<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
ILLINOIS SUPERCONDUCTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3688459
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EDWARD W. LAVES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------------
WITH COPIES TO:
LAWRENCE D. LEVIN, ESQ. BRUCE A. ZIVIAN, ESQ.
Katten Muchin & Zavis Eilenberg & Zivian
525 West Monroe Street 20 North Wacker Drive, Suite 3230
Chicago, Illinois 60661 Chicago, Illinois 60606
(312) 902-5200 (312) 917-9900
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE COMBINED
PROSPECTUS CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATES TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REG. NO. 333-29797), WHICH
REGISTERED 715,488 SHARES OF THE REGISTRANT'S COMMON STOCK AND WAS DECLARED
EFFECTIVE BY THE COMMISSION ON JUNE 30, 1997, AND THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-3 (REG. NO. 333-36089), WHICH REGISTERED AN ADDITIONAL
468,572 SHARES OF THE REGISTRANT'S COMMON STOCK AND WAS DECLARED EFFECTIVE BY
THE COMMISSION ON SEPTEMBER 26, 1997.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE AMOUNT OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
(including preferred stock
purchase rights) 715,488 shares (1) $9.63 (2) $ 6,890,149 (2) $2,088 (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value
(including preferred stock
purchase rights) 468,572 shares (4) $7.84 (5) $ 3,673,604 (5) $1,114 (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value
(including preferred stock
purchase rights) 3,716,669 shares (6) $3.06 (7) $11,373,007 (7) $3,356
- -----------------------------------------------------------------------------------------------------------------------------------
Total 4,900,729 shares (7) -- -- $6,558
===================================================================================================================================
</TABLE>
(1) REPRESENTS THE NUMBER OF SHARES OF COMMON STOCK WHICH WERE REGISTERED ON
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REG. NO. 333-29797).
(2) ESTIMATED SOLELY FOR PURPOSES OF CALCULATING THE REGISTRATION FEE
PURSUANT TO RULE 457(c) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), ON THE BASIS OF THE AVERAGE OF THE HIGH AND LOW PRICES
OF THE COMMON STOCK AS REPORTED BY THE NASDAQ NATIONAL MARKET ON JUNE 16,
1997.
(3) THIS FEE HAS ALREADY BEEN PAID BY THE REGISTRANT.
(4) REPRESENTS THE NUMBER OF SHARES OF COMMON STOCK WHICH WERE REGISTERED ON
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REG. NO. 333-36089).
(5) SAME AS (2) ABOVE, EXCEPT CALCULATED ON THE BASIS OF THE AVERAGE OF THE
HIGH AND LOW PRICES OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET ON
SEPTEMBER 16, 1997.
(6) SAME AS (2) ABOVE, EXCEPT CALCULATED ON THE BASIS OF THE AVERAGE OF THE
HIGH AND LOW PRICES OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET ON
DECEMBER 5, 1997.
(7) PURSUANT TO RULE 416 UNDER THE SECURITIES ACT, THE REGISTRATION STATEMENT
ALSO RELATES TO A PRESENTLY INDETERMINATE NUMBER OF SHARES OF COMMON STOCK
WHICH ARE ISSUABLE UPON THE CONVERSION OF CONVERTIBLE PREFERRED STOCK OF
THE COMPANY OR THE PAYMENT OF DIVIDENDS THEREON, PURSUANT TO THE
PROVISIONS THEREOF REGARDING DETERMINATION OF THE APPLICABLE CONVERSION
PRICE.
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 SECTION 8(a), MAY
DETERMINE.
===============================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement become
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated December 8, 1997
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PROSPECTUS
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4,900,729 SHARES
[ILLINOIS SUPERCONDUCTOR CORPORATION 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 the stockholders specified in this Prospectus or
their pledgees, donees, transferees or other successors in interest (the
"Selling Stockholders"). See "Selling Stockholders." This Prospectus relates
to (a) 4,900,729 Shares, of which (i) 637,061 are Shares which may in the
future be issued, or have been issued, to the Selling Stockholders upon the
conversion of outstanding shares of the Company's Series B Convertible
Preferred Stock (the "Series B Stock"), (ii) 1,534,767 are Shares which may in
the future be issued to the Selling Stockholders upon the conversion of
outstanding shares of the Company's Series C Convertible Preferred Stock (the
"Series C Stock"), (iii) 2,514,460 are Shares which may in the future be issued
to the Selling Stockholders upon the conversion of outstanding shares of the
Company's Series G Convertible Preferred Stock (the "Series G Stock"), (iv)
15,927 are Shares which may be issued to the Selling Stockholders as accrued
dividends for one year on the Series B Stock, (v) 38,370 are Shares which may
be issued to the Selling Stockholders as accrued dividends for one year on the
Series C Stock, (vi) 62,862 are Shares which may be issued to the Selling
Stockholders as accrued dividends for one year on the Series G Stock and (vii)
97,282 are Shares which may in the future be issued to the Selling Stockholders
upon the exercise of outstanding warrants held by the Selling Stockholders (the
"Warrants") and (b) such presently indeterminate number of additional Shares as
may be issuable upon conversion of the Series B Stock, the Series C Stock and
the Series G Stock or the payment of dividends thereon, based upon fluctuations
in the conversion price of the Series B, the Series C and the Series G Stock,
in accordance with Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"). The Shares issuable upon conversion of the Series B, Series
C and Series G Stock are subject to adjustment and could be more or less than
the estimated amount listed herein depending on factors which cannot be
predicted at this time, including, among other things, the future market price
of the Common Stock. 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 the Warrants by the Selling Stockholders.
See "Use of Proceeds."
The Common Stock is traded on the Nasdaq National Market (the "NNM") under
the symbol "ISCO." On December 5, 1997, the closing price of the Common Stock
as reported on the NNM was $2.8125 per share. The Selling Stockholders may,
from time to time during the effectiveness of this registration, 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."
AN INVESTMENT IN THE SHARES OFFERED HEREBY ENTAILS A HIGH DEGREE OF RISK.
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 , 1997
<PAGE> 3
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 the
Commission's Public Reference Room, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, Suite 1300, 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., Judiciary Plaza, Washington,
D.C. 20549 at prescribed rates. Copies of reports, proxy statements and other
information regarding registrants that file electronically are available on the
Commission's Web site at http://www.sec.gov. The Common Stock is traded on the
NNM, and such reports, proxy statements and other information concerning the
Company can also 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, exhibits and schedules thereto,
referred to as the "Registration Statement") under 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.
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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, 1996;
2. The Company's Quarterly Reports on Form 10-Q, for the quarterly periods
ended March 31, 1997, June 30, 1997 and September 30, 1997;
3. The Company's Current Reports on Form 8-K, dated April 14, 1997, May 1,
1997, June 10, 1997, July 8, 1997, July 16, 1997, August 4, 1997, September 2,
1997 and October 31, 1997;
4. 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
5. 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).
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RISK FACTORS
Because the Company wants to provide investors with more meaningful and
useful information, this Prospectus contains, and incorporates by reference,
certain forward-looking statements (as such term is defined in the rules
promulgated pursuant to the Securities Act) that reflect the Company's current
expectations regarding the future results of operations and performance and
achievements of the Company. Such forward-looking statements are subject to
the safe harbor created by the Private Securities Litigation Reform Act of
1995. The Company has tried, wherever possible, to identify these
forward-looking statements by using words such as "anticipate," "believe,"
"estimate," "expect" and similar expressions. These statements reflect the
Company's current beliefs and are based on information currently available to
it. Accordingly, these statements are subject to certain risks, uncertainties
and assumptions, including the factors set forth in the following Risk Factors,
which could cause the Company's future results, performance or achievements to
differ materially from those expressed in, or implied by, any of these
statements. The Company undertakes no obligation to release publicly the
results of any revisions to any such forward-looking statements that may be
made to reflect events or circumstances after the date of this Prospectus or to
reflect the occurrence of unanticipated events.
An investment in the Shares offered hereby entails a high degree of risk.
In addition to the other information in this Prospectus, or incorporated by
reference herein, prospective investors should carefully consider the following
Risk Factors before purchasing any of the Shares offered hereby.
UNCERTAIN MARKET ACCEPTANCE OF SUPERCONDUCTING TELECOMMUNICATIONS PRODUCTS
The Company's radio frequency ("RF") filter products have not been sold in
significant quantities and there is no assurance that a substantial market will
develop for the Company's products. The Company's customers establish
demanding specifications for performance and reliability. There can be no
assurance that the Company's RF filter products will continue to pass product
performance and reliability tests by cellular and Personal Communications
Services ("PCS") service providers. There can also be no assurance that the
Company's products will operate reliably on a long-term basis, 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
current or future products will achieve market acceptance. The Company has
experienced, and may continue to experience, quarterly fluctuations in its
results of operations as its RF filter products attempt to gain market
acceptance while being subject to the lengthy approval and purchase processes
of customers. 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.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; AND UNCERTAINTY OF FINANCIAL
RESULTS
The Company was founded in October 1989 and to date has been engaged
principally in research and development ("R&D"), product testing, manufacturing
and marketing activities. The Company has only recently begun to generate
limited revenues from the sale of its RF filter products. Prior to the
commencement of these sales, the majority of the Company's revenues were
derived from R&D contracts, primarily from the U.S. government. The Company
does not expect revenues to increase dramatically until it ships a significant
amount of its RF products. Accordingly, the Company has only a limited
operating history upon which an evaluation of the Company and its prospects can
be based. The Company must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stages of
development.
The Company has incurred substantial net losses in each year since its
inception and as of September 30, 1997 had an accumulated deficit of
approximately $35.6 million. The Company expects to continue to incur
operating losses through at least mid-1998 as it continues to devote
significant financial resources to its product development, manufacturing,
marketing and sales efforts. Even if the Company is able to overcome the
significant remaining manufacturing and marketing hurdles necessary
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to sell significant quantities of its RF filter products, there can be no
assurance that the Company will ever achieve a profitable level of operations
or, if profitability is achieved, that it can be sustained.
FUTURE CAPITAL NEEDS
To date, the Company has financed its operations primarily through public
and private equity financings that have raised approximately $48.9 million, net
of related expenses. Although the Company believes that its current funds,
including the aggregate $5 million of proceeds from its sale of the Series C
Stock and Series G Stock to the Selling Stockholders on October 29, 1997, are
sufficient to finance the Company's operations as planned through at least the
end of May 1998, the Company will require additional funds to finance its
product development, manufacturing and marketing activities thereafter.
Pursuant to the Convertible Preferred Stock Purchase Agreement dated as of June
6, 1997 (the "Purchase Agreement"), by and between the Company and Southbrook
International Investments, Ltd. ("Southbrook"), one of the Selling
Stockholders, the Company has the option to issue up to $9 million of
additional convertible preferred stock (the "Additional Preferred Stock") to
Southbrook in up to three additional tranches, if certain conditions,
including, without limitation, maintaining certain price levels for the Common
Stock, no material adverse change in the Company's business and no significant
changes in the Company's senior management, are satisfied by the Company or
waived by Southbrook. There can be no assurance, however, that the Company
will receive any or all of the remaining $9 million, or when such funds will be
received, because there can be no assurance that or when the conditions will be
satisfied by the Company or waived by Southbrook. If the conditions are not
satisfied or waived, there can be no assurance that additional funds will be
available on acceptable terms to the Company, or at all. In addition, the
Company has granted a right of first refusal to Brown Simpson, LLC, an
affiliate of a Selling Stockholder, to participate in any future private
placement of equity securities, which is exercisable within six months of the
closing of any tranche of financing under the Purchase Agreement. In addition,
Elliott Associates, L.P. ("Elliott") and Westgate International, L.P.
("Westgate"), two of the Selling Stockholders, have been granted a right of
second refusal to participate in any future private placement of equity
securities, which expires on April 29, 1998. These rights of first refusal and
second refusal could adversely impair the Company's ability to obtain
additional equity financings. If any of the Additional Preferred Stock is
issued, or if additional funds are raised by issuing other 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 the manufacturing, marketing
or sales of one or more of its products or research and development programs,
or to 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. In particular, if during the first half
of 1998 the Company is unable to secure adequate additional financing through
the issuance of Additional Preferred Stock or from other sources, it will have
to reduce its operating plans in order to continue its operations through the
end of 1998. The Company regularly examines opportunities to expand its
technology base and product line through means such as licenses, joint ventures
and acquisitions of assets or ongoing businesses, and may issue securities in
connection with such transactions. However, no commitments to enter into or
pursue any such transactions have been made at this time, and there can be no
assurance that any such discussions will result in any such transaction being
concluded.
In December 1996, the Company received an aggregate of approximately
$4,400,000 from the exercise of warrants that were issued in the Company's
private placement completed in November 1995, approximately $1,100,000 of which
was in the form of promissory notes. Approximately $716,000 in principal
amount of these promissory notes was due on April 30, 1997, of which
approximately $699,000 remains outstanding as of the date hereof. The Company
has filed a lawsuit to collect repayment of these promissory notes, including
accrued interest. The debtors have filed a counterclaim against the Company,
and the Company has filed a motion to dismiss such counterclaim. There can be
no assurance when or
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<PAGE> 7
if such promissory notes will be repaid and a further delay or failure in
repayment could adversely effect the Company's cash flow and liquidity.
VOLATILITY OF COMMON STOCK PRICE
The market price of the 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, quarterly variations in operating
results, additional equity financings, changes in recommendations of securities
analysts, results of customer field trials, scientific discoveries,
technological innovations, litigation, product developments, patent or
proprietary rights, government regulation and general market conditions may
have a significant impact on the market price of the Common Stock.
LIMITED EXPERIENCE IN MANUFACTURING, MARKETING AND SALES
For the Company to be financially successful, it must manufacture its
products in substantial quantities, at acceptable costs and on a timely basis.
Although the Company to date has produced limited quantities of its products
for commercial installations and 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 sufficient volume. The Company has limited experience in manufacturing, and
substantial costs and expenses may be incurred in connection with attempts to
manufacture substantial quantities of the Company's products. No assurance can
be given that the Company will be able to make the transition to full
commercial production successfully.
The Company's marketing and sales experience to date is very limited. The
Company will be required to further develop its marketing and sales force in
order to effectively demonstrate the advantages of its products over more
traditional products, as well as competitive superconductive products. 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.
COMPETITION
The wireless telecommunications equipment market is very competitive. The
Company's products compete directly with products which embody existing and
future competing commercial technologies. In particular, in cellular
telecommunications applications, the Company competes 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. Other emerging wireless technologies may also
provide protection from RF interference and offer enhanced range to cellular
and PCS service providers at lower prices and may therefore compete with the
Company's products. There can be no assurance that high performance RF filters
will become a preferred technology to address the needs of cellular and PCS
service providers. Failure of the Company's products to improve performance
sufficiently or 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, operating results 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
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<PAGE> 8
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. In order to compete
successfully, the Company must develop and maintain technologically advanced
products, attract and retain highly qualified personnel, obtain additional
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.
MANAGEMENT OF GROWTH
The Company's growth to date has caused, and will continue to cause, a
significant strain on its management, operational, financial and other
resources. The Company's ability to manage its growth effectively will require
it to implement and improve its operational, financial, manufacturing and
management information systems and expand, train, manage and motivate its
employees. These demands may require the addition of new management personnel
and the development of additional expertise by management. Any increase in
resources devoted to product development and marketing and sales efforts could
have an adverse effect on the Company's performance in the next several
quarters. If the Company were to receive substantial orders, the Company may
have to expand its current facility, which could cause an additional strain on
the Company's management personnel and development resources. The failure of
the Company's management team to effectively manage growth could have a
material adverse effect on the Company's business, operating results and
financial condition.
RAPID TECHNOLOGICAL CHANGE; POSSIBLE PURSUIT OF OTHER MARKET OPPORTUNITIES
The field of superconductivity is characterized by rapidly advancing
technology. The success of the Company will depend in large part upon its
ability to keep pace with advancing superconducting technology, high
performance RF filter design and efficient, low cost cryogenic technologies.
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 and efficient cryogenic subsystems and produce
significant quantities of products based on these improvements. There can be
no assurance that the Company's development efforts will not be rendered
obsolete by the adoption of alternative solutions to current wireless operator
problems or by technological advances made by others, or that other materials
or processes, including other superconducting materials or fabrication
processes, will not prove more advantageous for the commercialization of high
performance wireless products than the materials and processes 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 those 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, marketing and selling HTS products for cellular, PCS and other
telecommunications markets. The risks associated with other markets may be
different from the risks associated with the cellular, PCS and other wireless
telecommunications markets.
FOCUS ON WIRELESS TELECOMMUNICATIONS MARKET; CURRENT AND FUTURE COMPETITIVE
TECHNOLOGIES
The Company has selected the wireless telecommunications market, in
particular the cellular and PCS markets, as the first principal target market
for its superconductor-based products. The devotion of substantial resources
to the wireless telecommunications market makes the Company vulnerable to
adverse changes in this market. Adverse developments in the wireless
telecommunications market, which could come from a variety of sources,
including future competition, new technologies or regulatory decisions, could
affect the competitive position of wireless systems. Any adverse developments
in the
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<PAGE> 9
wireless telecommunications market during the foreseeable future would have a
material adverse effect on the Company's business, operating results and
financial condition.
The Federal Communications Commission ("FCC") has 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 or PCS
service, thereby creating additional sources of competition. There can be no
assurance that competition to cellular or PCS technologies will not adversely
affect the market for the Company's products, or result in changes in the
Company's development and manufacturing programs.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
To date, the Company's marketing and sales efforts have focused on major
cellular service providers in retrofit applications and, to a lesser extent, on
PCS operators and cellular and PCS OEMs. The Company expects that if its RF
filter products achieve market acceptance, a limited number of wireless service
providers and OEMs will account for a substantial portion of its revenue during
any period. Sales of many of the Company's RF filter products depend in
significant part upon the decision of prospective customers and current
customers to adopt and expand their use of the Company's products. Wireless
service providers and the Company's other customers are significantly larger
than, and are able to exert a high degree of influence over, the Company.
Customers' orders are affected by a variety of factors such as new product
introductions, regulatory approvals, end user demand for wireless services,
customer budgeting cycles, inventory levels, customer integration requirements,
competitive conditions and general economic conditions. The loss of one or
more of the Company's customers or the failure to attract new customers would
have a material adverse effect on the Company's business, operating results and
financial condition.
LENGTHY SALES CYCLES
Wireless service providers and the Company's other customers are
significantly larger than, and are able to exert a high degree of influence
over, the Company. Prior to selling its products to these customers, the
Company must generally undergo lengthy approval and purchase processes.
Technical and business evaluation by potential customers can take up to a year
or more for products based on new technologies such as HTS. The length of the
approval process is affected by a number of factors, including, among others,
the complexity of the product involved, priorities of the customers, budgets
and regulatory issues affecting customers. There can be no assurance that the
Company will obtain the necessary approvals or that ensuing sales of such
products will occur. There can also be no assurance that the length of its
customers' approval process or delays will not have a material adverse effect
on the Company's business, operating results and financial condition.
DEPENDENCE ON LIMITED SOURCES OF SUPPLY
Certain parts and components used in the Company's RF filter products,
including substrates and cryogenic refrigerators, are only available from a
limited number of sources. The Company's reliance on these limited source
suppliers exposes the Company to certain risks and uncertainties, including the
possibility of a shortage or discontinuation of certain key components and
reduced control over delivery schedules, manufacturing capabilities, quality
and costs. Any reduced availability of such parts or components when required
could materially impair the Company's ability to manufacture and deliver its
products on a timely basis and result in the cancellation of orders, which
could have material adverse effect on the Company's business, operating results
and financial condition. In addition, the purchase of certain key components
involves long lead times and, in the event of unanticipated increases in demand
for the Company's products, the Company may not be able to manufacture products
in a quantity sufficient to meet its customers' demand in any particular
period. The Company has no guaranteed supply arrangements with its limited
source suppliers, does not maintain an extensive inventory of parts or
components, and customarily purchases parts and components pursuant to purchase
orders placed from
-8-
<PAGE> 10
time to time in the ordinary course of business. Business disruption,
production shortfalls or financial difficulties of a limited source supplier
could materially and adversely effect the Company by increasing product costs or
reducing or eliminating the availability of such parts or components. In such
events, the inability of the Company to develop alternative sources of supply
quickly and on a cost-effective basis could materially impair the Company's
ability to manufacture and deliver its products on a timely basis and could have
a material adverse effect on its business, operating results and financial
condition.
INTELLECTUAL PROPERTY AND PATENTS
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 upon the patent or other proprietary rights of
others and without breaching or otherwise losing rights in the technology
licenses upon which any Company products are based. As of November 1, 1997,
the Company has been issued nine U.S. patents, has purchased two U.S. patents
from another company and has filed and is actively pursuing applications for 24
other U.S. patents, and is the licensee of nine patents and patent applications
held by others. One of the Company's patents is jointly owned with Lucent
Technologies, Inc., formerly a subsidiary of AT&T. The Company believes that,
since the discovery of HTS materials in 1986, a large number of patent
applications have been filed worldwide and many patents have been granted in
the U.S. 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 (not currently involving the Company) regarding
rights to inventions claimed in some of the HTS materials patent applications.
The Company also believes there are a large number of patents and patent
applications covering RF filter products and other products and technologies
that the Company is pursuing. Accordingly, the patent positions of companies
using HTS materials technologies and RF technologies, 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 technologies owned or
licensed by the Company or that others have not developed or will not develop
similar products or technologies 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 effect on the Company's business, operating results and financial
condition.
Some of the patents and patent applications owned or licensed by the
Company are subject to non-exclusive, royalty-free licenses held by various
governmental units. These licenses permit these U.S. government units to
select vendors other than the Company to produce products for the U.S.
Government which would otherwise infringe the Company's patent rights which are
subject to the royalty-free licenses. In addition, the U.S. Government has the
right to require the Company to grant licenses (including exclusive licenses)
under such patents and patent applications or other inventions to third parties
in certain instances.
Patent applications in the U.S. are currently maintained in secrecy until
patents are issued and in foreign countries this secrecy is maintained 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, RF technologies
and other products and technologies that the Company is pursuing, comprehensive
patent searches and analyses associated with HTS materials, RF technologies and
other products and technologies that the Company is pursuing are often
impractical or not cost-effective. As a result, the
-9-
<PAGE> 11
Company's patent and literature searches 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 technologies described in U.S. patents or may
infringe upon claims in patent applications made available in the future.
Because of the volume of patents issued and patent applications filed relating
to HTS materials, RF technologies and other products and technologies that the
Company is pursuing, 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, products or processes used or proposed
to be used by the Company. In any such case, to avoid infringement, the Company
would have to either license such technologies or design around any such
patents. There can be no assurance that the Company will be able to obtain
licenses to such technologies 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.
Participation in litigation or patent office proceedings in the U.S. or
other countries, 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 proceedings
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 technologies, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company believes that a number of patent applications, including
applications filed by International Business Machines Corporation, Lucent
Technologies, Inc., and other potential competitors of the Company are pending
that may 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. Therefore,
there is a substantial risk that one or more third parties may 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,
operating results and financial condition.
GOVERNMENT REGULATIONS
Although the Company believes that its wireless telecommunications
products themselves would not be subject to licensing by, or approval
requirements of, the FCC, the operation of base stations is subject to FCC
licensing and the radio equipment into which the Company's products would be
incorporated is subject to FCC approval. Base stations and the equipment
marketed for use therein must meet specified technical standards. The
Company's ability to sell its wireless telecommunications products will be
dependent on the ability of wireless base station equipment manufacturers and
wireless base station operators to obtain and retain the necessary FCC
approvals and licenses. In order for them to be acceptable to base station
equipment manufacturers and to base station operators, the characteristics,
quality and reliability of the Company's base station products must enable them
to meet FCC technical standards. Any failure to meet such standards or delays
by base station equipment manufacturers and wireless base station operators in
obtaining the necessary approvals or licenses could have a material adverse
effect on the Company's business, operating results and financial condition.
In addition, HTS RF filters are on the U.S. Department of Commerce's export
regulation list and therefore exportation of such RF filters to certain
countries may be restricted or subject to export licenses.
-10-
<PAGE> 12
The Company uses certain hazardous materials in its research, development
and manufacturing operations. As a result, the Company is subject to stringent
federal, state and local regulations governing the storage, use and disposal of
such materials. It is possible that current or future laws and regulations
could require the Company to make substantial expenditures for preventive or
remedial action, reduction of chemical exposure, or waste treatment or
disposal. The Company believes it is in material compliance with all
environmental regulations and to date the Company has not had to incur
significant expenditures for preventive or remedial action with respect to the
use of hazardous materials. However, there can be no assurance that the
operations, business or assets of the Company will not be materially and
adversely affected by the interpretation and enforcement of current or future
environmental laws and regulations. In addition, although the Company believes
that its safety procedures for handling and disposing of such materials comply
with the standards prescribed by state and federal regulations, there is the
risk of accidental contamination or injury from these materials. In the event
of an accident, the Company could be held liable for any damages that result.
Furthermore, the use and disposal of hazardous materials involves the risk that
the Company could incur substantial expenditures for such preventive or
remedial actions. The liability in the event of an accident or the costs of
such actions could exceed the Company's resources or otherwise have a material
adverse effect on the Company's business, results of operations and financial
condition.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in large part upon its ability to
attract and retain highly qualified management, manufacturing, marketing, sales
and R&D 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 one of its executive officers or other key personnel, or the failure of the
Company to attract and retain other executive officers or key personnel, could
have a material adverse effect on the Company's business, operating results and
financial condition.
BUSINESS INTERRUPTIONS AND DEPENDENCE ON A SINGLE U.S. FACILITY
The Company's primary operations, including engineering, manufacturing,
research, distribution and general administration, are housed in a single
facility in Mount Prospect, Illinois. Any material disruption in the Company's
operations, whether due to fire, natural disaster, power loss or otherwise,
could have a material adverse effect on the Company's business, operating
results and financial condition.
SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE
On June 6, 1997, August 29, 1997 and October 29, 1997, the Company sold
600 shares of Series B Stock, 300 shares of Series C Stock, and 700 shares of
Series G Stock and 300 shares of Series C Stock, respectively, to the Selling
Stockholders in private placements pursuant to two convertible preferred stock
purchase agreements. Each share of Series B Stock, Series C Stock and Series G
Stock is convertible at any time into a number of shares of Common Stock
determined by dividing $5,000, plus any accrued but unpaid dividends to be paid
in Common Stock, by the lesser of (i) the average closing bid price for the
five consecutive trading days immediately preceding the date of issuance of the
Series B Stock, the Series C Stock or the Series G Stock, as the case may be,
and (ii) 101% of the average of the lowest closing bid prices for five
consecutive trading days during the 60 consecutive trading days immediately
preceding the date of conversion of the Series B Stock, the Series C Stock or
the Series G Stock, as the case may be. 380 shares of Series B Stock and no
shares of Series C Stock or Series G Stock have been converted into shares of
Common Stock as of the date hereof. In connection with the issuance of the
Series B Stock and the Series G Stock, Warrants exercisable for an aggregate of
97,282 shares of Common Stock were also issued to the Selling Stockholders.
The Warrants have not been exercised for shares of Common Stock as of the date
hereof.
Pursuant to the Purchase Agreement, the Company has the option to issue up
to 1,800 shares of Additional Preferred Stock to Southbrook in up to three
additional tranches, if certain conditions are
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<PAGE> 13
satisfied or waived. The Company may also issue to Southbrook additional
warrants exercisable for up to 62,500 shares of Common Stock if and when certain
of the Additional Preferred Stock is sold. The Company may also issue
additional capital stock, warrants and/or other securities 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, warrants, Series B
Stock, Series C Stock, Series G Stock and Additional Preferred Stock, if any,
the holders thereof are given the opportunity to benefit from a rise in the
market price of the Common Stock.
The sale of a substantial number of shares of Common Stock by the Company or
any of its significant stockholders, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock.
In June 1997 and September 1997, the Company's Registration Statements on Form
S-3 (Reg. No. 333-29797 and Reg. No. 333-36089, respectively) were declared
effective by the Commission, registering for public resale an aggregate of
1,184,060 Shares of which (i) 637,061 are Shares which may in the future be
issued, or have been issued, to the Selling Stockholders upon the conversion of
outstanding shares of Series B Stock, (ii) 457,143 are Shares which may in the
future be issued to the Selling Stockholders upon conversion of outstanding
shares of Series C Stock, (iii) 15,927 are Shares which may be issued to the
Selling Stockholders as accrued dividends for one year on the Series B Stock,
(iv) 11,429 are Shares which may be issued to the Selling Stockholders as
accrued dividends for one year on the Series C Stock and (v) 62,500 are Shares
which may in the future be issued to the Selling Stockholders upon the exercise
of a Warrant. In connection with the Registration Statement of which this
Prospectus is a part, an additional 3,716,669 Shares are being registered by
the Company for public resale, of which (i) 1,077,624 are Shares which may in
the future be issued to the Selling Stockholders upon the conversion of
outstanding shares of Series C Stock, (ii) 2,514,460 are Shares which may in
the future be issued to the Selling Stockholders upon the conversion of
outstanding shares of Series G Stock, (iii) 26,941 are Shares which may be
issued to the Selling Stockholders as accrued dividends for one year on the
Series C Stock, (iv) 62,862 are Shares which may be issued to the Selling
Stockholders as accrued dividends for one year on the Series G Stock and (v)
34,782 are Shares which may in the future be issued to the Selling Stockholders
upon the exercise of Warrants. In addition, in connection with the
Registration Statement of which this Prospectus is a part, a presently
indeterminate number of additional Shares as may be issuable upon conversion of
the Series B Stock, the Series C Stock and the Series G Stock or the payment of
dividends thereon are being registered by the Company for public resale in
accordance with Rule 416 under the Securities Act. In addition to the
presently indeterminate number of Shares being registered pursuant to Rule 416
under the Securities Act, a total of 4,900,729 Shares are being specifically
registered under the three registration statements. There can be no assurance
that the Company will not be obligated to register additional shares of Common
Stock for public resale prior to or upon conversion of the Series B Stock, the
Series C Stock and the Series G Stock depending on, among other factors, the
future market price of the Common Stock. 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 the Selling Stockholders, or
the actual sale of a substantial number of the Shares by the Selling
Stockholders, could adversely affect the market price of the Common Stock. The
Company is unable to make any prediction as to the effect, if any, that future
sales of Common Stock or the availability of Common Stock for sale may have on
the market price of the Common Stock prevailing from time to time. In
addition, any such sale or such perception could make it more difficult for the
Company to sell equity securities in the future at a time and price that the
Company deems appropriate.
The Company currently has outstanding warrants to purchase 628,687 shares
of Common Stock at a weighted average exercise price of $9.47 per share and
options to purchase 706,371 shares of Common Stock at a weighted average
exercise price of $13.07 per share (391,064 of which have not yet vested)
issued to employees, directors and consultants pursuant to the Company's
Amended and Restated
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<PAGE> 14
1993 Stock Option Plan, as amended, and individual agreements with management
and directors of the Company.
DILUTION AND DIVIDEND POLICY
The conversion of Series B Stock, Series C Stock, Series G Stock or
Additional Preferred Stock, if any, or the exercise of options and warrants,
including the Warrants, as well as the sale by the Company of additional
securities, including the Additional Preferred Stock, and/or rights to purchase
such securities, would likely have an adverse or dilutive effect on the market
value of the Common Stock, including the shares of Common Stock being offered
hereby. The Series B Stock, Series C Stock and Series G Stock may be converted
into shares of Common Stock at a discount to the market price of the Common
Stock on the particular date of conversion. 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. This could also have a dilutive
effect upon the holders of Common Stock.
The Company has never paid a cash dividend on its Common Stock and does
not expect to do so in the foreseeable future. Dividends on the Series B
Stock, Series C Stock and Series G Stock are payable at the rate of 5% per
annum and are payable in cash or shares of Common Stock at the option of the
Company. While the Series B Stock, Series C Stock and Series G Stock are
outstanding, the Company is limited in its ability to pay dividends on the
Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company has certain provisions which may be deemed to have a potential
"anti-takeover" effect in that such provisions may delay, defer or prevent a
change of control of the Company. In February 1996, the Board of Directors of
the Company (the "Board of Directors") adopted a stockholders 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 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 stockholders. In
addition, the Company's Certificate of Incorporation and Bylaws contain
provisions that include (i) a requirement that stockholder action may be taken
only at stockholders meetings; (ii) the authority of the Board of Directors to
issue series of the Company's preferred stock with such voting rights and other
powers as the Board of Directors may determine; (iii) 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.
RECENT DEVELOPMENTS
On November 21, 1997, Sheldon Drobny, a stockholder of the Company, filed
a complaint against the Company, its current directors and certain former
directors (the "Defendants") in the Circuit Court of Cook County, Illinois,
County Department, Law Division. The complaint alleged that, in connection with
certain private placements of securities beginning in May 1997, the Company's
directors selected certain financing solely to entrench themselves in their
positions, and that Ted Laves, who was not on the Company's Board of Directors
at the time the financing was initially approved, subsequently approved
additional financing solely to entrench himself in his position. Mr. Drobny
has asserted that by acting solely out of an entrenchment motive, the
Defendants breached their fiduciary duty of loyalty. In addition, Mr. Drobny
has asserted that the selections of the financing alternatives made by the
Defendants over other proposals constituted gross negligence. Mr. Drobny has
asserted that he has suffered damages in an amount in excess of $50,000. A
response to the complaint is not yet due and has not yet been filed. The
Company believes that the suit is without merit and intends to defend itself
vigorously in this litigation.
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<PAGE> 15
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders. If and when all or a portion of the Warrants are
exercised and up to 97,282 Shares are issued to the Selling Stockholders, the
Company will receive the proceeds from the sale of such Shares to the Selling
Stockholders. If the Warrants are exercised in full, the Company will receive
$1,275,775. Such amount is intended to be used by the Company for working
capital and other general corporate purposes, including funding of its product
development programs, expansion of its sales and marketing efforts, and
acquisition of manufacturing equipment.
SELLING STOCKHOLDERS
The following table sets forth, as of December 5, 1997, certain
information regarding the beneficial ownership of the outstanding Common Stock
by the Selling Stockholders, consisting of the Shares which the Selling
Stockholders may be issued upon conversion of the Series B Stock, the Series C
Stock and the Series G Stock, the Shares which the Selling Stockholders may be
issued as accrued dividends on the Series B Stock, the Series C Stock and the
Series G Stock and the Shares which the Selling Stockholders may acquire upon
exercise of the Warrants, both before the offering of the Shares and as
adjusted to reflect the sale of the Shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
SHARES AFTER OFFERING (2)
BENEFICIALLY -----------------------
OWNED PRIOR NUMBER OF SHARES NUMBER
NAME OF SELLING STOCKHOLDERS TO OFFERING BEING OFFERED (1) OF SHARES PERCENT
- ------------------------------------------ -------------- ----------------- --------- -------
<S> <C> <C> <C> <C>
Southbrook International Investments, Ltd. 2,251,807 (3) 2,251,807 (3) --(4) --(4)
Elliott Associates, L.P. 1,403,552 (5) 1,306,052 (5) 97,500(6) *(6)
Westgate International, L.P. 1,401,552 (5) 1,306,052 (5) 95,500(6) *(6)
Brown Simpson Strategic Growth Fund, L.P. 36,818 (7) 36,818 (7) -- --
</TABLE>
- ---------------------
* Less than 1%
(1) Represents the specified number of Shares that may be sold by the Selling
Stockholders pursuant to this Prospectus; provided, however, that,
pursuant to Rule 416 under the Securities Act, the Registration Statement
of which this Prospectus is a part shall also cover any additional shares
of Common Stock which become issuable in connection with the Shares
registered for sale hereby (i) by reason of any stock dividend, stock
split, recapitalization or other similar transaction effected without the
receipt of consideration which results in an increase in the Company's
number of outstanding shares of Common Stock or (ii) upon conversion of
the Series B Stock, the Series C Stock and the Series G Stock or the
payment of dividends thereon, pursuant to fluctuations in the applicable
conversion price thereof.
(2) Assumes the Selling Stockholders sell all of their Shares offered hereby
to unaffiliated third parties pursuant to this Prospectus. The Selling
Stockholders may sell all or part of their Shares.
(3) Southbrook holds 360 shares of Series B Stock and 590 shares of Series C
Stock, each with a stated value of $5,000 per share, which may be
converted into shares of Common Stock from time to time at a conversion
price (the "Conversion Price") equal to the lesser of (i) the average
closing bid price for the five consecutive trading days immediately
preceding the date of issuance of the Series B Stock or Series C Stock, as
the case may be, and (ii) 101% of the average of the lowest closing bid
prices for five consecutive trading days during the 60 consecutive trading
days immediately preceding the date of conversion of the Series B Stock or
Series C Stock, as the case may be. The number of shares of Common Stock
shown in the table includes 637,061 shares of Common Stock, which
represents two times the number of shares of Common Stock into which the
full 600 shares of Series B Stock might have been converted on June 23,
1997 based on the then Conversion Price of $9.41825 per share, 510,793
shares of which have been issued to Southbrook pursuant to the conversion
of shares of Series B Stock, of which 241,215 shares are currently held by
Southbrook; 457,143 shares of Common Stock, which represents two times the
number of shares of Common Stock into which 300 shares of the Series C
Stock might have been converted on September 22, 1997 based on the then
Conversion Price of $6.5625 per share; and 1,041,704 shares of Common
Stock, which represents two times the number of shares of Common Stock
into which 290 shares of the Series C Stock might have been converted on
December 5, 1997 based on the then Conversion Price of $2.7839 per share.
Because the number of shares of Common Stock that will be ultimately
issued to Southbrook upon conversion of the Series B Stock and Series C
Stock is dependent upon the applicable Conversion Price at the time of
conversion, that number of shares of Common Stock, and therefore the
number of shares of Common Stock offered hereby, cannot be determined at
this time.
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<PAGE> 16
The number of shares of Common Stock shown in the table also includes
62,500 shares of Common Stock issuable upon exercise of a presently
exercisable Warrant. The number of shares of Common Stock shown in the
table also includes 15,927 shares of Common Stock, which represents
accrued dividends for one year on the Series B Stock based on the
Conversion Price of $9.41825 per share at June 23, 1997, 11,922 shares of
which have been issued to Southbrook as accrued dividends on shares of
Series B Stock; 11,429 shares of Common Stock, which represents accrued
dividends for one year on 300 shares of the Series C Stock based on the
Conversion Price of $6.5625 per share at September 22, 1997; and 26,043
shares of Common Stock, which represents accrued dividends for one year
on 290 shares of the Series C Stock based on the Conversion Price of
$2.7839 per share at December 5, 1997. Dividends on the Series B Stock
and Series C Stock are payable at the rate of 5% per annum and are
payable in cash or shares of Common Stock at the Company's option.
(4) The Purchase Agreement limits the conversion and exercise rights of
Southbrook to the extent that the maximum number of shares of Common Stock
held by Southbrook and its affiliates after such conversion of the Series
B Stock and Series C Stock and/or exercise of its Warrant would exceed
4.999% of the then issued and outstanding shares of Common Stock following
such conversion and/or exercise.
(5) Elliott and Westgate each holds 350 shares of Series G Stock with a
stated value of $5,000 per share, which may be converted into shares of
Common Stock from time to time at the Conversion Price equal to the lesser
of (i) the average closing bid price for the five consecutive trading days
immediately preceding the date of issuance of the Series G Stock and (ii)
101% of the average of the lowest closing bid prices for five consecutive
trading days during the 60 consecutive trading days immediately preceding
the date of conversion of the Series G Stock. The number of shares of
Common Stock shown in the table includes 1,257,230 shares of Common Stock,
which represents two times the number of shares of Common Stock into which
the full 350 shares of Series G Stock might have been converted on
December 5, 1997 based on the then Conversion Price of $2.7839 per share.
Because the number of shares of Common Stock that will be ultimately
issued to Elliott or Westgate upon conversion of the Series G Stock is
dependent upon the applicable Conversion Price at the time of conversion,
that number of shares of Common Stock, and therefore the number of shares
of Common Stock offered hereby, cannot be determined at this time. The
number of shares of Common Stock shown in the table also includes 17,391
shares of Common Stock issuable upon exercise of a presently exercisable
Warrant. The number of shares of Common Stock shown in the table also
includes 31,431 shares of Common Stock, which represents accrued dividends
for one year on the 350 shares of Series G Stock based on the Conversion
Price of $2.7839 per share at December 5, 1997. Dividends on the Series
G Stock are payable at the rate of 5% per annum and are payable in cash or
shares of Common Stock at the Company's option.
(6) The Convertible Preferred Stock Purchase Agreement dated as of October
29, 1997, by and between the Company and Elliott and Westgate limits the
conversion and exercise rights of such Selling Stockholders to the extent
that the maximum number of aggregate shares of Common Stock held by such
Selling Stockholders and their affiliates after such conversion of the
Series G Stock and/or exercise of their Warrants would exceed 4.999% of
the then issued and outstanding shares of Common Stock following such
conversion and/or exercise.
(7) Brown Simpson Strategic Growth Fund, L.P. ("Brown Simpson") holds 10
shares of Series C Stock with a stated value of $5,000 per share, which
may be converted into shares of Common Stock from time to time at the
Conversion Price equal to the lesser of (i) the average closing bid price
for the five consecutive trading days immediately preceding the date of
issuance of the Series C Stock and (ii) 101% of the average of the lowest
closing bid prices for five consecutive trading days during the 60
consecutive trading days immediately preceding the date of conversion of
the Series C Stock. The number of shares of Common Stock shown in the
table includes 35,920 shares of Common Stock, which represents two times
the number of shares of Common Stock into which the full 10 shares of
Series C Stock might have been converted on December 5, 1997 based on the
then Conversion Price of $2.7839 per share. Because the number of shares
of Common Stock that will be ultimately issued to Brown Simpson upon
conversion of the Series C Stock is dependent upon the applicable
Conversion Price at the time of conversion, that number of shares of
Common Stock, and therefore the number of shares of Common Stock offered
hereby, cannot be determined at this time. The number of shares of Common
Stock shown in the table also includes 898 shares of Common Stock, which
represents accrued dividends for one year on the Series C Stock based on
the Conversion Price of $2.7839 per share at December 5, 1997. Dividends
on the Series C Stock are payable at the rate of 5% per annum and are
payable in cash or shares of Common Stock at the Company's option.
-15-
<PAGE> 17
PLAN OF DISTRIBUTION
Pursuant to the Registration Rights Agreement dated as of June 6, 1997, by
and between the Company and Southbrook (the "Initial Registration Rights
Agreement"), the Company has previously filed Registration Statements on Form
S-3 (Reg. No. 333-29797 and Reg No. 333-36089) which register for public resale
an aggregate of 1,184,060 Shares, (i) 637,061 are Shares which may in the
future be issued, or have been issued, to the Selling Stockholders upon the
conversion of outstanding shares of Series B Stock, (ii) 457,143 are Shares
which may in the future be issued to the Selling Stockholders upon conversion
of outstanding shares of Series C Stock, (iii) 15,927 are Shares which may be
issued to the Selling Stockholders as accrued dividends for one year on the
Series B Stock, (iv) 11,429 are Shares which may be issued to the Selling
Stockholders as accrued dividends for one year on the Series C Stock and (v)
62,500 are Shares which may in the future be issued to the Selling Stockholders
upon the exercise of a Warrant. Such registration statements were declared
effective by the Commission in June 1997 and September 1997, respectively.
Pursuant to the Initial Registration Rights Agreement and the Registration
Rights Agreement dated as of October 29, 1997 by and between the Company and
Elliott and Westgate (the "Subsequent Registration Rights Agreement" and with
the Initial Registration Rights Agreement, the "Registration Rights
Agreements"), the Company also agreed to file with the Commission by the 30th
day following the issuance of the Series C Stock and Series G Stock issued on
October 29, 1997, a registration statement registering for public resale
additional shares of Common Stock which may in the future be issued to the
Selling Stockholders upon the conversion of the outstanding shares of such
Series C Stock and Series G Stock, as accrued dividends for one year on such
Series C Stock and Series G Stock and/or exercise of certain of the Warrants.
The Company also agreed to use its best efforts to cause such registration
statement to be declared effective as promptly as possible after the filing
thereof, but in any event prior to the 90th day following the issuance of such
Series C Stock and Series G Stock. The Registration Statement of which this
Prospectus is a part has been filed with the Commission pursuant to the
Registration Rights Agreements. The Selling Stockholders may sell all or a
portion of the Shares held by them from time to time while the applicable
registration statements remain effective. With respect to the 2,288,625 Shares
(plus a presently indeterminate number of Shares that may be issued) covered by
the Initial Registration Rights Agreement, the Company has agreed that it will
use all reasonable efforts to keep the registration statements effective for a
period of three years commencing on the effective date of the applicable
registration statement (or a shorter period if all of such Shares registered
under the applicable registration statement have been sold or may be sold
without volume restrictions pursuant to Rule 144 under the Securities Act prior
to the expiration of the three-year period). With respect to the 2,612,104
Shares (plus a presently indeterminate number of Shares that may be issued)
covered by the Subsequent Registration Rights Agreement, the Company has agreed
that it will use all reasonable efforts to keep the Registration Statement of
which this Prospectus is a part effective for a period of four years commencing
on the effective date of the Registration Statement (or a shorter period if all
of such Shares registered under the Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144 under the
Securities Act prior to the expiration of the four-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, from time to time, sell all or a portion of
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. The
Shares may be sold by the Selling Stockholders by one or more of the following
methods, without limitation: (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, (c) an exchange distribution in accordance
with the rules of such exchange, (d) ordinary
-16-
<PAGE> 18
brokerage transactions and transactions in which the broker solicits
purchasers, (e) privately negotiated transactions, (f) short sales and (g) a
combination of any such methods of sale. In effecting sales, brokers and
dealers engaged by the Selling Stockholders may arrange for other brokers or
dealers to participate. 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 at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a Selling
Stockholders, to purchase as principal any unsold Shares at the price required
to fulfill the broker-dealer commitment to the Selling Stockholders.
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 may also sell the
Shares 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 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.
From time to time the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver the
Shares in connection therewith or in settlement of securities loans. If the
Selling Stockholders engage in such transactions, the Conversion Price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements (not to exceed an
aggregate of $10,000) of counsel to the Selling Stockholders. 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, 1996 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.
-17-
<PAGE> 19
===============================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the shares
of Common Stock to which it relates or an offer to, or a solicitation of, any
person in any jurisdiction where such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change
in the affairs of the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to the date hereof.
=================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................... 2
Incorporation of Certain Documents by
Reference.............................................................. 3
Risk Factors............................................................ 4
Recent Developments..................................................... 13
Use of Proceeds......................................................... 14
Selling Stockholders.................................................... 14
Plan of Distribution.................................................... 16
Legal Matters........................................................... 17
Experts................................................................. 17
</TABLE>
===============================================================================
===============================================================================
[LOGO] [ILLINOIS SUPERCONDUCTOR CORPORATION]
4,900,729 Shares
Common Stock
--------------
PROSPECTUS
--------------
, 1997
===============================================================================
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The
Company will pay all of these expenses. All amounts are estimates except the
Securities and Exchange Commission registration fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission
registration fee........................... $ 3,356
Nasdaq National Market listing fee............ 9,392
Accountants' fees and expenses................ 2,500
Legal fees and expenses....................... 20,000
Miscellaneous expenses........................ 2,752
--------
Total.................................... $ 38,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of the Company's Certificate of Incorporation provides that the
Company shall indemnify its directors to the full extent permitted by the
General Corporation Law of the State of Delaware and may indemnify its officers
and employees to such extent, except that the Company shall not be obligated to
indemnify any such person (i) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or (ii) for any amounts paid in settlement of an action indemnified against by
the Company without the prior written consent of the Company. The Company has
entered into indemnity agreements with each of its directors. These agreements
may require the Company, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their status or service
as directors, to advance expenses to them as they are incurred, provided that
they undertake to repay the amount advanced if it is ultimately determined by a
court that they are not entitled to indemnification and to obtain directors'
liability insurance if available on reasonable terms.
In addition, Article 8 of the Company's Certificate of Incorporation
provides that a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for willful or negligent conduct in paying
dividends or repurchasing stock out of other than lawfully available funds or
(iv) for any transaction from which the director derives an improper personal
benefit.
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware which provides for indemnification of directors and officers
in certain circumstances.
The Company has obtained a directors' and officers' liability insurance
policy which entitles the Company to be reimbursed for certain indemnity
payments it is required or permitted to make to its directors and officers.
II-1
<PAGE> 21
Under the Registration Rights Agreement, the Company has agreed to
indemnify the Selling Stockholders and the Selling Stockholders has agreed to
indemnify the Company and its directors, its officers, and certain control
persons against certain liabilities and expenses incurred in connection with
the Registration Statement, including with respect to their respective
obligations under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
3.1* Certificate of Incorporation of the Company.
3.2* Bylaws of the Company.
3.3* Certificate of Amendment of Certificate of Incorporation of the
Company.
4.1* Specimen stock certificate representing Common Stock.
4.2** Certificate of Designation, Preferences and Rights relating to
the Company's Series B Convertible Preferred Stock.
4.3** Convertible Preferred Stock Purchase Agreement dated as of
June 6, 1997, by and between the Company and Southbrook
International Investments, Ltd.
4.4** Registration Rights Agreement dated as of June 6, 1997, by and
between the Company and Southbrook International Investments, Ltd.
4.5** Warrant dated June 6, 1997 issued to Southbrook International
Investments, Ltd.
4.6 Rights Agreement dated as of February 9, 1996, by and between the
Company and LaSalle National Trust, N.A., filed as the Exhibit to
the Company's Registration Statement on Form 8-A, filed February
12, 1996, and incorporated herein by reference.
4.7*** Certificate of Designation, Preferences and Rights relating to
the Company's Series C Convertible Preferred Stock.
4.8 Certificate of Designation, Preferences and Rights relating to
the Company's Series G Convertible Preferred Stock.
4.9 Convertible Preferred Stock Purchase Agreement dated as of
October 29, 1997, by and between the Company and Elliott
Associates, L.P. and Westgate International, L.P.
4.10 Registration Rights Agreement dated as of October 29, 1997, by
and between the Company and Elliott Associates, L.P. and
Westgate International, L.P.
4.11 Agreement dated as of October 29, 1997, by and between the
Company and Brown Simpson Strategic Growth Fund, L.P. and
Southbrook International Investments, Ltd.
5 Opinion of Katten Muchin & Zavis as to the legality of the
securities being registered (including consent).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Katten Muchin & Zavis (contained in its opinion filed
as Exhibit 5 hereto).
24 Power of Attorney (included on the signature page hereto).
</TABLE>
- -------------------
* Incorporated by reference from the same exhibit number to the Company's
Registration Statement on Form S-1 dated August 20, 1993, Reg. No.
33-67756.
** Incorporated by reference from the same exhibit number to the Company's
Registration Statement on Form S-3 dated June 23, 1997, Reg. No.
333-29797.
*** Incorporated by reference from the same exhibit number to the Company's
Registration Statement on Form S-3 dated September 22, 1997, Reg. No.
333-3608.
II-2
<PAGE> 22
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended (the "Securities Act"), each such
post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offer therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities 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 Company in thee
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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mt. Prospect, State of Illinois on the 5th day of
December, 1997.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /S/ EDWARD W. LAVES
-------------------------------------
Edward W. Laves,
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Edward W. Laves, Ora E. Smith and Stephen G. Wasko and each of them his true
and lawful attorney-in-fact and agent, with full power of substitution, to sign
on his behalf, individually and in each capacity stated below, all amendments
and post-effective amendments to this Registration Statement on Form S-3
(including registration statements filed pursuant to Rule 462(b) under the
Securities Act of 1933, and all amendments thereto) and to file the same, with
all exhibits thereto and any other documents in connection therewith, with the
Securities and Exchange Commission under the Securities Act of 1933, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully and to all intents and purposes as each might or
could do in person, hereby ratifying and confirming each act that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on
December 5, 1997 in the capacities indicated.
SIGNATURE TITLE
- --------------------------- ------------------------------------------
/S/ EDWARD W. LAVES President, Chief Executive Officer
- --------------------------- (Principal Executive Officer) and Director
Edward W. Laves
/S/ STEPHEN G. WASKO Vice President, Chief Financial Officer,
- --------------------------- Treasurer and Secretary (Principal
Stephen G. Wasko Financial and Accounting Officer)
/S/ PETER S. FUSS
- ---------------------------
Peter S. Fuss Director
/S/ STEVEN LAZARUS
- ---------------------------
Steven Lazarus Director
/S/ TOM L. POWERS
- ---------------------------
Tom L. Powers Director
/S/ ORA E. SMITH
- ---------------------------
Ora E. Smith Chairman of the Board and Director
II-4
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- --------------------------------------------------------
<S> <C>
4.8 Certificate of Designation, Preferences and Rights
relating to the Company's Series G Convertible Preferred
Stock.
4.9 Convertible Preferred Stock Purchase Agreement dated as
of October 29, 1997, by and between the Company and
Elliott Associates, L.P. and Westgate International, L.P.
4.10 Registration Rights Agreement dated as of October 29,
1997, by and between the Company and Elliott Associates,
L.P. and Westgate International, L.P.
4.11 Agreement dated as of October 29, 1997, by and between
the Company and Brown Simpson Strategic Growth Fund, L.P.
and Southbrook International Investments, Ltd.
5 Opinion of Katten Muchin & Zavis as to the legality of
the securities being registered (including consent).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Katten Muchin & Zavis (contained in its
opinion filed as Exhibit 5 hereto).
24 Power of Attorney (included on the signature page hereto).
</TABLE>
<PAGE> 1
Exhibit 4.8
CERTIFICATE OF DESIGNATION OF
SERIES G CONVERTIBLE PREFERRED STOCK OF
ILLINOIS SUPERCONDUCTOR CORPORATION
The undersigned, Edward W. Laves and Stephen G. Wasko, hereby
certify that:
I. They are the duly elected and acting President and
Secretary, respectively, of Illinois Superconductor Corporation, a Delaware
corporation (the "Company").
II. The Certificate of Incorporation of the Company
authorizes 100,000 shares of preferred stock, par value $.001 per share, 900
shares of which are currently issued and outstanding.
III. The following is a true and correct copy of
resolutions duly adopted by the Board of Directors of the Company (the "Board
of Directors") at a meeting duly held on October 16, 1997, which constituted
all requisite action on the part of the Company for adoption of such
resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors is authorized to provide for
the issuance of the shares of preferred stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, relative rights, qualifications,
limitations or restrictions of the shares of each such series.
WHEREAS, the Board of Directors desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock, set the
number of shares constituting such series and fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
Section 1. Designation, Amount and Par Value. The
series of preferred stock shall be designated as the Series G Convertible
Preferred Stock (the "Preferred Stock"), and the number of shares so designated
shall be 700 (which shall not be subject to increase without the consent of the
holders of a majority of the then outstanding Preferred Stock hereof). Each
share of Preferred Stock shall have a par value of $.001 per share and a stated
value of $5,000 per share (the "Stated Value").
<PAGE> 2
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) equal to 5% per
annum, payable, in cash or shares of Common Stock (as defined in Section 7) at
the option of the Company upon two Business Days' written notice, quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (the
"Dividend Payment Date"), commencing on December 31, 1997, through the
Conversion Date (as defined in Section 5(a)(i)) applicable to each share of
Preferred Stock in accordance with the delivery terms hereof. Dividends on the
Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing the Original Issue Date (as defined in Section 7), and
shall be deemed to accrue on such Dividend Payment Date whether or not earned
or declared and whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. The party of record
that holds the Preferred Stock on the fifteenth day of the calendar month
immediately preceding a Dividend Payment Date will be entitled to receive the
dividend payment for such Dividend Payment Date and any other accrued and
unpaid dividends which accrued prior to such Dividend Payment Date, without
regard to any sale or disposition of such Preferred Stock subsequent to the
applicable record date but prior to the applicable Dividend Payment Date. If,
at the Company's election, dividends are paid on the Preferred Stock in the
form of shares of Common Stock, such shares of Company Stock shall be valued at
the Conversion Price (as defined in Section 5(c)(i)) on the Trading Day (as
defined in Section 7) immediately preceding the date on which such dividend is
paid. Except as otherwise provided herein, if at any time the Company pays
less than the total amount of dividends then accrued on account of the
Preferred Stock, such payment shall be distributed ratably among the holders of
the Preferred Stock based upon the number of shares held by each holder.
Payment of dividends on the Preferred Stock is further subject to the
provisions of Section 5(c)(i).
(b) Notwithstanding anything to the contrary contained
herein, the Company may not issue shares of Common Stock in payment of
dividends (and must deliver cash in respect thereof) on the Preferred Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to issue such dividends to be paid in shares of Common
Stock;
(ii) such shares are not registered for resale
pursuant to an effective registration statement and covered by a current
related prospectus that names the recipient of such dividend as a selling
stockholder thereunder and may not be sold without volume restrictions pursuant
to Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent, in the form
and substance reasonably acceptable to the holder;
-2-
<PAGE> 3
(iii) such shares are not listed on the Nasdaq
National Market, The Nasdaq SmallCap Market, the New York Stock Exchange, the
American Stock Exchange or any other exchange or quotation system on which the
Common Stock is then listed for trading; or
(iv) the issuance of such shares would result in the
recipient thereof and its Affiliates beneficially owning, in accordance with
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
(but without taking into account shares of Common Stock that would otherwise be
deemed beneficially owned by virtue of the conversion of the Shares or exercise
of warrants of the Company having similar limitations on exercise), more than
9.999% of the issued and outstanding shares of Common Stock (with the recipient
having the right to decrease such percentage applicable to it, immediately upon
delivering written notice to the Company).
(c) So long as any Preferred Stock shall remain
outstanding, the Company shall not redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities (as defined in Section 7), nor
shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section
5(c)(ii) or 5(c)(iv)) in excess, of in the aggregate, $250,000 upon, nor shall
any distribution be made in respect of, any Junior Securities, nor shall any
monies in excess, of in the aggregate, $1,000,000 be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of any
Junior Securities.
Section 3. Voting Rights. Except as otherwise provided
herein and as otherwise required by law, the Preferred Stock shall have no
voting rights. However, so long as any shares of Preferred Stock are
outstanding, the Company shall not, without the affirmative vote of the holders
of a majority of the shares of the Preferred Stock then outstanding, (a) alter
or change adversely the powers, preferences or rights given to the Preferred
Stock, (b) alter or amend this Certificate of Designation or (c) authorize or
create any class of stock ranking as to dividends or distribution of assets
upon a Liquidation (as defined in Section 4) senior to, prior to or pari passu
with the Preferred Stock, except for any other series of preferred stock of the
Company issued and sold in accordance with the Convertible Preferred Stock
Purchase Agreement, dated as of June 6, 1997, by and between the Company and
Southbrook International Investments, Ltd.
Section 4. Liquidation. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary (a
"Liquidation"), the holders of Preferred Stock shall be entitled to receive in
cash out of the assets of the Company, whether such assets are capital or
surplus, for each share of Preferred Stock an amount equal to the Stated Value
plus all accrued but unpaid dividends per share, whether declared or not,
before any distribution or payment shall be made to the holders of any Junior
Securities, and if the assets of the Company shall be insufficient to pay in
full the amounts due to the holders of the Preferred Stock and holders of
shares of other classes or series of capital stock of the Company that rank
pari passu with the Preferred Stock as to distributions of assets, then the
entire assets to be distributed to the holders of Preferred Stock and the
holders of such capital stock ranking pari passu shall be
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distributed among the holders of Preferred Stock and the holders of such
capital stock ranking pari passu ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon
were paid in full. A sale, conveyance or disposition of all or substantially
all of the assets of the Company or the effectuation by the Company of a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of, or a consolidation or merger of the
Company with or into any other company or companies shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 5. The
Company shall mail written notice of any such Liquidation, not less than 45
days prior to the payment date stated therein, to each record holder of
Preferred Stock.
Section 5. Conversion.
(a)(i) Each share of Preferred Stock shall be convertible
into shares of Common Stock (subject to reduction pursuant to Section 5(a)(ii)
and Section 5(a)(iii) below and Section 3.8 of the Purchase Agreement (as
defined in Section 7)) at the Conversion Ratio (as defined in Section 7) at the
option of the holder in whole or in part at any time after the Original Issue
Date. The holder shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be converted to the
Company, together with a fully executed notice of conversion in the form of
conversion notice attached hereto as Exhibit A (the "Conversion Notice"). Each
Conversion Notice shall specify the number of shares of Preferred Stock to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Conversion Notice is delivered hereunder (the
"Conversion Date"). If no Conversion Date is specified in a Conversion Notice,
the Conversion Date shall be the date that the Conversion Notice is deemed
delivered pursuant to Section 5(i). Subject to Sections 5(b), 5(a)(ii) hereof
and Section 3.8 of the Purchase Agreement, each Conversion Notice, once given,
shall be irrevocable. If the holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates tendered by the
holder with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall promptly deliver to such
holder (in the manner and within the time set forth in Section 5(b)) a
certificate for such number of shares as have not been converted.
(ii) Certain Regulatory Approval. If on the
Conversion Date applicable to any conversion under this Section 5(a), (A) the
Common Stock is then listed for trading on the Nasdaq National Market or if
the rules of The Nasdaq Stock Market, Inc. are hereafter amended to extend Rule
4460(i) promulgated thereby (or any successor or replacement provision thereof)
to The Nasdaq SmallCap Market or the American Stock Exchange and the Company's
Common Stock is then listed for trading on such market or exchange, (B) the
Conversion Price then in effect is such that the aggregate number of shares of
Common Stock that would then be issuable upon conversion of all outstanding
shares of Preferred Stock, together with any shares of Common Stock previously
issued upon conversion of Preferred Stock and in respect of payment of
dividends hereunder, would equal or exceed 20% of the number of shares of
Common Stock outstanding on the Original Issue Date (the "Issuable Maximum"),
and (C) the Company has not previously obtained Stockholder Approval (as
defined below), then the
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Company shall issue to the holder so requesting conversion of Preferred Stock
an amount of shares of Common Stock equal to the Issuable Maximum and, with
respect to any shares of Common Stock that otherwise would have been issuable
to such holder in respect of the Conversion Notice at issue or in respect of
payment of dividends hereunder in excess of the Issuable Maximum, the holder
shall have the option, by written notice, to require the Company to either (1)
as promptly as possible, but in no event later than 60 days after such
Conversion Date, convene a meeting of the holders of the Common Stock and use
its best efforts to obtain the Stockholder Approval or (2) redeem the balance
of the Preferred Stock subject to such Conversion Notice for cash at a price
per share equal to the product of (i) the average Per Share Market Value for
the five (5) Trading Days immediately preceding (A) the Conversion Date or (B)
the date of payment in full by the Company of such redemption price, whichever
is greater, and (ii) the Conversion Ratio calculated on the Conversion Date;
provided, however, that if the holder has requested that the Company obtain
Stockholder Approval under (1) above and the Company fails for any reason to
obtain such Stockholder Approval within the time period set forth in (1) above,
the Company shall be obligated to redeem the Preferred Stock not converted as a
result of the provisions of this Section in accordance with the provisions of
(2) above, and in such case the interest contemplated by the immediately
succeeding sentence shall be deemed to accrue from the Conversion Date. If the
holder has requested that the Company redeem shares of Preferred Stock pursuant
to this Section and the Company fails for any reason to pay the redemption
price under (2) above within seven days after the notice of redemption is
deemed delivered pursuant to Section 5(h), the Company will pay interest on
such redemption price in cash at a rate of 15% per annum to the converting
holder of Preferred Stock, accruing from the Conversion Date until the
redemption price plus any accrued interest thereon is paid in full; provided,
however, if any portion of the redemption price under this Section 5(a)(ii)
shall not be paid by the Company within seven days of such notice of redemption
being delivered, the holder by written notice given to the Company within 30
days of such 7th day, may elect to invalidate ab initio such redemption and the
Company shall, within three Trading Days of receipt of such notice, return to
such holder all shares of Preferred Stock for which the redemption price has
not been paid. "Stockholder Approval" means the approval by a majority of the
total votes cast on the proposal, in person or by proxy, at a meeting of the
stockholders of the Company held in accordance with the Company's Certificate
of Incorporation and By-laws, as amended and in effect on the date thereof, of
the issuance by the Company of shares of Common Stock exceeding the Issuable
Maximum as a consequence of the conversion of Preferred Stock into Common Stock
at a price less than the greater of the book or market value on the Original
Issue Date as and to the extent required pursuant to Rule 4460(i) of The Nasdaq
Stock Market, Inc. or Rule 713 of the American Stock Exchange (or any successor
or replacement provision thereof), as applicable.
(iii) If on any Conversion Date applicable
to a conversion under Section 5(a) or a redemption pursuant to Section 6, the
average Per Share Market Value for the five Trading Days immediately preceding
such Conversion Date exceeds the Initial Conversion Price (as defined in
Section 5(c(i)), as adjusted pursuant to Section 5(c), by more than 50%, the
Conversion Price otherwise applicable to such conversion or repayment shall be
increased by an amount equal to 50% of the difference between (A) the average
Per Share Market Value for
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the five Trading Days immediately preceding such Conversion Date, and (B) 150%
of the Initial Conversion Price, as adjusted pursuant to Section 5(c).
(b) Not later than three Trading Days after the
Conversion Date, the Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the Purchase
Agreement) representing the number of shares of Common Stock being acquired
upon the conversion of shares of Preferred Stock (subject to reduction pursuant
to Sections 5(a)(ii), 5(a)(iii) and Section 3.8 of the Purchase Agreement) and
(ii) one or more certificates representing the number of shares of Preferred
Stock not converted, if any, and (iii) a check drawn on the account of the
Company and payable to the holder in an amount equal to any accrued but unpaid
dividends, if the Company elects to pay such dividends in cash; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any shares of
Preferred Stock until certificates evidencing such shares of Preferred Stock
are either delivered for conversion to the Company, or the holder of such
Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security reasonably
acceptable to the Company) reasonably satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection therewith. The Company
shall, upon request of the holder, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section electronically through The Depository Trust Corporation or another
established clearing corporation performing similar functions. If in the case
of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or
as directed by the applicable holder by the third Trading Day after the
Conversion Date, the holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Preferred Stock
tendered for conversion. If the Company fails to deliver to the holder such
certificate or certificates pursuant to this Section, including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, prior to the fifth Trading
Day after the Conversion Date, the Company shall pay to such holder, in cash,
an amount equal to the greater of (x) $1,500, as liquidated damages, and not as
a penalty, for each Trading Day after such fifth Trading Day until such
certificates are delivered and (y) the actual damages which such holder can
prove it has suffered as a direct result of the Company's failure to deliver to
such holder such certificate or certificates prior to the fifth Trading Day
after the Conversion Date. If the Company fails to deliver to the holder such
certificate or certificates pursuant to this Section prior to the 20th day
after the Conversion Date, the Company shall, at the holder's option and upon
such holder's written notice, redeem such number of shares of Preferred Stock
then held by such holder, as requested by such holder. The redemption price
per share shall be equal to the product of (A) the average Per Share Market
Value for the five (5) Trading Days immediately preceding (1) the Conversion
Date or (2) the date of payment in full by the Company of such redemption
price, whichever is greater, and (B) the Conversion Ratio calculated on the
Conversion Date. If the holder has requested that the Company redeem shares
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of Preferred Stock pursuant to this Section and the Company fails for any
reason to pay the redemption price above within seven days after such notice is
deemed delivered pursuant to Section 5(h), the Company will pay interest on the
redemption price at a rate of 15% per annum, in cash to such holder, accruing
from such seventh day until the redemption price and any accrued interest
thereon is paid in full; provided, however, if any portion of the redemption
price under this Section 5(b) shall not be paid by the Company within seven
days of such notice of redemption being delivered, the holder by written notice
given to the Company within 30 days of such 7th day, may elect to invalidate ab
initio such redemption and the Company shall, within three Trading Days of
receipt of such notice, return to such holder all shares of Preferred Stock for
which the redemption price has not been paid.
(c) (i) The conversion price ("Conversion Price")
applicable to conversions of Preferred Stock into Common Stock hereunder shall
be determined in accordance with this Section. Subject to adjustment as
provided in this paragraph (c)(i), for any conversions that occur prior to the
earlier of (1) the date the Securities and Exchange Commission (the
"Commission") declares effective an Underlying Shares Registration Statement
(as defined below) or (ii) the 89th day after the Original Issue Date (such
period, the "Pre-Effective Period"), the Conversion Price for each share of
Preferred Stock shall equal the average Per Share Market Value for the five (5)
Trading Days immediately preceding the Original Issue Date (the "Initial
Conversion Price"). For all conversions occurring after the Pre- Effective
Period, subject to the immediately preceding sentence, the Conversion Price
shall be the lesser of (a) the Initial Conversion Price or (b) 101% of the
lowest average of the Per Share Market Value for any five (5) consecutive
Trading Days during the 60 Trading Days immediately preceding such Conversion
Date (which shall not include the date that such Conversion Notice is deemed
delivered hereunder pursuant to Section 5(h) below); provided, however, that in
no event shall the Conversion Price be calculated based on the Per Share Market
Value for any five (5) consecutive Trading Day period for which the Purchaser's
or any of its Affiliates' volume of trading in the Common Stock exceeds 20% of
the trading volume in the Common Stock (excluding any de minimis amount by
which the Purchaser or any of its Affiliates' inadvertently exceeds such 20%
limitation) during such five (5) consecutive Trading Day period as reported by
the Nasdaq National Market, The Nasdaq SmallCap Market, the New York Stock
Exchange, the American Stock Exchange or such other market or exchange on which
the Common Stock is traded (for example, if the Purchaser's or any of its
Affiliates' volume in the Common Stock exceeds such 20% level during Trading
Days 10-14, but does not exceed such level for Trading Days 11-15, then the
Conversion Price may be calculated based upon the Per Share Market Value for
Trading Days 11-15 but not for Trading Days 10-14). Notwithstanding the
foregoing, if (a) the registration statement contemplated by the Registration
Rights Agreement, which among other things, requires the Company to register
the resale of the shares of Common Stock issuable upon conversion of the
Preferred Stock (the "Underlying Shares Registration Statement") is not filed
on or prior to the 30th day after the Original Issue Date, or (b) the Company
fails to file with the Commission a request for acceleration in accordance with
Rule 12d1-2 promulgated under the Securities Exchange Act of 1934, as amended,
within five (5) days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that an Underlying Shares
Registration Statement will not be "reviewed" or is
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<PAGE> 8
advised that such Registration Statement is not subject to further review or
comment, or (c) if the Underlying Shares Registration Statement is not declared
effective by the Commission on or prior to the 90th day after the Original
Issue Date, or (d) if such Underlying Shares Registration Statement is filed
with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded within 10 Business Days by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (e) if trading in the Common Stock shall be suspended for
any reason for more than three consecutive Trading Days or five Trading Days in
the aggregate, or (f) if the conversion rights of the holders of Preferred
Stock hereunder are suspended for any reason, or (g) the Company postpones or
suspends the filing or effectiveness of any Registration Statement in excess of
20 consecutive days or 60 days in the aggregate during any twelve month period,
or (h) a holder of Registrable Securities must discontinue disposition of its
Registrable Securities pursuant to the fourth paragraph of Section 3(o) of the
Registration Rights Agreement (any such occurrence being referred to as an
"Event," and for purposes of clauses (a), (c), (f) and (h) the date on which
such Event occurs, or for purposes of clause (b) the date on which such five
(5) day period is exceeded, or for purposes of clause (d) the date which such
10 Business Day-period is exceeded, or for purposes of clause (e) the date on
which such three Trading Day period is exceeded, or for purposes of clause (g)
the date on which such 20 consecutive day or 60 aggregate day period is
exceeded, being referred to as an "Event Date"), the Conversion Price in effect
on a Conversion Date shall be decreased by 2.5% for each monthly anniversary of
an Event Date until the earlier to occur of the second month anniversary after
the Event Date and such time as the applicable Event is cured (e.g. if an Event
has not been cured on the first month anniversary of its Event Date, the
Conversion Price in effect on a Conversion Date shall be reduced to 97.5% of
such Conversion Price; if the Event has not been cured on the second month
anniversary of its Event Date, the Conversion Price in effect on a Conversion
Date shall be further reduced to 95% of such Conversion Price). Commencing the
second month anniversary after the Event Date, at the option of each holder, to
be exercised by written notice, for each applicable monthly period either (a)
the Company shall pay to the holders of the Preferred Stock 2.5% of the product
of the number of outstanding shares of Preferred Stock and the Stated Value
(each holder being entitled to receive such portion of such amount as equals
its pro rata portion of the Preferred Stock then outstanding) in cash or (b)
the Conversion Price in effect on a Conversion Date shall be decreased by 2.5%
for each such additional month (to be effective in full on the monthly
anniversary of an applicable Event Date) as liquidated damages, and not as a
penalty, on the first day of each monthly anniversary of the Event Date, in
either case until such time as the applicable Event is cured. Any decreased
Conversion Price in effect pursuant to this Section shall continue
notwithstanding the fact that the Event causing such decrease has been
subsequently cured. If an Event is not cured by the third month anniversary of
an Event Date (or the second week anniversary of an Event Date for the purpose
of clause (f)), then the holder shall have the option by written notice to
require the Company to redeem its shares of Preferred Stock at an aggregate
purchase price equal to the product of (i) the average Per Share Market Value
for the five (5) Trading Days immediately preceding the holder's redemption
notice and (ii) the number of shares of Common Stock into
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which the Preferred Stock held by such holder is convertible on the date of
such redemption notice. If the holder has requested that the Company redeem
shares of Preferred Stock pursuant to this Section and the Company fails for
any reason to pay the redemption price within seven days after the notice of
redemption is deemed delivered pursuant to Section 5(h), the Company will pay
interest on such redemption price in cash at a rate of 15% per annum to such
holder of Preferred Stock, accruing from the date the notice of redemption is
deemed delivered until the redemption price plus any accrued interest thereon
is paid in full; provided, however, if any portion of the redemption price
under this Section 5(c)(i) shall not be paid by the Company within seven days
of such notice of redemption being delivered, the holder by written notice
given to the Company within 30 days of such 7th day, may elect to invalidate ab
initio such redemption and the Company shall, within three Trading Days of
receipt of such notice, return to such holder all shares of Preferred Stock for
which the redemption price has not been paid. The provisions of this Section
are not exclusive and shall in no way limit the Company's obligations under the
Registration Rights Agreement.
(ii) If the Company, at any time while any shares
of Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities payable
in shares of Common Stock, (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
Common Stock any shares of capital stock of the Company, the Initial Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 5(c)(ii) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares
of Preferred Stock are outstanding, shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value of
Common Stock at the record date mentioned below, the Initial Conversion Price
shall be multiplied by a fraction, of which the denominator shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Initial Conversion Price pursuant to
this Section
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5(c)(iii), if any such right or warrant shall expire and shall not have been
exercised, the Initial Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to
the price which it would have been (but reflecting any other adjustments in the
Initial Conversion Price made pursuant to the provisions of this Section 5
after the issuance of such rights or warrants) had the adjustment of the
Initial Conversion Price made upon the issuance of such rights or warrants been
made on the basis of offering for subscription or purchase only that number of
shares of Common Stock actually purchased upon the exercise of such rights or
warrants actually exercised.
(iv) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common
Stock (and not to holders of Preferred Stock) evidences of its indebtedness or
assets or rights or warrants to subscribe for or purchase any security
(excluding those referred to in Sections 5(c)(ii) and (iii) above), then in
each such case the Initial Conversion Price at which each share of Preferred
Stock shall thereafter be convertible shall be determined by multiplying the
Initial Conversion Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value of Common
Stock determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of Directors in
good faith; provided, however, that if the holders of a majority in interest of
the shares of Preferred Stock dispute such amount, such holders may select a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (an
"Appraiser") paid for by the holders of a majority in interest of the shares of
Preferred Stock then outstanding, in which case the fair market value shall be
equal to the average of the determinations by the Board of Directors and such
Appraiser. In either case the adjustments shall be described in a statement
provided to the holders of Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) All calculations under this Section 5 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be.
(vi) Whenever the Initial Conversion Price is
adjusted pursuant to Section 5(c)(ii),(iii) or (iv), the Company shall promptly
mail to each holder of Preferred Stock, a notice setting forth the Initial
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(vii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another
previously unaffiliated person, the sale or transfer of all or substantially
all of the assets of the Company or any compulsory share
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exchange pursuant to which the Common Stock is converted into other securities,
cash or property (each, a "Business Combination"), the holders of the Preferred
Stock then outstanding shall have the right thereafter to, at their option, (A)
convert such shares only into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such Business Combination, and the holders of the Preferred Stock
shall be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which such
shares of Preferred Stock could have been converted immediately prior to such
Business Combination would have been entitled or (B) require the Company to
redeem its shares of Preferred Stock then outstanding at a price per share
equal to the product of (x) the average Per Share Market Value for the five (5)
Trading Days immediately preceding (i) the effective date or the date of the
closing, as the case may be, of the Business Combination triggering such
redemption right or (ii) the date of payment in full by the Company of the
redemption price hereunder, whichever is greater, and (y) the Conversion Ratio
calculated on the date of the closing or the effective date, as the case may
be, of the Business Combination triggering such redemption right, as the case
may be. The entire redemption price shall be paid in cash, and the terms of
payment of such redemption price shall be subject to the provisions set forth
in Section 6(b). The terms of any such Business Combination shall include such
terms so as to continue to give to the holder of Preferred Stock the right to
receive the securities, cash or property set forth in this Section 5(c)(vii)
upon any conversion or redemption following such Business Combination upon
terms substantially equivalent to those contained herein. This provision shall
similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any rights; or
D. the approval of any stockholders of the Company shall
be required in connection with any reclassification
of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of
the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other
securities, cash or property; or
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E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding
up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Preferred Stock, and shall cause to be mailed
to the holders of Preferred Stock at their last addresses as they shall appear
upon the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however,
that the failure to mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the corporate action required to be
specified in such notice. Holders are entitled to convert shares of Preferred
Stock during the 30-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(d) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of Preferred Stock and
payment of dividends on Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Preferred Stock, not less than such number of shares
of Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 5(c))
upon the conversion of all outstanding shares of Preferred Stock and payment of
dividends hereunder. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and freely tradeable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder
of a share of Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common
Stock on conversion of Preferred Stock shall be made without charge to the
holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
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of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the holder of such shares of
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
(g) Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares
of preferred stock of the Company.
(h) Any and all notices or other communications or
deliveries to be provided by the holders of the Preferred Stock hereunder,
including, without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile, or by a nationally recognized overnight
courier service to the attention of the Chief Financial Officer of the Company
at the facsimile telephone number or address of the principal place of business
of the Company as set forth in the Purchase Agreement. Any and all notices or
other communications or deliveries to be provided by the Company hereunder
shall be in writing and delivered personally, by facsimile, or by a nationally
recognized overnight courier service addressed to each holder of Preferred
Stock at the facsimile telephone number or address of such holder appearing on
the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder shall be deemed delivered (i) upon
receipt, when delivered personally, (ii) when sent by facsimile, upon receipt
if received on a Business Day prior to 5:00 p.m. (Eastern Time), or on the
first Business Day following such receipt if received on a Business Day after
5:00 p.m. (Eastern Time) or (iii) the Business Day following the date of
depositing with a nationally recognized overnight courier service.
Section 6. Redemption. (a) The Company shall have the
right, exercisable at any time upon 5 Trading Days' notice to the holders of
the Preferred Stock given at any time on or after the third anniversary of the
Original Issue Date to redeem all or any portion of the shares of Preferred
Stock which have not previously been converted or redeemed, at a price per
share equal to the product of (x) the average Per Share Market Value for the
five (5) Trading Days immediately preceding (i) the date of the redemption
notice referenced above, (ii) the date of payment in full by the Company of the
redemption price hereunder, or (iii) if payment is not made by the fifth
Trading Day after the Company's redemption notice, such fifth Trading Day
whichever is greater, and (y) the Conversion Ratio calculated on the date of
such redemption notice. The entire redemption price shall be paid in cash.
Holders of Preferred Stock may convert any shares of Preferred Stock, including
shares subject to a redemption notice given under this Section, during the
period from the date of such redemption notice through the date on which the
redemption price for such Preferred Stock is paid by the Company and the
Company shall honor all properly tendered Conversion Notices during such
period. Any redemption notice under this Section 6 shall indicate the number
of shares of Preferred Stock to be redeemed and the date (subject to the terms
hereof) on which such redemption is to occur. The holders of the Preferred
Stock to be redeemed shall tender by overnight mail, shares of Preferred Stock
subject to such redemption on the date prior to the redemption date. If the
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<PAGE> 14
Company intends to redeem less than all of the then outstanding Preferred
Stock, it shall do so on a pro rata basis among such holders in accordance with
this Section. If any portion of the applicable redemption price under this
Section 6 shall not be paid by the Company within seven days after the date
due, interest shall accrue thereon at the rate of 15% per annum until the
redemption price plus all such interest is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). In addition, if any portion
of such redemption price remains unpaid for more than seven days after the date
due, the holder of the Preferred Stock subject to such redemption may elect, by
written notice to the Company given within 30 days after the date due, to
either (i) demand conversion in accordance with the formula and the time frame
therefor set forth in Section 5 of all of the shares of Preferred Stock for
which such redemption price, plus accrued liquidated damages thereof, has not
been paid in full (the "Unpaid Redemption Shares"), in which event the Per
Share Market Price for such shares shall be the lower of the Per Share Market
Price calculated on the date such redemption price was originally due and the
Per Share Market Price as of the holder's written demand for conversion, or
(ii) invalidate ab initio such redemption, notwithstanding anything herein
contained to the contrary. If the holder elects option (i) above, the Company
shall within three (3) Trading Days of its receipt of such election deliver to
the holder the shares of Common Stock issuable upon conversion of the Unpaid
Redemption Shares subject to such holder conversion demand and otherwise
perform its obligations hereunder with respect thereto; or, if the Holder
elects option (ii) above, the Company shall promptly, and in any event not
later than three (3) Trading Days from receipt of holder's notice of such
election, return to the holder all of the Unpaid Redemption Shares.
(b) The Company shall have the right, exercisable within
20 days after the issuance of a press release disclosing the execution by the
Company of a definitive agreement for the sale of all or substantially all of
its assets to another previously unaffiliated Person or the merger or
consolidation of the Company with or into another previously unaffiliated
Person pursuant to which a Person acquires voting securities of the Company
which, after giving effect to such acquisition, results in such Person
beneficially owning in excess of 50% of the issued and outstanding voting
securities of the Company or the surviving entity or pursuant to which one-half
of the members of the Board of Directors or the board of directors of the
surviving entity is replaced, to provide an irrevocable notice of redemption to
the holders of the Preferred Stock as to all, but not less than all, of the
then outstanding shares of Preferred Stock. The aggregate redemption price
shall be paid in cash on the closing date for such Business Combination. The
redemption price per share shall equal the product of (x) the average Per Share
Market Value for the five (5) Trading Days immediately preceding the closing
date for the Business Combination triggering such redemption and (y) the
Conversion Ratio calculated on the date of such redemption notice. The
definitive merger or purchase agreement for such Business Combination shall
include a provision by which the Company covenants to pay the redemption price
under this Section on the closing date therefor.
Section 7. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
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<PAGE> 15
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Common Stock" means the common stock, $.001 par value per
share, of the Company and stock of any other class into which such shares may
hereafter be reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon) but only to the extent to be paid in
shares of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time. Notwithstanding anything to
the contrary contained herein, for purposes of calculating any redemption
payment herein, all accrued but unpaid dividends will be deemed to be paid in
shares of Common Stock.
"Junior Securities" means the Common Stock and all other
equity securities of the Company which are junior in rights and liquidation
preference to the Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange or quotation system on which the Common
Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (b) if the Common Stock is not listed then on the
Nasdaq National Market or any stock exchange or quotation system, the closing
bid price for a share of Common Stock in the over-the-counter market, as
reported by The Nasdaq Stock Market, Inc. or in the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith and paid for
by the holders of a majority in interest of the shares of Preferred Stock;
provided, however, that the Company, after receipt of the determination by such
appraiser, shall have the right to select an additional Appraiser (which may be
the firm of independent accountants that regularly reviews the Company's
financial statements), in which case, the fair market value shall be equal to
the average of the determinations by each such Appraiser.
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<PAGE> 16
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of October 29, 1997, between the Company and the
original holders of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 29, 1997, between the Company and the original
holders of the Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is
traded on The Nasdaq National Market, Inc. or other stock exchange or market
on which the Common Stock has been listed, or (b) if the Common Stock is not
listed on The Nasdaq National Market, Inc. or any stock exchange or market, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted on
the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
"Underlying Shares" means the number of shares of Common Stock
into which the shares of Preferred Stock are convertible in accordance with the
terms hereof and the Purchase Agreement.
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<PAGE> 17
RESOLVED FURTHER, that the President and Secretary of the
Company be, and they hereby are, authorized and directed to prepare, execute,
verify, and file with the Secretary of State of Delaware, a Certificate of
Designation in accordance with these resolutions and as required by law.
IN WITNESS WHEREOF, Illinois Superconductor Corporation has
caused its corporate seal to be hereunto affixed and this certificate to be
signed by Edward W. Laves, its President, and attested by Stephen G. Wasko, its
Secretary, this 28th day of October, 1997.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ Edward W. Laves
-------------------------------
Name: Edward W. Laves
Title: President
Attest:
By: /s/ Stephen G. Wasko
------------------------------
Name: Stephen G. Wasko
Title: Secretary
<PAGE> 18
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert Shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series G
Convertible Preferred Stock (the "Preferred Stock") indicated below, into
shares of Common Stock, par value $.001 per share (the "Common Stock"), of
Illinois Superconductor Corporation (the "Company") according to the conditions
hereof, as of the date written below. If shares are to be issued in the name
of a person other than undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No
fee will be charged to the holder for any conversion, except for such transfer
taxes, if any.
The undersigned hereby represents that number of shares of Common Stock
issuable pursuant to this Notice of Conversion does not violate or breach the
restrictions on conversion contained in Section 3.8 of the Convertible
Preferred Stock Purchase Agreement dated as of October 29, 1997 by and between
the Company and Elliott Associates, L.P. and Westgate International, L.P.
Conversion calculations:
---------------------------------------------------
Date to Effect Conversion
---------------------------------------------------
Number of shares of Preferred Stock to be Converted
---------------------------------------------------
Number of shares of Common Stock to be Issued
(without taking into account any accrued but unpaid
dividends issuable upon this conversion, if any)
---------------------------------------------------
Applicable Conversion Price
---------------------------------------------------
Signature
---------------------------------------------------
Name
---------------------------------------------------
Address
<PAGE> 1
Exhibit 4.9
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
between
ILLINOIS SUPERCONDUCTOR CORPORATION
and
ELLIOTT ASSOCIATES, L.P.
and
WESTGATE INTERNATIONAL, L.P.
______________________________
Dated as of October 29, 1997
______________________________
================================================================================
<PAGE> 2
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of October 29, 1997, between Elliott Associates, L.P., a limited
partnership organized and existing under the laws of Delaware, and Westgate
International, L.P., a limited partnership organized and existing under the
laws of the Cayman Islands (each, a "Purchaser" and collectively, the
"Purchasers"), and Illinois Superconductor Corporation, a corporation organized
and existing under the laws of the State of Delaware (the "Company").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers desires to acquire shares of the Company's Series G Convertible
Preferred Stock, par value $.001 per share (the "Series G Preferred").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Purchase and Sale. (a) Subject to the terms and conditions
set forth herein, the Company shall issue and sell to the Purchasers and the
Purchasers shall purchase an aggregate of 700 shares of Series G Preferred (the
"Shares"), in the respective amounts set forth each Purchaser's name on the
Schedule of Purchasers attached hereto.
(b) The Series G Preferred shall have the respective
rights, preferences and privileges set forth in a Certificate of Designation,
substantially in the form of Exhibit A attached hereto (the "Certificate of
Designation"), which shall be approved by the Purchaser and filed on or prior
to the Closing (as defined below) by the Company with the Secretary of State of
Delaware.
For purposes of this Agreement, "Conversion Price" "Trading Day,
"Business Day" and "Per Share Market Value" shall have the meanings set forth
in the Certificate of Designation.
1.2 Purchase Price. The purchase price per Share shall be $5,000.
1.3 The Closing.
(a) The closing of the purchase and sale of the Shares
and the Warrants (the "Closing") shall take place at the offices of Kleinberg,
Kaplan, Wolff & Cohen, P.C. ("Kleinberg Kaplan"), 551 Fifth Avenue, New York,
New York 10176, immediately following the execution hereof or such later date
as the parties shall agree, but not prior to the date that the conditions set
forth in Section 4 have been satisfied or waived by the appropriate party. The
date of the Closing is hereinafter referred to as the "Closing Date." At the
Closing, the Company shall sell and issue to the Purchasers and the Purchasers
shall purchase, the Shares and the Warrants for an aggregate purchase price of
$3,500,000.
<PAGE> 3
(b) At the Closing, (i) the Company shall deliver to each
Purchaser one or more stock certificates representing such number of Shares
which such Purchaser is then buying (as indicated opposite such Purchaser's
name on the Schedule of Purchasers attached hereto) and a Warrant (as defined
below), each registered in the name of such Purchaser, and all other documents,
instruments and writings required to have been delivered at or prior to the
Closing by the Company pursuant to this Agreement and the Registration Rights
Agreement, dated the date hereof, by and between the Company and the
Purchasers, substantially in the form of Exhibit B attached hereto (the
"Registration Rights Agreement"), and (ii) each Purchaser shall deliver to the
Company that portion of $3,500,000 which represents the purchase price for the
Shares and Warrant to be issued and sold to such Purchaser (as indicated
opposite such Purchaser's name on the Schedule of Purchasers attached hereto),
in United States dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose prior to the
Closing Date, and all documents, instruments and writings required to have been
delivered at or prior to the Closing by such Purchaser pursuant to this
Agreement and the Registration Rights Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company.
The Company hereby makes the following representations and warranties to each
Purchaser:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries. The Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually
or in the aggregate, (x) adversely affect the legality, validity or
enforceability of any of the Transaction Documents (as defined below) in any
material respect, (y) have a material adverse effect on the results of
operations, assets, prospects, or financial condition of the Company or (z)
adversely impair in any material respect the Company's ability to perform fully
on a timely basis its obligations under the Transaction Documents (a "Material
Adverse Effect").
(b) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and by the Warrants, the Certificate of
Designation, the Registration Rights Agreement, and otherwise to carry out its
obligations hereunder and thereunder. This Agreement, the Certificate of
Designation, the Registration Rights Agreement and the Warrants are
collectively referred to as the "Transaction Documents". The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby has been duly
authorized by all necessary action on the part of the Company. Each of
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<PAGE> 4
the Transaction Documents has been duly executed by the Company and when
delivered in accordance with the terms hereof will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application. The Company
is not in violation of any of the provisions of its Certificate of
Incorporation, By-laws or other charter documents, each as amended as of the
date hereof.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in Schedule 2.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares and the Warrant hereunder, securities,
rights or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings, or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. To the knowledge of the Company, except as specifically
disclosed in the SEC Documents (as defined below) or Schedule 2.1(c), no Person
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock.
(d) Issuance of Shares and Underlying Shares. The Shares
and the Warrants are duly authorized, and when issued and paid for in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable. The Company, as at the Closing Date, will have, and at all
times while the Shares and the Warrants are outstanding will maintain, an
adequate reserve of duly authorized shares of Common Stock to enable it to
perform its obligations under this Agreement, the Warrants and the Certificate
of Designation with respect to the number of Shares and Warrants issued and
outstanding at the Closing Date and in no circumstances shall such reserved and
available shares of Common Stock be less than the sum of (i) two times the
number of shares of Common Stock which would be issuable upon conversion of the
Shares issued pursuant to the terms hereof (the "Underlying Shares") with
respect to the number of Shares issued and outstanding at the Closing Date were
such conversion effected on the Closing Date and (ii) the number of shares of
Common Stock which would be issuable upon exercise in full of the Warrants (the
"Warrant Shares") issued and outstanding at the Closing Date. When issued in
accordance with the terms hereof and the Certificate of Designation, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable; and when issued upon exercise of the Warrants in accordance with
the terms thereof, the Warrant Shares will be duly authorized, validly issued,
fully paid and nonassessable.
-3-
<PAGE> 5
(e) No Conflicts. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation by
the Company of the transactions contemplated thereby do not and will not (i)
conflict with or violate any provision of its Certificate of Incorporation or
By-laws (each as amended through the date hereof) or (ii) subject to obtaining
the consents referred to in Section 2.1(f), conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which the Company is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company is subject (including
Federal and state securities laws and regulations), or by which any material
property or asset of the Company is bound or affected, except in the case of
each of clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set
forth in Schedule 2.1(f), the Company is not required to obtain any consent,
waiver, authorization or order of, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other
person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, except for (i) the filing of the
Certificate of Designation with respect to the Shares with the Secretary of
State of Delaware, which filing shall be effected prior to the Closing Date,
(ii) the filing of the registration statement(s) contemplated by the
Registration Rights Agreement (the "Underlying Shares Registration
Statement(s)") with the Securities and Exchange Commission (the "Commission"),
which shall be filed in the time periods set forth in the Registration Rights
Agreement, (iii) the application(s) or any letter(s) acceptable to the Nasdaq
National Market for the listing of the Underlying Shares and the Warrant Shares
with the Nasdaq National Market, which shall be filed in accordance with
Section 3.9 hereof (and with any other national securities exchange or market
on which the Common Stock is then listed), (iv) any filings, notices or
registrations under applicable state securities laws, and (v) other than, in
all other cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, would not
materially impair or delay the ability of the Company to effect the Closing and
to deliver to the Purchasers the Shares (and, upon conversion of the Shares
thereunder, the Underlying Shares) or the Warrants (and, upon exercise of the
Warrants, the Warrant Shares) in the manner contemplated hereby and by the
Registration Rights Agreement free and clear of all liens and encumbrances of
any nature whatsoever (together with the consents, waivers, authorizations,
orders, notices and filings referred to in Schedule 2.1(f), the "Required
Approvals").
(g) Litigation; Proceedings. Except as specifically
disclosed in the Disclosure Materials (as defined below) or in Schedule 2.1(g),
there is no action, suit, notice of violation, proceeding or investigation
pending or, to the best knowledge of the Company, threatened against or
affecting the Company or any of its properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which
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<PAGE> 6
(i) adversely affects the legality, validity or enforceability of any of the
Transaction Documents or the Shares (ii) could, individually or in the
aggregate, have a Material Adverse Effect or (iii) could, individually or in
the aggregate, materially impair the ability of the Company to perform fully on
a timely basis its obligations under the Transaction Documents.
(h) No Default or Violation. The Company (i) is not in
default under or in violation of any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound, (ii) is not in violation of any order of any court,
arbitrator or governmental body, and (iii) is not in violation of any statute,
rule or regulation of any governmental authority, except as could not, in any
such case (individually or in the aggregate), (x) adversely affect the
legality, validity or enforceability of any of the Transaction Documents, (y)
have a Material Adverse Effect or (z) adversely impair the Company's ability or
obligation to perform fully on a timely basis its obligations under any of the
Transaction Documents.
(i) Schedules. The Schedules to this Agreement furnished
by or on behalf of the Company do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(j) Private Offering. Assuming (without any independent
investigation or verification by or on behalf of the Company) the accuracy of
the representations and warranties of the Purchaser set forth in Section 2.2,
the offer and sale of the Shares, the Warrants, the Underlying Shares and the
Warrant Shares are exempt from registration under Section 5 of the Securities
Act of 1933, as amended (the "Securities Act"). Neither the Company nor any
person acting on its behalf has taken or will take any action which might
subject the offering, issuance or sale of such Shares, the Warrants, the
Underlying Shares or the Warrant Shares to the registration requirements of
Section 5 of the Securities Act.
(k) SEC Documents. The Company has filed all reports
required to be filed by it under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including pursuant to Section 13(a) or 15(d)
thereof, for the three years preceding the date hereof (or such shorter period
as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC Documents" and,
together with the Schedules to this Agreement furnished by or on behalf of the
Company and any press releases issued by the Company, the "Disclosure
Materials") on a timely basis, or has received a valid extension of such time
of filing. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Documents, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved, except
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<PAGE> 7
as may be otherwise indicated in such financial statements or the notes
thereto, and fairly present in all material respects the financial position of
the Company as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal year-end audit adjustments. Since the date of the
financial statements included in the Company's last filed Quarterly Report on
Form 10-Q or last filed Annual Report on Form 10-K, whichever has been most
recently filed with the Commission, there has been no event, occurrence or
development that has had a Material Adverse Effect which is not specifically
disclosed in any of the Disclosure Materials.
(l) Seniority. No class of equity securities of the
Company is senior to the Shares in right of payment, whether upon liquidation,
dissolution or otherwise.
(m) Investment Company. The Company is not controlled
by, or under common control with, an affiliate (within the meaning of Rule 405
of the Securities Act, an "Affiliate") of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(n) Certain Fees. No fees or commissions will be payable
by the Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated by this Agreement.
(o) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering and sale of
the Shares, the Warrants, the Underlying Shares or the Warrant Shares other
than the Disclosure Materials and other filings by the Company pursuant to the
Exchange Act prior to the date hereof, and any amendments and supplements
thereto prepared in compliance herewith or (ii) solicited any offer to buy or
sell the Shares, the Warrants, the Underlying Shares or the Warrant Shares by
means of any form of general solicitation or advertising.
(p) Form S-3 Eligibility. The Company is, and at the
Closing Date will be, eligible to register securities for resale with the
Commission under Form S-3 promulgated under the Securities Act.
(q) Material Non-Public Information. The Company has not
supplied any material non-public information to the Purchasers in connection
with the offering and sale of the Shares, the Warrants, the Underlying Shares
or the Warrant Shares.
(r) Intellectual Property. Except as disclosed in its
filings pursuant to the Exchange Act or Securities Act, the Company (i) is
aware of no patents or trademarks ("Intellectual Property") to which the
Company does not possess rights or licenses to use, which are necessary to
conduct its business as now conducted; (ii) has no knowledge or reason to
believe of infringement by the Company of the Intellectual Property rights of
others and is unaware of any proceeding involving such infringement being
brought or threatened against the Company; (iii) has no knowledge of the
material infringement of its Intellectual Property by third parties; and (iv)
has no reason to believe that any of its Intellectual Property is
unenforceable.
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(s) Stockholder Rights Plan. The issuance of the Shares
and the Warrants directly from the Company to the Purchasers does not, and the
issuance of the Underlying Shares and the Warrant Shares directly from the
Company to the Purchasers, will not, in and of itself cause either Purchaser to
become an Acquiring Person as such term is defined in the Rights Agreement,
dated as of February 9, 1996, by and between the Company and LaSalle National
Trust, N.A., as Rights Agent.
2.2 Representations and Warranties of the Purchaser. Each
Purchaser hereby represents and warrants to the Company as follows:
(a) Organization; Authority. Such Purchaser is a limited
partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization with the requisite legal power and
authority to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement and otherwise to carry out its
obligations hereunder and thereunder. The purchase by the Purchaser of the
Shares and the Warrant hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by such
Purchaser or on its behalf and constitutes the valid and legally binding
obligation of such Purchaser, enforceable against the Purchaser in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights generally and to general principles of
equity.
(b) Investment Intent. Such Purchaser is acquiring the
Shares, the Warrant, the Underlying Shares and the Warrant Shares for its own
account for investment purposes only and not with a view to or for distributing
or reselling such Shares, Warrant, Underlying Shares or Warrant Shares or any
part thereof or interest therein, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Shares, Underlying Shares, Warrant or Warrant Shares
pursuant to an effective registration statement under the Securities Act and in
compliance with applicable State securities laws or under an exemption from
such registration.
(c) Purchaser Status. At the time such Purchaser was
offered the Shares and the Warrant, it was, and at the date hereof, it is, and
at the Closing Date and each exercise date under the Warrant, it will be, an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
(d) Experience of Purchaser. Such Purchaser, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Shares,
the Warrant, the Underlying Shares and the Warrant Shares, and has so evaluated
the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment.
Such Purchaser is able to bear the economic risk of an investment in the
Shares, the Warrant, the Underlying Shares
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<PAGE> 9
and the Warrant Shares, and, at the present time, is able to afford a complete
loss of such investment.
(f) Access to Information. Such Purchaser acknowledges
receipt of the Disclosure Materials and further acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Shares and the Warrant, and the
merits and risks of investing in the Shares and the Warrant; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information contained in the Disclosure Materials.
(g) Prohibited Transactions. The Shares and the Warrant
being purchased by such Purchaser are not being acquired, directly or
indirectly, with the assets of any "employee benefit plan" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended.
(h) Reliance. Such Purchaser understands and
acknowledges that (i) the Shares and the Warrant are being offered and sold to
such Purchaser without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
under Section 4(2) of the Securities Act or Regulation D promulgated thereunder
and (ii) the availability of such exemption, depends in part on, and the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and such Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchasers make
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) If a Purchaser should decide to
dispose of Shares or any portion of the Warrant (and upon conversion or
exercise thereof, as the case may be, any of the Underlying Shares or Warrant
Shares) held by it, the Purchaser understands and agrees that it may do so only
pursuant to an effective registration statement under the Securities Act, to
the Company or pursuant to an available exemption from the registration
requirements of the Securities Act. In connection with any transfer of any
Shares, any portion of the Warrants or any Underlying Shares or Warrant Shares
other than pursuant to an effective registration statement or to the Company,
the Company may require the transferor thereof to provide to the Company a
written opinion of counsel experienced in the area of United States securities
laws
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<PAGE> 10
selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred securities under the Securities
Act.
(b) Each Purchaser agrees to the imprinting, so long as
is required by this Section 3.1(b), of the following legend on its Shares,
Warrant, Underlying Shares and Warrant Shares:
[NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] [THE SECURITIES REPRESENTED
HEREBY] HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.
[FOR SHARES ONLY] THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND CONVERSION SET
FORTH IN A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF
OCTOBER 29, 1997, BETWEEN ILLINOIS SUPERCONDUCTOR CORPORATION (THE
"COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
The Underlying Shares issuable upon conversion of Shares and
the Warrant Shares issuable upon exercise of the Warrants, as the case may be,
shall not contain the legend set forth above if the conversion of such Shares
or exercise of the Warrants, as the case may be, occurs at any time while the
Underlying Shares Registration Statement is effective under the Securities Act
or in the event there is not an effective Underlying Shares Registration
Statement at such time, if in the written opinion of counsel to the Company
experienced in the area of United States securities laws determines that such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company agrees that it will provide each Purchaser, upon
request, with a certificate or certificates representing Underlying Shares and
Warrant Shares, free from such legend at such time as such legend is no longer
required hereunder. Each Purchaser agrees that, in connection with any
transfer of Underlying Shares or Warrant Shares by it pursuant to an effective
registration statement under the Securities Act, it will comply with the
prospectus delivery requirements of the Securities Act provided copies of a
current prospectus relating to such effective registration statement are or
have been supplied to such Purchaser. The Company makes no representation,
warranty or agreement as to the availability of any exemption from
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<PAGE> 11
registration under the Securities Act with respect to any resale of Shares,
Warrants, Underlying Shares or Warrant Shares.
3.2 Stop Transfer Instruction. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as a Purchaser owns
Shares, Underlying Shares, Warrants or Warrant Shares, the Company covenants to
timely file (or obtain extensions in respect thereof) all reports required to
be filed by the Company after the date hereof pursuant to Section 13(a) or
15(d) of the Exchange Act and to promptly furnish the Purchaser with true and
complete copies of all such filings. If the Company is not at the time
required to file reports pursuant to such sections, it will prepare and furnish
to each Purchaser annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act in the time
period that such filings would have been required to have been made under the
Exchange Act.
3.4 Copies and Use of Disclosure Materials. The Company shall
furnish each Purchaser, without charge, as many copies of the Disclosure
Materials, and any amendments or supplements thereto, as such Purchaser may
reasonably request. The Company consents to the use of the SEC Documents, and
any amendments and supplements thereto, by each Purchaser in connection with
resales of the Shares, the Underlying Shares or the Warrant Shares.
3.5 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares and the Warrant
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may request and shall continue such qualification at all times
through the third anniversary of the last Closing Date; provided, however, that
the Company shall not be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
3.6 Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate of the Company shall sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
such term is defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Shares, the Warrants, the Underlying
Shares or the Warrant Shares in a manner that would require the registration
under the Securities Act of the sale of the Shares, the Warrants, the
Underlying Shares or the Warrant Shares to the Purchaser.
3.7 Right of Second Refusal. For a period of six (6) months
commencing on the Closing Date, the Company may not enter into any transaction
to sell or otherwise dispose of equity or equity equivalent securities in any
private placement (a "Transaction") unless the Company first provides a written
notice to each Purchaser describing the terms of such
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<PAGE> 12
Transaction and attaching to such notice any written term sheet or other
similar writing with respect thereto. Subject to the provisions of this
Section, the Purchasers shall have the right, exercisable within five (5)
Business Days of its receipt of such notice, to elect, by written request to
the Company, to purchase the securities in the Transaction on the same exact
terms as set forth in such notice to the Purchasers. If the Purchasers shall
fail to provide such written request to purchase to the Company within such
five (5) Business Day period, the Company may enter into the Transaction with
respect to the securities upon principal terms substantially the same as those
set forth in the notice provided to the Purchasers in accordance with this
Section. Notwithstanding anything herein to the contrary, if Brown Simpson,
LLC ("Brown Simpson") shall have exercised its right of first refusal with
respect to the Transaction, then the Purchasers may also participate in the
Transaction with Brown Simpson; provided, however, that the Purchasers may only
elect to purchase up to an aggregate of 58% of the dollar value of the
securities offered in the Transaction. The Purchasers and the Company hereby
acknowledge that the term "Transaction" shall not include any transaction
involving the Company's issuance of securities in connection with (a) the
disposition or acquisition of a business, product or license by the Company;
(b) a merger, consolidation or sale of assets; (c) any strategic partnership or
joint venture (the primary purpose of which is not to raise equity capital);
(d) the issuance of securities pursuant to the exercise or conversion of
options, warrants, or preferred stock of the Company; (e) the granting of
options pursuant to a stock option plan of the Company; or (f) the issuance of
preferred stock or warrants pursuant to the Convertible Preferred Stock
Purchase Agreement dated as of June 6, 1997 by and between the Company and
Southbrook International Investments, Ltd ("Southbrook").
3.8 Purchaser Ownership of Common Stock. Each Purchaser or any of
its Affiliates may not use its ability to convert Shares hereunder or under the
terms of the Certificate of Designation or to use its ability to acquire shares
of Common Stock upon exercise of the Warrant, to the extent that such
conversion or exercise would result in the Purchasers beneficially owning (for
purposes of Rule 13d-3 under the Exchange Act, but without taking into account
shares of Common Stock that would otherwise be deemed beneficially owned by
virtue of the conversion or exercise of the remaining unconverted or
unexercised Shares, Warrants or other securities of the Company beneficially
owned by the Purchasers or their Affiliates having similar limitations on
conversion or exercise) more than 9.999% of the outstanding shares of the
Common Stock. The Company undertakes to promptly, upon its receipt of a notice
of conversion of Shares or exercise of the Warrants, notify such Purchaser of
the number of shares of Common Stock which it computes would be issuable to
such Purchaser or any of its Affiliates if the requested conversion or exercise
were effected in full; provided, however, if such conversion or exercise would
result in the Purchasers beneficially owning in excess of 9.999% of the
outstanding shares of Common Stock on such date, such Purchaser hereby consents
to the Company converting or exercising up to an amount at which the Purchasers
would beneficially own 9.999% of the outstanding shares of Common Stock;
provided, however, that if ten days shall have elapsed since such Purchaser has
declared an event of default under any Transaction Document and such event
shall not have been cured to such Purchaser's satisfaction prior to the
expiration of such ten-day period, the provisions of this Section 3.8 shall be
null and void ab initio. Notwithstanding the foregoing, each Purchaser shall
have the right to amend the foregoing restrictions in this Section 3.8 by
decreasing such percentage applicable to it, immediately upon delivering
written notice to the Company.
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3.9 Listing of Underlying Shares and Warrant Shares. The Company
shall (a) not later than the fifth Business Day following the Closing Date
prepare and file with the Nasdaq National Market (as well as any other national
securities exchange or market on which the Common Stock is then listed) an
additional shares listing application or a letter acceptable to the Nasdaq
National Market covering and listing such number of shares of Common Stock as
required under the Certificate of Designation, (b) take all steps necessary to
cause the Underlying Shares and the Warrant Shares issuable upon conversion of
the Shares or the exercise of the Warrants at the Closing Date to be approved
for listing on the Nasdaq National Market (as well as on any other national
securities exchange or market on which the Common Stock is then listed) as soon
as possible thereafter, and (c) provide to the Purchasers evidence of such
listing, and the Company shall maintain the listing of its Common Stock on such
exchange or market.
3.10 Conversion Procedures. Exhibit C attached hereto sets forth
the procedures with respect to the conversion of the Shares, including the
forms of conversion notice to be provided upon conversion, instructions as to
the procedures for conversion, the form of legal opinion, if necessary, that
shall be rendered to the Company's transfer agent and such other information
and instructions as may be reasonably necessary to enable each Purchaser to
exercise its right of conversion smoothly and expeditiously.
3.11 Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. In the event that at any time within the three-year period after the
last Closing Date trading in the shares of the Common Stock is suspended on
(other than as a result of the suspension of trading in securities on such
market generally or temporary suspensions pending the release of material
information) or delisted from the Nasdaq National Market (unless the Common
Stock is listed for trading the New York Stock Exchange, the American Stock
Exchange, or Nasdaq SmallCap Market within three Trading Days), for more than
three consecutive Trading Days or five Trading Days in the aggregate, at each
Purchaser's option exercisable by written notice to the Company and tender of
such Purchaser's Shares, the Company shall redeem all Shares and the Warrant
owned by such Purchaser and all Underlying Shares and Warrant Shares then held
by such Purchaser, at an aggregate purchase price equal to (A) the product of
the Per Share Market Value as of the Trading Day immediately preceding the day
of such notice multiplied by the number of shares of Common Stock into which
the Shares and the Warrant to be purchased are then convertible or exercisable
(or in the case of Underlying Shares and Warrant Shares, the number of
Underlying Shares and Warrant Shares to be purchased), plus (B) interest on
such amount accruing from the 7th day after the Company's receipt of such
notice and the Shares to be redeemed until paid at the rate of 15% per annum;
provided, however, if any portion of the redemption price under this Section
3.11 shall not be paid by the Company within seven days of the delivery of such
notice of redemption and Shares to be redeemed in accordance with Section 5.3,
such Purchaser, by written notice to the Company given within 30 days of such
7th day, may elect to invalidate ab initio such redemption and the Company
shall, within three Trading Days of receipt of such notice, return to the
Purchaser all Shares for which the redemption price has not been paid.
3.12 No Violation of Applicable Law. Notwithstanding any provision
of this Agreement to the contrary, if the redemption of Shares, Warrants,
Underlying Shares or Warrant
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<PAGE> 14
Shares otherwise required under this Agreement or the Registration Rights
Agreement would be prohibited by the relevant provisions of the Delaware
General Corporation Law, such redemption shall be effected as soon as it is
permitted under such law; provided, however, that interest payable by the
Company with respect to any such redemption shall continue to accrue in
accordance with Section 3.11.
3.13 Redemption Restrictions. Except for the agreements entered
into by and between the Company and Southbrook with respect to the shares of
the Company's preferred stock issued to Southbrook as of the date hereof and
the certificates of designation relating to such shares, the Company, as of the
date hereof, is not a party to any agreement which prohibits the redemption of
the Shares, Warrants, Underlying Shares or Warrant Shares otherwise required or
permitted under this Agreement, the Certificate of Designation or the
Registration Rights Agreement. The Company shall not enter into any agreement
which restricts its ability to redeem the Shares, the Warrants, the Underlying
Shares or the Warrant Shares, without the prior written consent of the
Purchasers; provided, however, that such consent shall not be required with
respect to any agreement entered into by and between the Company and
Southbrook, or any certificate of designation filed, with respect to shares of
preferred stock issued pursuant to the Convertible Preferred Purchase
Agreement, dated as of June 6, 1997, by and between the Company and Southbrook.
3.14 Notice of Breaches. Each of the Company and the Purchasers
shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in this Agreement or in
the Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior the Closing Date to which would reasonably be
likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained herein to be incorrect or breached as of
the Closing Date. However, no disclosure by either party pursuant to this
Section 3.14 shall be deemed to cure any breach of any representation, warranty
or other agreement contained herein or in the Registration Rights Agreement.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchasers of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated hereby and by the Registration Rights Agreement
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the Purchasers a copy of any written statement in support of or relating to
such claim or notice.
3.15 Conversion Obligations of the Company. The Company covenants
to convert Shares and to deliver Underlying Shares in accordance with the terms
and conditions and time period set forth in the Certificate of Designation, and
to deliver Warrant Shares in accordance with the terms and conditions and time
period set forth in the Warrants.
3.16 The Warrant. At the Closing, the Company shall issue to each
Purchaser, a common stock purchase warrant (the "Warrant"), substantially in
the form of Exhibit D attached hereto, pursuant to which such Purchaser shall
have the right at any time thereafter through the
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fourth anniversary of the date of issuance thereof, to acquire 17,391 shares of
Common Stock at an exercise price per share equal to 125% of the Conversion
Price on the Closing Date.
ARTICLE IV
CONDITIONS
4. (a) Conditions Precedent to the Obligation of the
Company to Sell the Shares and Warrants. The obligation of the Company to sell
the Shares and the Warrants hereunder to each Purchaser is subject to the
satisfaction, or waiver by the Company, at or before the Closing Date, of each
of the following conditions:
(i) Accuracy of such Purchaser's Representations
and Warranties. The representations and warranties of such Purchaser shall be
true and correct in all material respects as of the date when made and as of
the Closing Date, as though made on and as of such date (except for
representations and warranties that speak as of a specific date);
(ii) Performance by such Purchaser. Such
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to the
Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement; and
(iv) Required Approvals. All Required Approvals
shall have been obtained.
(b) Conditions Precedent to the Obligation of Each
Purchaser to Purchase the Shares and the Warrants. The obligation of such
Purchaser hereunder to acquire and pay for the Shares and the Warrant is
subject to the satisfaction or waiver by such Purchaser, at or before the
Closing Date, of each of the following conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company set forth herein
and in the Registration Rights Agreement shall be true and correct in all
material respects as of the date when made and as of the Closing Date, as
though made on and as of such date (except for representations and warranties
that speak as of a specific date);
(ii) Performance by the Company. The Company
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and
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conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement;
(iv) Adverse Changes. Since the date of the
financial statements included in the Company's Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, whichever is more recent, last filed prior to the
date of this Agreement, no event had or could reasonably be expected to have a
Material Adverse Effect and no material adverse change in the financial
condition or prospects of the Company shall have occurred which is not
disclosed in the Disclosure Materials;
(v) No Suspensions of Trading in Common Stock.
The trading in the Common Stock shall not have been suspended by the Commission
or on the Nasdaq National Market (except for any suspension of trading of
limited duration solely to permit dissemination of material information
regarding the Company and other than a suspension of trading on the Nasdaq
National Market if the Common Stock is listed for trading, and not suspended,
on The Nasdaq SmallCap Market within one business day after such suspension);
(vi) Listing of Common Stock. The Common Stock
shall have at all times between the date hereof and the Closing Date been, and
on the Closing Date be, listed for trading on the Nasdaq National Market, The
Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange;
(vii) Legal Opinion. The Company shall have
delivered to such Purchaser the opinion of Katten Muchin & Zavis, counsel to
the Company, in substantially the form attached hereto as Exhibit E;
(viii) Required Approvals. All Required Approvals
shall have been obtained;
(ix) Shares of Common Stock. On or prior to the
Closing Date, the Company shall have duly reserved for issuance upon conversion
of Shares and exercise of the Warrant such number of Underlying Shares as
required by the terms of the Registration Rights Agreement and 34,782 Warrant
Shares;
(x) Delivery of Stock Certificates. The Company
shall have delivered to Kleinberg Kaplan in escrow, pending the Closing Date,
the stock certificate(s) representing the Shares, registered in the name of
such Purchaser, each in form satisfactory to such Purchaser;
(xi) Registration Rights Agreement. The Company
shall have executed and delivered the Registration Rights Agreement;
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<PAGE> 17
(xii) Warrant. The Company shall have executed and
delivered the Warrant, registered in the name of such Purchaser, in accordance
with the terms of the Agreement;
(xiii) Certificate of Designation. The Certificate
of Designation shall have been duly filed with the Secretary of State of
Delaware, and the Company shall have delivered a copy thereof to such Purchaser
certified as filed by the office of the Secretary of State of Delaware;
(xiv) Company Certificates. Such Purchaser shall
have received a certificate, dated the Closing Date, signed by the Secretary or
an Assistant Secretary of the Company and certifying (i) that attached thereto
is a true, correct and complete copy of (A) the Company's Certificate of
Incorporation, as amended to the date thereof, (B) the Company's By-laws, as
amended to the date thereof, and (C) resolutions duly adopted by the Board of
Directors of the Company authorizing the execution, delivery and (where
appropriate) filing of the Transaction Documents and the Certificate of
Designation and the issuance and sale of the Shares, the Warrants, the
Underlying Shares and the Warrant Shares and (ii) the incumbency of the
officers executing the Transactions Documents, the Certificate of Designation
and the Warrants; and
(xv) Change of Control. No Change of Control
shall have occurred between the date hereof and the Closing Date. "Change of
Control" means the occurrence of any of (i) an acquisition after the date
hereof by an individual or legal entity of voting securities of the Company
pursuant to which, after giving effect to such acquisition, such individual or
legal entity will beneficially own in excess of 50% of the issued and
outstanding voting securities of the Company, (ii) a replacement of more than
one-half of the members of the Company's board of directors which is not
approved by those individuals who are members of the Company's board of
directors on the date hereof in one or a series of related transactions, (iii)
the merger of the Company with or into another entity, consolidation or sale of
all or substantially all of the assets of the Company in one or a series of
related transactions or (iv) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for any of the
events set forth above in (i), (ii) or (iii).
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, except as
set forth in the Registration Rights Agreement. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Shares pursuant hereto. Each Purchaser shall be responsible for its own tax
liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement.
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5.2 Entire Agreement; Amendments. This Agreement,
together with the Exhibits and Schedules hereto, the Registration Rights
Agreement, the Certificate of Designation (when filed) and the Warrants contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters.
5.3 Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) when sent
by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Eastern Time), or the first Business Day following such receipt if received on
a Business Day after 5:00 p.m. (Eastern Time); or (iii) on the Business Day
following the date of depositing with a nationally recognized overnight express
courier service, fully prepaid, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company: Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, IL 60056
Attn: Chief Financial Officer
Fax: (847) 391-5015
With copies to: Katten Muchin & Zavis
525 W. Monroe St. Suite 1600
Chicago, IL 60661
Attn: Lawrence D. Levin
Fax: (312) 902-1061
If to a Purchaser: Elliott Associates, L.P.
712 Fifth Avenue, 36th Floor
New York, NY 10019
Attn: Mark Brodsky
Fax: (212) 974-2092
Westgate International, L.P.
c/o Stonington Management Corp.
712 Fifth Avenue, 36th Floor
New York, NY 10019
Attn: Mark Brodsky
Fax: (212) 974-2092
-17-
<PAGE> 19
With copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, NY 10176
Attn: Stephen M. Schultz
Fax: (212) 986-8866
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
5.4 Amendments; Waivers. No provision of this Agreement
may be waived or amended except in a written instrument signed, in the case of
an amendment, by both the Company and the Purchasers; or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor any Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other. The assignment by a party of this Agreement or any
rights hereunder shall not affect the obligations of such party under this
Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
5.8 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements and covenants contained in
Article III and this Article V shall survive the delivery and conversion of the
Shares pursuant to this Agreement and the representations and warranties of the
Company and the Purchasers contained in Article II shall survive until a date
that is two years after the Closing Date.
5.10 Execution. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same
-18-
<PAGE> 20
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof.
5.11 Publicity. The Company and the Purchasers shall
consult with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby and
neither party shall issue any such press release or otherwise make any such
public statement without the prior consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
5.12 Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
Company:
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ Edward W. Laves
------------------------------------
Name: Edward W. Laves
Title: President and Chief
Executive Officer
Purchasers:
ELLIOTT ASSOCIATION, L.P.
By: /s/ Paul Singer
------------------------------------
Name: Paul Singer
Title: General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.,
Attorney-in-Fact
By: /s/ Paul Singer
------------------------------------
Name: Paul Singer
Title: President
<PAGE> 22
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF
SERIES G
PURCHASER'S NAME PREFERRED SHARESPURCHASE PRICE
- ---------------- ------------------------------
<S> <C> <C>
Elliott Associates, L.P. 350 $1,750,000
Westgate International, L.P. 350 $1,750,000
</TABLE>
<PAGE> 23
SCHEDULE 2.1(C)
The authorized, issued and outstanding capital stock of the Company
consists of the following:
Preferred Stock, $.001 par value, 100,000 shares authorized, 900 shares
issued and outstanding:
Series A Preferred Stock, 10,000 shares authorized, none issued and
outstanding
Series B Convertible Preferred Stock, 600 shares authorized, issued
and outstanding
Series C Convertible Preferred Stock, 600 shares authorized, 300
shares issued and outstanding
Common Stock, $.001 par value, 15,000,000 shares authorized, 5,178,105
shares issued and outstanding
The Company also has outstanding warrants to purchase 595,226 shares of
Common Stock and options to purchase 716,244 shares of Common Stock.
The Company has a stockholders rights plan (the "Rights Plan") pursuant to
which a Series A Right is associated and trades with each share of Common Stock
outstanding. Each Series A Right will entitle its holder, under certain
circumstances described in the Rights Plan, to purchase one one-thousandth of a
share of the Company's Series A Junior Participating Preferred Stock, $.001 par
value per share, for $200 (subject to adjustment) or receive shares of Common
Stock having a market value of two times the exercise of the Series A Right and
one Series B Right.
Southbrook International Investments, Ltd. ("Southbrook") holds 600 shares
of the Company's Series B Convertible Preferred Stock, 300 shares of the
Company's Series C Convertible Preferred Stock and a warrant exercisable for
62,500 shares of Common Stock. The Company has the option to issue up to 2,100
shares of additional convertible preferred stock to Southbrook and may also
issue additional warrants to Southbrook exercisable for up to 62,500 shares of
Common Stock if and when certain of the additional preferred stock is sold.
The conversion price for the Preferred Stock issued to Southbrook is based upon
the same formula set forth in the attached Purchase Agreement. The Company's
purchase agreement with Southbrook currently limits the conversion and exercise
rights of Southbrook to the extent that the maximum number of shares of Common
stock held by Southbrook and its affiliates after such conversion of its
Preferred Stock and/or exercise of any warrants would exceed 4.999% of the then
issued and outstanding shares of Common Stock following such conversion and/or
exercise.
Brown Simpson, LLC, pursuant to its Engagement Letter Agreement dated May
21, 1997, has been granted a right of first refusal with respect to future
private placement of equity or equity equivalent securities by the Company.
<PAGE> 24
SCHEDULE 2.1(F)
Written consent of Southbrook International Investments, Ltd. is required
pursuant to their Transaction Documents and written notice must be given to
Brown Simpson, LLC pursuant to its right of first refusal.
<PAGE> 25
SCHEDULE 2.1(G)
Illinois Superconductor Corporation v. Sheldon
Drobny, Howard L. "Buzz" Simons - Joint Tenant with
Aric and Corey Simons, Aaron Fischer, Stewart Shiman,
Sharon D. Gonsky d/b/a SDG Associates, Gregg
Rosenberg, Stacey Rosenberg, Merrill Weber & Co.,
Inc., Drobny/Fischer Partnership, and Reuben Rosenberg
No. 97 L 08169 (Circuit Court of Cook County,
Illinois)
In July 1997, the Company filed suit against ten of
its stockholders (collectively, "the debtors") and their
guarantor for the debtors' breach of their contractual payment
obligations under certain promissory notes that the debtors
gave to the Company when they exercised warrants to purchase
various shares of the Company's common stock in December 1996.
The Company's complaint seeks recovery of the $698,507
aggregate unpaid principal sum of the debtors' notes, together
with accrued interest, attorneys' fees and costs. On September
30, 1997, the debtors responded to the Company's complaint and
filed a counterclaim alleging that they exercised the stock
warrants in reliance on the Company's supposedly fraudulent
representations to one of the debtors concerning a
third-party's future underwriting of a secondary public
offering of the Company's stock. The counterclaim seeks an
unspecified amount of damages which the debtors allege "cannot
currently be determined."
The Company regards the debtors' fraud claim as
without factual or legal merit. Accordingly, on October 21,
1997, the Company filed a motion to dismiss the debtors'
counterclaim. Following completion of briefing, the motion
will be heard and decided in late November or early December
1997.
<PAGE> 26
NOTICE OF ADJUSTMENT
November 10, 1997
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
Attn: Stephen Wasko
Re: Adjustment of Limitation in Purchaser Ownership
Gentlemen:
Reference is made to the Convertible Preferred Stock Purchase Agreement,
dated as of October 29, 1997 (the "Purchase Agreement"), by and between the
undersigned and Illinois Superconductor Corporation (the "Company").
Capitalized terms used herein without definition shall have the meanings set
forth in the Purchase Agreement.
Pursuant to Section 3.8 of the Purchase Agreement, the undersigned hereby
notify the Company that the percentage referred to in such section is hereby
decreased from 9.99% to 4.99%. Such decrease is effective from the date hereof
until 61 days from the date a further written notice rescinding such decrease
is delivered to the Company by the undersigned.
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Singer
----------------------
Paul E. Singer
General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-In-Fact
By: /s/ Paul Singer
----------------------
Paul E. Singer
President
<PAGE> 1
Exhibit 4.10
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of October 29, 1997, between Illinois Superconductor
Corporation, a Delaware corporation (the "Company"), and Elliott Associates,
L.P., a limited partnership existing under the laws of Delaware, and Westgate
International, L.P., a limited partnership existing under the laws of the
Cayman Islands (each, a "Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Convertible Preferred
Stock Purchase Agreement, dated as of the date hereof between the Company and
the Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in
the state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value
$.001 per share.
"Effectiveness Date" means the 90th day following the Closing
Date.
<PAGE> 2
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 30th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the shares of Series G Convertible
Preferred Stock, par value $.001 per share, of the Company issued to the
Purchaser pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock
issuable upon (i) conversion of the Preferred Stock, (ii) exercise of the
Warrants issued by the Company to the Purchaser and (iii) payment of dividends
in respect of such Preferred Stock; provided, however that in order to account
for the fact that the number of shares of Common Stock that are issuable upon
conversion of shares of Preferred Stock is determined in part upon the market
price of the Common Stock at the time of conversion, Registrable Securities
shall include (but not be limited to) a number of shares of Common Stock equal
to no less than the sum of (a) two times the number of shares of Common Stock
into which the Preferred Stock is convertible,
-2-
<PAGE> 3
assuming such conversion occurred on the Closing Date, (b) the number of shares
of Common Stock issuable on payment of dividends on such Preferred Stock during
the period after the Closing Date and (c) the number of shares of Common Stock
issuable upon exercise in full of the Warrants, or such other number of shares
of Common Stock as agreed to by the parties to the Purchase Agreement.
Notwithstanding anything herein contained to the contrary, if the actual number
of shares of Common Stock into which the shares of Preferred Stock are
convertible exceeds twice the number of shares of Common Stock into which the
Preferred Stock is convertible based upon a computation as at a particular
Closing Date, the term "Registrable Securities" shall be deemed to include such
additional shares of Common Stock. If an additional Registration Statement is
required to be filed because the actual number of shares of Common Stock into
which the Preferred Stock is convertible, plus shares issuable upon payment of
dividends as described above and shares issuable upon exercise of the Warrants
exceeds the number of shares of Common Stock initially registered based upon
the computation on the Closing Date, the Company shall have 10 Business Days to
file such additional Registration Statement after notice of the requirement
thereof and shall use its best efforts to cause such Registration Statement to
be declared effective under the Securities Act as promptly as practicable after
the filing thereof, but in any event prior to 60 days after the filing of such
Registration Statement.
"Registration Statement" means the registration statements
contemplated by Section 2(a) (and any additional Registration Statements
contemplated in the definition of Registrable Securities), including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
-3-
<PAGE> 4
"Special Counsel" means any special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Shelf Registration
(a) On or prior to each applicable Filing Date the
Company shall prepare and file with the Commission a "Shelf" Registration
Statement covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (except if otherwise directed by the Holders of a majority in interest
of the applicable Registrable Securities in accordance herewith or if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith). The Company shall (i) not permit any securities
other than the Registrable Securities to be included in the Registration
Statement and (ii) use its best efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as possible after
the filing thereof, but in any event prior to the Effectiveness Date, and to
keep such Registration Statement continuously effective under the Securities
Act until the date which is four years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144 as determined by
the counsel to the Company pursuant to a written opinion letter, addressed to
the Company's transfer agent to such effect (the "Effectiveness Period");
provided, however, that the Company shall not be deemed to have used its best
efforts to keep the Registration Statement effective during the Effectiveness
Period if it voluntarily takes any action that would result in the Holders not
being able to sell the Registrable Securities covered by such Registration
Statement during the Effectiveness Period, unless such action is required under
applicable law or the Company has filed a post-effective amendment to the
Registration Statement and the Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable
Securities so elect, an offering of Registrable Securities pursuant to the
Registration Statement may be effected on no more than two occasions in the
form of an Underwritten Offering. In such event, and if the managing
underwriters advise the Company and such Holders in writing that in their
opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such
Underwritten Offering the amount of such Registrable Securities which in the
opinion of such managing underwriters can be sold, and such amount shall be
allocated pro rata among the Holders proposing to sell Registrable Securities
in such Underwritten Offering.
-4-
<PAGE> 5
(c) If any of the Registrable Securities are to be sold
in an Underwritten Offering, the investment banker in interest that will
administer the offering will be selected by the Holders of a majority of the
Registrable Securities included in such offering upon consultation with the
Company. No Holder may participate in any Underwritten Offering hereunder
unless such Person (i) agrees to sell its Registrable Securities on the basis
provided in any underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to
each applicable Filing Date, a Registration Statement on Form S-3 (or such
other form if directed by the Holders in connection with an Underwritten
Offering hereunder or if the Company is not then eligible to register for
resale the Registrable Securities on Form S-3, in which case such registration
shall be on another appropriate form in accordance herewith) in accordance with
the method or methods of distribution thereof as specified by the Holders
(except if otherwise directed by the Holders), and cause the Registration
Statement to become effective and remain effective as provided herein;
provided, however, that not less than five (5) Business Days prior to the
filing of the Registration Statement or any related Prospectus or any amendment
or supplement thereto (including any document that would be incorporated or
deemed to be incorporated therein by reference), the Company shall (i) furnish
to the Holders, their Special Counsel and any managing underwriters, copies of
all such documents proposed to be filed, which documents (other than those
incorporated or deemed to be incorporated by reference) will be subject to the
review of such Holders, their Special Counsel and such managing underwriters,
and (ii) cause its officers and directors, counsel and independent certified
public accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to such Holders and such underwriters,
to conduct a reasonable investigation within the meaning of the Securities Act.
The Company shall not file the Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object in writing within three (3) Business Days of their
receipt thereof.
(b) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to the Registration Statement
as may be necessary to keep the Registration Statement continuously effective
as to the applicable Registrable Securities for the Effectiveness Period and
prepare and file with the Commission such additional Registration Statements in
order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424 (or any
-5-
<PAGE> 6
similar provisions then in force) promulgated under the Securities Act; (iii)
respond as promptly as practicable to any comments received from the Commission
with respect to the Registration Statement or any amendment thereto and
promptly provide the Holders true and complete copies of all correspondence
from and to the Commission relating to the Registration Statement; and (iv)
comply with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be
sold, their Special Counsel and any managing underwriters immediately (and, in
the case of (i)(A) below, not less than five (5) days prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later than
one (1) Business Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed; (B) when the Commission notifies the Company whether
there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement covering any or all of the Registrable Securities
or the initiation of any Proceedings for that purpose; (iv) if at any time any
of the representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true
and correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to the Registration Statement, Prospectus or
other documents so that, in the case of the Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the
Holders of a majority in interest of the Registrable Securities to be sold in
connection with an Underwritten Offering, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment to the Registration
-6-
<PAGE> 7
Statement such information as such managing underwriters and such Holders
reasonably agree should be included therein and (ii) make all required filings
of such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 3(e) that would, in the opinion of counsel for the
Company, violate applicable law or be materially detrimental to the business
prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special
Counsel, and any underwriters, within two business days after a Registration
Statement is declared effective by the Commission, without charge, as many
copies of the Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as such Persons may reasonably
request; and the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders and any
underwriters in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable
Securities, use its best efforts to register or qualify or cooperate with the
selling Holders, any underwriters and their Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, however, that the Company shall
not be required to qualify generally to do business in any jurisdiction where
it is not then so qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
(i) Cooperate with the Holders and any managing
underwriters to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold pursuant to a Registration
Statement, which certificates shall be free of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered
in such names as any such managing underwriters or Holders may request at least
two Business Days prior to any sale of Registrable Securities.
-7-
<PAGE> 8
(j) Upon the occurrence of any event contemplated by
Section 3(c)(vi), as promptly as practicable, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration Statement
nor such Prospectus will contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on the Nasdaq
National Market and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not
an underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when requested; (ii) in the case of an Underwritten Offering obtain and
deliver copies thereof to the managing underwriters, if any, of opinions of
counsel to the Company and updates thereof addressed to each such underwriter,
in form, scope and substance reasonably satisfactory to any such managing
underwriters covering the matters customarily covered in opinions requested in
Underwritten Offerings and such other matters as may be reasonably requested by
such underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, obtain
and deliver copies to the Holders and the managing underwriters, if any, of
"cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data is, or is required to be, included in the Registration Statement),
addressed to each selling Holder and each of the underwriters, if any, in form
and substance as are customary in connection with Underwritten Offerings; (iv)
if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders and the underwriters, if any, than those set forth in Section 6 (or
such other provisions and procedures acceptable to the managing underwriters,
if any, and holders of a majority of Registrable Securities participating in
such Underwritten Offering; and (v) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations and warranties made
pursuant to clause 3(l)(i) above and
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<PAGE> 9
to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders,
a representative of such Holders, an underwriter participating in any
disposition of Registrable Securities, and an attorney or accountant retained
by such selling Holders or underwriters, at the offices where normally kept,
during reasonable business hours, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and
cause the officers, directors, agents and employees of the Company and its
subsidiaries to supply all information in each case reasonably requested by any
such Holder, representative, underwriter, attorney or accountant in connection
with the Registration Statement; provided, however, that any information that
is determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential
by such Persons, unless (i) disclosure of such information is required by court
or administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by
such Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of
the Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90
days after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date
of the Registration Statement, which statement shall cover said 12-month
period, or end shorter periods as is consistent with the requirements of Rule
158.
(o) The Company may require each selling Holder to
furnish to the Company such information regarding the distribution of such
Registrable Securities as is required by law to be disclosed in the
Registration Statement and the Company may exclude from such registration the
Registrable Securities of any such Holder who unreasonably fails to furnish
such information within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal statute
then in force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
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<PAGE> 10
The Purchaser covenants and agrees that (i) it will not offer
or sell any Registrable Securities under the Registration Statement until it
has received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(c) and (ii) the Purchaser and its officers, directors
or Affiliates, if any, will comply with the prospectus delivery requirements of
the Securities Act as applicable to them in connection with sales of
Registrable Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
If (a) there is material non-public information regarding the
Company which the Board reasonably determines not to be in the Company's best
interest to disclose and which the Company is not otherwise required to
disclose, or (b) there is a significant business opportunity (including but not
limited to the acquisition or disposition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or other similar
transaction) available to the Company which the Board reasonably determines not
to be in the Company's best interest to disclose, then the Company may postpone
or suspend filing or effectiveness of a Registration Statement for a period not
to exceed 20 consecutive days, provided that the Company may not postpone or
suspend its obligation under this Section for more than 60 days in the
aggregate during any 12 month period; provided, however, that no such
postponement of suspension shall be permitted for consecutive 20 day periods,
arising out of the same set as of facts, circumstances or transactions.
4. Registration Expenses
(a) All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall, except as and to the
extent specified in Section 4(b), be borne by the Company whether or not
pursuant to an Underwritten Offering and whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with the Nasdaq National Market and each other securities exchange or market on
which Registrable Securities are required hereunder to be listed and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection
with Blue Sky qualifications of the Registrable Securities and
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<PAGE> 11
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering
pursuant to the terms hereof, the Company shall be responsible for all costs,
fees and expenses in connection therewith, except for the fees and
disbursements of the Underwriters (including any underwriting commissions and
discounts) and their legal counsel and accountants (which shall be borne by the
Holders). Therefore, in such circumstances the Holder shall bear the expenses
of the fees and disbursements of any legal counsel or accounting firm retained
by the underwriters in connection with such Underwritten Offering and the costs
of any determination (but not filing) by the underwriters of the eligibility of
the Registrable Securities for investment under the applicable state securities
laws. By way of illustration which is not intended to diminish from the
provisions of Section 4(a), the Holders shall not be responsible for, and the
Company shall be required to pay the fees or disbursements incurred by the
Company (including by its legal counsel and accountants) in connection with,
the preparation and filing of a Registration Statement and related Prospectus
for such offering, the maintenance of such Registration Statement in accordance
with the terms hereof, the listing of the Registrable Securities in accordance
with the requirements hereof, and printing expenses incurred to comply with the
requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such
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<PAGE> 12
controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of 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,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by or on behalf of such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall,
severally and not jointly, indemnify and hold harmless the Company, the
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review) arising solely out of or based
solely upon any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or arising
solely out of or based solely upon any omission of a material fact required to
be stated therein or necessary to make the statements therein not misleading to
the extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Holder to the
Company specifically for inclusion in the Registration Statement or such
Prospectus or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus. In no
event shall the liability of any selling Holder hereunder be greater in amount
than the dollar amount of the net proceeds received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. If any
Proceeding shall be brought or asserted against any Person entitled to
indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly
shall notify the Person from whom indemnity is sought (the "Indemnifying
Party") in writing, and the Indemnifying Party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the
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<PAGE> 13
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that it shall be finally determined
by a court of competent jurisdiction (which determination is not subject to
appeal or further review) that such failure shall have proximately and
materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(3) the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under
Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a
failure or refusal of a governmental authority to enforce such indemnification
in accordance with its terms (by reason of public policy or otherwise), then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other
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<PAGE> 14
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount
of any damages that the Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Rule 144
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at any
time the Company is not required to file such reports, they will, upon the
request of any Holder, make publicly available other information so long as
necessary to permit sales of its securities pursuant to Rule 144. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144; provided,
however, that the Company shall not be obligated to provide an opinion to any
Holder regarding the sale of Registrable Securities pursuant to exemptions
provided by Rule 144. Upon the request of any Holder, the Company shall
deliver to such Holder a written certification of a duly authorized officer as
to whether it has complied with such requirements.
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<PAGE> 15
7. Miscellaneous
(a) Remedies. In the event of a breach by the Company or
by a Holder, of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except as and to the
extent specifically set forth in Schedule 7(b) attached hereto, the Company
does not have, as of the date hereof, nor shall the Company, on or after the
date of this Agreement, enter into, any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Except and to the
extent specifically set forth on Schedule 7(b) attached hereto, the Company has
not previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any Person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are
subject in all respects to the prior rights in full of the Holders set forth
herein, and are not otherwise in conflict or inconsistent with the provisions
of this Agreement.
(c) No Piggyback on Registrations. Except as and to the
extent specifically set forth on Schedule 7(c) attached hereto, neither the
Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in the
Registration Statement other than the Registrable Securities, and the Company
shall not enter into any agreement providing any such right to any of its
securityholders.
(d) Piggy-Back Registrations. If at any time when there
is not an effective Registration Statement the Company shall determine to
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities, other than on Form S- 4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock
option or other employee benefit plans, the Company shall send to each holder
of Registrable Securities written notice of such determination and, if within
twenty (20) days after receipt of such notice, any such holder shall so request
in writing, the Company shall include in such registration statement all or any
part of the Registrable Securities such holder requests to be registered,
except that if, in connection with any Underwritten Offering for the account of
the Company the managing underwriter(s) thereof shall impose a
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<PAGE> 16
limitation on the number of shares of Common Stock which may be included in the
registration statement because, in such underwriter(s)' judgment, such
limitation is necessary to effect an orderly public distribution of securities
covered thereby, then the Company shall be obligated to include in such
registration statement only such limited portion of the Registrable Securities
for to which such holder has requested inclusion hereunder. Any exclusion of
Registrable Securities shall be made pro rata among the holders seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such holders; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities the holders of which are not entitled
by right to inclusion of securities in such registration statement; and
provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in such registration statement. No right to registration of
Registrable Securities under this Section shall be construed to limit any
registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of at least a majority of the then
outstanding Registrable Securities; provided, however, that, for the purposes
of this sentence, Registrable Securities that are owned, directly or
indirectly, by the Company, or an Affiliate of the Company are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed delivered (i) upon receipt, when delivered
personally; (ii) when sent by facsimile, upon receipt if received on a Business
Day prior to 5:00 p.m. (Eastern Time), or the first Business Day following such
receipt if received on a Business Day after 5:00 p.m. (Eastern Time); or (iii)
on the Business Day following the date of depositing with a nationally
recognized overnight express courier service, fully prepaid, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company: Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, IL 60056
Attn: Chief Financial Officer
Fax: (847) 391-5015
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<PAGE> 17
With copies to: Katten Muchin & Zavis
525 W. Monroe St. Suite 1600
Chicago, IL 60661
Attn: Lawrence D. Levin
Fax: (312) 902-1061
If to a Purchaser: Elliott Associates, L.P.
712 Fifth Avenue, 36th Floor
New York, NY 10019
Attn: Mark Brodsky
Fax: (212) 974-2092
Westgate International, L.P.
c/o Stonington Management Corp.
712 Fifth Avenue, 36th Floor
New York, NY 10019
Attn: Mark Brodsky
Fax: (212) 974-2092
With copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, NY 10176
Attn: Stephen M. Schultz
Fax: (212) 986-8866
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books of
the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. The Company
may not assign its rights or obligations hereunder without the prior written
consent of each Holder. The Purchasers may assign its rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of
each Purchaser hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by such Purchaser to any assignee or
transferee of all or a portion of the shares of Preferred Stock, the Warrants
or the Registrable Securities if: (i) such Purchaser agrees in writing with the
transferee
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<PAGE> 18
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (ii) the Company
is, within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the
further disposition of such securities by the transferee or assignees
restricted under the Securities Act and applicable state securities laws, (iv)
at or before the time the Company receives the written notice contemplated by
clause (ii) of this Section, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions of this Agreement, and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Purchase Agreement. The rights to assignment shall apply
to such Purchaser's (and to subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of law.
(k) Cumulative Remedies. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) Shares Held by The Company and its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by
the Company or its Affiliates (other than the Purchaser or transferees or
successors or assigns thereof if such Persons are deemed to be Affiliates
solely
-18-
<PAGE> 19
by reason of their holdings of such Registrable Securities) shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage.
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ Edward W. Laves
--------------------------
Name:
Title:
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Singer
--------------------------
Name: Paul Singer
Title: General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International, L.P.,
Attorney-in-fact
By: /s/ Paul Singer
--------------------------
Name: Paul Singer
Title: President
<PAGE> 21
Schedule 7(b)
Third Amended and Restated Registration Rights Agreement, dated as of
July 14, 1993 between the Company and the persons named therein.
Representative's Warrant Agreement, dated October 23, 1993, between
the Company and Gruntal & Co., Incorporated.
Registration Rights Agreement, dated June 6, 1997, between the Company
and Southbrook International Investments, Ltd.
<PAGE> 22
Schedule 7(c)
Third Amended and Restated Registration Rights Agreement, dated as of
July 14, 1993 between the Company and the persons named therein.
Representative's Warrant Agreement, dated October 23, 1993, between
the Company and Gruntal & Co., Incorporated.
Registration Rights Agreement, dated June 6, 1997, between the Company
and Southbrook International Investments, Ltd.
<PAGE> 1
Exhibit 4.11
AGREEMENT
AGREEMENT (this "Agreement"), dated as of October 29, 1997, between
Southbrook International Investments, Ltd., a corporation organized and
existing under the laws of the British Virgin Islands ("Southbrook"), Brown
Simpson Strategic Growth Fund, LP, a limited partnership existing under the
laws of Delaware ("Brown Simpson"), and Illinois Superconductor Corporation, a
corporation organized and existing under the laws of Delaware (the "Company").
WHEREAS, Southbrook and the Company entered into a Convertible
Preferred Stock Purchase Agreement, dated as of June 6, 1997 (the "Purchase
AGreement"), providing for, among other things, the issuance and sale to
Southbrook of shares of its Series C Convertible Preferred Stock (the "Series C
Stock") and a registration rights agreement, dated as of June 6, 1997 (the
"Registration Rights Agreement"), with respect to the registration of the
Series C Stock, among other things;
WHEREAS, the parties desire to modify the terms of the Purchase
Agreement and the Registration Rights Agreement as follows:
1. Capitalized terms used and not otherwise deffined herein shall
have the respective meanings set forth in the Purchase Agreement.
2. Notwithstanding anything to the contrary contained in the
Purchase Agreement, the parties agree that shares of Series C Stock shall be
issued in consideration for the purchase price per share of $5,000 as follows:
(a) The Company shall issue to Southbrook two-hundred, ninety
(290) shares registered in the name of Southbrook of Series C Stock on the
closing date for the transactions contemplated hereby; and
(b) The Company shall issue to Brown Simpson ten (10) shares
of Series C Stock registered in the name of Brown Simpson (the "Brown Simpson
Shares").
3. Brown Simpson hereby represents and warrants to the Company as
follows:
(a) Brown Simpson is acquiring the Brown Simpson Shares and
the Underlying Shares relating thereto for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Brown Simpson Shares or Underlying Shares or any part thereof or interest
therein, without prejudice, however, to Brown Simpson's right, subject to the
provisions of the Purchase Agreement, at all times to sell or otherwise to
dispose of all or any part of the Brown Simpson Shares and the Underlying
Shares pursuant to an effective registration statement under the Securities Act
and in compliance with applicable State securites laws or under an exemption
from such registration.
<PAGE> 2
(b) At the time Brown Simpson was offered the Brown Simpson
Shares, it was, and at the date hereof, it is, an "accredited investor", as
defined in Rule 501(a):(1), (2), (3) or (7) under the Securities Act.
(c) Brown Simpson, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Brown Simpson Shares and the Underlying
Shares, and has so evaluated the merits and risks of such investment.
(d) Brown Simpson is able to bear the economic risk of an
investment in the Brown Simpson Shares and the Underlying Shares and, at the
present time, is able to afford a complete loss of such investment.
(e) The Brown Simpson Shares to be purchased by Brown Simpson
are not being acquired, directly or indirectly, with the assets of any
"employee benefit plan," within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(f) Brown Simpson acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from representatives of the Company concerning the terms and
conditions of the offering of the Brown Simpson Shares; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information contained in the Disclosure Materials.
(g) Brown Simpson understands and acknowledges that (i) the
Brown Simpson Shares are being offered and sold to it without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act under Regulation D promulgated
thereunder and (ii) the availability of such exemption depends in part on, and
the Company will rely upon the accuracy and truthfulness of, the foregoing
representations and Brown Simpson hereby consents to such reliance.
4. Brown Simpson and the Company agree to comply with the terms
and conditions of Section 3.1 of the Purchase Agreement with respect to the
Brown Simpson Shares and the Underlying Shares.
5. Brown Simpson shall be deemed a party to the Registration
Rights Agreement solely with respect to the registration of the Underlying
Shares issuable upon conversion of the Brown Simpson Shares issued to Brown
Simpson hereunder.
-2-
<PAGE> 3
6. Except as modified herein, the Purchase Agreement and the
Registration Rights Agreement shall remain in full force and effect.
7. The address for notice to Brown Simpson is 152 West 57th
Street, 4th Floor, New York, New York 10019, Attn: Matthew C. Brown.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized person as of the date first
indicated above.
ILLINOIS SUPERCONDUCTOR
CORPORATION
By: /s/ Stephen G. Wasko
------------------------------
Name: Stephen G. Wasko
Title: Senior Vice President &
Chief Financial Officer
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By: /s/ Kenneth Henderson
------------------------------
Kenneth L. Henderson
Assistant Secretary
BROWN SIMPSON STRATEGIC
GROWTH FUND, LP
By: /s/ MCB
------------------------------
Name:
Title:
-3-
<PAGE> 1
Exhibit 5
[LETTERHEAD OF KATTEN MUCHIN & ZAVIS]
December 8, 1997
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
RE: REGISTRATION STATEMENT ON FORM S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Illinois Superconductor Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing of a registration statement on Form S-3 (the "Registration Statement")
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended. The Registration Statement relates to (a) 3,716,669 shares of the
Company's Common Stock, $.001 par value per share ("Common Stock"), of which
(i) 1,077,624 shares (the "Series C Conversion Shares") may in the future be
issued upon the conversion of certain outstanding shares of the Company's
Series C Convertible Preferred Stock (the "Series C Stock"), (ii) 26,941 shares
(the "Series C Dividend Shares") may in the future be issued as accrued
dividends for one year on the Series C Stock, (iii) 2,514,460 shares (the
"Series G Conversion Shares") may in the future be issued upon conversion of
certain outstanding shares of the Company's Series G Convertible Preferred
Stock (the "Series G Stock"), (iv) 62,862 (the "Series G Dividend Shares") may
in the future be issued as accrued dividends for one year on the Series G Stock
and (v) 34,782 shares (the "Warrant Shares") may in the future be issued upon
the exercise of certain warrants (the "Warrants") and (b) such presently
indeterminate number of shares of Common Stock (the "Indeterminate Shares")
which may be issued upon conversion of the Series C Stock, the Series G Stock
and the Company's Series B Convertible Preferred Stock (the "Series B Stock")
or the payment of dividends thereon, based upon fluctuations in the conversion
price thereof, in accordance with Rule 416 under the Securities Act of 1933, as
amended.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and
upon affidavits, certificates and written statements of directors, officers and
employees of, and the accountants and transfer agent for, the Company. We have
also examined originals or copies, certified or otherwise identified to our
satisfaction, of such instruments, documents and records as we have deemed
relevant and necessary to examine for the purpose of this opinion, including
(a) the Registration Statement, (b) the Certificate of Incorporation of the
Company, (c) the By-Laws of the Company, (d) the
<PAGE> 2
Illinois Superconductor Corporation
December 8, 1997
Page 2
Certificates of Designation, Preferences and Rights relating to the Series C
Stock (the "Series C Certificate of Designation"), the Series G Stock (the
"Series C Certificate of Designation") and the Series B Stock (the "Series B
Certificate of Designation"), (e) the Warrants and (f) resolutions adopted by
the Board of Directors of the Company.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the
genuineness of all signatures, the authenticity of the documents submitted to
us as originals and the conformity to authentic original documents of all
documents submitted to us as certified, conformed or reproduced copies. We
have further assumed that all natural persons involved in the transactions
contemplated by the Registration Statement (the "Offering") have sufficient
legal capacity to enter into and perform their respective obligations and to
carry out their roles in the Offering.
Based upon and subject to the foregoing, it is our opinion that:
(1) The Series C and Series G Conversion Shares, when issued by the
Company upon the conversion of the Series C and Series G Stock in accordance
with the terms of the Series C or Series G Certificate of Designation, as the
case may be, will be validly issued, fully paid and non-assessable;
(2) The Series C and Series G Dividend Shares, if and when issued by the
Company as accrued dividends on the Series C Stock and Series G Stock in
accordance with the terms of the Series C or Series G Certificate of
Designation, as the case may be, will be validly issued, fully paid and
non-assessable;
(3) The Indeterminate Shares, if and when issued upon the conversion of
the Series C, Series G or Series B Stock or as accrued dividends thereon in
accordance with the Series C, Series G or Series B Certificate of Designation,
as the case may be, will be validly issued, fully paid and non-assessable; and
(4) The Warrant Shares, if and when issued by the Company upon the
exercise of the Warrants in accordance with the terms thereof, will be validly
issued fully paid and non-assessable.
Our opinion expressed above is limited to the General Corporation Law of
the State of Delaware and the relevant federal laws of the United States, and
we do not express any opinion concerning any other laws.
<PAGE> 3
Illinois Superconductor Corporation
December 8, 1997
Page 3
We hereby consent to use of our name under the heading "Legal Matters" in
the Prospectus forming a part of the Registration Statement and to use of this
opinion for filing as Exhibit 5 to the Registration Statement.
Very truly yours,
/s/ Katten Muchin & Zavis
-------------------------
KATTEN MUCHIN & ZAVIS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement and related Prospectus of Illinois Superconductor
Corporation for the registration of 3,716,669 shares of its common stock and to
the incorporation by reference therein of our report dated January 29, 1997,
except for paragraph 8 of Note 6, for which the date is March 7, 1997, with
respect to the financial statements and schedule of Illinois Superconductor
Corporation included in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Chicago, Illinois
December 5, 1997
