Stock. In my capacity as counsel to the Company, I have participated in the preparation of the Registration Statement on Form S-3 of the Company with respect to the offer and sale of the Common Stock (the "Registration Statement") which was filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "1933 Act"), and the General Rules and Regulations thereunder (the "Rules and Regulations"). Capitalized terms used herein shall have the meanings ascribed to them in the Registration Statement. In connection with the opinions expressed below, I have examined a signed copy of the Registration Statement, corporate records of the Company (on which I have relied with respect to the accuracy of the material factual matters covered thereby), and such other documents as I have deemed necessary or appropriate for purposes of the opinions expressed below. Based on the foregoing and subject to the qualifications and limitations set forth below, I am of the opinion that (i) the shares of Common Stock held by the Selling Shareholders are validly issued, fully paid and nonassessable; (ii) the shares of Common Stock to be issued pursuant to the Warrants and the Series C Warrants are validly authorized and, when such shares have been duly delivered against payment as provided in the Warrants and the Series C Warrants, such shares shall be validly issued, fully paid and nonassessable; and (iii) the shares of Common Stock issuable upon conversion of shares of the Company's Series C Preferred Stock, Series E Preferred Stock, and Series F Preferred Stock are validly authorized and, when such shares have been delivered as provided in the applicable provisions of the Company's Amended and Restated Articles of Incorporation, such shares shall be validly issued, fully paid and nonassessable. My opinion is limited in all respects to the substantive law of the State of Texas and the federal law of the United States, and I assume no responsibility as to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction. The opinion expressed in this letter is rendered as of the date hereof, and I undertake no, and hereby disclaim any, obligation to advise you of any changes in or new developments which might affect matters or opinions set forth herein. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the statement made regarding me under the caption "Legal Opinions" in the Prospectus included in the Registration Statement. Very truly yours, /s/ DONALD T. LOCKE ------------------------------------ Donald T. Locke EX-23.2 6 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-3 of our report, which includes an explanatory paragraph regarding the Company's ability to continue as a going concern, dated March 27, 1997, on our audits of the consolidated financial statements of SI Diamond Technology, Inc. and Subsidiaries. We also consent to the reference to our firm under the caption "Experts." Coopers & Lybrand L.L.P. Austin, Texas October 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----