AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 2003
REGISTRATION NO. 333- _________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
TERAFORCE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0471342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 E. CAMPBELL ROAD
RICHARDSON, TEXAS 75081
(469) 330-4960
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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ROBERT P. CAPPS
TERAFORCE TECHNOLOGY CORPORATION
EXECUTIVE VICE PRESIDENT
1240 E. CAMPBELL ROAD
RICHARDSON, TEXAS 75081
TELEPHONE: (469) 330-4960
FAX: (972) 367-2271
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
WILLIAM L. BOEING
HAYNES AND BOONE, LLP
2505 N. PLANO ROAD, SUITE 4000
RICHARDSON, TEXAS 75082
TELEPHONE: (972) 680-7550
FAX: (972) 680-7551
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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, check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete legal facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [ ]
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 the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c)under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) 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, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount Offering Price Aggregate Amount
Securities to be Registered to be Registered (1) per Share (2) Offering Price (2) of Registration Fee
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Common stock, par value $0.01 per share ..... 31,936,875 $0.30 $ 9,581,063 $775
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(1) Includes 25,265,000 shares issuable upon the conversion of the 12%
convertible notes and 3,871,875 shares issuable upon the exercise of
warrants. Pursuant to Rule 416, the Registration Statement also covers an
indeterminate number of additional shares of common stock as may be
issuable to prevent dilution resulting from stock splits, stock dividends
or similar events.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, and based on the average high and low price on December 1, 2003,
as reported on the OTC Bulletin Board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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Subject to Completion Dated December 4, 2003
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The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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TERAFORCE TECHNOLOGY CORPORATION
31,936,875 SHARES OF COMMON STOCK
This prospectus relates to 31,936,875 shares of common stock of
TeraForce Technology Corporation to be sold from time to time by the selling
stockholders named in this prospectus. We are not selling any shares under this
prospectus, and we will not receive any of the proceeds from the sale of the
shares of common stock by the selling stockholders. The 12% Convertible
Subordinated Notes are convertible into an aggregate of 25,265,000 shares of
common stock. Each purchaser of Notes was also issued a warrant for the purchase
of our common stock. The warrants are exercisable for an aggregate of 2,037,500
shares of common stock. In connection with the sale of the Notes we issued
warrants for the purchase of 1,834,375 shares of common stock to Odyssey
Capital, LLC, the placement agent for the Notes. We would receive total proceeds
of $619,500 if all warrant holders elected to exercise their warrants. Any
proceeds from these purchases will be used for working capital. We are also
registering 2,800,000 shares of the Company's common stock issued to a private
investor in October 2003 in exchange for the cancellation of a portion of the
Company's indebtedness owed to the investor.
The selling stockholders may sell the shares of common stock covered by
this prospectus in a number of different ways and at varying prices. We provide
more information about how the selling stockholders may sell their shares in a
section entitled "Plan of Distribution" on page 24. You should read this
prospectus and any supplement carefully before you invest.
Our common stock is traded on the OTC Bulletin Board under the symbol
"TERA." On December 1, 2003, the last reported sale price of our common stock
on the OTC Bulletin Board was $0.30 per share.
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 5
FOR A DISCUSSION OF FACTORS YOU SHOULD CONSIDER BEFORE BUYING OUR COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is , 2003
TABLE OF CONTENTS
Page
----
Prospectus Summary ............................................................................... 3
Risk Factors ..................................................................................... 5
A Number of Factors Could Cause Operating Results to Fluctuate Significantly ............ 6
We Have Incurred Significant Losses in the Past and Are Not Currently Profitable ........ 6
Debt Service Obligations May Adversely Affect Our Cash Flow and We May Be Unable to
Repay the Debt On Time .................................................................. 7
Our Auditors Have Expressed Doubt as to Our Ability to Continue as a Going Concern ...... 7
We May Not Be Able to Successfully Complete Development and Achieve Customer
Acceptance of New Defense Electronics Products .......................................... 7
We are a Party to Lawsuits and May Be Subject to Other Contingent Liabilities ........... 8
Our Failure to Quickly Adopt to Rapidly Changing Competitive and Economic Conditions
Could Have a Material Adverse Effect on Our Business and Results of Operations .......... 8
We Have a Limited Customer Base ......................................................... 8
We May Not Be Successful if We Do Not Attract New Customers ............................. 8
We Must Attract, Retain and Motivate Key Technical and Management Personnel in a
Competitive Market in Order to Sustain and Grow Our Business ............................ 9
We May Be Unable to Secure Necessary Components and Support Because We Depend Upon a
Limited Number of Third-Party Manufacturers and Support Organizations ................... 9
The Defense Electronics Products Business Is Subject to Special Risks ................... 10
The Failure to Develop and Introduce New Products That Meet Changing Customer
Requirements and Address Technological Advances Would Limit Our Ability to Sell Our
Products and Services ................................................................... 10
We May Not Be Able to Secure an Adequate Number of Design Wins .......................... 10
Product Performance Problems Could Limit Sales Prospects ................................ 10
Failure to Protect Our Intellectual Property Will Adversely Affect Our Ability to
Compete in the Industry and Our Profitability ........................................... 11
We May Be Subject to Intellectual Property Infringement Claims That Are Costly to
Defend and Could Limit Our Ability to Use Some Technologies in the Future ............... 11
We May Be Unable to License Third-Party Technology at a Reasonable Cost ................. 12
Our Products Are Subject to Government Regulation ....................................... 12
Our Common Stock Is Subject to Price Volatility ......................................... 12
There May Not Be a Liquid Market for our Common Stock ................................... 12
Additional Capital May Dilute Current Stockholders ...................................... 12
We May Propose a Reverse-Split of Our Common Stock ...................................... 13
Use of Proceeds .................................................................................. 14
Selling Stockholders ............................................................................. 15
Plan of Distribution ............................................................................. 25
Description of Capital Stock ..................................................................... 27
Legal Matters .................................................................................... 28
Experts .......................................................................................... 28
Where You Can Find More Information .............................................................. 29
Disclosure of Commission Position on Indemnification ............................................. 31
2
PROSPECTUS SUMMARY
We use the terms "we," "us," and "our" to refer to TeraForce Technology
Corporation, a Delaware corporation, and its subsidiaries unless the context
indicates otherwise. This summary is qualified in its entirety by the more
detailed information appearing in other places in this prospectus and in
documents we incorporate by reference into this prospectus. Unless we indicate
otherwise, all information with regard to our capital stock in this prospectus,
including share and per share information, assumes that our outstanding options,
warrants and conversion rights have not been exercised.
THE COMPANY
We design, develop, produce and sell high-density embedded computing
platforms and digital signal processing products, primarily for applications in
the defense electronics industry. The Company is also involved, through our
subsidiaries or joint venture arrangements, in the design and sale of optical
networking equipment and the design of Internet infrastructure equipment. We
were incorporated in Delaware on May 23, 1995. Our principal executive offices
are located at 1240 E. Campbell Road, Richardson, Texas 75081 and our telephone
number at that address is (469) 330-4960.
THE OFFERING
Common stock offered by us .......................... None
Common stock offered by the selling stockholders .... A maximum of 31,936,875 shares
Common stock outstanding as of September 30, 2003 .... 118,532,185 shares
Offering price ....................................... Determined at the time of sale
Use of proceeds ...................................... We will receive no proceeds from the sale of
our common stock by the selling stockholders.
Any proceeds we receive upon the exercise of
the warrants outstanding will be used for
general corporate purposes.
OTC Bulletin Board Symbol ............................ TERA
THE SELLING STOCKHOLDERS
On July 3, 2003, the Initial Closing, we completed the sale of $750,000
of 12% Convertible Subordinated Notes, or Notes, to sixteen accredited investors
pursuant to a Note Agreement. On August 4, 2003, the Second Closing, we
completed a private placement of $2,160,000 principal amount of the Notes to
thirty accredited investors. We have issued a total of $3,010,000 principal
amount of Notes. On August 26, 2003, we converted two loans, totaling $250,000,
that had been made to the Company into Notes and the two individual lenders
became parties to the Note Agreement. The Notes are convertible into an
aggregate of 25,265,000 shares of Common Stock, assuming the outstanding
principal and accrued interest for 24 months is converted into Common Stock.
We also issued to each purchaser of the Notes a four-year warrant for
the purchase of Common Stock. Warrants to purchase an aggregate of 2,037,500
shares of our Common Stock were issued to the purchasers of the Notes. The
number of shares issuable upon exercise of the Warrants are subject to customary
anti-dilution provisions and therefore may be adjusted from time to time. The
exercise price is
3
$0.16 per share, but is subject to customary anti-dilution provisions and
therefore may be adjusted from time to time upon the occurrence of certain
events. The Warrants expire four years from the their issue date, and may be
exercised at the option of the holder at any time prior to their expiration.
In connection with the sale of the Notes, we issued warrants for the
purchase of 1,834,375 shares of common stock to Odyssey Capital, LLC, who acted
as placement agent for the Notes.
We agreed to provide registration rights to each of these investors in
connection with the 25,265,000 shares of common stock underlying the Notes
purchased by investors and the 3,871,875 shares of common stock to be issued
upon the exercise of the Warrants.
In October 2003, Oscar S. Wyatt received 2,800,000 shares of common
stock in exchange for the cancellation of a note payable for approximately
$700,000 and the extension of the maturity date of common stock warrants
previously issued to Mr. Wyatt. We also agreed to provide registration rights to
Mr. Wyatt for these 2,800,000 shares of common stock.
4
RISK FACTORS
Before you invest in our common stock, you should be aware that there
are various risks, including those described below.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The statements in this prospectus regarding our future financial and
operating performance and results, and other statements that are not historical
facts, are forward-looking statements, as defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We use the words "may," "expect," "anticipate,"
"believe," "continue," "estimate," "project," "intend," "designed" or other
similar expressions to identify forward looking statements. You should read
statements that contain such words carefully because they discuss future
expectations, contain projections of results of operations or of our financial
condition, and/or state other "forward-looking" information. These statements
also involve risks and uncertainties, including, but not limited to:
o events, conditions and financial trends that may affect our
future plans and business strategy,
o results of expectations and estimates as to prospective
events, and
o circumstances about which we can give no firm assurance.
Examples of types of forward-looking statements include statements on future
levels of net revenue and cash flow, new product development, strategic plans
and financing. These forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those projected or
anticipated. Factors that might cause a difference include, but are not limited
to:
o general economic conditions in the markets we operate in;
o success in the development and market acceptance of new and
existing products;
o dependence on suppliers, third party manufacturers and
channels of distribution;
o customer and product concentration;
o fluctuations in customer demand;
o the ability to obtain and maintain access to external sources
of capital;
o the ability to control costs;
o overall management of our expansion; and
o other risk factors detailed from time to time in our filings
with the Securities and Exchange Commission.
We believe it is important to communicate our expectations of future
performance to our investors. However, events may occur in the future that we
are unable to accurately predict, or over which we have no control. Any
forward-looking statement speaks only as of the date the statement was made, and
we undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date the statement was made. Because it is not
possible to predict every new factor that may emerge, forward-looking statements
should not be relied upon as a prediction of actual future financial condition
or results. When considering our forward-looking statements, keep in mind the
risk factors and other cautionary statements in this prospectus. The risk
factors noted in this section and other factors noted throughout this prospectus
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from those contained in any forward-looking
statement. If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, actual outcomes may vary materially from
those forward-looking statements included in this prospectus.
5
RISK FACTORS RELATING TO OUR BUSINESS
A Number of Factors Could Cause Operating Results to Fluctuate
Significantly.
Our revenues and operating results in any reporting period may
fluctuate significantly due to a variety of factors, including:
o changes in the price or availability of components for our
products;
o the mix of products sold to the defense electronics markets
and other markets;
o our ability to introduce new technologies and features ahead
of competitors;
o the timing and size of orders we receive from customers;
o fluctuations in demand for our products;
o delays in testing by customers;
o production delays due to quality problems with outsourced
components;
o changes in our pricing policies or the pricing policies of our
competitors;
o changes in customers' requirements, including changes or
cancellations of orders from customers;
o manufacturing and shipment delays and deferrals;
o our ability to efficiently produce and ship orders promptly on
a price-competitive basis;
o announcements or introductions of new products by our
competitors;
o changes in general economic conditions as well as those
specific to the defense electronics industry.
Current economic conditions have made it more difficult to make
reliable estimates of future revenues. Fluctuations in our revenue can lead to
greater fluctuations in our operating profits. In addition, we expect to incur
significant research and development expenses as we develop products to serve
our markets, all of which are subject to rapidly changing technology, frequent
product performance improvements and evolving industry standards. The ability to
deliver superior technological performance on a timely and cost effective basis
is a critical factor in securing design wins for future generations of defense
electronics systems. Significant research and development spending by the
Company does not ensure that our products will be designed into a customer's
system. Because future production orders are usually contingent upon securing a
design win, our operating results may fluctuate if we obtain or fail to obtain
design wins for significant customer systems.
We Have Incurred Significant Losses in the Past and Are Not Currently
Profitable.
We are not currently profitable. In 2002, 2001 and 2000 we have
incurred net losses of $4,350,000, $21,549,00 and, $29,572,000, respectively.
For the three months and nine months ended
6
September 30, 2003, we incurred net losses of $2,659,000 and $6,737,000,
respectively. These losses have been funded from borrowings under credit
facilities, the issuance of debt securities and sales of common stock. It is not
certain when we will become profitable. The ability to become profitable will
depend, in part, on our ability to increase net revenue from sales of defense
electronics products. Because of this we have experienced a lack of liquidity
from time to time, and therefore have not paid our obligations in a timely
manner in some cases. This in turn has impacted our ability to operate our
business. If our need for capital exceeds available resources, there can be no
assurance that additional capital will be available through public or private
equity or debt financing.
Debt Service Obligations May Adversely Affect Our Cash Flow and We May
Be Unable to Repay the Debt On Time.
We have approximately $7,560,000 of debt outstanding. Of this amount,
approximately $4,200,000 is due by June 30, 2004. It is unlikely that we will be
able to generate sufficient cash flow from operations to repay all of this debt
when it comes due. While we intend to restructure or refinance this debt, there
is no assurance that we will be able to do so in a timely manner. Even if we are
able to refinance or restructure this debt, we may still be subject to
substantial interest and principal repayment obligations.
Our Auditors Have Expressed Doubt as to Our Ability to Continue as a
Going Concern.
Our independent certified public accountants have added an explanatory
paragraph to their audit opinion issued in connection with our consolidated
financial statements for the year ended December 31, 2002. The opinion states
that our ability to continue as a going concern is uncertain due to the amount
of debt that is due in 2003, the uncertainty of refinancing or restructuring the
debt and our history of operating losses. Our consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. These adjustments might include changes in the possible future
recoverability and classification of assets or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
We May Not Be Able to Successfully Complete Development and Achieve
Customer Acceptance of New Defense Electronics Products.
We must continually enhance our products. Certain enhancements to our
products are in the development phase and are not yet ready for commercial
manufacturing or deployment. The successful development and deployment of these
products is subject to substantial risk. The development of these products, from
laboratory prototype to customer trial, and subsequently to general
availability, involves a number of steps including the following:
o completion of product development;
o the qualification and multiple sourcing of critical
components;
o validation of manufacturing methods and processes;
o extensive quality assurance and reliability testing, and
staffing of testing infrastructure;
o validation of embedded software; and
o establishment of systems integration and systems test
validation requirements.
Each of these steps in turn presents serious risks of failure, rework
or delay. Any one of these setbacks could decrease the speed and scope of
product introduction and marketplace acceptance of the product. In addition,
unexpected intellectual property disputes, failure of critical design elements,
and other setbacks may delay or even prevent the introduction of these products.
A lack of working capital may also negatively impact our ability to enhance our
products in a timely manner.
7
Additionally, the markets for our new products may be undeveloped. The
commercial acceptance of these types of products is uncertain. We cannot assure
you that our sales and marketing efforts for these products will be successful.
We are a Party to Lawsuits and May Be Subject to Other Contingent
Liabilities.
We are a named party in a lawsuit and may be subject to significant
other contingent liabilities. Defending these matters may require a substantial
amount of our resources, and any judgments may materially affect our financial
condition and results of operations.
Our Failure to Quickly Adopt to Rapidly Changing Competitive and
Economic Conditions Could Have a Material Adverse Effect on Our Business and
Results of Operations.
We operate in a rapidly changing and competitive and economic
environment. Our future success will depend, in part, on our ability to enhance
our current products and to develop new products on a timely and cost-effective
basis that respond to technological developments and changing customer needs.
The markets for sophisticated technology are constantly undergoing rapid
competitive and economic changes. The full scope and nature of these changes are
difficult to predict. The defense electronics market, in particular, demands
constant technological improvements as a means of gaining military advantage. We
believe that technological change will continue to attract new entrants to our
market. Industry consolidation among competitors may increase their financial
resources, which may allow our competitors to reduce their prices. This would
require us to reduce the prices of our products or risk losing market share.
We Have a Limited Customer Base.
We are dependent on a small number of customers for a large portion of
our revenues. In fiscal 2002, three customers accounted for 65% of our revenues.
Customers in the defense electronics market purchase our products in connection
with government programs that may have limited duration, leading to fluctuating
sales to any particular customer in the defense electronics market from year to
year. A significant decrease in our sales to any of our major customers, or the
loss of any of our major customers, would have a material adverse effect on our
business, financial condition and results of operations. In addition, our
revenues are largely dependent upon the ability of our customers to develop and
sell products and systems that incorporate our products. There is no assurance
that our customers will not experience financial or other difficulties that
could adversely affect our operations and, in turn, our results of operations.
We May Not Be Successful if We Do Not Attract New Customers.
Our future success will depend on our attracting additional customers.
The growth of our customer base could be adversely affected by:
o customer unwillingness to implement our defense electronics
technology;
o any delays or difficulties that we may incur in completing the
development, introduction and production manufacturing of our
planned products or product enhancements;
o new product introductions by our competitors;
8
o any failure of our products to perform as expected;
o any difficulty we may incur in meeting customers' delivery,
installation or performance requirements; or
o customer concerns over our financial condition.
We Must Attract, Retain and Motivate Key Technical and Management
Personnel in a Competitive Market in Order to Sustain and Grow Our Business.
Our success depends to a significant extent upon key technical and
management employees. Competition for highly qualified employees can be intense
and the process of locating key technical and management personnel with the
required combination of skills and attributes can be lengthy and expensive.
There can be no assurance that we will be successful in retaining our existing
key personnel or in attracting and retaining the additional employees we may
require. We must continue to recruit, train, assimilate, motivate, and retain
qualified managers and employees to manage our operations effectively. If we do
not successfully recruit, hire and retain key employees, we may be unable to
execute our business plan effectively and our results of operations could be
significantly adversely affected.
We May Be Unable to Secure Necessary Components and Support Because We
Depend Upon a Limited Number of Third-Party Manufacturers and Support
Organizations.
We depend on a limited number of suppliers for components of our
products, as well as for equipment used to design and test our products. Certain
components used in our products are only available from a single source or
limited number of vendors. Some of the sole source and limited source vendors
are companies who, from time to time, allocate parts to equipment manufacturers
due to market demand for components and equipment. Many of our competitors are
much larger and may be able to obtain priority allocations from these shared
vendors, thereby limiting or making our sources of supply unreliable for these
components. Any delay in component availability for any of our products could
result in delays in deployment of these products and in our ability to recognize
revenues. Suppliers may be concerned regarding our financial condition and
therefore may be unwilling to sell components to us, or to grant trade credit to
us.
If we are unable to obtain a sufficient supply of components from
alternative sources, reduced supplies and higher prices of components will
significantly limit our ability to meet scheduled product deliveries to
customers. A delay in receiving certain components or the inability to receive
certain components could harm our customer relationships and our results of
operations.
Failures of components affect the reliability and performance of our
products, can reduce customer confidence in our products, and may adversely
affect our financial performance. From time to time, we have experienced delays
in receipt of components and have received components that do not perform
according to their specifications. Any future difficulty in obtaining sufficient
and timely delivery of components could result in delays or reductions in
product shipments that could harm our business. In addition, a consolidation
among suppliers of these components or adverse developments in their businesses
that affect their ability to meet our supply demands could adversely impact the
availability of components that we depend on. Delayed deliveries from these
sources could adversely affect our business.
Our defense electronics products are manufactured by a limited number
of third-party manufacturers. If we were required to find alternative
third-party manufacturers, we may be forced to incur significant costs and
risks. There is no assurance that the alternative manufacturers could produce
our
9
products with quality or costs comparable to the existing manufacturers. In
addition, the transfer of the manufacturing process to an alternative provider
could result in significant delays that could cause us to miss deadlines imposed
by our customers.
The Defense Electronics Products Business Is Subject to Special Risks.
We expect that the majority of our net revenues in the future will come
from the sale of our defense electronics products. We supply products to
sub-contractors and prime contractors whose ultimate customer is often an agency
of the United States government. Reductions in government spending on programs
that incorporate our products could have a material adverse effect on our
business, financial condition and results of operations. The contracts with the
United States government are subject to special risks including the following:
delays or cancellations of funding for programs; ability of the government to
unilaterally cancel the contract; reduction or modification as a result of
budgetary restraints or political changes; and other factors not under the
control of us or the prime contractor.
The Failure to Develop and Introduce New Products That Meet Changing
Customer Requirements and Address Technological Advances Would Limit Our Ability
to Sell Our Products and Services.
New product development often requires long-term forecasting of market
trends, and development and implementation of new technologies. If we fail or
are late to respond to new technological developments, market acceptance of our
products may be significantly reduced or delayed. The markets we participate in
are characterized by rapidly changing technology, evolving industry standards,
changes in end user requirements, and frequent new product introductions and
enhancements. The introduction of products embodying new technologies or the
emergence of new industry standards can render our existing products obsolete or
unmarketable. There can be no assurance that we will be able to develop and
introduce new products ahead of our competitors, or that our products will not
be rendered obsolete.
We May Not Be Able to Secure an Adequate Number of Design Wins.
Before buying our products, a customer will evaluate our products, and
those of our competitors, as a part of designing a larger system. When a product
is selected by a customer to be utilized in its system we refer to it as a
"design win." The design-win process is typically lengthy and expensive, and
there can be no assurance that we will be able to continue to meet the product
specifications of our customers in a timely and adequate manner. In the defense
electronics market, military planners have historically funded significantly
more design projects than actual deployments of new equipment. There can be no
assurance that we will secure an adequate number of design wins. Failure to
secure future design wins could have a material adverse effect on our business,
financial condition and results of operations.
Product Performance Problems Could Limit Sales Prospects.
The production of new products with high technology content involves
occasional problems as the technology and manufacturing methods mature. If
significant reliability, quality or network monitoring problems develop,
including those due to faulty components, a number of negative effects on our
business could result, including:
o costs associated with reworking the manufacturing processes;
o high service and warranty expenses;
o high inventory obsolescence expense;
o high levels of product returns;
10
o delays in collecting accounts receivable;
o reduced orders from existing customers; and
o declining interest from potential customers.
Although we maintain accruals for product warranties, actual costs
could exceed these amounts. From time to time, there will be interruptions or
delays in the activation of products at a customer's site. These interruptions
or delays may result from product performance problems or from aspects of the
installation and activation activities, some of which are outside our control.
If we experience significant interruptions or delays that cannot be promptly
resolved, confidence in our products could be undermined, which could have a
material adverse effect on operations.
Failure to Protect Our Intellectual Property Will Adversely Affect Our
Ability to Compete in the Industry and Our Profitability.
We rely on a combination of patents, copyright, trademark and trade
secret laws, and restrictions on disclosure to protect our intellectual
property. We also enter into confidentiality or license agreements with our
employees, consultants and corporate partners and control access to and
distribution of our software, documentation and other proprietary information.
These intellectual property protection measures may not be sufficient to prevent
wrongful misappropriation of our technology. In addition, these measures will
not prevent competitors from independently developing technologies that are
substantially equivalent or superior to our technology. The laws of many foreign
countries do not protect intellectual property rights to the same extent as the
laws of the United States. Failure to protect proprietary information could
result in, among other things, loss of competitive advantage, loss of customer
orders and decreased revenues. Monitoring the unauthorized use of our products
is difficult and we cannot be certain that the steps we have taken will prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States. If
competitors are able to use our technology, our ability to compete effectively
could be impaired. This litigation could result in substantial costs and
diversion of resources and may not ultimately be successful.
We May Be Subject to Intellectual Property Infringement Claims That Are
Costly to Defend and Could Limit Our Ability to Use Some Technologies in the
Future.
Like other participants in our industry, we expect that we will
continue to be subject to infringement claims and other intellectual property
disputes as competition in the marketplace continues to intensify. In the
future, we may be subject to litigation and may be required to defend against
claimed infringements of the rights of others or to determine the scope and
validity of the proprietary rights of others. Any such litigation could be
costly and divert management's attention from operations. In addition, adverse
determinations in such litigation could:
o result in the loss of our proprietary rights to use the
technology;
o subject us to significant liabilities;
o require us to seek licenses from third parties;
o require us to redesign the products that use the technology;
or
o prevent manufacturing or sale of our products that employ the
technology.
If we are forced to take any of the foregoing actions, our business may be
seriously harmed.
11
We May Be Unable to License Third-Party Technology at a Reasonable
Cost.
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot ensure that
third-party licenses will be available to us on commercially reasonable terms.
The inability to obtain any third-party license required to develop new products
and product enhancements could require us to obtain substitute technology of
lower quality or performance standards, or to license such technology at a
greater cost. Both licensing inferior technology at a reasonable cost and
licensing necessary technology at a higher cost could seriously harm the
competitiveness of our products.
Our Products Are Subject to Government Regulation.
The export of our products and related technology may be subject at
times to regulation and restriction by the Department of Commerce. Because our
products are utilized in defense and intelligence gathering related
applications, in some cases the export of our products and related technology
may be subject to further regulation and restriction by the Department of State.
Sales to foreign countries have not been material to date, but the export
controls could limit our ability to sell our products outside the United States
or could delay such sales in the future. We also may be required to spend
substantial time and resources in order to comply with the regulations and
restrictions. We could be subject to fines if we fail to properly comply with
these regulations.
In addition, our business and operating results may also be adversely
affected by the imposition of certain tariffs, duties and other import
restrictions on components that we obtain from non-domestic suppliers or by the
imposition of export restrictions on products that we sell internationally. We
do not believe we have material exposure to environmental laws. Changes in
current or future laws or regulations, in the United States or elsewhere, could
materially and adversely affect our business and results of operations.
RISK FACTORS RELATED TO THE SECURITIES MARKET
Our Common Stock Is Subject to Price Volatility.
The price of our common stock is volatile. Fluctuations in operating
results, such as revenues or operating results being below the expectations of
public market analysts and investors, may cause additional volatility in the
price of the common stock. In such event, the market price of our common stock
could decline significantly. A significant decline in the market price of the
common stock could result in litigation that could also result in increased
costs and a diversion of management's attention and resources from operations.
There May Not Be a Liquid Market for our Common Stock.
Our common stock currently is traded on the OTC Bulletin Board operated
by Nasdaq. This market generally has less liquidity than the Nasdaq SmallCap
Market and certain institutional investors are precluded from buying stock in
this market. There can be no assurance that our investors will be able to sell
the Common Stock at prices and times that are desirable.
Additional Capital May Dilute Current Stockholders.
In order to provide capital for the operation of our business we may
enter into additional financing arrangements. These arrangements may involve the
issuance of new common stock, preferred stock that is convertible into common
stock, debt securities that are convertible into common stock or warrants for
the purchase of common stock. Any of these items could result in a material
increase in the number of shares
12
of common stock outstanding which would in turn result in a dilution of the
ownership interest of existing common shareholders. In addition these new
securities could contain provisions, such as priorities on distributions and
voting rights, which could affect the value of our existing common stock.
We May Propose a Reverse-Split of Our Common Stock.
In order to reduce the number of shares outstanding, increase the
trading price of our common stock and possibly attract additional groups of
investors we may at some time in the future propose a reverse-split of our
common stock. Such a proposal would require the approval of the majority of the
outstanding shares of voting stock to be implemented. There can be no assurance
that a reverse split would have the intended effect and therefore it could
dilute the value of our common stock.
13
USE OF PROCEEDS
We will not receive any proceeds from any sale of shares of common
stock by the selling stockholders (other than the exercise price payable upon
the exercise of any warrants issued to the selling stockholders). Assuming all
of the warrants held by the selling stockholders for an aggregate of 3,871,875
shares of common stock were exercised through a cash exercise, we would receive
an aggregate of $619,500 of proceeds. The shares of common stock underlying the
warrants are being registered for resale in this registration statement. We
anticipate that we will use any proceeds from the exercise of the warrants for
general corporate purposes in the execution of our business strategy.
14
SELLING STOCKHOLDERS
General. This prospectus covers offers and sales from time to time of
our common stock by the following selling stockholders:
o Robert E. Sternenberg, an individual residing in Texas;
o Kirk E. Kanady, M.D., an individual residing in Texas;
o Russell H. Schlattman, II, an individual residing in Texas;
o Duane K. Rossmann, an individual residing in Texas;
o Bruce K. Smith, an individual residing in Texas;
o Wanda Hicks Carmichael, an individual residing in Texas;
o Daniel Stroud, an individual residing in Texas;
o Henry L. Bethea, an individual residing in Texas, beneficial
owner of shares purchased by Bayou Anesthetic and Pain MPP &
Trust, a Texas trust, Northwest Anesthesiology Pension Plan
and Money Purchase Plan, a Texas trust, and Northwest
Anesthesiology Salary Deferral, a Texas trust;
o Betty Jo Edwards, M.D., an individual residing in Texas;
o Phillip G. Sutton, M.D., an individual residing in Texas, as
beneficial owner of shares purchased by Phillip G. Sutton,
M.D., P.A. Money Purchase Plan, a Texas trust;
o Jack Matt, Jr., an individual residing in Texas, as beneficial
owner of shares purchased by Jack Matt, Jr. Charles Schwab &
Co. Inc. Customer IRA Rollover, a Texas trust;
o Paul Song, an individual residing in Texas;
o Kevin McMullen, M.D., an individual residing in Oklahoma, as
beneficial owner of shares purchased by Surgical Specialists
of Oklahoma, PC Profit Sharing Plan, an Oklahoma trust;
o Sigmond and Mary Jo Palowski, individuals residing in Texas;
o Phillip L. Legget, M.D., an individual residing in Texas;
o Manuel B. Gonzalez, an individual residing in Texas;
o Kranthi Reddy, an individual residing in Texas;
o Vasu Reddy, an individual residing in Texas, as beneficial
owner of shares purchased by GVR Family Limited Partnership, a
Texas family limited partnership, Trust of Rishi N. Reddy, a
Texas trust, and Trust of Reva N. Reddy, a Texas trust;
o Charles F. Gainennie, Jr., an individual residing in Texas;
o John C. Bowen, III, an individual residing in Louisiana;
o Jean Neustadt, Jr., an individual residing in Texas, as
beneficial owner of shares purchased by Jean Neustradt, Jr.
Sole and Separate Property, an individual residing in Texas;
o Robert Ted Lyons, an individual residing in Texas;
o Keith F. Konan, an individual residing in Texas;
o Mitchell P. Derden, an individual residing in Texas;
o Rodney D. Houston, an individual residing in Texas;
o Gary D. Jones, an individual residing in Texas;
o Gary Emmott, an individual residing in Texas;
o Matthew M. Sokany, an individual residing in Texas;
o Jeffery C. Lambert, an individual residing in Texas;
o Jeff L. Hegan, an individual residing in Texas;
o Corbin J. Robertson, III, an individual residing in Texas;
o Corbin J. Robertson, III, an individual residing in Texas, as
beneficial owner of shares purchased by Lion Fund L.P., a
Texas limited partnership, and Spring Street Partners, a Texas
partnership;
o Joseph Perlman, M.D., an individual residing in Texas;
o Tom L. Pettiette, an individual residing in Texas;
15
o Robert Lubin, an individual residing in Texas;
o Riyad Tarazi, an individual residing in Texas;
o Timothy M. Havens, an individual residing in Texas;
o Michael A. Hillman, an individual residing in Texas;
o Ken Reed, an individual residing in Texas, as beneficial owner
of shares purchased by K&D Reed Investments Limited
Partnership, a Texas limited partnership;
o Terry C. Hicks, M.C., an individual residing in Texas;
o Alan B. Springer, an individual residing in Texas, and Edward
Gainennie, an individual residing in Texas, as beneficial
owners of shares purchased by S&G Associates, L.L.C., a Texas
limited liability company;
o Robert P. Capps, an individual residing in Texas;
o Anton von zu Liechtenstein, an individual residing in
Liechtenstein;
o Odyssey Capital, L.L.C., a Texas limited liability company;
and
o Oscar S. Wyatt, an individual residing in Texas.
On July 3, 2003, the Initial Closing, we completed the sale of $750,000
of 12% Convertible Subordinated Notes, or Notes, to sixteen accredited investors
pursuant to a Note Agreement. On August 4, 2003, the Second Closing, we
completed a private placement of $2,160,000 principal amount of the Notes to
thirty accredited investors. We have issued a total of $3,010,000 principal
amount of the Notes.
The Notes are subordinated unsecured obligations of the Company and are
subordinated to the rights of holders of all existing and future senior
indebtedness. The terms of the Note Agreement limit the ability of the Company
to incur additional senior indebtedness. Pursuant to the Note Agreement, the
Company shall not directly or indirectly create, incur or suffer to exist any
indebtedness senior to the Notes ("Senior Indebtedness") in an aggregate
principal amount exceeding at any time the sum of one million dollars
($1,000,000.00) without the prior written consent of at least 51% of the
aggregate principal amount of the Notes outstanding at the time the transaction
is authorized by the Company's board of directors. For purposes of calculating
the limitation on incurring Senior Indebtedness, the following indebtedness
shall not be included in calculating the aggregate amount of Senior
Indebtedness: (a) Bank One, N.A. in the amount of $4.2 million, (b) O.S. Wyatt,
Jr. in the amount of $650,000, (c) FirstCapital Bank, SSB in the amount of
$1,000,000, and (d) any restructuring or refinancing of the Senior Indebtedness
described in (a), (b) and (c).
The Company will pay all outstanding principal balances on the Notes at
maturity, which is June 30, 2005. Interest on the Notes will accrue at a rate of
12% per annum, computed on the basis of a 360-day year of twelve 30-day months.
Interest will be due annually on June 15 and at maturity on June 30, 2005. The
Company may redeem all or any portion of the outstanding Notes at any time
beginning 120 days after the final closing of this offering. Each Note to be so
redeemed shall be redeemed against payment of an amount in cash equal to: 110%
of the outstanding principal balance of the Note, plus accrued interest, if
redeemed after June 15, 2003 but on or before June 1, 2004, and 105% of the
outstanding principal balance of the Note, plus accrued interest, if redeemed
after June 1, 2004.
A Noteholder may convert at any time following the final closing of
this offering any or all of the principal and accrued interest of his Notes into
shares of Common Stock. The number of shares of Common Stock issuable upon
conversion shall be determined by dividing the outstanding indebtedness and
accrued interest to be converted by the conversion price in effect at the time
of conversion. The initial conversion price of the Note shall be the lesser of
(a) the average closing price of the Common Stock for the thirty (30) trading
days prior to the Initial Closing Date, (b) the average closing price of the
Common Stock for the thirty (30) trading days prior to the Final Closing Date,
and (c) $0.16. The Company agreed to deliver written notice of the conversion
price to each investor upon the final closing of the offering, which was $0.16
per share. The conversion price will be subject to anti-dilution provisions and
therefore may be adjusted from time to time upon the occurrence of certain
events.
The Company also issued to each purchaser of the Notes a four-year
warrant for the purchase of Common Stock. The Warrants entitle the Noteholders
to purchase shares of Common Stock equal to 10% of the number of shares of
Common Stock, not including any conversion shares resulting from accrued
interest. The number of shares to be issued upon exercise of the Warrants will
be subject to anti-dilution provisions and therefore may be adjusted from time
to time. The exercise price of the Warrants was equal to the conversion price of
the Notes upon the closing of this offering or $0.16 per share. The exercise
price will be subject to anti-dilution provisions and therefore may be adjusted
from time to time upon the occurrence of certain events. The Warrants may be
exercised at the option of the holder at any time prior to their expiration. The
Warrants will expire four years after their issuance. The shares of Common Stock
to be issued upon the exercise of the Warrants are included in this registration
statement covering shares of Common Stock underlying the Notes.
The Company entered into a registration rights agreement with each
Noteholder, and agreed to file a registration statement with the SEC under the
Securities Act of 1933, as amended, registering the shares of Common Stock
underlying the Notes and the Warrants. The Company will use its best efforts to
have the registration statement declared effective by the SEC as soon as
practicable thereafter. The Company and Noteholders each agreed with the other
to indemnify the other for certain liabilities arising under the Securities Act.
The selling stockholders described below are offering shares of our
common stock from time to time under this prospectus.
Robert E. Sternenberg purchased $25,000 in Notes at the Initial
Closing, which are convertible into 193,750 shares of common stock. Mr.
Sternenberg was also issued a warrant for the purchase of 15,625 shares of
common stock with an exercise price of $0.16 per share. On August 4, 2003 (the
"Second Closing"), Mr. Sternenberg purchased an additional $25,000 in Notes,
which are convertible into 193,750 shares of common stock. Mr. Sternenberg also
received a warrant for the purchase of 15,625 shares of common stock with an
exercise price of $0.16 per share at the Second Closing.
Kirk E. Kanady, M.D. purchased $100,000 in Notes at the Initial
Closing, which are convertible into 775,000 shares of common stock. Mr. Kanady
was also issued a warrant for the purchase of 62,500 shares with an exercise
price of $0.16 per share. At the Second Closing, Mr. Kanady purchased an
additional $100,000 in Notes that are also convertible into 775,000 shares of
common stock. Mr. Kanady was issued a second warrant for the purchase of 62,500
shares with an exercise price of $0.16 per share.
Russell H. Schlattman, II, purchased $25,000 in Notes at the Initial
Closing, which are convertible into 193,750 shares of common stock. Mr.
Schlattman was also issued a warrant for the purchase of 15,625 shares of common
stock with an exercise price of $0.16 per share.
Duane K. Rossmann purchased $50,000 in Notes at the Initial Closing,
which are convertible into 387,500 shares of common stock. Mr. Rossman was also
issued a warrant for the purchase of 31,250 shares of common stock with an
exercise price of $0.16 per share.
Bruce K. Smith purchased $50,000 in Notes at the Initial Closing, which
are convertible into 387,500 shares of common stock. Mr. Smith was also issued a
warrant for the purchase of 31,250 shares of common stock with an exercise price
of $0.16 per share.
Wanda Hicks Carmichael purchased $100,000 in Notes at the Initial
Closing, which are convertible into 775,000 shares of common stock. Ms.
Carmichael was also issued a warrant for the purchase of 62,500 shares with an
exercise price of $0.16 per share at the Initial Closing. Ms. Carmichael
purchased $300,000 in Notes at the Second Closing, which are convertible into
2,325,000 shares of common stock. Ms. Carmichael was also issued a warrant for
the purchase of 187,500 shares with an exercise price of $0.16 per share at the
Second Closing.
16
Daniel Stroud purchased $25,000 in Notes at the Initial Closing, which
are convertible into 193,750 shares of common stock. Mr. Stroud was also issued
a warrant for the purchase of 15,625 shares of common stock with an exercise
price of $0.16 per share.
Bayou Anesthetic and Pain MPP & Trust purchased $30,000 at the Initial
Closing, which are convertible into 232,500 shares of common stock. Bayou
Anesthetic and Pain MPP & Trust was also issued a warrant for the purchase of
18,750 shares of common stock with an exercise price of $0.16 per share.
Northwest Anesthesiology Pension Plan and Money Purchase Plan purchased $15,000
in Notes, which are convertible into 116,250 shares of common stock. Northwest
Anesthesiology Pension Plan and Money Purchase Plan was also issued a warrant
for the purchase of 9,375 shares with an exercise price of $0.16 per share.
Northwest Anesthesiology Salary Deferral purchased $5,000 in Notes, which are
convertible into 38,750 shares of common stock. Northwest Anesthesiology Salary
Deferral was also issued a warrant for the purchase of 3,125 shares of common
stock with an exercise price of $0.16 per share. Henry L. Bethea, a resident of
Texas, is the beneficial owner of the Notes and warrants held by Bayou
Anesthetic and Pain MPP & Trust, Northwest Anesthesiology Pension Plan and Money
Purchase Plan and Northwest Anesthesiology Salary Deferral.
Betty Jo Edwards, M.D., purchased $25,000 in Notes at the Initial
Closing, which are convertible into 193,750 shares of common stock. Ms. Edwards
was also issued a warrant for the purchase of 15,625 shares of common stock with
an exercise price of $0.16 per share.
The Phillip G. Sutton, MD, P.A. Money Purchase Plan purchased $100,000
in Notes at the Initial Closing, which are convertible into 775,000 shares of
common stock. The Phillip G. Sutton, MD, P.A. Money Purchase Plan was also
issued a warrant for the purchase of 62,500 shares of common stock with an
exercise price of $0.16 per share. Phillip G. Sutton, MD is the beneficial owner
of the Notes and warrants purchased by the Phillip G. Sutton, MD, P.A. Money
Purchase Plan.
The Jack Matt Jr. Charles Schwab & Co. Inc. Customer IRA Rollover
purchased $25,000 in Notes at the Initial Closing, which are convertible into
193,750 shares of common stock. The Jack Matt Jr. Charles Schwab & Co. Inc.
Customer IRA Rollover was also issued warrants for the purchase of 15,625 shares
of common stock with an exercise price of $0.16 per share. Jack Matt, Jr. is the
beneficial owner of the Notes and warrants held by the Jack Matt Jr. Charles
Schwab & Co. Inc. Customer IRA Rollover.
Paul Song purchased $100,000 in Notes at the Initial Closing, which are
convertible into 775,000 shares of common stock. Mr. Song was also issued
warrants for the purchase of 62,500 shares of common stock with an exercise
price of $0.16 per share.
Surgical Specialists of Oklahoma, PC Profit Sharing Plan purchased
$50,000 in Notes at the Initial Closing, which are convertible into 387,500
shares of common stock. Surgical Specialists of Oklahoma, PC Profit Sharing Plan
was also issued warrants for the purchase of 31,250 shares of common stock with
an exercise price of $0.16 per share. Surgical Specialists of Oklahoma, PC
Profit Sharing Plan purchased $25,000 in Notes at the Second Closing, which are
convertible into 193,750 shares of common stock. Surgical Specialists of
Oklahoma, PC Profit Sharing Plan was also issued a warrant for the purchase of
15,625 shares of common stock with an exercise price of $0.16 per share. Kevin
McMullen, MD is the beneficial owner of the Notes and warrants purchased by
Surgical Specialists of Oklahoma, PC Profit Sharing Plan.
Sigmond and Mary Jo Palowski purchased $25,000 in Notes at the Initial
Closing, which are convertible into 193,750 shares of common stock. Sigmond and
Mary Jo Palowski were also issued warrants for the purchase of 15,625 shares of
common stock with an exercise price of $0.16 per share.
17
Rick Richards purchased $280,000 in Notes at the Second Closing, which
are convertible into 2,170,000 shares of common stock. Mr. Richards was also
issued warrants for the purchase of 175,000 shares of common stock with an
exercise price of $0.16 per share.
Phillip L. Legget, MD purchased $50,000 in Notes at the Second Closing,
which are convertible into 387,500 shares of common stock. Mr. Legget was also
issued warrants for the purchase of 31,250 shares of common stock with an
exercise price of $0.16 per share.
Manuel B. Gonzalez purchased $70,000 in Notes at the Second Closing,
which are convertible into 542,500 shares of common stock. Mr. Gonzalez was also
issued warrants for the purchase of 43,750 shares of common stock with an
exercise price of $0.16 per share.
Kranthi Reddy purchased $50,000 in Notes at the Second Closing, which
are convertible into 387,500 shares of common stock. Ms. Reddy was also issued
warrants for the purchase of 31,250 shares of common stock with an exercise
price of $0.16 per share.
GVR Family Limited Partnership purchased $400,000 in Notes at the
Second Closing, which are convertible into 3,100,000 shares of common stock. GVR
Family Limited Partnership was also issued warrants for the purchase of 250,000
shares of common stock with an exercise price of $0.16 per share. Trust of Rishi
N. Reddy purchased $10,000 in Notes at the Second Closing, which are convertible
into 77,500 shares of common stock. Trust of Rishi N. Reddy was also issued
warrants for the purchase of 6,250 shares of common stock with an exercise price
of $0.16 per share. Trust of Reva N. Reddy purchased $10,000 in Notes at the
Second Closing, which are convertible into 77,500 shares of common stock. Trust
of Reva N. Reddy was also issued warrants for the purchase of 6,250 shares of
common stock with an exercise price of $0.16 per share. Vasu Reddy is the
beneficial owner of the Notes and warrants held by GVR Family Limited
Partnership, Trust of Rishi N. Reddy and Trust of Reva N. Reddy.
Charles F. Gainennie, Jr. purchased $50,000 in Notes at the Second
Closing, which are convertible into 387,500 shares of common stock. Mr.
Gainennie was also issued warrants for the purchase of 31,250 shares of common
stock with an exercise price of $0.16 per share.
John C. Bowen, III purchased $25,000 in Notes at the Second Closing,
which are convertible into 193,750 shares of common stock. Mr. Bowen was also
issued warrants for the purchase of 15,625 shares of common stock with an
exercise price of $0.16 per share.
Jean Neustadt, Jr. Sole and Separate Property purchased $50,000 in
Notes at the Second Closing, which are convertible into 387,500 shares of common
stock. Jean Neustadt, Jr. Sole and Separate Property was also issued warrants
for the purchase of 31,250 shares of common stock with an exercise price of
$0.16 per share. Jean Neustadt, Jr. is the beneficial owner of Notes and
warrants purchased by Jean Neustadt, Jr. Sole and Separate Property.
Robert Ted Lyons purchased $50,000 in Notes at the Second Closing,
which are convertible into 387,500 shares of common stock. Mr. Lyons was also
issued warrants for the purchase of 31,250 shares of common stock with an
exercise price of $0.16 per share.
Keith F. Konen purchased $15,000 in Notes at the Second Closing, which
are convertible into 116,250 shares of common stock. Mr. Konen was also issued
warrants for the purchase of 9,375 shares of common stock with an exercise price
of $0.16 per share.
18
Mitchell P. Derden purchased $5,000 in Notes at the Second Closing,
which are convertible into 38,750 shares of common stock. Mr. Derden was also
issued warrants for the purchase of 3,125 shares of common stock with an
exercise price of $0.16 per share.
Rodney D. Houston purchased $5,000 in Notes at the Second Closing,
which are convertible into 38,750 shares of common stock. Mr. Houston was also
issued warrants for the purchase of 3,125 shares of common stock with an
exercise price of $0.16 per share.
Gary D. Jones purchased $5,000 in Notes at the Second Closing, which
are convertible into 38,750 shares of common stock. Mr. Jones was also issued
warrants for the purchase of 3,125 shares of common stock with an exercise price
of $0.16 per share.
Gary Emmott purchased $25,000 in Notes at the Second Closing, which are
convertible into 193,750 shares of common stock. Mr. Emmott was also issued
warrants for the purchase of 15,625 shares of common stock with an exercise
price of $0.16 per share.
Matthew M. Sokany purchased $50,000 in Notes at the Second Closing,
which are convertible into 387,500 shares of common stock. Mr. Sokany was also
issued warrants for the purchase of 31,250 shares of common stock with an
exercise price of $0.16 per share.
Jeffery C. Lambert purchased $25,000 in Notes at the Second Closing,
which are convertible into 193,750 shares of common stock. Mr. Lambert was also
issued warrants for the purchase of 15,625 shares of common stock with an
exercise price of $0.16 per share.
Jeff L. Hegan purchased $25,000 in Notes at the Second Closing, which
are convertible into 193,750 shares of common stock. Mr. Hegan was also issued
warrants for the purchase of 15,625 shares of common stock with an exercise
price of $0.16 per share.
Corbin J. Robertson, III purchased $100,000 in Notes at the Second
Closing, which are convertible into 775,000 shares of common stock. Mr.
Robertson was also issued warrants for the purchase of 62,500 shares of common
stock with an exercise price of $0.16 per share. Lion Fund LP purchased $100,000
in Notes at the Second Closing, which are convertible into 775,000 shares of
common stock. Lion Fund LP was also issued warrants for the purchase of 62,500
shares of common stock with an exercise price of $0.16 per share. Spring Street
Partners purchased $100,000 in Notes at the Second Closing, which are
convertible into 775,000 shares of common stock. Spring Street Partners were
also issued warrants for the purchase of 62,500 shares of common stock with an
exercise price of $0.16 per share. Corbin J. Robertson, III is the beneficial
owner of the Notes and warrants purchased by Lion Fund LP and by Spring Street
Partners.
Joseph Perlman, MD purchased $25,000 in Notes at the Second Closing,
which are convertible into 193,750 shares of common stock. Mr. Perlman was also
issued warrants for the purchase of 15,625 shares of common stock with an
exercise price of $0.16 per share.
Tom L. Pettiette purchased $25,000 in Notes at the Second Closing,
which are convertible into 193,750 shares of common stock. Mr. Pettiette was
also issued warrants for the purchase of 15,625 shares of common stock with an
exercise price of $0.16 per share.
Robert Lubin purchased $10,000 in Notes at the Second Closing, which
are convertible into 77,500 shares of common stock. Mr. Lubin was also issued
warrants for the purchase of 6,250 shares of common stock with an exercise price
of $0.16 per share.
19
Riyad Tarazi purchased $25,000 in Notes at the Second Closing, which
are convertible into 193,750 shares of common stock. Mr. Tarazi was also issued
warrants for the purchase of 15,625 shares of common stock with an exercise
price of $0.16 per share.
Timothy M. Havens purchased $100,000 in Notes at the Second Closing,
which are convertible into 775,000 shares of common stock. Mr. Havens was also
issued warrants for the purchase of 62,500 shares of common stock with an
exercise price of $0.16 per share.
Michael A. Hillman purchased $25,000 in Notes at the Second Closing,
which are convertible into 193,750 shares of common stock. Mr. Hillman was also
issued warrants for the purchase of 15,625 shares of common stock with an
exercise price of $0.16 per share.
K&D Reed Investments Limited Partnership purchased $25,000 in Notes at
the Second Closing, which are convertible into 193,750 shares of common stock.
K&D Reed Investments Limited Partnership was also issued warrants for the
purchase of 15,625 shares of common stock with an exercise price of $0.16 per
share. Ken Reed is the beneficial owner of the Notes and warrants held by K&D
Reed Investments Limited Partnership.
Terry C. Hicks, MD purchased $25,000 in Notes at the Second Closing,
which are convertible into 193,750 shares of common stock. Mr. Hicks was also
issued warrants for the purchase of 15,625 shares of common stock with an
exercise price of $0.16 per share.
S&G Associates, LLC purchased $50,000 in Notes at the Second Closing,
which are convertible into 387,500 shares of common stock. S&G Associates, LLC
was also issued warrants for the purchase of 31,250 shares of common stock with
an exercise price of $0.16 per share. Alan B. Springer and Edward Gainennie are
beneficial owners of the Notes and warrants held by S&G Associates, LLC.
In connection with the offering and in addition to a cash fee of
$146,750, the Company issued to Odyssey Capital, LLC, a four-year warrant to
purchase 1,834,375 shares of the Company's common stock. The warrant has an
exercise price of $0.16 per share.
On March 13, 2003, Anton von and zu Liechtenstein loaned the Company
$200,000 for working capital. On August 26, 2003, we issued Mr. Liechtenstein
$200,000 principal amount of Notes, which are convertible into 1,550,000 shares
of common stock, and a warrant for the purchase of 125,000 shares of our common
stock with an exercise price of $0.16 per share. Mr. Liechtenstein also executed
and became a party to the Note Agreement. Mr. Liechtenstein serves as a director
of the Company.
On March 3, 2003, Robert P. Capps loaned the Company $50,000 for
working capital. On August 26, 2003, we issued Mr. Capps $50,000 principal
amount of Notes, which are convertible into 387,500 shares of common stock, and
a warrant for the purchase of 31,250 shares of our common stock with an exercise
price of $0.16 per share. Mr. Capps also executed and became a party to the Note
Agreement. Mr. Capps serves as Chief Financial Officer and Executive Vice
President of the Company.
In October 2003, Oscar S. Wyatt agreed to exchange a note payable for
an aggregate of $700,000 for 2,800,000 shares of the Company's common stock and
the extension of the maturity date of common stock warrants previously issued to
Mr. Wyatt. We agreed to provide Mr. Wyatt with registration rights for these
2,800,000 shares of common stock.
20
These selling stockholders may offer and resell up to an aggregate of
31,936,875 shares of our common stock from time to time under this prospectus.
We agreed to provide registration rights to each of these investors in
connection with the issuance of these 25,265,000 shares of common stock
underlying the Notes purchased by the investors and the 2,037,500 shares of
common stock to be issued upon the exercise of the warrants. We also agreed to
provide registration rights to Odyssey Capital, LLC for the 1,834,375 shares
underlying the Notes.
Selling stockholders table. The following table lists the name of each
selling stockholder, the number of shares of common stock owned by each selling
stockholder before this offering, the number of shares of common stock that may
be offered by each selling stockholder pursuant to this prospectus and the
number of shares of common stock to be owned by each selling stockholder upon
completion of the offering if all shares registered for resale by this
registration statement are sold. None of the selling stockholders have held any
position or office or had any other material relationship with us in the last
three years, other than as described herein. The information below is as of
October 30, 2003 and has been furnished by the respective selling stockholders.
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
NAME OF OWNED BEFORE THIS BEING REGISTERED OWNED AFTER THIS
SELLING STOCKHOLDER OFFERING FOR RESALE OFFERING(1)
------------------- ----------------- ---------------- ----------------
Robert E. Sternenberg ....................................... 418,750 418,750(2) 0
Kirk E. Kanady, M.D ......................................... 1,675,000 1,675,000(3) 0
Russell H. Schlattman, II ................................... 209,375 209,375(4) 0
Duane K. Rossman ............................................ 418,750 418,750(5) 0
Bruce K. Smith .............................................. 418,750 418,750(6) 0
Wanda Hicks Carmichael ...................................... 3,350,000 3,350,000(7) 0
Daniel Stroud ............................................... 209,375 209,375(8) 0
Bayou Anesthetic and Pain MPP & Trust ....................... 251,250 251,250(9) 0
Northwest Anesthesiology Pension Plan and Money
Purchase Plan ............................................... 125,625 125,625(10) 0
Northwest Anesthesiology Salary Deferral .................... 41,875 41,875(11) 0
Betty Jo Edwards, M.D ....................................... 209,375 209,375(12) 0
Phillip G. Sutton, M.D., P.A. Money Purchase Plan ........... 837,500 837,500(13) 0
Jack Matt Jr. Charles Schwab & Co. Inc. Cust. IRA
Rollover .................................................... 209,375 209,375(14) 0
Paul Song ................................................... 837,500 837,500(15) 0
Surgical Specialists of Oklahoma, PC Profit Sharing Plan .... 628,125 628,125(16) 0
Sigmond and Mary Jo Palowski ................................ 209,375 209,375(17) 0
Rick Richards ............................................... 2,345,000 2,345,000(18) 0
Phillip L. Legget, M.D ...................................... 418,750 418,750(19) 0
Manuel B. Gonzolaz .......................................... 586,250 586,250(20) 0
Kranthi Reddy ............................................... 418,750 418,750(21) 0
GVR Family Limited Partnership .............................. 3,350,000 3,350,000(22) 0
Trust of Rishi N. Reddy ..................................... 83,750 83,750(23) 0
Trust of Reva N. Reddy ...................................... 83,750 83,750(24) 0
Charles F. Gainennie, Jr .................................... 418,750 418,750(25) 0
John C. Bowen, III .......................................... 209,375 209,375(26) 0
Jean Neustadt, Jr. Sole & Separate Property ................. 418,750 418,750(27) 0
Robert Ted Lyons ............................................ 418,750 418,750(28) 0
Keith F. Konen .............................................. 125,625 125,625(29) 0
Mitchell P. Derden .......................................... 41,875 41,875(30) 0
Rodney D. Houston ........................................... 41,875 41,875(31) 0
Gary D. Jones ............................................... 41,875 41,875(32) 0
Gary Emmott ................................................. 209,375 209,375(33) 0
Matthew M. Sokany ........................................... 418,750 418,750(34) 0
Jeffery C. Lambert .......................................... 209,375 209,375(35) 0
21
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
NAME OF OWNED BEFORE THIS BEING REGISTERED OWNED AFTER THIS
SELLING STOCKHOLDER OFFERING FOR RESALE OFFERING(1)
------------------- ----------------- ---------------- ----------------
Jeff L. Hegan ............................................... 209,375 209,375(36) 0
Corbin J. Robertson, III .................................... 837,500 837,500(37) 0
Lion Fund LP. ............................................... 837,500 837,500(38) 0
Spring Street Partners ...................................... 837,500 837,500(39) 0
Joseph Perlman, MD .......................................... 209,375 209,375(40) 0
Tom L. Pettiette ............................................ 209,375 209,375(41) 0
Robert Lubin ................................................ 83,750 83,750(42) 0
Riyad Tarazi ................................................ 209,375 209,375(43) 0
Timothy M. Havens ........................................... 837,500 837,500(44) 0
Michael A. Hillman .......................................... 209,375 209,375(45) 0
K&D Reed Investments Limited Partnership .................... 209,375 209,375(46) 0
Terry C. Hicks, M.D ......................................... 209,375 209,375(47) 0
S&G Associates, LLC ......................................... 418,750 418,750(48) 0
Odyssey Capital, LLC ........................................ 1,834,375 1,834,375(49) 0
Robert P. Capps ............................................. 1,603,750 418,750(50) 1,185,000(51)
Anton von zu Liechtenstein .................................. 2,719,382 1,675,000(52) 1,038,382(53)
Oscar S. Wyatt .............................................. 5,977,601(54) 2,800,000 3,177,601
TOTAL .............................................. 31,936,875
----------------
(1) Assumes all shares registered under this registration statement will be
offered and sold.
(2) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(3) Represents (a) 1,550,000 shares currently issuable to the holder upon
conversion of the notes and (b) 125,000 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(4) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(5) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(6) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(7) Represents (a) 3,100,000 shares currently issuable to the holder upon
conversion of the notes and (b) 250,000 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(8) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(9) Represents (a) 232,500 shares currently issuable to the holder upon
conversion of the notes and (b) 18,750 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(10) Represents (a) 116,250 shares currently issuable to the holder upon
conversion of the notes and (b) 9,375 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(11) Represents (a) 38,750 shares currently issuable to the holder upon
conversion of the notes and (b) 3,125 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(12) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(13) Represents (a) 775,000 shares currently issuable to the holder upon
conversion of the notes and (b) 62,500 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(14) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(15) Represents (a) 775,000 shares currently issuable to the holder upon
conversion of the notes and (b) 62,500 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(16) Represents (a) 581,250 shares currently issuable to the holder upon
conversion of the notes and (b) 46,875 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(17) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(18) Represents (a) 2,170,000 shares currently issuable to the holder upon
conversion of the notes and (b) 175,000 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(19) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
22
(20) Represents (a) 542,500 shares currently issuable to the holder upon
conversion of the notes and (b) 43,750 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(21) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(22) Represents (a) 3,100,000 shares currently issuable to the holder upon
conversion of the notes and (b) 250,000 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(23) Represents (a) 77,500 shares currently issuable to the holder upon
conversion of the notes and (b) 6,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(24) Represents (a) 77,500 shares currently issuable to the holder upon
conversion of the notes and (b) 6,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(25) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(26) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(27) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(28) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(29) Represents (a) 116,250 shares currently issuable to the holder upon
conversion of the notes and (b) 9,375 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(30) Represents (a) 38,750 shares currently issuable to the holder upon
conversion of the notes and (b) 3,125 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(31) Represents (a) 38,750 shares currently issuable to the holder upon
conversion of the notes and (b) 3,125 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(32) Represents (a) 38,750 shares currently issuable to the holder upon
conversion of the notes and (b) 3,125 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(33) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(34) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(35) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(36) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(37) Represents (a) 775,000 shares currently issuable to the holder upon
conversion of the notes and (b) 62,500 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(38) Represents (a) 775,000 shares currently issuable to the holder upon
conversion of the notes and (b) 62,500 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(39) Represents (a) 775,000 shares currently issuable to the holder upon
conversion of the notes and (b) 62,500 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(40) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(41) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(42) Represents (a) 77,500 shares currently issuable to the holder upon
conversion of the notes and (b) 6,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(43) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(44) Represents (a) 775,000 shares currently issuable to the holder upon
conversion of the notes and (b) 62,500 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(45) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(46) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(47) Represents (a) 193,750 shares currently issuable to the holder upon
conversion of the notes and (b) 15,625 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(48) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(49) Represents 1,834,375 shares currently issuable to the holder upon
conversion of the notes.
(50) Represents (a) 387,500 shares currently issuable to the holder upon
conversion of the notes and (b) 31,250 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
23
(51) Consists of 1,185,000 shares of common stock issuable to the holder upon
exercise of employee stock options.
(52) Represents (a) 1,550,000 shares currently issuable to the holder upon
conversion of the notes and (b) 125,000 shares currently issuable to the
holder upon exercise of warrants to purchase shares of our common stock.
(53) Includes 750,000 shares of common stock subject to stock options.
(54) Represents (a) 3,187,601 shares currently held by the holder and (b)
2,790,000 shares issuable to the holder upon exercise of warrants to
purchase shares of our common stock.
24
PLAN OF DISTRIBUTION
The selling stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of common stock being registered hereunder in privately negotiated
transactions or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such market prices or at
negotiated prices. The selling stockholders may sell their shares of common
stock by one or more of the following methods, without limitation:
o block trades in which the broker or dealer so engaged will
attempt to sell the shares of common stock as agent but may
position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
prospectus;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
o privately negotiated transactions;
o short sales;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
From time to time the selling stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in our
securities or derivatives thereof, and may sell and deliver the shares of common
stock in connection therewith or in settlement of securities loans. If the
selling stockholders engage in such transactions, the applicable conversion
price may be affected. From time to time the selling stockholders may pledge
their shares of common stock pursuant to the margin provisions of their customer
agreements with their respective brokers. Upon a default by the selling
stockholders, the broker may offer and sell the pledged shares of common stock
from time to time.
In effecting sales, brokers and dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate in such
sales. Brokers or dealers may receive commissions or discounts from the selling
stockholders (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the selling stockholders to sell a specified
number of such shares of common stock at a stipulated price per share, and, to
the extent such broker-dealer is unable to do so acting as agent for a selling
stockholder, to purchase as principal any unsold shares of common stock at the
price required to fulfill the broker-dealer commitment to the selling
shareholder. Broker-dealers who acquire shares of common stock as principal may
thereafter resell such shares of common stock from time to time in transactions
(which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such shares commissions as described above. The
selling stockholders
25
may also sell the shares of common stock in accordance with Rule 144 under the
Securities Act, rather than pursuant to this prospectus.
The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in sales of the shares of common stock
may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares of common
stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares of common stock other than fees and expenses of the
selling shareholder. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
In order to comply with certain states' securities laws, if applicable,
the shares of common stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
common stock may not be sold unless the common stock has been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is satisfied.
26
DESCRIPTION OF CAPITAL STOCK
Our Certificate of Incorporation permits the issuance of up to
200,000,000 shares of common stock and 50,000,000 shares of preferred stock. As
of October 31, 2003, there were 118,556,587 shares of our common stock and no
shares of our preferred stock outstanding. The following description of our
capital stock is intended to be a summary, and you should read it in conjunction
with our amended and restated articles of incorporation filed with the SEC.
COMMON STOCK
Under our Certificate of Incorporation, we may issue 200,000,000 shares
of common stock, par value $0.01 per share. All shares of our common stock have
one vote per share. Stockholders of our common stock may receive dividends, when
and as declared by the board of directors, if funds are legally available for
the payment of dividends. Shares of our common stock have no preemptive,
conversion, sinking fund, redemption or similar provisions. In the event of our
liquidation, stockholders of our common stock participate on a pro rata basis in
the distribution of any of our assets that are remaining after the payment of
liabilities and any liquidation preference on outstanding shares of convertible
preferred stock. All outstanding shares of our common stock are fully paid and
nonassessable.
Our Common Stock is traded on the OTC Bulletin Board operated by Nasdaq
under the symbol "TERA." Prior to June 19, 2001, our common stock was quoted on
the Nasdaq SmallCap Market under the symbol "ICOM." On June 19, 2001, Nasdaq
delisted our common stock for failing to maintain a minimum bid price of $1.00.
On January 30, 2001, we changed our trading symbol to "TERA" from "ICOM" to
reflect our name change to TeraForce Technology Corporation from Intelect
Communications, Inc.
The high and low bid prices for our common stock for each full quarter
of the last two fiscal years, as reported on the OTC Bulletin Board and Nasdaq,
are as follows (these prices are inter-dealer prices, without mark-up,
mark-downs or commission included and may not necessarily represent actual
transactions):
Quarter period ended High Low
-------------------- ---- ---
2003
March 31 ............................ 0.230 0.130
June 30 ............................. 0.220 0.160
September 30 ........................ 0.470 0.160
through December 1 .................. 0.430 0.270
----- -----
2002
March 31 ............................ 0.180 0.100
June 20 ............................. 0.330 0.110
September 30 ........................ 0.230 0.100
December 31 ......................... 0.240 0.105
2001
March 31 ............................ 1.438 0.344
June 30 ............................. 0.960 0.330
September 30 ........................ 0.420 0.150
December 31 ......................... 0.200 0.080
27
As of September 30, 2003, there were approximately 6,000 owners of
record (including nominee holders such as banks and brokerage firms who hold
shares for the benefit of beneficial owners) of our common stock.
PREFERRED STOCK
Our Certificate of Incorporation authorizes the issuance of up to
50,000,000 shares of preferred stock with a par value of $0.01 per share. No
shares of our preferred stock were outstanding as of the date of this
prospectus. We may issue the preferred stock in series, and the shares of each
series shall have rights and preferences as designated by the resolution of the
board of directors. In the designation of any series of preferred stock, the
board of directors has authority, without further action by the holders of our
common stock, to fix the number of shares constituting that series and to fix
the dividends rights, dividend rate, conversion rights, terms of redemption and
the liquidation preferences of that series of preferred stock. The issuance of
preferred stock could adversely affect the voting power of holders of our common
stock and the likelihood that holders of our common stock will receive dividend
payments and payments upon liquidation and could have the effect of delaying,
deferring or preventing a change in control.
WARRANTS
As of September 30, 2003, there were outstanding warrants to purchase
an aggregate of 22,701,000 shares of common stock at prices ranging from $0.09
to $2.00. The warrants expire at various times on or before March 31, 2007.
CONVERSION RIGHTS
As of September 30, 2003, there were outstanding conversion rights to
purchase an aggregate of 8,333,333 shares of common stock for $0.12 per share
and 25,265,000 shares of common stock for $0.16 per share. The conversion rights
expire at various times on or before June 30, 2005.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
LEGAL MATTERS
The validity of the shares of common stock offered hereby have been
passed upon for us by our counsel, Haynes and Boone, LLP.
EXPERTS
Our consolidated financial statements incorporated in this Prospectus
by reference to our Annual Report on Form 10-K for each of the three years in
the period ended December 31, 2002, have been incorporated in reliance on the
report of Grant Thornton LLP, independent certified public accountants, given on
the authority of Grant Thornton LLP as experts in accounting and auditing.
28
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-2 under
the Securities Act with respect to the securities offered by this prospectus.
This prospectus constitutes a part of that registration statement and does not
contain all of the information in the registration statement. This prospectus
contains a description of the material terms and features of some material
contracts, indentures, agreements, reports or exhibits required to be disclosed.
However, as the descriptions are summaries of the contracts, indentures,
agreements, reports or exhibits, we urge you to refer to the copy of each
material contract, report and exhibit filed with the registration statement.
Copies of the registration statement, including the exhibits, as well as the
periodic reports, proxy statements and other information we file with the SEC,
may be examined without charge and copies of the materials may be obtained at
prescribed rates from the public reference facilities maintained by the SEC at
its principal offices located at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can get information about the operation of the
public reference facilities by calling the SEC at 1-800-SEC-0330. In addition,
the SEC maintains a website that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC at the address http://www.sec.gov.
The SEC allows us to "incorporate" into this prospectus information
that we file with the SEC in other documents. This means we can disclose
important information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this prospectus. We incorporate by reference the documents listed below:
o our Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, filed with the SEC on April
15, 2003;
o our Quarterly Report on Form 10-Q for the period
ended June 30, 2003, filed with the SEC on August 14,
2003;
o our Quarterly Report on Form 10-Q for the period
ended March 31, 2003, filed with the SEC on May 15,
2003;
o our Quarterly Report on Form 10-Q for the period
ended September 30, 2003, filed with the SEC on
November 14, 2003;
o our Current Report on Form 8-K filed with the SEC on
October 21, 2002;
o our amendment to our Current Report on Form 8-K/A
filed with the SEC on November 13, 2002;
o our amendment to our Current Report on Form 8-K/A
filed with the SEC on January 15, 2003;
o our amendment to our Current Report on Form 8-K/A
filed with the SEC on March 25, 2003;
o our Current Report on Form 8-K filed with the SEC on
March 28, 2003;
o our Current Report on Form 8-K filed with the SEC on
July 30, 2003;
o our amendment to our Current Report on Form 8-K/A
filed with the SEC on August 8, 2003; and
o our Current Report on Form 8-K filed with the SEC on
November 24, 2003.
29
We will provide without charge to each person to whom this prospectus
is delivered, including any beneficial owner, upon the written or oral request
of each person, a copy of any and all of the documents incorporated by reference
(other than exhibits to the documents unless the exhibits are specifically
incorporated by reference in the documents). Any request should be directed to:
Attn: Robert P. Capps
Executive Vice President - Chief Financial Officer
1240 E. Campbell Road
Richardson, Texas 75081
Telephone (469) 330-4960
30
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Pursuant to the registration rights agreements among the company and
the selling stockholders, we have agreed to indemnify each selling stockholder
and their respective officers, directors, agents, brokers, investment advisors,
employees and any person who controls the selling stockholder against any
losses, claims, damages, liabilities, costs and expenses arising out of or
relating to (1) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any prospectus, including any
amendments or supplements thereto, or (2) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein (in the case of any prospectus or form of prospectus
or supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent that these liabilities arise out of or are
based upon and in conformity with any information furnished in writing to us by
each selling stockholder expressly for use in the Registration Statement or an
amendment or supplement thereto. In addition, each selling stockholder, acting
severally and not jointly, under the registration rights agreement has agreed to
indemnify us and our officers, directors, employees, agents and any person who
controls us against any losses, claims, damages, liabilities, costs or expenses
arising out of or based upon and in conformity with written information
furnished by the selling stockholder expressly for use in the Registration
Statement or an amendment or supplement thereto. However, the foregoing
indemnity shall not apply to amounts paid in settlement of any such liability if
the settlement is effected without the consent of such selling stockholder.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
issuer pursuant to the foregoing provisions, or otherwise, the issuer has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the registrant in connection with
the issuance and distribution of the securities being offered. All items below
are estimates other than the Securities and Exchange Commission fees. All
expenses will be borne by us.
Securities and Exchange Commission Registration Fee ....... $ 775
Listing Fee ............................................... 0
Printing Expenses ......................................... 0
Accounting Fees and Expenses .............................. 5,000
-------
Legal Fees and Expenses ................................... 15,000
-------
Blue Sky Fees and Expenses ................................ 0
-------
Miscellaneous Expenses .................................... 225
-------
Total .................................................. $21,000
-------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended and Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that no director of the Company will
be personally liable to the Company or any of its stockholders for monetary
damages arising from the director's breach of fiduciary duty as a director.
However, this does not apply with respect to any action in which the director
would be liable under Section 174 of the General Corporation Law of the State of
Delaware ("Delaware Code") nor does it apply with respect to any liability in
which the director (i) breached his duty of loyalty to the Company or its
stockholders; (ii) did not act in good faith or, in failing to act, did not act
in good faith; (iii) acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law; or (iv) derived
an improper personal benefit.
The Certificate of Incorporation of the Company provides that the
Company shall indemnify its directors and officers and former directors and
officers to the fullest extent permitted by the Delaware Code. Pursuant to the
provisions of Section 145 of the Delaware Code, the Company has the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee, or agent of the Company, against any and all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of
the Company as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or
32
settlement of the claim itself and with the further limitation that in such
actions no indemnification shall be made in the event of any adjudication of
negligence or misconduct unless the court, in its discretion, believes that in
light of all the circumstances indemnification should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, 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.
Article XI of the Company's Restated Bylaws provides that the Company
shall indemnify each of its directors and officers, its former directors and
officers and agents of the Company against expenses actually and reasonably
incurred by him or her in connection with the defense of any action, suit or
proceeding, civil or criminal, in which such person is made a party by reason of
being or having been such director or officer, except in situations where he or
she shall be adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of his or her duty to the Company.
In the event of a criminal conviction (whether based on a plea of guilty or nolo
contendere or its equivalent, or after trial), such conviction shall not be
deemed an adjudication of liability for negligence or misconduct in the
performance of duty to the Company if such director or officer acted in good
faith in what he or she considered to be the best interest of the Company and
without reasonable cause to believe that his or her actions were illegal. In
absence of an adjudication which expressly absolves the director or officer of
liability to the Company or its stockholders for negligence or misconduct, or in
the event of a settlement, the right to indemnification of a director or officer
shall be conditioned upon prior resolution adopted by two-thirds of the
disinterested members of the Board or by independent counsel.
Article XI of the Company's Restated Bylaws also provides that the
Company may purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or her and incurred by
him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the DGCL. The Company maintains
insurance on behalf of its directors and officers to protect them against such
claims.
33
ITEM 16. EXHIBITS
The exhibits listed below are filed as part of or incorporated by
reference in this registration statement. Where such filing is incorporated by
reference to a previously filed report, such report is identified. See the Index
of Exhibits with the exhibits files as part of this registration statement.
Exhibit Description of Exhibit
------- ----------------------
4.1 Form of Registration Rights Agreement between the Company and the
Buyers, dated as of December 22, 1998 filed as an exhibit to the
Company's Form 8-K filed on March 2, 1999 and incorporated by reference
herein.
4.2 Form of Warrant to Purchase Common Stock of Intelect Communications,
Inc. at an exercise price of $2.998 filed as an exhibit to the
Company's Form 8-K filed on March 2, 1999 and incorporated by reference
herein.
4.3 Registration Rights Agreement between the Company and Coastal filed as
an exhibit to the Company's Form 8-K filed on August 18, 1999 and
incorporated by reference herein.
4.4 Registration Rights Agreement among the Company and the Buyers, dated
February 24, 1999, relating to the Series E Convertible Preferred Stock
and warrants filed as an exhibit to the Company's Form 8-K filed on
March 2, 1999 and incorporated by reference herein.
4.5 Form of Warrant to Purchase Common Stock of Intelect Communications,
Inc., relating to the Series E Preferred Stock filed as an exhibit to
the Company's Form 8-K filed on March 2, 1999 and incorporated by
reference herein.
4.6 Form of Amended and Restated Promissory Notes held by officer,
convertible into Common Stock of the Company at a rate of $1.00 per
share filed as an exhibit to the Company's Form 10-K filed on March 30,
2000 and incorporated by reference herein.
4.7 Securities Purchase Agreement dated September 30, 2002 between the
Company and Morton A. Cohn and Fayez Sarofim, filed as an exhibit to
the Company's Form 8-K filed October 21, 2002 and incorporated by
reference herein.
4.8 Registration Rights Agreement dated September 30, 2002 between the
Company and Morton A. Cohn and Fayez Sarofim, filed as an exhibit to
the Company's Form 8-K filed October 21, 2002 and incorporated by
reference herein.
4.9 Form of Amended and Restated Warrant expiring May 31, 2004 with an
exercise price of $0.12 per share, filed as an exhibit to the Company's
Form 8-K filed October 21, 2002 and incorporated by reference herein.
4.10 Form of Warrant expiring October 31, 2004 with an exercise price of
$0.12 per share, filed as an exhibit to the Company's Form 8-K filed
October 21, 2002 and incorporated by reference herein.
4.11 Form of Amended and Restated Warrant expiring December 31, 2003 with an
exercise price of $0.12 per share, filed as an exhibit to the Company's
Form 8-K filed October 21, 2002 and incorporated by reference herein.
34
Exhibit Description of Exhibit
------- ----------------------
4.12 Warrant expiring October 31, 2004 with an exercise price of $0.12 per
share, filed as an exhibit to the Company's Form 8-K/A filed January
15, 2003 and incorporated by reference herein.
4.13 Amended and Restated Warrant expiring October 31, 2004 with an exercise
price of $0.12 per share, filed as an exhibit to the Company's Form
8-K/A filed January 15, 2003 and incorporated by reference herein.
4.14 Amended and Restated Warrant expiring October 31, 2004 with an exercise
price of $0.12 per share, filed as an exhibit to the Company's Form
8-K/A filed January 15, 2003 and incorporated by reference herein.
4.15 Amended and Restated Warrant expiring December 31, 2003 with an
exercise price of $0.12 per share, filed as an exhibit to the Company's
Form 8-K/A filed January 15, 2003 and incorporated by reference herein.
4.16 Amended and Restated Warrant expiring May 31, 2004 with an exercise
price of $0.12 per share, filed as an exhibit to the Company's Form
8-K/A filed January 15, 2003 and incorporated by reference herein.
4.17 Form of Registration Rights Agreement between the Company and certain
private investors, filed as an exhibit to the Company's Form 8-K/A
filed January 15, 2003 and incorporated by reference herein.
4.18 Exchange Agreement dated April 11, 2002 between the Company and
Coastal, filed as an exhibit to the Company's Form 10-Q filed May 10,
2002 and incorporated herein by reference.
4.19 Exchange Agreement dated April 11, 2002 between the Company and St.
James, filed as an exhibit to the Company's Form 10-Q filed May 10,
2002 and incorporated herein by reference.
4.20 Form of Securities Purchase Agreement dated September 30, 2002 between
the Company and certain private investors, filed as an exhibit to the
Company's Form 8-K/A filed November 13, 2002 and incorporated by
reference herein.
4.21 Form of Registration Rights Agreement dated September 30, 2002 between
the Company and certain private investors, filed as an exhibit to the
Company's Form 8-K/A filed November 13, 2002 and incorporated by
reference herein.
4.22 Form of Warrant expiring March 31, 2007, filed as an exhibit to the
Company's Form 10-K filed April 15, 2003 and incorporated herein by
reference.
4.23 Form of Note Agreement dated July 3, 2003, filed as an exhibit to the
Company's Form 8-K filed July 30, 2003 and incorporated by reference
herein.
4.24 Form of 12% Convertible Subordinated Note, filed as an exhibit to the
Company's Form 8-K filed July 30, 2003 and incorporated by reference
herein.
4.25 Form of Warrant Agreement, filed as an exhibit to the Company's Form
8-K filed July 30, 2003 and incorporated by reference herein.
35
Exhibit Description of Exhibit
------- ----------------------
4.26 Registration Rights Agreement dated July 3, 2003, filed as an exhibit
to the Company's Form 8-K filed July 30, 2003 and incorporated by
reference herein.
4.27 Warrant for the purchase of 1,834,375 shares of Common Stock issued to
Odyssey Capital, LLC, filed as an exhibit to the Company's Form 8-K/A
filed August 8, 2003 and incorporated by reference herein.
5.1* Form of Opinion of Haynes and Boone, LLP regarding validity of shares
issued.
10.1** Employment Agreement between the Company and Herman Frietsch and
Amendment thereto filed as an exhibit to the Company's Form 10-K filed
on March 30, 2000 and incorporated by reference herein.
10.2** Employment Agreement dated as of January 1, 2001 between the Company
and Eugene Helms filed as an exhibit to the Company's Form 10-K filed
April 15, 2002 and incorporated by reference herein.
10.3 Lease Agreement between Campbell Place One Joint Venture and DNA
Enterprises, dated February 1, 1997 filed as an exhibit to the
Company's Form 10-K filed April 15, 2003 and incorporated by reference
herein.
10.4 Agreement to Form Joint Venture dated August 17, 2001 between the
Company and Singapore Technologies Electronics Limited filed as an
exhibit to the Company's Form 8-K filed September 7, 2001 and
incorporated by reference herein.
10.5 Sharing Agreement dated August 30, 2001 among the Company, Intelect
Network Technologies Company and Intelect Technologies Inc. filed as an
exhibit to the Company's Form 8-K filed September 7, 2001 and
incorporated by reference herein.
10.6 Stockholders Agreement dated August 30, 2001 among the Company,
Intelect Technologies Inc. and Singapore Technologies Electronics
Limited filed as an exhibit to the Company's Form 8-K filed September
7, 2001 and incorporated by reference herein.
10.7 Transition Services Agreement dated August 30, 2001 between the Company
and Intelect Technologies Inc. filed as an exhibit to the Company's
Form 8-K filed September 7, 2001 and incorporated by reference herein.
10.8 Asset Purchase Agreement dated January 11, 2002 among the Company,
Flextronics Design S.D., Inc. and DNA Enterprises, Inc. filed as an
exhibit to the Company's Form 8-K filed January 15, 2002 and
incorporated by reference herein.
10.9 Design / Engineering Services Agreement dated January 11, 2002 between
the Company and Flextronics Design S.D. filed as an exhibit to the
Company's Form 8-K filed January 15, 2002 and incorporated by reference
herein.
10.10 Form of Promissory Note dated June 1, 2001 in favor of Bank One, N.A.
filed as an exhibit to the Company's Form 10-Q filed August 14, 2001
and incorporated by reference herein.
36
Exhibit Description of Exhibit
------- ----------------------
10.11 Business Loan Agreement dated June 1, 2001 between the Company and Bank
One, N.A. filed as an exhibit to the Company's Form 10-Q filed August
14, 2001 and incorporated by reference herein.
10.12 Promissory Note dated November 30, 2001 filed as an exhibit to the
Company's Form 10-K filed April 15, 2002 and incorporated by reference
herein.
10.13 Promissory Note dated December 14, 2001 filed as an exhibit to the
Company's Form 10-K filed April 15, 2002 and incorporated by reference
herein.
10.14 Promissory Note dated February 11, 2002 filed as an exhibit to the
Company's Form 10-K filed April 15, 2002 and incorporate by reference
herein.
10.15** Employment Agreement dated January 1, 2001 between the Company and
Robert P. Capps filed as an exhibit to the Company's Form 10-K filed
April 15, 2002 and incorporated by reference herein.
10.16 Release and Settlement Agreement dated January 19, 2001 between the
Company and Savage Arms, Inc. filed as an exhibit to the Company's Form
10-K filed April 15, 2002 and incorporated by reference herein.
10.17 Settlement and Release Agreement dated March 4, 2002 among the Company,
DNA Enterprises, Inc. and Cadence Design Systems, Inc. filed as an
exhibit to the Company's Form 10-K filed April 15, 2002 and
incorporated by reference herein.
10.18** Amended and Restated Stock Incentive Plan filed as an exhibit to the
Company's Definitive Proxy Statement filed on April 30, 2001 and
incorporated by reference herein.
10.19 Amendment to Credit Agreement dated October 3, 2002 between the Company
and Bank One, NA, filed as an exhibit to the Company's Form 8-K filed
October 21, 2002 and incorporated by reference herein.
10.20 Reimbursement Agreement by and between the Company and O.S. Wyatt, Jr.
dated as of December 30, 2002, filed as an exhibit to the Company's
Form 8-K/A filed January 15, 2003 and incorporated by reference herein.
10.21 Promissory Note dated October 1, 2002, filed as an exhibit to the
Company's Form 8-K/A filed January 15, 2003, and incorporated by
reference herein.
10.22 Reimbursement Agreement dated March 26, 2003, filed as an exhibit to
the Company's Current Report on Form 8-K filed March 28, 2003 and
incorporated herein by reference.
10.23 Loan Agreement dated March 26, 2003 between DNA Computing Solutions,
Inc. and FirstCapital Bank, SSB, filed as an exhibit to the Company's
Annual Report on Form 10-K filed on April 15, 2003, and incorporated
herein by reference.
10.24 Note Modification Agreement dated March 31, 2003 between the Company
and Bank One, NA, filed as an exhibit to the Company's Annual Report on
Form 10-K filed on April 15, 2003, and incorporated herein by
reference.
37
Exhibit Description of Exhibit
------- ----------------------
10.25 Form of Note Agreement dated July 3, 2003, filed as an exhibit to the
Company's Form 8-K filed July 30, 2003 and incorporated by reference
herein.
10.26 Form of 12% Convertible Subordinated Note, filed as an exhibit to the
Company's Form 8-K filed July 30, 2003 and incorporated by reference
herein.
10.27 Form of Warrant Agreement, filed as an exhibit to the Company's Form
8-K filed July 30, 2003 and incorporated by reference herein.
10.28 Registration Rights Agreement dated July 3, 2003, filed as an exhibit
to the Company's Form 8-K filed July 30, 2003 and incorporated by
reference herein.
10.29 Warrant for the purchase of 1,834,375 shares of Common Stock issued to
Odyssey Capital, LLC, filed as an exhibit to the Company's Form 8-K/A
filed August 8, 2003 and incorporated by reference herein.
23.1* Consent of Grant Thornton LLP
23.2* Consent of Haynes and Boone, LLP (included in their opinion filed as
Exhibit 5.1)
24.1* Power of Attorney of officers and directors of TeraForce Technology
Corporation (included on signature page hereto)
---------
* Filed herewith.
** Management contract or other compensatory plan or arrangement.
38
ITEM 17. UNDERTAKINGS
1. 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 registrant's Amended and Restated
Certificate Incorporation 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 of 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.
2. The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, 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 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 (i) and (ii) will not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment that contains a form of
prospectus that contains a form of prospectus 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;
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.
39
For the purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
40
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
TERAFORCE TECHNOLOGY CORPORATION
(Registrant)
Date: December 3, 2003 By: /s/ HERMAN M. FRIETSCH
----------------------------
Herman M. Frietsch
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and
directors of TeraForce Technology Corporation, a Delaware corporation, which is
filing a Registration Statement on Form S-2 with the Commission, Washington,
D.C. 20549 under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), hereby constitute and appoint Herman M. Frietsch and Robert
P. Capps, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign such Registration Statement
and any or all amendments, including post-effective amendments, to the
Registration Statement, including a Prospectus or an amended Prospectus therein
and in any registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act and all other
documents in connection therewith to be filed with the Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact as agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons and in the
capacities and on the dates indicated.
/s/ HERMAN M. FRIETSCH December 3, 2003
--------------------------------------------
Herman M. Frietsch
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ ROBERT P. CAPPS December 3, 2003
--------------------------------------------
Robert P. Capps
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ DAVID H. YEDWAB December 3, 2003
--------------------------------------------
David H. Yedwab, Director
41
/s/ ANTON VON AND ZU LIECHTENSTEIN December 3, 2003
--------------------------------------------
Anton von and zu Liechtenstein, Director
/s/ ROBERT E. GARRISON, II December 3, 2003
--------------------------------------------
Robert E. Garrison, II, Director
42
INDEX OF EXHIBITS
Exhibit Description of Exhibit
------- ----------------------
4.1 Form of Registration Rights Agreement between the Company and the
Buyers, dated as of December 22, 1998 filed as an exhibit to the
Company's Form 8-K filed on March 2, 1999 and incorporated by reference
herein.
4.2 Form of Warrant to Purchase Common Stock of Intelect Communications,
Inc. at an exercise price of $2.998 filed as an exhibit to the
Company's Form 8-K filed on March 2, 1999 and incorporated by reference
herein.
4.3 Registration Rights Agreement between the Company and Coastal filed as
an exhibit to the Company's Form 8-K filed on August 18, 1999 and
incorporated by reference herein.
4.4 Registration Rights Agreement among the Company and the Buyers, dated
February 24, 1999, relating to the Series E Convertible Preferred Stock
and warrants filed as an exhibit to the Company's Form 8-K filed on
March 2, 1999 and incorporated by reference herein.
4.5 Form of Warrant to Purchase Common Stock of Intelect Communications,
Inc., relating to the Series E Preferred Stock filed as an exhibit to
the Company's Form 8-K filed on March 2, 1999 and incorporated by
reference herein.
4.6 Form of Amended and Restated Promissory Notes held by officer,
convertible into Common Stock of the Company at a rate of $1.00 per
share filed as an exhibit to the Company's Form 10-K filed on March 30,
2000 and incorporated by reference herein.
4.7 Securities Purchase Agreement dated September 30, 2002 between the
Company and Morton A. Cohn and Fayez Sarofim, filed as an exhibit to
the Company's Form 8-K filed October 21, 2002 and incorporated by
reference herein.
4.8 Registration Rights Agreement dated September 30, 2002 between the
Company and Morton A. Cohn and Fayez Sarofim, filed as an exhibit to
the Company's Form 8-K filed October 21, 2002 and incorporated by
reference herein.
4.9 Form of Amended and Restated Warrant expiring May 31, 2004 with an
exercise price of $0.12 per share, filed as an exhibit to the Company's
Form 8-K filed October 21, 2002 and incorporated by reference herein.
4.10 Form of Warrant expiring October 31, 2004 with an exercise price of
$0.12 per share, filed as an exhibit to the Company's Form 8-K filed
October 21, 2002 and incorporated by reference herein.
4.11 Form of Amended and Restated Warrant expiring December 31, 2003 with an
exercise price of $0.12 per share, filed as an exhibit to the Company's
Form 8-K filed October 21, 2002 and incorporated by reference herein.
4.12 Warrant expiring October 31, 2004 with an exercise price of $0.12 per
share, filed as an exhibit to the Company's Form 8-K/A filed January
15, 2003 and incorporated by reference herein.
Exhibit Description of Exhibit
------- ----------------------
4.13 Amended and Restated Warrant expiring October 31, 2004 with an exercise
price of $0.12 per share, filed as an exhibit to the Company's Form
8-K/A filed January 15, 2003 and incorporated by reference herein.
4.14 Amended and Restated Warrant expiring October 31, 2004 with an exercise
price of $0.12 per share, filed as an exhibit to the Company's Form
8-K/A filed January 15, 2003 and incorporated by reference herein.
4.15 Amended and Restated Warrant expiring December 31, 2003 with an
exercise price of $0.12 per share, filed as an exhibit to the Company's
Form 8-K/A filed January 15, 2003 and incorporated by reference herein.
4.16 Amended and Restated Warrant expiring May 31, 2004 with an exercise
price of $0.12 per share, filed as an exhibit to the Company's Form
8-K/A filed January 15, 2003 and incorporated by reference herein.
4.17 Form of Registration Rights Agreement between the Company and certain
private investors, filed as an exhibit to the Company's Form 8-K/A
filed January 15, 2003 and incorporated by reference herein.
4.18 Exchange Agreement dated April 11, 2002 between the Company and
Coastal, filed as an exhibit to the Company's Form 10-Q filed May 10,
2002 and incorporated herein by reference.
4.19 Exchange Agreement dated April 11, 2002 between the Company and St.
James, filed as an exhibit to the Company's Form 10-Q filed May 10,
2002 and incorporated herein by reference.
4.20 Form of Securities Purchase Agreement dated September 30, 2002 between
the Company and certain private investors, filed as an exhibit to the
Company's Form 8-K/A filed November 13, 2002 and incorporated by
reference herein.
4.21 Form of Registration Rights Agreement dated September 30, 2002 between
the Company and certain private investors, filed as an exhibit to the
Company's Form 8-K/A filed November 13, 2002 and incorporated by
reference herein.
4.22 Form of Warrant expiring March 31, 2007, filed as an exhibit to the
Company's Form 10-K filed April 15, 2003 and incorporated herein by
reference.
4.23 Form of Note Agreement dated July 3, 2003, filed as an exhibit to the
Company's Form 8-K filed July 30, 2003 and incorporated by reference
herein.
4.24 Form of 12% Convertible Subordinated Note, filed as an exhibit to the
Company's Form 8-K filed July 30, 2003 and incorporated by reference
herein.
4.25 Form of Warrant Agreement, filed as an exhibit to the Company's Form
8-K filed July 30, 2003 and incorporated by reference herein.
4.26 Registration Rights Agreement dated July 3, 2003, filed as an exhibit
to the Company's Form 8-K filed July 30, 2003 and incorporated by
reference herein.
Exhibit Description of Exhibit
------- ----------------------
4.27 Warrant for the purchase of 1,834,375 shares of Common Stock issued to
Odyssey Capital, LLC, filed as an exhibit to the Company's Form 8-K/A
filed August 8, 2003 and incorporated by reference herein.
5.1* Form of Opinion of Haynes and Boone, LLP regarding validity of shares
issued.
10.1** Employment Agreement between the Company and Herman Frietsch and
Amendment thereto filed as an exhibit to the Company's Form 10-K filed
on March 30, 2000 and incorporated by reference herein.
10.2** Employment Agreement dated as of January 1, 2001 between the Company
and Eugene Helms filed as an exhibit to the Company's Form 10-K filed
April 15, 2002 and incorporated by reference herein.
10.3 Lease Agreement between Campbell Place One Joint Venture and DNA
Enterprises, dated February 1, 1997 filed as an exhibit to the
Company's Form 10-K filed April 15, 2003 and incorporated by reference
herein.
10.4 Agreement to Form Joint Venture dated August 17, 2001 between the
Company and Singapore Technologies Electronics Limited filed as an
exhibit to the Company's Form 8-K filed September 7, 2001 and
incorporated by reference herein.
10.5 Sharing Agreement dated August 30, 2001 among the Company, Intelect
Network Technologies Company and Intelect Technologies Inc. filed as an
exhibit to the Company's Form 8-K filed September 7, 2001 and
incorporated by reference herein.
10.6 Stockholders Agreement dated August 30, 2001 among the Company,
Intelect Technologies Inc. and Singapore Technologies Electronics
Limited filed as an exhibit to the Company's Form 8-K filed September
7, 2001 and incorporated by reference herein.
10.7 Transition Services Agreement dated August 30, 2001 between the Company
and Intelect Technologies Inc. filed as an exhibit to the Company's
Form 8-K filed September 7, 2001 and incorporated by reference herein.
10.8 Asset Purchase Agreement dated January 11, 2002 among the Company,
Flextronics Design S.D., Inc. and DNA Enterprises, Inc. filed as an
exhibit to the Company's Form 8-K filed January 15, 2002 and
incorporated by reference herein.
10.9 Design / Engineering Services Agreement dated January 11, 2002 between
the Company and Flextronics Design S.D. filed as an exhibit to the
Company's Form 8-K filed January 15, 2002 and incorporated by reference
herein.
10.10 Form of Promissory Note dated June 1, 2001 in favor of Bank One, N.A.
filed as an exhibit to the Company's Form 10-Q filed August 14, 2001
and incorporated by reference herein.
10.11 Business Loan Agreement dated June 1, 2001 between the Company and Bank
One, N.A. filed as an exhibit to the Company's Form 10-Q filed August
14, 2001 and incorporated by reference herein.
Exhibit Description of Exhibit
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10.12 Promissory Note dated November 30, 2001 filed as an exhibit to the
Company's Form 10-K filed April 15, 2002 and incorporated by reference
herein.
10.13 Promissory Note dated December 14, 2001 filed as an exhibit to the
Company's Form 10-K filed April 15, 2002 and incorporated by reference
herein.
10.14 Promissory Note dated February 11, 2002 filed as an exhibit to the
Company's Form 10-K filed April 15, 2002 and incorporate by reference
herein.
10.15** Employment Agreement dated January 1, 2001 between the Company and
Robert P. Capps filed as an exhibit to the Company's Form 10-K filed
April 15, 2002 and incorporated by reference herein.
10.16 Release and Settlement Agreement dated January 19, 2001 between the
Company and Savage Arms, Inc. filed as an exhibit to the Company's Form
10-K filed April 15, 2002 and incorporated by reference herein.
10.17 Settlement and Release Agreement dated March 4, 2002 among the Company,
DNA Enterprises, Inc. and Cadence Design Systems, Inc. filed as an
exhibit to the Company's Form 10-K filed April 15, 2002 and
incorporated by reference herein.
10.18** Amended and Restated Stock Incentive Plan filed as an exhibit to the
Company's Definitive Proxy Statement filed on April 30, 2001 and
incorporated by reference herein.
10.19 Amendment to Credit Agreement dated October 3, 2002 between the Company
and Bank One, NA, filed as an exhibit to the Company's Form 8-K filed
October 21, 2002 and incorporated by reference herein.
10.20 Reimbursement Agreement by and between the Company and O.S. Wyatt, Jr.
dated as of December 30, 2002, filed as an exhibit to the Company's
Form 8-K/A filed January 15, 2003 and incorporated by reference herein.
10.21 Promissory Note dated October 1, 2002, filed as an exhibit to the
Company's Form 8-K/A filed January 15, 2003, and incorporated by
reference herein.
10.22 Reimbursement Agreement dated March 26, 2003, filed as an exhibit to
the Company's Current Report on Form 8-K filed March 28, 2003 and
incorporated herein by reference.
10.23 Loan Agreement dated March 26, 2003 between DNA Computing Solutions,
Inc. and FirstCapital Bank, SSB, filed as an exhibit to the Company's
Annual Report on Form 10-K filed on April 15, 2003, and incorporated
herein by reference.
10.24 Note Modification Agreement dated March 31, 2003 between the Company
and Bank One, NA, filed as an exhibit to the Company's Annual Report on
Form 10-K filed on April 15, 2003, and incorporated herein by
reference.
10.25 Form of Note Agreement dated July 3, 2003, filed as an exhibit to the
Company's Form 8-K filed July 30, 2003 and incorporated by reference
herein.
Exhibit Description of Exhibit
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10.26 Form of 12% Convertible Subordinated Note, filed as an exhibit to the
Company's Form 8-K filed July 30, 2003 and incorporated by reference
herein.
10.27 Form of Warrant Agreement, filed as an exhibit to the Company's Form
8-K filed July 30, 2003 and incorporated by reference herein.
10.28 Registration Rights Agreement dated July 3, 2003, filed as an exhibit
to the Company's Form 8-K filed July 30, 2003 and incorporated by
reference herein.
10.29 Warrant for the purchase of 1,834,375 shares of Common Stock issued to
Odyssey Capital, LLC, filed as an exhibit to the Company's Form 8-K/A
filed August 8, 2003 and incorporated by reference herein.
23.1* Consent of Grant Thornton LLP
23.2* Consent of Haynes and Boone, LLP (included in their opinion filed as
Exhibit 5.1)
24.1* Power of Attorney of officers and directors of TeraForce Technology
Corporation (included on signature page hereto)
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* Filed herewith.
** Management contract or other compensatory plan or arrangement.