PROSPECTUS
2,994,049 Shares
[LOGO]
Common Stock
The shares (the "Shares") of Common Stock, $.001 par value
(including preferred stock purchase rights) (the "Common Stock") of
Illinois Superconductor Corporation (the "Company") covered by this
Prospectus may be sold from time to time by stockholders specified
in this Prospectus or their pledgees, donees, transferees or other
successors in interest (the "Selling Stockholders"). See "Selling
Stockholders." Of the Shares to which this Prospectus relates,
1,150,651 are shares (the "Warrant Shares") which may in the future
be issued to the Selling Stockholders upon the exercise of certain
outstanding warrants held by Selling Stockholders (the "Warrants").
The Company will not receive any of the proceeds from the sale of
the Shares by the Selling Stockholders, but the Company will
receive the proceeds from the exercise of any Warrants by Selling
Stockholders.
The Common Stock is traded on the Nasdaq National Market (the
"NNM") under the symbol "ISCO." On May 8, 1996, the closing price
of the Common Stock as reported on the NNM was $25.25 per share.
The Selling Stockholders may, from time to time, sell the Shares on
the NNM, 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. See "Plan of Distribution."
See "Risk Factors" beginning on page 4 for information that should
be considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is May 9, 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other
information concerning the Company may be inspected and copied at
the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained upon written request addressed
to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Common
Stock is traded on the NNM, and reports, proxy statements and other
information concerning the Company can be inspected at the offices
of The Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement
on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby
made to the Registration Statement which may be inspected and
copied in the manner and at the sources described above. Any
statements contained herein concerning the provisions of any
document filed as an Exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete
and, in each instance, reference is made to the copy of such
document so filed. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995;
2. The Company's Quarterly Report on Form 10-Q, for the fiscal
quarter ended March 31, 1996;
3. The Company's Current Reports on Form 8-K, filed February 12,
1996, February 27, 1996 and March 29, 1996;
4. The Company's Report on Form 10-C dated February 26, 1996;
5. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed August 23, 1993 pursuant
to Section 12 of the Exchange Act and all amendments thereto and
reports filed for the purpose of updating such description; and
6. The description of the preferred stock purchase rights contained
in the Company's Registration Statement on Form 8-A filed February
12, 1996 pursuant to Section 12 of the Exchange Act and all
amendments thereto and reports filed for the purpose of updating
such description.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering made
hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in any
subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a
copy of this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents
incorporated herein by reference (other than exhibits thereto,
unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Written
or telephone requests for such copies should be directed to the
Company's principal executive office: Illinois Superconductor
Corporation, 451 Kingston Court, Mt. Prospect, Illinois 60056,
Attention: Secretary (telephone: (847) 391-9400).
RISK FACTORS
An investment in the Shares offered hereby entails a high degree of
risk. In addition to other information contained in this
Prospectus or incorporated by reference herein, potential
purchasers should consider carefully the following factors in
evaluating the Company, its business and the Shares offered hereby.
Statements contained in this Prospectus that are not historical
facts are forward looking statements that are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. See the Company's Current Report on Form 8-K, dated
March 29, 1996 for the important factors which could cause the
Company's actual results for 1996 and beyond to differ materially
from those expressed in any forward looking statements made by, or
on behalf of, the Company.
Development Stage of the Company and its Superconducting Electronic
Products
The Company was founded in October 1989 and to date has been
engaged principally in R&D activities. Substantially all of the
Company's revenues to date have been derived from R&D contracts.
The Company's potential wireless telecommunications products have
not been manufactured or sold in commercial quantities. There can
be no assurance that these products will perform the desired
functions, will operate reliably on a long-term basis or otherwise
be technically successful, that the Company will be able to
manufacture adequate quantities of any products it develops at
commercially acceptable costs or on a timely basis or that any of
the Company's potential products will achieve market acceptance.
Failure to successfully develop, manufacture and commercialize
products on a timely and cost-effective basis will have a material
adverse effect on the Company's business, operating results and
financial condition.
History of Losses; Accumulated Deficit; and Uncertainty of
Financial Results
The Company has incurred net losses in each year since its
inception and as of March 31, 1996 had an accumulated deficit of
$17,494,129. The Company expects to continue to incur operating
losses through the end of 1996 as it continues to devote
significant financial resources to its product development and
manufacturing scale-up activities. Even if the Company is able to
overcome the significant technological, manufacturing and marketing
hurdles necessary to commercialize its high temperature
superconducting ("HTS") products, the Company does not expect to
generate material revenues from operations for at least three
months with respect to any of its HTS products for the cellular
telecommunications market. Moreover, there can be no assurance
that any of the Company's HTS products for any of its commercial
markets will ever generate any revenues. There can be no assurance
that any of the Company's products will be manufactured, introduced
or marketed successfully, or that the Company will ever achieve a
profitable level of operations or, if profitability is achieved,
that it can be sustained.
Patents and Proprietary Rights
The Company's success will depend in part on its ability to obtain
patent protection for its products and processes, to preserve its
trade secrets and to operate without infringing the patent and
other proprietary rights of others and without breaching or
otherwise losing rights in the technology licenses upon which any
Company products are based. The Company has been issued five
United States patents, purchased two United States patents from
another company and has filed and is actively pursuing applications
for seventeen other United States patents, and is the licensee of
eleven patents and patent applications held by others, including
ARCH Development Corporation ("ARCH") and Northwestern University.
The Company believes that, since the discovery of HTS materials in
1986, several thousand patent applications have been filed
worldwide and over a thousand patents have been granted in the
United States relating to HTS materials. The claims in those
patents often appear to overlap and there are interference
proceedings pending in the United States Patent and Trademark
Office ("PTO") (not currently involving the Company) regarding
rights to inventions claimed in some of the HTS materials patent
applications. Accordingly, the patent positions of companies using
HTS materials technology, including the Company, are uncertain and
involve complex legal and factual questions. No assurance can be
given that the patent applications filed by the Company or by the
Company's licensors will result in issued patents or that the scope
and breadth of any claims allowed in any patents issued to the
Company or its licensors will exclude competitors or provide
competitive advantages to the Company. In addition, there can be
no assurance that any patents issued to the Company or its
licensors will be held valid if subsequently challenged or that
others will not claim rights in the patents and other proprietary
technology owned or licensed by the Company or that others have not
developed or will not develop similar products or technology
without violating any of the Company's proprietary rights.
Furthermore, the Company's loss of any license to technology that
it now has or acquires in the future may have a material adverse
impact on the Company.
Some of the patents and patent applications owned or licensed by
the Company are subject to non-exclusive, royalty-free,
confirmatory licenses held by various governmental agencies or
other entities including, but not necessarily limited to, the
United States Department of Energy, the United States Army and the
United States Air Force. These licenses permit the United States
government agencies or other governmental entities to select
vendors other than the Company to produce products for the United
States Government which would otherwise infringe the Company's
patent rights which are subject to the royalty-free licenses. In
addition, the United States Government has the right to require the
Company to grant licenses (including exclusive licenses) under such
patents and patent applications or other inventions to a third
party if the United States Government determines that (i) adequate
steps have not been taken to commercialize such inventions,
(ii) such action is necessary to meet public health or safety
needs, (iii) such action is necessary to meet requirements for
public use under federal regulations, or (iv) such action is
necessary because the Company has not exercised reasonable efforts
to ensure products manufactured pursuant to such invention are
manufactured in the United States.
Patent applications in the United States are currently maintained
in secrecy until patents issue and patent applications in foreign
countries are maintained in secrecy for a period of time after
filing. Accordingly, publication of discoveries in the scientific
literature or of patents themselves or laying open of patent
applications in foreign countries tends to lag behind actual
discoveries and filing of related patent applications. Due to this
factor and the large number of patents and patent applications
related to HTS materials, comprehensive patent searches and
analysis associated with HTS materials are often impractical or not
cost-effective. As a result, the Company's patent and literature
searches, though extensive, cannot fully evaluate the patentability
of the claims in the Company's patent applications or whether
materials or processes used by the Company for its planned products
infringe or will infringe upon existing technology described in
United States patents or may infringe upon claims of patent
applications made available in the future. Because of the volume
of patents issued and patent applications filed relating to HTS
materials, the Company believes there is a significant risk that
current and potential competitors and other third-parties have
filed or will file patent applications for, or have obtained or
will obtain, patents or other proprietary rights relating to
materials or processes used or proposed to be used by the Company.
In any such case, to avoid an infringement, the Company would have
to either license such technology or design around any such
patents. Based on commercial practices in other industries, the
Company believes that licenses under patents covering the HTS
materials critical to the Company's operations would probably be
available, but the terms of such licenses may vary considerably.
However, there can be no assurance that the Company will be able to
obtain licenses to such technology or that, if obtainable, such
licenses would be available on terms acceptable to the Company or
that the Company could successfully design around these third-party
patents.
Litigation, which could result in substantial cost to and diversion
of effort by the Company, may be necessary to enforce patents
issued or licensed to the Company, to defend the Company against
infringement claims made by others or to determine the ownership,
scope or validity of the proprietary rights of the Company and
others. An adverse outcome in any such litigation could subject
the Company to significant liabilities to third parties, require
the Company to seek licenses from third parties and/or require the
Company to cease using certain technology, any of which could have
a material adverse effect on the Company's business, results of
operations and financial condition. The Company may also become
involved in interference proceedings declared by the PTO in
connection with one or more of the Company's owned or licensed
patents or patent applications to determine priority of invention.
Any such proceeding could result in substantial cost to the
Company, as well as a possible adverse decision as to priority of
invention of the patent or patent application involved and
potential loss of rights to the patent or patent application. In
addition, the Company may become involved in reissue or
reexamination proceedings in the PTO in connection with the scope
or validity of the Company's owned or licensed patents. Any such
proceeding could have a material adverse effect on the Company, and
an adverse outcome in such proceeding could result in a reduction
of the scope of the claims of any such patents or such patents
being declared invalid. In addition, from time to time, to protect
its competitive position, the Company may initiate reexamination
proceedings in the PTO with respect to patents owned by others.
Such a proceeding could result in substantial cost to and diversion
of effort by the Company and an adverse decision in such a
proceeding could have a material adverse effect on the Company.
The Company believes that a number of patent applications,
including applications filed by International Business Machines
Corporation ("IBM"), AT&T and other potential competitors of the
Company are pending that are likely to cover the useful
compositions and uses of certain HTS materials including yttrium
barium copper oxide ("YBCO"), the principal HTS material used by
the Company in its present and currently proposed products. The
Company believes that YBCO has the critical temperature, physical
strength parameters, residual alternating current resistance, ease
of fabrication and adaptability to substrates required for use in
the Company's potential commercial products. The Company believes
such materials are and will be available in the quantities and at
the costs necessary to produce its products on a commercial basis,
although no assurance to this effect can be given. The Company's
YBCO-based superconductor products could become obsolete or cost
ineffective or customers may choose other products for reasons
unknown. The Company also understands that a number of patent
applications are or may become the subject of interference
proceedings in the PTO. Therefore, there is a substantial risk
that one or more third parties will be granted patents covering
YBCO and other HTS materials and their uses, in which case the
Company could not use these materials without an appropriate
license. As with other patents, the Company has no assurance that
it will be able to obtain licenses to any such patents for YBCO or
other HTS materials or their uses or that such licenses would be
available on commercially reasonable terms. Any of these problems
would have a material adverse effect on the Company's business,
results of operations and financial condition.
Intense Competition
The wireless telecommunications equipment market is very
competitive. The Company's products under development will compete
directly with products which embody existing and subsequently
developed competing commercial technologies. In particular, in
cellular telecommunications applications, the Company will
immediately compete with conventional RF component manufacturers
whose products are currently in use by the Company's potential
customers. Many of these companies have substantially greater
financial resources, larger R&D staffs and greater manufacturing
and marketing capabilities than the Company. Failure of the
Company's potential products to improve performance sufficiently or
to do so at an acceptable price or to achieve commercial acceptance
or otherwise compete with conventional technologies will have a
material adverse effect on the Company's business, results of
operations and financial condition.
Although the market for superconductive electronics currently is
small and in the early stages of development, the Company believes
it will become intensely competitive, especially if products with
significant market potential are successfully developed. In
addition, if the superconducting industry develops, additional
competitors with significantly greater resources are likely to
enter the field. The Company's ability to compete successfully
will require it to develop and maintain technologically advanced
products, attract and retain highly qualified personnel, obtain
patent or other protection for its technology and products and
manufacture and market its products, either alone or with third
parties. There can be no assurance that the Company will be able
to achieve these objectives. Failure to do so would have a
material adverse effect on the Company's business, operating
results and financial condition. Furthermore, the Company's
potential products, if successfully developed, will compete
directly with other existing and subsequently developed products
using competing technologies. There can be no assurance that the
Company's competitors will not succeed in developing or marketing
technologies and products that are more effective and commercially
desirable than these developed or marketed by the Company or that
would render the Company's technology and products non-competitive.
Failure of the Company's potential products to compete successfully
with products using competing technologies will have a material
adverse effect on the Company's business, operating results and
financial condition.
Rapid Technological Change and Possible Pursuit of Other Market
Opportunities
The field of superconductivity is characterized by rapidly
advancing technology. The future success of the Company will
depend in large part upon its ability to keep pace with advancing
superconducting technology and industry standards. Rapid changes
have occurred, and are likely to continue to occur, in the
development of superconducting materials and processes. The
Company will have to continue to improve its ability to fabricate
thick-film HTS devices, design high performance RF filters, design
efficient cryogenic subsystems, and to make commercial quantities
of products based on these improvements. There can be no assurance
that the Company's development efforts will not be rendered
obsolete by research efforts and technological advances made by
others or that other materials, including other superconducting
materials or advances in conventional materials such as electrical
dielectric materials, will not prove more advantageous for the
commercialization of high performance wireless products than the
materials selected by the Company.
Because HTS product development is a new and emerging field, there
may in the future be new opportunities that are more attractive
than the opportunities initially identified by the Company for its
targeted markets. As a result, there is no assurance that the
Company will not elect in the future to commit its resources to
such other potentially more attractive market opportunities. Such
election may require the Company to limit or abandon its current
focus on developing, manufacturing and marketing HTS products for
the cellular telephone and other wireless telecommunications
markets. The risks associated with other markets may be different
from the risks associated with the cellular telephone and other
wireless telecommunications markets.
Focus on Cellular Telecommunications Business; Current and Future
Competitive Technologies
The Company has selected the cellular telecommunications industry
as the first principal target market for its HTS thick-film
products. The devotion of substantial resources to the cellular
telecommunications market makes the Company vulnerable to adverse
changes in this market. Any adverse developments in the cellular
telecommunications market during the foreseeable future would
likely have a material adverse impact on the Company.
Adverse developments in the cellular telecommunications market
could come from a variety of sources, including future competition.
Future competition to cellular telephone systems from new
technologies may come from several sources. New technologies and
regulatory proposals potentially could affect the competitive
position of cellular systems. At present, the most prominent new
technology comprises personal communications systems ("PCS"). The
term PCS includes a variety of wireless communications systems
which currently are primarily suited for use in densely populated
areas.
Applicants have received, and others are seeking, Federal
Communications Commission (the "FCC") authorization to construct
and operate a global satellite network to provide world-wide mobile
communications services from low earth orbit satellites. The FCC
also has recently adopted rules that provide preferential licensing
treatment for parties that develop new communications services and
technologies. These developments and further technological
advances may make available other alternatives to cellular service,
thereby creating additional sources of competition.
Although the Company may choose to provide products to these
competitive communications systems, there can be no assurance that
competition to cellular technologies will not adversely affect the
market for the Company's planned products, or result in changes in
the Company's development and manufacturing programs.
Reliance on Collaborative Relationships
The Company has established and will seek to establish
collaborative arrangements with government agencies, public and
private research institutions and corporate partners to support its
development program and leverage its development and manufacturing
resources. The Company also plans to pursue collaborative
arrangements with market leaders to develop, manufacture and market
superconductive wireless products in those markets. The Company's
future success will depend in large part on its collaborative
arrangements with third parties, their strategic interest in the
potential products under development and, eventually, their success
in marketing or willingness to purchase any such products. These
programs may require the Company to share control over its
development, manufacturing and marketing programs, limit its
ability to license its technology to others, relinquish rights to
its technology or restrict its ability to engage in certain areas
of product development, production and marketing. These programs
may also be subject to unilateral termination by the Company's
collaborative partners without cause or default and without an
ability to cure any defaults. The Company's existing collaborative
arrangements generally permit, and future arrangements also may
permit, the Company's partners to use or disclose the technology
developed in the programs without any royalty obligation, to the
extent that the technology is jointly developed. Accordingly, the
Company may compete with its partners (and others to whom
disclosure may be made) for commercial sales of any products
developed in these arrangements. There can be no assurance that
the Company will be able to enter into collaborative arrangements
on commercially reasonable terms, that these arrangements, if
established, will result in successful programs to develop,
manufacture or market superconductive wireless products or that, if
those programs are successful, the Company's collaborative partners
will not seek to manufacture jointly developed products themselves
or obtain them from alternative sources.
Future Capital Needs
To date, the Company has financed its operations primarily through
equity and debt financings that have raised approximately $34.2
million. Although the Company believes that it has sufficient
funds to finance the Company's operations as planned for at least
the next twelve months, the Company expects that it will require
funds to finance its product development, manufacturing and
marketing activities thereafter. There can be no assurance that
such funds will be available, or available on terms satisfactory to
the Company. If additional funds are raised by issuing equity
securities, further dilution to existing or future stockholders is
likely to result. If adequate funds are not available on
acceptable terms when needed, the Company may be required to delay,
scale-back or eliminate manufacturing and marketing of one or more
of its products or research or development programs or obtain funds
through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its
technologies, product candidates or potential products that the
Company would not otherwise relinquish. Inadequate funding also
could impair the Company's ability to compete in the marketplace
and could result in its dissolution. The Company regularly
examines opportunities to expand its technology base and product
line through means such as licenses, joint ventures and acquisition
of assets or ongoing businesses and may issue securities in
connection with such transactions. However, no commitments to
enter into or pursue any such transaction have been made at this
time and there can be no assurance that any such discussions will
result in any such transaction being concluded.
Manufacturing and Marketing
For the Company to be financially successful, it must manufacture
the products developed by it in commercial quantities, at
acceptable costs and on a timely basis. Although the Company has
produced small quantities of products for use in development and
customer field trial programs, production of large quantities at
competitive costs presents a number of technological and
engineering challenges for the Company, and there can be no
assurance that the Company will be able to manufacture such
products in high volume. The Company has little experience in
manufacturing, and significant start-up costs and unforeseen
expenses may be incurred in connection with attempts to manufacture
commercial quantities of the Company's products. No assurance can
be given that the Company will be able to make the transition to
commercial production successfully.
In addition, the Company will be required to develop a marketing
and sales force that will effectively demonstrate the advantages of
its products over more traditional products, as well as competitive
superconductive products. The Company's marketing and selling
experience to date is very limited. The Company may also elect to
enter into agreements or relationships with third parties regarding
the commercialization or marketing of its products. If the Company
enters into such agreements or relationships, it will be
substantially dependent upon the efforts of others in deriving
commercial benefits from its products. There can be no assurance
that the Company will be able to establish adequate sales and
distribution capabilities, that it will be able to enter into
marketing agreements or relationships with third parties on
financially acceptable terms or that any third parties with whom it
enters into such arrangements will be successful in marketing the
Company's products.
Dependence on Key Personnel
The Company's success will depend in large part upon its ability to
attract and retain highly qualified R&D, management, manufacturing,
marketing and sales personnel. Due to the specialized nature of
the Company's business, it may be difficult to locate and hire
qualified personnel. The loss of services of key personnel, or the
failure of the Company to attract and retain other key personnel,
would have a material adverse impact on the Company.
Market for the Company's Securities and Possible Volatility of
Share Prices
The market price of the Company's Common Stock, like that of many
other high-technology companies, has fluctuated significantly and
is likely to continue to fluctuate in the future. Announcements by
the Company or others regarding the receipt of customer orders,
changes in recommendations of securities analysts, results of
customer field trials, timing of product shipments, scientific
discoveries, technological innovations, litigation, product
developments, patents or proprietary rights, government regulation,
and general market conditions may have a significant impact on the
market price of the Common Stock.
In connection with the Registration Statement, of which this
Prospectus is a part, 2,994,048 Shares are being registered by the
Company for resale. The increase in the number of outstanding
shares of Common Stock that are available for sale without
restriction due to the registration of the Shares and the
perception that a substantial number of the Shares may be sold by
Selling Stockholders, or the actual sale of a substantial number of
the Shares by Selling Stockholders, could adversely affect the
market price of the Common Stock.
Outstanding Stock Options and Warrants
As of May 2, 1996, the Company had outstanding options to purchase
594,990 shares of Common Stock at a weighted average exercise price
of $10.97 per share (the majority of which have not yet vested)
issued to employees, former employees, directors and consultants
pursuant to the Company's Amended and Restated 1993 Stock Option
Plan and individual agreements with management and directors of the
Company and Warrants to purchase 1,150,651 shares of the Company's
Common Stock at a weighted average exercise price of $9.58 per
share.
The Company may issue additional capital stock, warrants and/or
options to raise capital in the future. In order to attract and
retain key personnel, the Company may also issue additional
securities, including stock options, in connection with its
employee benefit plans. During the terms of such options and
warrants, the holders thereof are given the opportunity to benefit
from a rise in the market price of the Common Stock. The exercise
of such options and warrants may have an adverse effect on the
market value of the Common Stock. Also, the existence of such
options and warrants may adversely affect the terms on which the
Company can obtain additional equity financing.
Dilution and Dividend Policy
The exercise of any of the currently outstanding warrants or stock
options would likely result in a dilution of the value of the
Shares. Moreover, the Company may sell additional securities
and/or rights to purchase such securities at any time in the
future. Dilution of the value of the Shares would likely result
from such sales.
In addition, the Company may determine to grant additional stock
options or other forms of equity-based incentive compensation to
the Company's management and/or employees to attract and retain
such personnel. The Company also may in the future offer equity
participation in connection with the obtaining of non-equity
financing, such as debt or leasing arrangements accompanied by
warrants to purchase equity securities of the Company. Any of
these actions could have a dilutive effect upon the holders of the
Shares.
The Company has never paid a cash dividend on its Common Stock and
does not expect to pay dividends in the foreseeable future.
Anti-Takeover Provisions
On February 9, 1996, the Board of Directors of the Company adopted
a shareholders rights plan (the "Rights Plan"). By causing
substantial dilution to a person or group that attempts to acquire
the Company on terms not approved by the Company's Board of
Directors, the Series A Rights and Series B Rights of the Rights
Plan may interfere with certain acquisitions, including
acquisitions that may offer a premium over market price to some or
all of the Company's shareholders. Further, certain provisions of
the Company's Certificate of Incorporation and Bylaws may be deemed
to have a potential "anti-takeover" effect in that such provisions
may also delay, defer or prevent a change of control of the
Company. These provisions include (a) a requirement that
stockholder action may be taken only at stockholder meetings;
(b) the authority of the Board of Directors to issue series of
Preferred Stock with such voting rights and other powers as the
Board of Directors may determine; (c) notice requirements in the
Bylaws relating to nominations to the Board of Directors and to the
raising of business matters at stockholders meetings; and (d) the
classification of the Board of Directors into three classes, each
serving for staggered three year terms.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Shares by the Selling Stockholders. If and when any of the
Warrants are exercised and Warrant Shares are issued to the Selling
Stockholders, the Company will receive the proceeds from the sale
of such Warrant Shares to the Selling Stockholders. If all of the
Warrants are exercised, the Company will receive $11,020,717. Such
amount is intended to be used by the Company for working capital
and other general corporate purposes, including funding of its
product development, manufacturing and marketing activities.
SELLING STOCKHOLDERS
The following table sets forth, as of March 25, 1996, certain
information regarding the beneficial ownership of the outstanding
Common Stock by each Selling Stockholder, including the Warrant
Shares which such Selling Stockholders may acquire upon exercise of
Warrants, both before the offering of the Shares and as adjusted to
reflect the sale of the Shares. Except where otherwise noted, each
person named in the following table has, to the knowledge of the
Company, sole voting and investment power with respect to the
shares beneficially owned.
Beneficial
Ownership
after Offering (2)
___________________
Beneficially Number of
Name of Selling Owned Prior Shares Being Number of
Stockholder to Offering Offered(1) Shares Percent
_________________ ____________ ____________ _________ _______
Allen & Company 10,000 10,000 - -
ARCH Venture Fund
Limited Partnership
(AVFLP) 160,078 (3) 160,078 - -
AT&T Corp. 45,000 45,000 - -
Batterson Johnson
& Wang L.P. (BJW) 598,018 (4) 598,018 - -
Michael Berger 600 600 - -
Richard Binder 20,000 (5) 20,000 - -
Gerhard Cless 25,800 25,800 - -
Lorelei Cole 18,000 (6) 18,000 - -
Cranshire
Capital, L.P. 4,600 4,600 - -
Sheldon Drobny 364,225 (7) 272,085 92,140 2.0
Drobny/Fischer
General
Partnership 56,402 (8) 56,402 - -
Irving Drobny 3,900 (9) 1,400 2,500 *
Evanston Business
Investment
Corporation 13,625 13,625 - -
Evanston
Northwestern
University
Investment
Partners, L.P. 13,595 (10) 13,595 - -
Fairfax County
Public School 15,000 15,000 - -
Aaron Fischer 272,212 (11) 230,792 41,420 1.0
Mark Frank 11,400 (12) 11,400 - -
Herman and Eileen
Friedman 17,000 (13) 17,000 - -
Howard Gelber 18,400 (14) 11,400 7,000 *
Gilford Partners,
L.P. 20,700 20,700 - -
Jeffrey Michael
Goby 17,000 (15) 17,000 - -
Arthur S. Gold 12,000 (16) 10,000 2,000 *
David S.
Goldberg
Family Trust 1,975 1,975 - -
Phillip C.
Goldstick
Revocable Trust 21,975 (17) 21,975 - -
Sharon D. Gonsky
d/b/a SDG
Associates 31,000 (18) 31,000 - -
Gordon Barlow
Design Pension
Plan and Trust 11,400 (19) 11,400 - -
Randall S.
Goulding 26,800 (20) 26,800 - -
Richard E.
Goulding and
Associates
Profit Sharing
Plan 2,992 2,992 - -
Richard Green 27,775 (21) 11,200 16,575 *
Jonathan Greenwald 1,400 1,400 - -
Gruntal & Co.,
Incorporated 100,000 (22) 100,000 - -
Rose Haddad 4,600 4,600 - -
Steven Helfand 2,300 2,300 - -
John W. Higgins 10,000 (23) 10,000 - -
Nancy J. Hoffman 8,700 4,200 4,500 *
Jim Holmes 3,400 1,400 2,000 *
Howard Todd Horberg 7,100 4,600 2,500 *
Illinois Department
of Commerce
and Community
Affairs (DCCA) 405,944 (24) 405,944 - -
Noel Incavo 1,400 1,400 - -
Stanley Jonas 37,468 (25) 37,468 - -
Peter Kamberos 600 600 - -
Ira Kaufman IRA 5,000 5,000 - -
Barry Kissler 1,300 1,300 - -
Gerald Kissler 1,300 1,300 - -
Glenn Kissler 1,300 1,300 - -
Sol and Tamar
Klipstein 10,600 (26) 10,600 - -
John Kosowski 1,266 1,266 - -
Jay D. Kranzler 2,000 2,000 - -
Richard D. Kushnir 12,700 (27) 12,700 - -
Sandra H. Laven 1,200 1,200 - -
Fred LeVine 33,767 (28) 16,300 17,467 *
Steven Levy 12,800 12,800 - -
Arthur Liss 20,000 (29) 20,000 - -
Irwin and Sheri
Mandel (30) 4,250 600 3,650 *
Stephen S.
Mathison 1,000 1,000 - -
Merrill Weber &
Co., Inc. 13,000 (31) 13,000 - -
Dr. Marc A. Miller 600 600 - -
Mont Clare Animal
Hospital Profit
Sharing Trust 8,260 (32) 5,600 2,660 *
Montgomery County
Employee Ret. Syst. 20,000 20,000 - -
Henry L. Nadler
and Karen Harty (33) 1,000 1,000 - -
Steven B. Nagler 600 600 - -
Sy Nagorsky 12,450 (34) 12,450 - -
Robert and Annette
Niedelman (35) 1,000 1,000 - -
Newell Company 20,000 20,000 - -
Shawn O'Keefe 3,000 1,000 2,000 *
Melvin A. Olshansky 2,400 2,400 - -
Arthur M. Olson II 10,600 (36) 10,600 - -
Option Consultation,
Inc. 900 900 - -
Thomas A.
Patrevito 1,266 1,266 - -
Donald Petkus 1,000 1,000 - -
Mark Pritikin 20,000 (37) 11,000 9,000 *
Proper Service
Retirement Plan 11,200 (38) 11,200 - -
Alon Redlich 1,100 600 500 *
Carol Reed 1,000 1,000 - -
Rice Asset
Management L.P. 8,400 8,400 - -
Gregg Rosenberg 21,300 (39) 21,300 - -
Stacey Rosenberg 21,300 (40) 21,300 - -
Joseph Rosin 2,434 2,434 - -
Charles A.
Rossi, Jr. 1,200 1,200 - -
Gregory Sachs 17,728 (41) 17,658 70 *
Samuelson/Smith 21,500 21,500 - -
Jerome Schachter 11,200 (42) 11,200 - -
Karen L. Schmidt 20,000 (43) 20,000 - -
Scott Partners L.P. 4,200 4,200 - -
Jerome P. Seiden
Revocable Trust 1,300 1,300 - -
Scott Seminer 900 900 - -
George T. Shapland 2,500 2,500 - -
Lawrence A. Sherman 600 600 - -
Stewart A. Shiman 291,697 (44) 271,697 20,000 *
Craig M. Siegler 105,940 (45) 85,428 20,512 *
Howard L. "Buzz"
Simons, Aric
Simons and Corey
Simons 74,444 (46) 69,444 5,000 *
Aric and Corey
Simons 2,000 (47) 2,000 - -
Semir D. Sirazi 35,000 (48) 35,000 - -
Marty Spector 500 500 - -
Mark Telpner 1,000 1,000 - -
Michael Weingrad
Declaration of Trust 1,266 1,266 - -
Burton Jay Weisberg 31,600 (49) 19,900 11,700 *
Sheldon and Faye
Weiss (50) 1,000 1,000 - -
Thomas J. Wienckoski 1,200 1,200 - -
Dr. Allen Zelinger 500 500 - -
Robb W. Zerfass 23,000 (51) 13,000 10,000 *
Ronald Zweig 24,695 (52) 19,695 5,000 *
- ----------------------------
* Less than 1%
(1) Represents the maximum number of Shares that may be sold by
each of the Selling Stockholders pursuant to this Prospectus.
(2) Assumes the Selling Stockholders sell all of their Shares
pursuant to this Prospectus. The Selling Stockholders may sell all
or part of their Shares.
(3) Includes 52,288 Shares issuable upon exercise of Warrants
presently exercisable. Steven Lazarus serves as the managing
director of ARCH Venture Partners L.P. and has been granted power
of attorney to act in the name of and for ARCH Development
Corporation ("ADC") with respect to certain matters concerning
ADC's role as general partner of AVFLP. He is Chairman of the
Company's Board of Directors.
(4) Includes 221,515 Shares issuable upon exercise of Warrants
presently exercisable. Leonard Batterson, Managing General Partner
of BJW, is a director of the Company.
(5) Includes 10,000 Shares issuable upon exercise of Warrants
presently exercisable.
(6) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(7) Includes 144,720 Shares issuable upon exercise of Warrants
presently exercisable. Includes 51,402 Shares held by
Drobny/Fischer General Partnership ("DFGP") and includes 5,000
Shares issuable upon exercise of Warrants presently exercisable and
held by DFGP. Mr. Drobny is a partner of DFGP and in such capacity
he shares voting and investment power with respect to shares held
by DFGP and, therefore, may be deemed the beneficial owner of
Shares directly held by DFGP.
(8) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(9) Includes 2,500 Shares held by Foreman and Drobny Limited
Pension and Profit Sharing Trust (the "Foreman and Drobny Trust").
Mr. Drobny has sole voting and investment power with respect to
shares held by the Foreman and Drobny Trust and, therefore, may be
deemed beneficial owner of shares held directly by the Foreman and
Drobny Trust.
(10) Includes 13,595 Shares issuable upon exercise of Warrants
presently exercisable.
(11) Includes 113,001 Shares issuable upon exercise of Warrants
presently exercisable. Includes 51,402 Shares held by DFGP and
includes 5,000 Shares issuable upon exercise of Warrants presently
exercisable and held by DFGP. Mr. Fischer is a partner of DFGP and
in such capacity he shares voting and investment power with respect
to shares held by DFGP and, therefore, may be deemed the beneficial
owner of shares directly held by DFGP.
(12) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(13) Mr. and Mrs. Friedman hold their Shares as joint tenants.
Includes 7,500 Shares issuable upon exercise of Warrants presently
exercisable.
(14) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable. Includes 1,000 Shares held by Howard Gelber
IRA. Mr. Gelber has sole voting and investment power with respect
to shares held by Howard Gelber IRA and, therefore, may be deemed
beneficial owner of shares held directly by Howard Gelber IRA.
(15) Includes 7,500 Shares issuable upon exercise of Warrants
presently exercisable.
(16) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable. Includes 1,000 Shares held by Arthur Gold
IRA. Mr. Gold has sole voting and investment power with respect to
shares held by Arthur Gold IRA and, therefore, may be deemed
beneficial owner of shares held directly by Arthur Gold IRA.
(17) Includes 10,000 Shares issuable upon exercise of Warrants
presently exercisable.
(18) Includes 15,000 Shares issuable upon exercise of Warrants
presently exercisable.
(19) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(20) Includes 13,400 Shares issuable upon exercise of Warrants
presently exercisable.
(21) Includes 2,500 Shares issuable upon exercise of Warrants
presently exercisable. Includes 5,760 Shares held by Mont Clare
Animal Hospital Profit Sharing Trust ("Mont Clare Trust") and 2,500
Shares issuable upon exercise of Warrants presently exercisable and
held by Mont Clare Trust. Mr. Green is trustee of the Mont Clare
Trust and in such capacity he has sole voting and investment power
with respect to shares held by Mont Clare Trust and, therefore, may
be deemed beneficial owner of shares held directly by Mont Clare
Trust. Includes 4,000 shares held by Mont Clare Animal Hospital
(the "Hospital"). Mr. Green is owner of the Hospital and in such
capacity he has sole voting and investment power with respect to
shares held by the Hospital and, therefore, may be deemed
beneficial owner of shares held directly by the Hospital. Includes
3,700 shares held by the Cassie Green Trust and 2,475 shares held
by the Cori Green Trust (the "Children's Trusts"). Mr. Green is
trustee of these Children's Trusts and in such capacity he has sole
voting and investment power with respect to shares held by the
Children's Trusts and, therefore, may be deemed beneficial owner of
shares held directly by the Children's Trusts.
(22) Includes 100,000 Shares issuable upon exercise of Warrants
presently exercisable. Gruntal & Co., Incorporated was the sole
underwriter for the Company's initial public offering in October
1993.
(23) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(24) Includes 69,080 Shares issuable upon exercise of Warrants
presently exercisable. The Company has been advised by the DCCA
that because of Illinois state law and regulations, DCCA cannot
exercise its voting rights with respect to the Shares it holds. As
a result, pursuant to a written proxy dated June 8, 1994, DCCA has
given its irrevocable proxy for all of the voting securities of the
Company it now or hereafter owns to the individual who is the chief
executive officer of the Company.
(25) Includes 10,218 Shares issuable upon exercise of Warrants
presently exercisable.
(26) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable. Mr. and Mrs. Klipstein hold the Shares as
joint tenants.
(27) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(28) Includes 7,000 Shares issuable upon exercise of Warrants
presently exercisable.
(29) Includes 9,000 Shares issuable upon exercise of Warrants
presently exercisable.
(30) Mr. and Mrs. Mandel hold the shares as joint tenants.
(31) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable. Merrill Weber & Co., Inc. served as a
placement agent for the Company's private placement of units,
consisting of shares of Common Stock and Warrants, in November 1995
(the "1995 Private Placement") and for the Company's private
placement of shares of Common Stock in February 1996 (the "1996
Private Placement").
(32) Includes 2,500 Shares issuable upon exercise of Warrants
presently exercisable.
(33) Mr. Nadler and Ms. Harty hold the Shares as joint tenants.
(34) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(35) Mr. and Mrs. Niedelman hold the Shares as joint tenants.
(36) Includes 5,000 shares issuable upon exercise of Warrants
presently exercisable.
(37) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(38) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(39) Includes 10,000 Shares issuable upon exercise of Warrants
presently exercisable.
(40) Includes 10,000 Shares issuable upon exercise of Warrants
presently exercisable.
(41) Includes 17,658 Shares issuable upon exercise of Warrants
presently exercisable.
(42) Includes 5,000 Shares issuable upon exercise of Warrants
presently exercisable.
(43) Includes 10,000 Shares issuable upon exercise of Warrants
presently exercisable.
(44) Includes 128,364 Shares issuable upon exercise of Warrants
presently exercisable.
(45) Includes 23,298 Shares issuable upon exercise of Warrants
presently exercisable and 20,512 Shares issuable upon the exercise
of options currently exercisable. Mr. Siegler is a former director
of, and consultant for, the Company.
(46) Includes 34,722 Shares issuable upon exercise of Warrants
presently exercisable. Howard L. "Buzz" Simons, Aric Simons and
Corey Simons hold the shares as joint tenants. Excludes 2,000
Shares held by Aric Simons and Corey Simons as joint tenants and
1,000 shares held by Howard L. "Buzz" Simons IRA.
(47) Excludes 39,722 shares held by Howard L. "Buzz" Simons, Aric
Simons and Corey Simons as joint tenants and 34,722 Shares issuable
upon exercise of Warrants presently exercisable and held by Howard
L. "Buzz" Simon, Aric Simons and Corey Simons as joint tenants.
Aric and Corey Simons hold the Shares as joint tenants.
(48) Includes 10,000 Shares issuable upon exercise of Warrants
presently exercisable.
(49) Includes 7,000 Shares issuable upon exercise of Warrants
presently exercisable. Includes 1,700 Shares held by Burton Jay
Weisberg IRA. Mr. Weisberg has sole voting and investment power
with respect to shares held by Burton Jay Weisberg IRA and,
therefore may be deemed beneficial owner of shares held directly by
Burton Jay Weisberg IRA.
(50) Mr. and Mrs. Weiss hold the Shares as joint tenants.
(51) Includes 6,500 Shares issuable upon exercise of Warrants
presently exercisable.
(52) Includes 9,292 Shares issuable upon exercise of Warrants
presently exercisable.
PLAN OF DISTRIBUTION
Pursuant to the Unit Purchase Agreements dated November 14, 1995
between the Company and certain Selling Stockholders who
participated in the 1995 Private Placement (the "Unit Purchase
Agreements"), the Company agreed to file with the Commission and
use its best efforts to cause to become effective a Registration
Statement covering the Shares, including the Warrant Shares, issued
in the 1995 Private Placement by May 13, 1996. Pursuant to the
Stock Purchase Agreements dated February 23, 1996 between the
Company and certain Selling Stockholders who participated in the
1996 Private Placement (the "Stock Purchase Agreements"), the
Company agreed to use its best efforts to file with the Commission
by April 8, 1996 and use its best efforts to cause to become
effective a Registration Statement covering the Shares issued in
the 1996 Private Placement. The Registration Statement has been
filed with the Commission pursuant to the Unit Purchase and Stock
Purchase Agreements. In addition, certain Selling Stockholders are
registering their Shares under the Registration Statement pursuant
to registration rights granted to them in the Third Amended and
Restated Registration Rights Agreement, dated as of July 14, 1993,
between the Company and certain Selling Stockholders (the
"Registration Rights Agreement") and the Representative's Warrant
Agreement, dated as of October 23, 1993, between the Company and
Gruntal & Co., Incorporated (the "Representative's Warrant
Agreement"). The Selling Stockholders may sell all or a portion of
the Shares held by them from time to time while the Registration
Statement of which this Prospectus is a part remains effective.
The Company has agreed that it will use all reasonable efforts to
keep the Registration Statement effective for a period of two years
commencing on the effective date of the Registration Statement (or
a shorter period if all of the Shares have been sold or disposed of
prior to the expiration of the two year period). The aggregate
proceeds to the Selling Stockholders from the sale of Shares
offered by the Selling Stockholders hereby will be the prices at
which such securities are sold, less any commissions. There is no
assurance that the Selling Stockholders will sell any or all of the
Shares offered hereby.
The Selling Stockholders may sell all or a portion of the Shares,
including the Warrant Shares, on the NNM, 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. A Selling Stockholder
may elect to engage a broker or dealer to effect sales in one or
more of the following transactions: (a) block trades in which the
broker or dealer so engaged will attempt to sell the Shares as
agent but may position and resell a portion of the block as
principal to facilitate the transaction, (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus, and (c) ordinary brokerage
transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers and dealers engaged by
Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or
discounts from 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 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 at the price required to fulfill the broker-dealer
commitment to such Selling Stockholder. Broker-dealers who acquire
Shares as principal may thereafter resell such Shares 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 and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the Shares
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 purchased by them may be deemed
to be underwriting commissions or discounts under the Securities
Act.
The Company is required to pay all of the expenses incident to the
offering and sale of the Shares, other than (i) commissions,
discounts and fees of underwriters, dealers or agents and (ii) fees
and expenses incurred by certain of the Selling Stockholders who
participated in the 1995 or 1996 Private Placement to retain
attorneys or counsel. The Company has agreed to indemnify the
Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Shares
will be passed upon for the Company by Katten Muchin & Zavis, a
partnership including professional corporations, Chicago, Illinois.
EXPERTS
The financial statements and schedule of the Company appearing in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in
accounting and auditing.
TABLE OF CONTENTS
Page
Available Information..................................2
Incorporation of Certain Documents by Reference........3
Risk Factors...........................................4
Use of Proceeds.......................................11
Selling Stockholders..................................12
Plan of Distribution..................................17
Legal Matters.........................................18
Experts...............................................18
[LOGO]
2,994,049 Shares
Common Stock
PROSPECTUS
May 9, 1996
