<PAGE> 1
As filed with the Securities and Exchange Commission on June 23, 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)
ORA E. SMITH
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 30 North LaSalle Street, Suite 2900
Chicago, Illinois 60661 Chicago, Illinois 60602
(312) 902-5200 (312) 917-9900
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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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered Per Share Offering Price Registration Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001
par value
(including
preferred stock
purchase rights) 715,488 shares $9.63(1) $6,890,149(1) $2,088
======================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, 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.
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 BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY 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 June 23, 1997
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PROSPECTUS
- --------------------------------------------------------------------------------
715,488 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 stockholder specified in this Prospectus
or its pledgees, donees, transferees or other successors in interest (the
"Selling Stockholder"). See "Selling Stockholder." Of the Shares to
which this Prospectus relates, (i) 637,061 are Shares which may in the
future be issued to the Selling Stockholder upon the conversion of
outstanding shares of the Company's Series B Convertible Preferred Stock
held by the Selling Stockholder (the "Series B Stock"), (ii) 15,927 are
Shares which may be issued to the Selling Stockholder as accrued dividends
for one year on the Series B Stock and (iii) 62,500 are Shares which may
in the future be issued to the Selling Stockholder upon the exercise of an
outstanding warrant held by the Selling Stockholder (the "Warrant"). The
Company will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholder, but the Company will receive the proceeds from
the exercise of the Warrant by the Selling Stockholder.
The Common Stock is traded on the Nasdaq National Market (the "NNM")
under the symbol "ISCO." On June 20, 1997, the closing price of the
Common Stock as reported on the NNM was $11.625 per share. The
Selling Stockholder 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
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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 of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement which
may be inspected and copied in the manner and at the sources described
above. Any statements contained herein concerning the provisions of any
document filed as an Exhibit to the Registration Statement or otherwise
filed with the Commission are not necessarily complete and, in each
instance, reference is made to the copy of such document so filed. Each
such statement is qualified in its entirety by such reference.
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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 Report on Form 10-Q, for the quarterly
period ended March 31, 1997;
3. The Company's Current Reports on Form 8-K, dated April 14, 1997,
May 1, 1997 and June 10, 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.
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 March 31, 1997 had an accumulated deficit of
approximately $29.5 million. The Company expects to continue to incur
operating losses through at least early 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 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.
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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 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,
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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 wireless telecommunications market during the
foreseeable future would have a material adverse effect on the Company is
business, operating results and financial condition.
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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 purchased
from a single source or are only currently available from a limited number
of sources. The Company's reliance on these sole or 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 sole
or 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 time to time in the ordinary
course of business. Business disruption, production shortfalls or
financial difficulties of a sole or limited source supplier could
materially and adversely effect the Company by increasing product costs or
reducing or
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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.
FUTURE CAPITAL NEEDS
To date, the Company has financed its operations primarily through
public and private equity financings that have raised approximately $42
million, net of related expenses. Although the Company believes that its
current funds, including the $3 million of proceeds from its sale of the
Series B Stock to the Selling Stockholder on June 6, 1997, are sufficient
to finance the Company's operations as planned through at least the end of
September 1997, 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, by and between the Company and the Selling Stockholder (the
"Purchase Agreement"), the Company has the option to issue up to $12
million of additional convertible preferred stock (the "Additional
Preferred Stock") to the Selling Stockholder in up to four 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 the
Selling Stockholder. There can be no assurance, however, that the Company
will receive any or all of the remaining $12 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 the Selling
Stockholder. 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 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. This right of first 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 third
quarter of 1997 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 1997. 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 is pursuing repayment of these promissory notes, including
accrued interest. There can be no assurance when or 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.
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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 June 1, 1997, the Company has been issued seven 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 11 patents and patent applications held by others. 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 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
9
<PAGE> 11
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., formerly a subsidiary of AT&T, 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.
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.
10
<PAGE> 12
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, the Company sold 600 shares of Series B Stock to the
Selling Stockholder pursuant to a private placement. Each share of Series
B 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 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. No shares of Series B Stock have been converted into
Common Stock as of the date hereof. In connection with the issuance of
the Series B Stock, the Warrant exercisable for 62,500 shares of Common
Stock was also issued to the Selling Stockholder.
Pursuant to the Purchase Agreement, the Company has the option to
issue up to 2,400 shares of Additional Preferred Stock to the Selling
Stockholder in up to four additional tranches, if certain conditions are
satisfied or waived. The Company may also issue additional warrants
exercisable for up to 62,500 shares of Common Stock if and when 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 and Additional Preferred Stock, 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 connection with the Registration Statement, of
which this Prospectus is a part, 715,488 Shares are being registered by
the Company for resale. The increase in the number of outstanding shares
of Common Stock that are available for sale without restriction due to the
registration of the Shares and the perception that a substantial number of
the Shares
11
<PAGE> 13
may be sold by the Selling Stockholder, or the actual sale of a
substantial number of the Shares by the Selling Stockholder, 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 708,427
shares of Common Stock at a weighted average exercise price of $8.94 per
share and options to purchase 842,125 shares of Common Stock at a weighted
average exercise price of $13.58 per share 545,450 of which have not yet
vested) issued to employees, directors and consultants pursuant to the
Company's Amended and Restated 1993 Stock Option Plan and individual
agreements with management and directors of the Company.
DILUTION AND DIVIDEND POLICY
The conversion of Series B Stock or Additional Preferred Stock or the
exercise of options and warrants, including the Warrant, as well as the
sale by the Company of additional securities 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 may be converted into shares of
Common Stock at a discount to the then market price of the Common Stock.
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 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 is 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
stockholder 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.
12
<PAGE> 14
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Stockholder. If and when all or a portion of the Warrant
is exercised and up to 62,500 Shares are issued to the Selling Stockholder, the
Company will receive the proceeds from the sale of such Shares to the
Selling Stockholder. If the Warrant is exercised in full, the Company
will receive $925,781. 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 STOCKHOLDER
The following table sets forth, as of June 23, 1997, certain
information regarding the beneficial ownership of the outstanding Common
Stock by the Selling Stockholder, consisting of the Shares which the
Selling Stockholder may be issued upon conversion of the Series B Stock,
the Shares which the Selling Stockholder may be issued as accrued
dividends on the Series B Stock and the Shares which the Selling
Stockholder may acquire upon exercise of the Warrant, both before the
offering of the Shares and as adjusted to reflect the sale of the Shares.
<TABLE>
<CAPTION>
Shares Beneficial Ownership
Beneficially Number of After Offering(3)(4)
Owned Prior Shares Being --------------------------------
Name of Selling Stockholder to Offering(1) Offered(1)(2) Number of Shares Percent
- ----------------------------------------- ------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
Southbrook International Investments, Ltd. 715,488 715,488 -- --
</TABLE>
- ----------------
(1) The Selling Stockholder holds 600 shares of Series B Stock 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 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 amount of Common Stock
shown in the table includes 637,061 shares of Common Stock, which
represents two times the amount 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. Because the number
of shares of Common Stock that will be ultimately issued to the
Selling Stockholder upon conversion of the Series B Stock is
dependent upon the Conversion Price, that amount, and therefore the
amount of Common Stock offered hereby, cannot be determined at this
time. The amount of Common Stock shown in the table also includes
62,500 shares of Common Stock issuable upon exercise of the presently
exercisable Warrant. The amount 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 at June 23, 1997. Dividends on the Series B 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.
(2) Represents the maximum number of Shares that may be sold by the
Selling Stockholder pursuant to this Prospectus; provided, however,
that this Registration Statement and the related Prospectus, shall
also cover any additional shares of Common Stock which become
issuable in connection with the Shares registered for sale hereby 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.
(3) Assumes the Selling Stockholder sells all of its Shares offered
hereby to unaffiliated third parties pursuant to this Prospectus.
The Selling Stockholder may sell all or part of its Shares.
(4) The Purchase Agreement limits the conversion and exercise rights of
the Selling Stockholder such that the maximum number of shares of
Common Stock issued upon conversion of the Series B Stock and/or
exercise of the Warrant may not exceed 4.999% of the then issued and
outstanding shares of Common Stock following such conversion and/or
exercise.
13
<PAGE> 15
PLAN OF DISTRIBUTION
Pursuant to the Registration Rights Agreement dated as of June 6,
1997, by and between the Company and the Selling Stockholder (the
"Registration Rights Agreement"), the Company agreed to file with the
Commission a registration statement covering the Shares by July 6, 1997
and 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 September 4, 1997. The Registration Statement has
been filed with the Commission pursuant to the Registration Rights
Agreement. The Selling Stockholder may sell all or a portion of the
Shares held by it from time to time while the Registration Statement of
which this Prospectus is a part remains effective. The Company has agreed
that it will use all reasonable efforts to keep the Registration Statement
effective for a period of three years commencing on the effective date of
the Registration Statement (or a shorter period if all of the Shares 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). The aggregate proceeds to the Selling Stockholder from the sale
of Shares offered by the Selling Stockholder hereby will be the prices at
which such securities are sold, less any commissions. There is no
assurance that the Selling Stockholder will sell any or all of the Shares
offered hereby.
The Selling Stockholder 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 Stockholder
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 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 Stockholder may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from
the Selling Stockholder (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
Stockholder to sell a specified number of such Shares at a stipulated
price per share, and, to the extent such broker-dealer is unable to do so
acting as agent for a Selling Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer
commitment to the Selling Stockholder. Broker-dealers who acquire Shares
as principal may thereafter resell such Shares from time to time in
transactions (which may involve block transactions and sales to and
through other broker-dealers, including transactions of the nature
described above) in the over-the-counter market or otherwise at prices and
on terms then prevailing at the time of sale, at prices then related to
the then-current market price or in negotiated transactions and, in
connection with such resales, may pay to or receive from the purchasers of
such Shares commissions as described above. The Selling Stockholder may
also sell the Shares in accordance with Rule 144 under the Securities Act,
rather than pursuant to this Prospectus.
The Selling Stockholder and any broker-dealers or agents that
participate with the Selling Stockholder 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 Stockholder 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
14
<PAGE> 16
and deliver the Shares in connection therewith. If the Selling
Stockholder engages in such transactions, the Conversion Price may be
affected. From time to time the Selling Stockholder may pledge its shares
pursuant to the margin provisions of its customer agreements with its
brokers. Upon a default by the Selling Stockholder, the broker may offer
and sell the pledged shares of Common Stock from time to time.
The Company is required to pay all fees and expenses incident to the
offering and sale of the Shares, including fees and disbursements (not to
exceed $5,000) of counsel to the Selling Stockholder. The Company has
agreed to indemnify the Selling Stockholder 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.
15
<PAGE> 17
================================================================================
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
PAGE
Available Information 2
Incorporationof Certain Documents
by Reference 3
Risk Factors 4
Use of Proceeds 13
Selling Stockholder 13
Plan of Distribution 14
Legal Matters 15
Experts 15
================================================================================
================================================================================
[ILLINOIS SUPERCONDUCTOR CORPORATION LOGO]
715,488 Shares
Common Stock
---------------------
PROSPECTUS
---------------------
, 1997
================================================================================
<PAGE> 18
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 $ 2,088
Nasdaq National Market listing fee 7,939
Accountants' fees and expenses 7,500
Legal fees and expenses 20,000
Miscellaneous expenses 1,473
-------
Total $39,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of the Company's Certificate of Incorporation provides that
[Athe 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.
Under the Registration Rights Agreement, the Company has agreed to
indemnify the Selling Stockholder and the Selling Stockholder has agreed
to indemnify the Company and its directors, its
II-1
<PAGE> 19
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
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
Registrant.
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,
incorporated herein by reference.
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 to be filed
as Exhibit 5 hereto).
24 Power of Attorney (included on the signature page hereto).
- -------------
* Incorporated by reference from the Company's Registration Statement
on Form S-1 dated August 20, 1993, Reg. No. 33-67756, with the same
exhibit number.
II-2
<PAGE> 20
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> 21
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 23rd day of June, 1997.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /S/ ORA E. SMITH
---------------------------
Ora E. Smith,
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints 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
June 23, 1997 in the capacities indicated.
Signature Title
--------- -----
/S/ ORA E. SMITH President, Chief Executive Officer
----------------------- (Principal Executive Officer) and a Director
Ora E. Smith
/S/ STEPHEN G. WASKO Vice President, Chief Financial Officer, Treasurer
- ------------------------- and Secretary (Principal Financial and Accounting
Stephen G. Wasko Officer)
/S/ LEONARD A. BATTERSON Director
- -------------------------
Leonard A. Batterson
/S/ MICHAEL J. FRIDUSS Director
- -------------------------
Michael J. Friduss
Director
- -------------------------
Peter S. Fuss
/S/ STEVEN LAZARUS Chairman of the Board and Director
- -------------------------
Steven Lazarus
/S/ TOM L. POWERS Director
- -------------------------
Tom L. Powers
II-4
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- ----------------
<S> <C>
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.
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 to be filed
as Exhibit 5 hereto).
24 Power of Attorney (included on the signature page hereto).
</TABLE>
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
ILLINOIS SUPERCONDUCTOR CORPORATION
The undersigned, Ora E. Smith 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, none 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 June 4, 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 B Convertible Preferred Stock (the
"Preferred Stock"), and the number of shares so designated shall be 600 (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
<PAGE> 2
of Preferred Stock shall have a par value of $.001 per share and a stated value
of $5,000 per share (the "Stated Value").
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, quarterly in arrears, but in no event later than the Conversion Date
(as hereinafter defined) applicable to such 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 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 that holds the Preferred Stock of record
on an applicable record date for any dividend payment will be entitled to
receive such dividend payment 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. 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). Notwithstanding
anything to the contrary contained herein, the Company may not, without the
written consent of the holders of a majority of the then outstanding Preferred
Stock, pay dividends in cash on the Preferred Stock unless both the payment
thereof and the retention of such paid cash by the holders is consented to in
writing free of any subordination prior thereto by all lenders and debt holders
0of the Company or by all holders of any class of securities of the Company who
by agreement have the right to consent to or force the subordination of such
payment.
(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 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
-2-
<PAGE> 3
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;
(iii) such shares are not listed on The Nasdaq National Market,
The Nasdaq SmallCap Market, The New York Stock Exchange, the American Stock
Exchange and 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 beneficially owning, in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, more than 4.999% of the issued and
outstanding shares of Common Stock.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall 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) 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 issued and sold
in accordance with the Purchase Agreement.
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 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 such amounts, then the entire
assets to be distributed to the holders of Preferred Stock shall be distributed
among the holders of Preferred Stock 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
-3-
<PAGE> 4
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 Shareholder Approval (as defined below), then the 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 to
require the Company to either (1) as promptly as possible, but in no event later
than 60 days after such Conversion Date, convene
-4-
<PAGE> 5
a meeting of the holders of the Common Stock and use its best efforts to obtain
the Stockholder Approval or (2) redeem, from funds legally available therefor at
the time of such redemption, the balance of the Preferred Stock subject to such
Conversion Notice 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 (1)
the Conversion Date or (2) 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 paragraph (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 paragraph (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 Conversion Date, the Company will pay interest on such redemption
price 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. The entire redemption price, including
interest thereon, shall be paid in cash. "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 shareholders of the Company held in accordance with
the Company's Certificate of Incorporation and by-laws, 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 (defined in Section 5(c(i)) 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 the five Trading Days immediately preceding
such Conversion Date, and (B) 150% of the Initial Conversion Price.
(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
-5-
<PAGE> 6
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 for the Preferred Stock or Common Stock, 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, as liquidated damages and not as
a penalty, $1,500 for each Trading Day after such fifth Trading Day until such
certificates are delivered. 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 (i) redeem, from
funds legally available therefor at the time of such redemption, such number of
shares of Preferred Stock then held by such holder, as requested by such holder,
and (ii) pay all accrued but unpaid dividends on account of the Preferred Stock
for which the Company shall have failed to issue Common Stock certificates
hereunder, in cash. The redemption price per share shall be equal to the sum of
(i) 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 and (ii) the
aggregate of all accrued and unpaid dividends and other amounts payable in
respect of such shares. 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 above within seven days after such notice is
deemed delivered pursuant to Section 5(i), 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.
(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
-6-
<PAGE> 7
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 average of the lowest Per Share
Market Value for the five (5) consecutive Trading Days during the 60 Trading
Days immediately preceding such Conversion Date (which may not include the date
that any Conversion Notice is deemed delivered pursuant to Section 5(i) 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, (a) if 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 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 (any
such failure being referred to as an "Event," and for purposes of clauses (a),
(c) and (f) 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,
-7-
<PAGE> 8
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 "Event Date"),
the Conversion Price shall be decreased by 2.5% on 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. Commencing the
second month anniversary after the Event Date, at the option of each holder 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 shall be decreased
by 2.5% for each additional such month (to be effective in full on the monthly
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 decrease in the Conversion Price pursuant
to this Section shall continue notwithstanding the fact that the Event causing
such decrease has been subsequently cured. The provisions of this Section are
not exclusive and shall in no way limit the Company's obligations under the
Registration Rights Agreement. Notwithstanding anything to the contrary set
forth herein, the Company may not, without the prior written consent of the
holders, pay liquidated damages hereunder in cash unless it shall have received
the prior written consent of all lenders, debt holders or holders of any class
of securities of the Company or its Affiliates that have the right to require
such consent or to subordinate any such cash payment, which consent shall
provide that the payment by the Company of any such liquidated damages hereunder
(and the retention of such sum by the receiving holder) is not subject to any
applicable subordination rights of such lender or holders of such class of
securities.
(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
-8-
<PAGE> 9
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 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.
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<PAGE> 10
(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 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, from funds legally available
therefor at the time of such redemption, its shares of Preferred Stock then
outstanding at a price per share equal to the sum of (x) the product of (i) the
average Per Share Market Value for the five (5) Trading Days immediately
preceding (1) the effective date or the date of the closing, as the case may be,
of the Business Combination, or the triggering of such redemption right or (2)
the date of payment in full by the Company of the redemption price hereunder,
whichever is greater, and (ii) 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 and (y) the
aggregate of all accrued and unpaid dividends and other amounts payable in
respect of such shares. 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.
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
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<PAGE> 11
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
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
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<PAGE> 12
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 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.
(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, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed 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, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, 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 given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 4:30 p.m. (Eastern Time),
(ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 4:30 p.m. (Eastern Time) on any date and earlier than 11:59
p.m. (Eastern Time) on such date, (iii) four days after deposit in the United
States mails, (iv) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (v) upon actual receipt by
the party to whom such notice is required to be given.
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<PAGE> 13
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, from funds legally available therefor at the time of such redemption,
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 sum of (x) the
product of (i) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (1) the date of the redemption notice referenced above or
(2) the date of payment in full by the Company of the redemption price
hereunder, whichever is greater, and (ii) the Conversion Ratio calculated on the
date of such redemption notice and (y) the aggregate of all accrued but unpaid
dividends and other amounts payable in respect of such shares. 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 4th Trading Day thereafter and the Company shall honor all
properly tendered Conversion Notices during such period. Any redemption notice
under this section 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 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 (7) calendar 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 7 calendar 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.
Notwithstanding anything to the contrary contained herein, the Company may not,
without the written consent of the holders of a majority in interest of the then
outstanding Preferred Stock, redeem shares of Preferred Stock unless both the
payment thereof and the retention of such paid cash by the holder is consented
to in writing free of any subordination prior thereto by all lenders or holders
of any class of
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<PAGE> 14
securities of the Company who by agreement have the right to consent to or force
the subordination of such payment.
(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 a Business Combination, to provide a 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 sum of (x) the product of (i) 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 (ii) the Conversion Ratio calculated on the date of such
redemption notice (provided, however, the Conversion Price for these purposes
shall not be based upon the Pre-Effective Period) and (y) the aggregate of all
accrued but unpaid dividends and other amounts payable in respect of such
shares. 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:
"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.
"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,
Inc. or other
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<PAGE> 15
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, Inc. 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 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.
"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 June 6, 1997, between the Company and the original holder
of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of June 6, 1997, between the Company and the original holder of
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> 16
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 Ora E. Smith, its President, and attested by Stephen G. Wasko, its
Secretary, this 6th day of June, 1997.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ ORA E. SMITH
--------------------------------
Name: Ora E. Smith
Title: President
Attest:
By: /s/ STEPHEN G. WASKO
--------------------------
Name: Stephen G. Wasko
Title: Secretary
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<PAGE> 17
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 B
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.
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
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock which would be issuable to the holder if the conversion requested in this
conversion notice were effected in full, whereupon, if the converting holder
determines that such conversion would result in it owning in excess of 4.999% of
the outstanding shares of Common Stock on such date, such holder will so notify
the Company and the Company shall convert up to an amount equal to 4.999% of the
outstanding shares of Common Stock and issue to the holder one or more
certificates representing shares of Preferred Stock which have not been
converted as a result of this provision.
<PAGE> 1
EXHIBIT 4.3
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
ILLINOIS SUPERCONDUCTOR CORPORATION
and
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
------------------------------
Dated as of June 6, 1997
------------------------------
================================================================================
<PAGE> 2
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), dated
as of June 6, 1997, between Southbrook International Investments, Ltd., a
corporation organized and existing under the laws of the British Virgin Islands
(the "Purchaser"), 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 Purchaser and the
Purchaser desires to acquire shares of the Company's Series B Convertible
Preferred Stock, par value $.001 per share (the "Series B Preferred"), the
Company's Series C Convertible Preferred Stock, par value $.001 per share (the
"Series C Preferred"), the Company's Series D Convertible Preferred Stock, par
value $.001 per share (the "Series D Preferred"), the Company's Series E
Convertible Preferred Stock, par value $.001 per share (the "Series E
Preferred") and the Company's Series F Convertible Preferred Stock, par value
$.001 per share (the "Series F Preferred") (the Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Series F Preferred are
collectively referred to as the "Preferred Stock" and shares of Preferred Stock
issued and sold in accordance with this Agreement are referred to as the
"Shares").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and each Purchaser 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 Purchaser and the Purchaser
shall purchase (i) 600 shares of Series B Preferred (the "Series B Shares");
(ii) up to 1,000 shares of Series C Preferred; (iii) up to 1,000 shares of
Series D Preferred; (iv) up to 1,000 shares of Series E Preferred; and (v) up to
1,000 shares of Series F Preferred. Notwithstanding anything to the contrary set
forth in this Agreement, the aggregate number of Shares (as defined below) to be
sold hereunder shall not exceed 3,000 (the "Maximum Share Amount").
(b) The Series B Preferred shall have the respective rights,
preferences and privileges set forth in Exhibit A attached hereto (the "Series B
Terms"), which shall be incorporated into a Certificate of Designation to be
approved by the Purchaser and filed on or prior to the Series B Closing (as
defined below) by the Company with the Secretary of State of Delaware (the
"Series B Designation"). The Series C Preferred, Series D Preferred, Series E
Preferred and Series F Preferred, if and when issued, shall have respective
rights, preferences and privileges identical to the Series B Terms, mutatis
mutandis, and shall rank pari passu with the Series B Preferred with regard to
dividends, liquidation, voting rights and any other preferential rights
designated therein, except that the Conversion Price (as defined
<PAGE> 3
below) for conversion of said Shares shall reset as of the Original Issue Date
(as defined below) for such Shares.
The Series C Preferred, Series D Preferred, Series E Preferred and
Series F Preferred shall be authorized pursuant to certificates of designation
to be prepared by the Company, subject to the approval of the Purchaser, and
filed on or prior to the Series C Closing Date (as defined below), Series D
Closing Date (as defined below), Series E Closing Date (as defined below) or
Series F Closing Date (as defined below), as applicable, by the Company with the
Secretary of State of Delaware (such certificates of designation, together with
the Series B Designation, are referred to as the "Certificates of Designation").
For purposes of this Agreement, "Conversion Price," "Original Issue
Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall have
the meanings set forth in the Series B Terms; and "Market Price" as at any date
shall mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding such date. The Company's "Market Capitalization" shall be
determined by taking the weighted volume average of the Per Share Market Value
for the fifteen (15) Trading Days immediately prior to each applicable Closing
Date (as defined below) and by multiplying such 15 day weighted volume average
by the number of outstanding shares of the Company's Common Stock on the date
preceeding the applicable Closing Date.
1.2 Purchase Price. The purchase price per Share shall be $5,000.
1.3 The Closings.
(a) The Series B Closing. (i) The closing of the purchase and
sale of the Series B Shares (the "Series B Closing") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, 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 4.1 have been
satisfied or waived by the appropriate party. The date of the Series B Closing
is hereinafter referred to as the "Series B Closing Date." At the Series B
Closing, the Company shall sell and issue to the Purchaser, and the Purchaser
shall purchase, the Series B Shares for an aggregate purchase price of
$3,000,000.
(ii) At the Series B Closing, (a) the Company shall
deliver to the Purchaser one or more stock certificates representing the Series
B Shares and the Initial Warrant (as defined in Section 3.17), each registered
in the name of the Purchaser, and all other documents, instruments and writings
required to have been delivered at or prior to the Series B Closing by the
Company pursuant to this Agreement and the Registration Rights Agreement, dated
the date hereof, by and between the Company and the Purchaser, in the form of
Exhibit B (the "Registration Rights Agreement"), and (b) the Purchaser shall
deliver to the Company $3,000,000, 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 Series B Closing Date, and all documents,
instruments and writings required to have been
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<PAGE> 4
delivered at or prior to the Series B Closing by the Purchaser pursuant to this
Agreement and the Registration Rights Agreement.
(b) The Series C Closing. (i) The closing of the purchase and
sale of the Series C Preferred to be issued and sold at such closing in
accordance herewith (the "Series C Shares", and such closing the "Series C
Closing") shall take place at the offices of Robinson Silverman on such date
(which may not be prior to the fifteenth Trading Day after receipt of the notice
described hereafter in this paragraph (b)) as the Company may designate in a
written notice to the Purchaser (a "Subsequent Financing Notice") relating to
the Series C Shares which the Company may deliver no earlier than 60 days after
the date hereof and no later than 150 days after the date hereof (such 150th
day, the "Series C Closing Expiration Date"), which Subsequent Financing Notice
shall set forth the number of shares of Series C Preferred that the Company
intends to sell to the Purchaser, provided, however that such number shall not
be in excess of (i) 400 shares, if the Company's Market Capitalization (not
inclusive of the proceeds from the Series C Closing) is less than $45,000,000,
(ii) 600 shares, if the Company's Market Capitalization (not inclusive of the
proceeds from the Series C Closing) is between $45,000,000 and $64,999,999,
(iii) 800 shares, if the Company's Market Capitalization (not inclusive of the
proceeds from the Series C Closing) is between $65,000,000 and $84,999,999, and
(iv) 1000 shares, if the Company's Market Capitalization (not inclusive of the
proceeds from the Series C Closing) is in excess of $84,999,999.
(ii) At the Series C Closing, (a) the Company shall
deliver to the Purchaser one or more stock certificates representing the Series
C Shares registered in the name of the Purchaser and all documents, instruments
and writings required to have been delivered at or prior to the Series C Closing
by the Company pursuant to this Agreement and the Registration Rights Agreement
and (b) the Purchaser shall deliver to the Company (1) the purchase price for
the Series C Shares being purchased as determined pursuant to Section 1.2 in
United States dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose and delivered to
the Purchaser prior to the Series C Closing Date and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Series C Closing by the Purchaser pursuant to this Agreement and the
Registration Rights Agreement.
(c) The Series D Closing. (i) The closing of the purchase and
sale of the shares of Series D Preferred to be issued and sold at such closing
in accordance herewith (the "Series D Shares", and such closing the "Series D
Closing") shall take place at the offices of Robinson Silverman on such date
(which may not be prior to the fifteenth Trading Day after receipt of the notice
described hereafter in this paragraph (c)) as the Company may designate in a
Subsequent Financing Notice relating to the Series D Shares which the Company
may deliver no earlier than the later of 60 days after (x) such date as the
Registration Statement (defined below) with respect to the Series C Shares is
declared effective (provided, however, that any days during which the holder of
the Series C Shares was not permitted to sell Series C Shares pursuant to an
effective Registration Statement, shall be added to such sixty (60) day period)
and (y) the Series C Closing Expiration Date, and not later than 150 days from
the Series C Closing Expiration Date (the "Series D Closing Expiration Date"),
which Subsequent Financing Notice shall set forth the number of
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shares of Series D Preferred that the Company intends to sell to the Purchaser,
provided, however that such number shall not be in excess of (i) 400 shares, if
the Company's Market Capitalization (not inclusive of the proceeds from the
Series D Closing) is less than $45,000,000, (ii) 600 shares, if the Company's
Market Capitalization (not inclusive of the proceeds from the Series D Closing)
is between $45,000,000 and $64,999,999, (iii) 800 shares, if the Company's
Market Capitalization (not inclusive of the proceeds from the Series D Closing)
is between $65,000,000 and $84,999,999, and (iv) 1000 shares, if the Company's
Market Capitalization (not inclusive of the proceeds from the Series D Closing)
is in excess of $84,999,999.
(ii) At the Series D Closing, (a) the Company shall deliver to the
Purchaser one or more stock certificates representing the Series D Shares and
either the Subsequent Warrant or the Intermediate Warrant (each as defined in
Section 3.17), as the case may be, each registered in the name of the Purchaser
and all documents, instruments and writings required to have been delivered at
or prior to the Series D Closing by the Company pursuant to this Agreement and
the Registration Rights Agreement and (b) the Purchaser shall deliver to the
Company (1) the purchase price for the Series D Shares being purchased as
determined pursuant to Section 1.2 in United States dollars in immediately
available funds by wire transfer to an account designated in writing by the
Company for such purpose and delivered to the Purchaser prior to the Series D
Closing Date and (2) all documents, instruments and writings required to have
been delivered at or prior to the Series D Closing by the Purchaser pursuant to
this Agreement and the Registration Rights Agreement.
(d) The Series E Closing. (i) The closing of the purchase and sale of
the shares of Series E Preferred to be issued and sold at such closing in
accordance herewith (the "Series E Shares", and such closing the "Series E
Closing") shall take place at the offices of Robinson Silverman on such date
(which may not be prior to the fifteenth Trading Day after receipt of the notice
described hereafter in this paragraph (d)) as the Company may designate in a
Subsequent Financing Notice relating to the Series E Shares which the Company
may deliver no earlier than the later of 60 days after (x) such date as the
Registration Statement with respect to the Series D Shares is declared effective
(provided, however, that any days during which the holder of the Series D Shares
was not permitted to sell Series D Shares pursuant to an effective Registration
Statement, shall be added to such sixty (60) day period) and (y) the Series D
Closing Expiration Date, and not later than 150 days from the Series D Closing
Expiration Date (the "Series E Closing Expiration Date"), which Subsequent
Financing Notice shall set forth the number of shares of Series E Preferred that
the Company intends to sell to the Purchaser; provided, however that such number
shall not be in excess of the lesser of (1)(i) 400 shares, if the Company's
Market Capitalization (not inclusive of the proceeds from the Series E Closing)
is less than $45,000,000, (ii) 600 shares, if the Company's Market
Capitalization (not inclusive of the proceeds from the Series E Closing) is
between $45,000,000 and $64,999,999, (iii) 800 shares, if the Company's Market
Capitalization (not inclusive of the proceeds from the Series E Closing) is
between $65,000,000 and $84,999,999, and (iv) 1000 shares, if the Company's
Market Capitalization (not inclusive of the proceeds from the Series E Closing)
is in excess of $84,999,999; and
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<PAGE> 6
(2) the Maximum Share Amount minus the number of Series B Shares, Series C
Shares and Series D Shares previously sold hereunder.
(ii) At the Series E Closing, (a) the Company shall deliver to the
Purchaser one or more stock certificates representing the Series E Shares and
the Final Warrant (as defined in Section 3.17), if applicable each registered in
the name of the Purchaser and all documents, instruments and writings required
to have been delivered at or prior to the Series E Closing by the Company
pursuant to this Agreement and the Registration Rights Agreement and (b) the
Purchaser shall deliver to the Company (1) the purchase price for the Series E
Shares being purchased as determined pursuant to Section 1.2 in United States
dollars in immediately available funds by wire transfer to an account designated
in writing by the Company and delivered to the Purchaser prior to the Series E
Closing Date and (2) all documents, instruments and writings required to have
been delivered at or prior to the Series E Closing by the Purchaser pursuant to
this Agreement and the Registration Rights Agreement.
(e) The Series F Closing. (i) In the event that the Company has issued
and sold less than the Maximum Share Amount, the Company may designate in a
Subsequent Financing Notice relating to the Series F Shares, which the Company
may deliver no earlier than the later of 60 days after (x) such date as the
Registration Statement with respect to the Series E Shares is declared effective
(provided, however, that any days during which the holder of the Series E Shares
was not permitted to sell Series E Shares pursuant to an effective Registration
Statement, shall be added to such sixty (60) day period) and (y) the Series E
Closing Expiration Date, and not later than 150 days from the Series E Closing
Expiration Date, the number of shares of Series F Preferred to be issued and
sold thereat in accordance herewith (the "Series F Shares") that the Company
intends to sell to the Purchaser, provided, however that such number may not
exceed the Maximum Share Amount minus the number of Series B Shares, Series C
Shares, Series D Shares and Series E Shares previously sold by the Company
hereunder. The closing of the purchase and sale of the Series F Shares (the
"Series F Closing") shall take place at the offices of Robinson Silverman on
such date (which may not be prior to the fifteenth Trading Day after receipt of
the notice described above in this paragraph (e))
(ii) At the Series F Closing, (a) the Company shall deliver to the
Purchaser one or more stock certificates representing the Series F Shares
registered in the name of the Purchaser and all documents, instruments and
writings required to have been delivered at or prior to the Series F Closing by
the Company pursuant to this Agreement and the Registration Rights Agreement and
(b) the Purchaser shall deliver to the Company (1) the purchase price for the
Series F Shares being purchased as determined pursuant to Section 1.2 in United
States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company and delivered to the Purchaser prior to the
Series F Closing Date and (2) all documents, instruments and writings required
to have been delivered at or prior to the Series F Closing by the Purchaser
pursuant to this Agreement and the Registration Rights Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the 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 and the Subsidiaries, taken as a whole 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 (as defined below), the Certificates of
Designation, the Registration Rights Agreement, and otherwise to carry out its
obligations hereunder and thereunder. This Agreement, the Certificates 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 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 Restated 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
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<PAGE> 8
character whatsoever relating to, or, except as a result of the purchase and
sale of the Shares and Warrants 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 (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 Series B Closing Date, Series C Closing Date, Series D
Closing Date, Series E Closing Date and Series F Closing Date, as the case may
be, will have and at all times while the Shares and any 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
Certificates of Designation with respect to the number of Shares and Warrants
issued and outstanding at such 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 such
Closing Date were such conversion effected on the Original Issue Date for such
Shares 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 such Closing Date. When issued in accordance with the terms
hereof and the Certificates 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 their respective terms, the Warrant
Shares will be duly authorized, validly issued, fully paid and nonassessable.
(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 bylaws (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) to the knowledge of the Company, 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,
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<PAGE> 9
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 filings of the Certificates of
Designation with respect to the Shares with the Secretary of State of Delaware,
which filings shall be effected prior to the Series B Closing Date, the Series C
Closing Date, the Series D Closing Date, the Series E Closing Date and the
Series F Closing Date, as appropriate, (ii) the filing of the registration
statements contemplated by the Registration Rights Agreement (the "Underlying
Securities 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 Series B Closing, the Series C Closing, the Series D
Closing, the Series E Closing or the Series F Closing and to deliver to the
Purchaser 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 hereinafter defined) 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
(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. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other
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<PAGE> 10
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is 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 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,
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<PAGE> 11
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 (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) Exclusivity. The Company shall not issue and sell the Preferred
Stock to any Person other than the Purchaser other than with the specific prior
written consent of the Purchaser.
2.2 Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate 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 Warrants hereunder has been duly authorized by all necessary
action on the part of the Purchaser. Each of this Agreement and the Registration
Rights Agreement has been duly executed and delivered by the Purchaser or on its
behalf and constitutes the valid and legally binding obligation of the
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.
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<PAGE> 12
(b) Investment Intent. The Purchaser is acquiring the Shares, the
Warrants, 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, Warrants, Underlying Shares or Warrant Shares or any part thereof
or interest therein, without prejudice, however, to the 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, Warrants 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 the Purchaser was offered the
Shares and the Warrants, it was, and at the date hereof, it is, and at each
Closing Date and each exercise date under the Warrants, 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. The 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 Warrants, 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. The Purchaser is
able to bear the economic risk of an investment in the Shares, the Warrants, the
Underlying Shares and the Warrant Shares, and, at the present time, is able to
afford a complete loss of such investment.
(f) Access to Information. The 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 Warrants, and the merits and risks of
investing in the Shares and the Warrants; (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 Warrants 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. The Purchaser understands and acknowledges that (i) the
Shares and the Warrants are being offered and sold to the Purchaser without
registration
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<PAGE> 13
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 the Purchaser
hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes 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 the Purchaser should decide to dispose of
Shares or any portion of the Warrants (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 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) The Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Shares, the Warrants, the
Underlying Shares and the 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.
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<PAGE> 14
[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
JUNE 6, 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 Shares, the Warrants, the Underlying Shares and the Warrant
Shares shall also bear any other legends required by applicable Federal or state
securities laws, which legends shall be removed when not required in accordance
with this Section 3.1(b). The Company agrees that it will provide the 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. The 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. The Company makes no
representation, warranty or agreement as to the availability of any exemption
from 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 the 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 the 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.
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<PAGE> 15
3.4 Copies and Use of Disclosure Materials. The Company shall furnish
the Purchaser, without charge, as many copies of the Disclosure Materials, and
any amendments or supplements thereto, as the Purchaser may reasonably request.
The Company consents to the use of the SEC Documents, and any amendments and
supplements thereto, by the 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
Purchaser may request and shall continue such qualification at all times through
the third anniversary of the last Closing Date; provided, however, that neither
the Company nor its Subsidiaries shall 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 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 Certain Agreements. From the date hereof through the final Closing
Date for which Shares are issued and sold hereunder, the Company shall not and
shall cause the Subsidiaries not to, without the consent of the Purchaser, (i)
amend its certificate of incorporation, bylaws or other charter documents so as
to adversely affect any rights of the Purchaser; (ii) declare, authorize, set
aside or pay any dividend or other distribution with respect to the Common Stock
in excess of $250,000, except as permitted under the Certificates of Designation
and as would not adversely affect the rights of the Purchaser hereunder or under
the Certificates of Designation; (iii) repay, repurchase or offer to repay,
repurchase or otherwise acquire shares of its Common Stock in excess of
$1,000,000 in any manner which adversely affects the rights of the Purchaser
hereunder or under the Certificates of Designation; or (iv) enter into any
agreement with respect to any of the foregoing.
3.8 Purchaser Ownership of Common Stock. The Purchaser or any of its
Affiliates may not use its ability to convert Shares hereunder or under the
terms of the Certificates of Designation or to use its ability to acquire shares
of Common Stock upon exercise of the Warrants, to the extent that such
conversion or exercise would result in the Purchaser beneficially owning (for
purposes of Rule 13d-3 under the Exchange Act) more than 4.999% 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 the Purchaser of the number of shares of Common Stock which would be
issuable to
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<PAGE> 16
the Purchaser or any of its Affiliates if the requested conversion or exercise
were effected in full, whereupon, if the Company determines that such conversion
or exercise would result in the Purchaser beneficially owning in excess of
4.999% of the outstanding shares of Common Stock on such date, the Purchaser
hereby consents to the Company converting or exercising up to an amount equal to
4.999% of the outstanding shares of Common Stock; provided, however, that if ten
days shall have elapsed since Purchaser has declared an event of default under
any Transaction Document and such event shall not have been cured to 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.
3.9 Listing of Underlying Shares. The Company shall (a) not later than
the fifth Business Day following the applicable 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
applicable Certificate of Designation, (b) take all steps necessary to cause the
Underlying Shares and Warrant Shares issuable upon conversion of the Preferred
Stock or the exercise of the Warrants at the applicable Closing Date to be
approved for listing in 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 Purchaser evidence of
such listing, and the Company shall maintain the listing of its Common Stock on
such exchange.
3.10 Conversion Procedures. Exhibit C attached hereto sets forth the
procedures with respect to the conversion of the Preferred Stock, 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 the 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 the
Purchaser's option exercisable by written notice to the Company, the Company
shall redeem all Shares owned by the Purchaser and all Underlying 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 Warrants to be purchased are then convertible or exercisable
(or in the case of Underlying Shares, the number of Underlying Shares to be
purchased), plus (B) interest on such amount accruing from the 7th day after
such notice until paid at the rate of 15% per annum.
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<PAGE> 17
3.12 No Violation of Applicable Law. Notwithstanding any provision of
this Agreement to the contrary, if the redemption of Shares or Underlying 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. Notwithstanding any provision of this
Agreement to the contrary, if any redemption of Shares or Underlying Shares
otherwise required under this Agreement or the Registration Rights Agreement
would be prohibited in the absence of consent from any lender of the Company or
any of the Subsidiaries, or by the holders of any class of securities of the
Company, the Company shall use its best efforts to obtain such consent as
promptly as practicable after the redemption is required. Interest payable by
the Company with respect to any such redemption shall continue to accrue until
such consent is obtained. Nothing contained in this Section 3.13 shall be
construed as a waiver by the Purchaser of any rights it may have by virtue of
any breach of any representation or warranty of the Company herein as to the
absence of any requirement to obtain any such consent.
3.14 Notice of Breaches. Each of the Company and the Purchaser 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 to, with respect to the Series B Closing, the Series B Closing
Date, with respect to the Series C Closing, the Series C Closing Date, with
respect to the Series D Closing, the Series D Closing Date, with respect to the
Series E Closing, the Series E Closing Date, or with respect to the Series F
Closing, the Series F Closing Date, 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 such Closing Date.
However, no disclosure by either party pursuant to this Section 3.15 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 Purchaser 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 holders of the Shares 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 respective Certificates of
Designation, and to deliver Warrants Shares in accordance with the terms and
conditions and time periods set forth in the Warrants.
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<PAGE> 18
3.16 Intentionally Omitted.
3.17 The Warrants.
(a) The Initial Warrant. At the Series B Closing, the Company
shall issue to the Purchaser, a common stock purchase warrant (the "Initial
Warrant"), pursuant to which the Purchaser shall have the right at any time
thereafter through the fourth anniversary of the date of issuance thereof, to
acquire 62,500 shares of Common Stock at an exercise price per share equal to
125% of the Conversion Price on the Series B Closing Date.
(b) The Subsequent Warrant. If the Company shall issue and
sell all or any portion of the Series D Shares on the Series D Closing Date,
then the Company shall issue to the Purchaser a common stock purchase warrant
(the "Subsequent Warrant") pursuant to which the Purchaser shall have the right
at any time thereafter through the fourth anniversary of the date of issuance
thereof, to acquire 62,500 shares of Common Stock at an exercise price per share
equal to 125% of the Conversion Price on the Series D Closing Date.
(c) The Intermediate Warrant. If the Company shall not, for
any reason, issue and sell all or a portion of the Series D Shares on the Series
D Closing Date, then the Company shall issue to the Purchaser, on the Series D
Closing Expiration Date, a common stock purchase warrant (the "Intermediate
Warrant") pursuant to which the Purchaser shall have the right at any time
thereafter through the fourth anniversary of the date of issuance thereof, to
acquire 31,250 shares of Common Stock at an exercise price per share equal to
125% of the Conversion Price on the Series D Closing Expiration Date.
(d) The Final Warrant. If the Company issues the Intermediate
Warrant, upon the earlier to occur of (1) the sale of some or a portion of the
Series E Shares of (2) the sale or some or a portion of the Series F Shares, if
any, the Company shall issue to the Purchaser, at the applicable Closing Date, a
common stock purchase warrant (the "Final Warrant") pursuant to which the
Purchaser shall have the right at any time thereafter through the fourth
anniversary of the date of issuance thereof, to acquire 31,250 shares of Common
Stock at an exercise price per share equal to 125% of the Conversion Price on
the applicable Closing Date. The Initial Warrant, the Subsequent Warrant, the
Intermediate Warrant and the Final Warrant are collectively referred to herein
as the "Warrants". The Form of Warrants is attached as Exhibit E hereto. In no
event shall the Company be obligated to issue Warrants for more than 125,000
shares of Common Stock in the aggregate.
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<PAGE> 19
ARTICLE IV
CONDITIONS
4.1 (a) Conditions Precedent to the Obligation of the Company to Sell
the Series B Shares. The obligation of the Company to sell the Series B Shares
hereunder is subject to the satisfaction, or waiver by the Company, at or before
the Series B Closing, of each of the following conditions:
(i) Accuracy of the Purchaser's Representations and Warranties.
The representations and warranties of the Purchaser shall be true and correct in
all material respects as of the date when made and as of the Series B 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 Purchaser. The 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 Series B 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 other than those relating solely to the Series C, Series D, Series E
Shares or Series F Shares.
(b) Conditions Precedent to the Obligation of the Purchaser to
Purchase the Series B Shares. The obligation of the Purchaser hereunder to
acquire and pay for the Series B Shares is subject to the satisfaction or waiver
by the Purchaser, at or before the Series B Closing, 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 Series B 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 conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Series B Closing;
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<PAGE> 20
(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 Series B Closing Date been, and on
the Series B 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
the Purchaser the opinion of Katten Muchin & Zavis, counsel to the Company
("Katten Muchin"), in substantially the form attached hereto as Exhibit D;
(viii) Required Approvals. All Required Approvals shall have
been obtained other than those relating solely to the Series C, the Series D,
the Series E Shares or the Series F Shares;
(ix) Shares of Common Stock. On or prior to the Series B
Closing Date, the Company shall have duly reserved for issuance upon conversion
of Series B Shares and exercise of the Warrants such number of Underlying Shares
as required by the terms of the Registration Rights Agreement and 62,500 Warrant
Shares;
(x) Delivery of Stock Certificates. The Company shall
have delivered to Robinson Silverman in escrow, pending the Series B Closing
Date the stock certificate(s) representing the Series B Shares, registered in
the name of the Purchaser, each in form satisfactory to the Purchaser;
(xi) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement;
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(xii) Initial Warrant. The Company shall have executed and
delivered the Initial Warrant in accordance with the
terms of the Agreement;
(xiii) Certificate of Designation. The Series B Designation
shall have been duly filed with the Secretary of State of Delaware, and the
Company shall have delivered a copy thereof to the Purchaser certified as filed
by the office of the Secretary of State of Delaware;
(xiv) Company Certificates. The Purchaser shall have
received a certificate, dated the Series B 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 Restated
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 Series B Certificates
of Designation and the issuance and sale of the Series B Shares, the Initial
Warrant, the Underlying Shares and the Warrant Shares and (ii) the incumbency of
the officers executing the Transactions Documents, the Series B Certificate of
Designation and the Initial Warrant; and
(xv) Change of Control. No Change of Control (as hereafter
defined) shall have occurred between the date hereof and the Series B Closing
Date.
4.2 Conditions Precedent to the Obligation of the Purchaser to
Purchase the Series C Shares, the Series D Shares, the Series E Shares and the
Series F Shares. The obligation of the Purchaser hereunder to acquire and pay
for the Series C Shares, the Series D Shares, the Series E Shares and the Series
F Shares is subject to the satisfaction or waiver by the Purchaser, at or before
the Series C Closing, the Series D Closing, Series E Closing and the Series F
Closing, as applicable, of each of the following conditions:
(i) Series B Closing. The Series B Closing shall have
occurred.
(ii) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company contained 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 Series C Closing Date,
the Series D Closing Date, the Series E Closing Date and the Series F Closing
Date, as applicable, as though made on and as of such date (except for
representations and warranties that speak as of a specific date);
(iii) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Series C Closing Date, the Series D Closing Date, the Series E Closing
Date or the Series F Closing Date, as applicable;
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<PAGE> 22
(iv) Underlying Securities Registration Statements. With
respect to the Series C Closing, the Underlying Securities Registration
Statement with respect to the Underlying Shares issuable on conversion of all
outstanding Series B Shares and with respect to the Warrant Shares issuable upon
exercise of the Warrants shall have been declared effective under the Securities
Act by the Commission; with respect to the Series D Closing, the Underlying
Securities Registration Statement with respect to the Underlying Shares issuable
on conversion of all outstanding Series C Shares shall have been declared
effective under the Securities Act by the Commission; with respect to the Series
E Closing, the Underlying Securities Registration Statement with respect to the
Underlying Shares issuable on conversion of all outstanding Series D Shares
shall have been declared effective under the Securities Act by the Commission;
and with respect to the Series F Closing, the Underlying Securities Registration
Statement with respect to the Underlying Shares issuable on conversion of all
outstanding Series E Shares shall have been declared effective under the
Securities Act by the Commission; and in each such case such Underlying
Securities Registration Statement shall have remained effective and shall not be
subject to any stop order and no stop order shall be pending or threatened until
the earlier of such Closing Date or the date upon which all of the Underlying
Shares issuable upon conversion of the applicable Preferred Stock and Shares
issuable upon conversion of the applicable Warrants have been resold pursuant to
such Underlying Securities Registration Statement;
(v) 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 relating to
the issuance or conversion of any of the Shares or exercise of any of the
Warrants;
(vi) Adverse Changes. Since the date of the financial
statements included in the Company's last filed 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 which has not specifically been disclosed on Schedule
2.1(g) hereto prior to the date of this Agreement shall have occurred, nor shall
there have occurred a material adverse change in the financial conditions or
prospects of the Company, which is not disclosed in the Disclosure Materials;
(vii) Management. There has been no significant changes in
the senior management of the Company;
(viii) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended for more than two
Trading Days 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 except if, at the time there is
any suspension on the Nasdaq National Market, the Common Stock is then listed
and approved for trading on the Nasdaq SmallCap Market, the American Stock
Exchange or the New York Stock Exchange, within one (1) trading day thereof);
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(ix) Listing of Common Stock. The Common Stock shall have
been at all times between the Series B Closing Date, the Series C Closing Date,
the Series D Closing Date, the Series E Closing Date and the Series F Closing
Date, as applicable, and on such applicable Closing Date be, listed for trading
on the Nasdaq National Market, Nasdaq SmallCap Market, the American Stock
Exchange or the New York Stock Exchange.
(x) Change of Control. No Change of Control in the
Company shall have occurred. "Change of Control" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity of in
excess of 50% of the 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 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).
(xi) Market Price of Common Stock. The Per Share Market
Value for the Company's Common Stock for the preceding twenty (20) Trading Days
prior to the Series C Closing Date, Series D Closing Date, Series E Closing Date
and Series F Closing Date, as applicable, shall not have been less than $6.00
per share of Common Stock.
(xii) Legal Opinion. The Company shall have delivered to
the Purchaser an opinion of outside legal counsel to the Company in
substantially the form attached hereto as Exhibit D and dated the applicable
Closing Date;
(xiii) Required Approvals. All Required Approvals shall have
been obtained;
(xiv) Shares of Common Stock. On each of the Series C
Closing Date, the Series D Closing Date, the Series E Closing Date and Series F
Closing Date, as applicable, the Company shall have reserved for issuance to the
Purchaser two times the number of Underlying Shares which would be issuable upon
conversion in full of the Series C Shares, the Series D Shares, the Series E
Shares or Series F Shares, as applicable, assuming such conversion occurred on
the Original Issue Date for such Shares;
(xv) Delivery of Stock Certificates. The Company shall
have delivered to Robinson Silverman in escrow, pending the applicable Closing
the stock certificate(s) representing the Shares, being purchased at such
Closing, registered in the name of such Purchaser, each in form satisfactory to
the Purchaser; and
(xvi) Performance of Conversion/Exercise Obligations. The
Company shall have (a) delivered Underlying Shares upon conversion, if any, of
Shares issued prior to the applicable Closing and otherwise performed its
obligations in accordance with the terms, conditions and timing requirements of
each applicable Certificate of Designation and (b) shall
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<PAGE> 24
have delivered Warrant Shares upon exercise of the Warrants and otherwise
performed its obligations in accordance with the terms of the Warrants.
(xvii) Warrants. The Company shall have delivered the
applicable Warrants in accordance with the terms of this Agreement.
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. The Purchaser shall be responsible for the Purchaser's own tax liability
that may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement.
5.2 Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto, the Registration Rights Agreement, the
Certificates of Designation (each 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 received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered on a
business day after during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses 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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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 the Purchaser: Southbrook International Investments, Ltd.
c/o Trippoak Advisors
630 Fifth Avenue, Suite 200
New York, New York 10111
Attn: Robert L. Miller
Fax: (212) 541-4630
With copies to Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Attn: Eric L. Cohen
Fax: (212) 541-4630
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 Purchaser; 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.
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<PAGE> 26
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 last Closing Date at which Shares are issued
hereunder.
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 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 Purchaser 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE> 27
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/ ORA E. SMITH
-------------------------------------
Name: Ora E. Smith
Title: President
Purchaser:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By: /s/ KENNETH L. HENDERSON
-------------------------------------
Name: Kenneth L. Henderson
Title: Asst. Secretary
<PAGE> 28
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, no shares
issued and outstanding
Common Stock, $.001 par value, 15,000,000 shares authorized, 5,051,287
shares issued and outstanding
The Company also has outstanding warrants to purchase 646,927 shares
of Common Stock and options to purchase 841,905 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.
<PAGE> 29
SCHEDULE 2.1(F)
NONE
<PAGE> 30
SCHEDULE 2.1(G)
NONE
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 6, 1997, between Illinois Superconductor Corporation, a
Delaware corporation (the "Company"), and Southbrook International Investments,
Ltd., a corporation existing under the laws of the British Virgin Islands (the
"Purchaser").
This Agreement is made pursuant to the Convertible Preferred
Stock Purchase Agreement, dated as of the date hereof between the Company and
the Purchaser (the "Purchase Agreement").
The Company and the Purchaser 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.
<PAGE> 2
"Effectiveness Date" means (i) with respect to the Registration
Statement to be filed with respect to the Series B Shares, the 90th day
following the Series B Closing Date, (ii) with respect to the Registration
Statement to be filed with respect to the Series C Shares, the 90th day
following the Series C Closing Date, (iii) with respect to the Registration
Statement to be filed with respect to the Series D Shares, the 90th day
following the Series D Closing Date, (iv) with respect to the Registration
Statement to be filed with respect to the Series E Shares, the 90th day
following the Series E Closing Date, and (v) with respect to the Registration
Statement to be filed with respect to the Series F Shares, the 90th day
following the Series F Closing Date.
"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 (i) with respect to the shares of Common
Stock issuable upon conversion of the Series B Shares and exercise of the
Initial Warrant, the 30th day following the Series B Closing Date, (ii) with
respect to the shares of Common Stock issuable upon conversion of the Series C
Shares, the 30th day following the Series C Closing Date, (iii) with respect to
the shares of Common Stock issuable upon conversion of the Series D Shares and
exercise of the Subsequent Warrant, the 30th day following the Series D Closing
Date, (iv) with respect to the shares of Common Stock issuable upon conversion
of the Series E Shares and exercise of the Subsequent Warrant, the 30th day
following the Series E Closing Date, and (v) with respect to the Series F
Shares, the 30th day following the Series F 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 B, Series C, Series
D, Series E and Series F Convertible Preferred Stock, par value $.001 per share,
of the Company issued to the Purchaser pursuant to the Purchase Agreement.
<PAGE> 3
"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 (a) with respect to the
Registration Statement to be filed after the Series B Closing, the shares of
Common Stock issuable upon (i) conversion of the Series B Shares, (ii) exercise
of the Initial Warrant issued by the Company to the Purchaser and (iii) payment
of dividends in respect of such Preferred Stock, (b) with respect to the
Registration Statement to be filed after the Series C Closing, the shares of
Common Stock issuable upon (i) conversion of the Series C Shares and (ii)
payment of dividends with respect to such Preferred Shares, (c) with respect to
the Registration Statement to be filed after the Series D Closing, the shares of
Common Stock issuable upon (i) conversion of the Series D Shares, (ii) exercise
of the Subsequent Warrant or Intermediate Warrant issued by the Company to the
Purchaser, as the case may be, and (iii) payment of dividends with respect to
such Preferred Shares, (d) with respect to the Registration Statement to be
filed after the Series E Closing, the shares of Common Stock issuable upon (i)
conversion of the Series E Shares, (ii) exercise of the Final Warrant issued by
the Company to the Purchaser, if applicable, and (iii) payment of dividends with
respect to such Preferred Shares, and (e) with respect to the Registration
Statement to be filed after the Series F Closing, the shares of Common Stock
issuable upon (i) conversion of the Series F Shares (ii) exercise of the Final
Warrant, if applicable and (iii) payment of dividends with respect to such
Preferred Shares; 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, in the case of each of (a), (b), (c), (d) and
(e), Registrable Securities shall include (but not be limited to) a number of
shares of Common Stock equal to no less than the sum of (1) two times the number
of shares of Common Stock into which the applicable series of Preferred Stock
are convertible, assuming such conversion occurred on the particular Closing
Date for such tranches of Preferred Stock, (2) the number of shares of Common
Stock issuable on payment of dividends on such Preferred Shares during the
period after the applicable Closing Date and (3) the number of shares of Common
Stock issuable upon exercise in full of the Warrants issued at the applicable
Closing Date described herein, or such other number of shares of Common Stock as
agreed to by the parties to the Purchase Agreement (assuming the Initial Warrant
was issued on the Series B Closing Date and that the Subsequent Warrant was
issued on the Series D Closing Date). Notwithstanding anything herein contained
to the contrary, if
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<PAGE> 4
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 particular series of Preferred Stock are 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 are 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 in respect of any particular tranche of Preferred
Stock based upon the computation on a particular Closing Date, the Company shall
have 10 Business Days to file such additional Registration Statement after
notice of the requirement thereof.
"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.
"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.
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<PAGE> 5
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 three 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.
(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,
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<PAGE> 6
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 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
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<PAGE> 7
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 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
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<PAGE> 8
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, 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.
(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
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<PAGE> 9
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 to
evidence compliance with any
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<PAGE> 10
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> 11
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(c), 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
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<PAGE> 12
(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 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
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<PAGE> 13
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 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
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<PAGE> 14
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 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
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<PAGE> 15
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 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
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<PAGE> 16
Company shall deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such requirements.
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, neither the Company nor
any of its subsidiaries has, as of the date hereof, nor shall the Company or any
of its subsidiaries, 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, neither the Company nor any of its subsidiaries has
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
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<PAGE> 17
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 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 effet 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 given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 4:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight
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<PAGE> 18
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
If to the Company:
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, IL 60056
Attn: Chief Financial Officer
Tel: (847) 391-9400
Fax: (847) 391-5015
With copies to Katten Muchin & Zavis
525 W. Monroe St. Suite 1600
Chicago, IL 60661
Attn: Lawrence D. Levin, Esq.
Tel: (312) 902-5200
Fax: (312) 902-1061
If to the Purchaser: Southbrook International Investments,
Ltd.
c/o Trippoak Advisors
630 Fifth Avenue, Suite 200
New York, New York 10111
Attn: Robert L. Miller
Fax: (212) 541-4630
With copies to Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Attn: Eric L. Cohen
Fax: (212) 541-4630
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.
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<PAGE> 19
(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 Purchaser 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 the
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 the 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) the Purchaser agrees in writing with the transferee 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 the 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
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<PAGE> 20
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 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.
[REMINDER OF PAGE INTENTIONALLY LEFT
BLANK. SIGNATURE PAGE FOLLOWS.]
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<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ ORA E. SMITH
---------------------------
Name: Ora E. Smith
Title: President
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
By: /s/ KENNETH L. HENDERSON
----------------------------
Name: Kenneth L. Henderson
Title: Asst. Secretary
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<PAGE> 22
Schedule 7(b)
INCONSISTENT AGREEMENTS
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.
<PAGE> 23
Schedule 7(c)
PERMISSIBLE PIGGYBACK SECURITIES
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.
<PAGE> 1
EXHIBIT 4.5
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER 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 THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
ILLINOIS SUPERCONDUCTOR CORPORATION
WARRANT
Warrant No. WSB-001 Dated June 6, 1997
Illinois Superconductor Corporation, a Delaware corporation (the
"Company"), hereby certifies that, for value received, Southbrook International
Investments, Ltd., or its registered assigns ("Holder"), is entitled, subject to
the terms set forth below, to purchase from the Company up to a total of 62,500
shares of Common Stock, $.001 par value per share (the "Common Stock"), of the
Company (each such share, a "Warrant Share" and all such shares, the "Warrant
Shares") at an exercise price equal to $14.8125 per share (as adjusted from time
to time as provided in Section 8, the "Exercise Price"), at any time and from
time to time from and after the date hereof and through and including June 6,
2001 (the "Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion
of this Warrant in the Warrant Register, upon surrender of this Warrant, with
the Form of Assignment attached hereto duly completed and signed and a written
opinion of Holder's counsel that such
<PAGE> 2
transfer is exempt from registration under the Securities Act, to the Company at
the office specified in or pursuant to Section 3(b), provided, however that the
Holder shall not make any transfers to any transferee pursuant to this Section
for the right to acquire less than 1,000 Warrant Shares. Upon any such
registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant. If this Warrant is duly assigned in accordance with the terms
hereof, then the Company agrees, upon the request of the assignee, to amend or
supplement promptly any effective registration statement covering the Warrant
Shares so that the direct assignee of the original Holder is added as a selling
stockholder thereunder.
(b) This Warrant is exchangeable, upon the surrender hereof
by the Holder to the office of the Company specified in or pursuant to Section
3(b) for one or more New Warrants, evidencing in the aggregate the right to
purchase the number of Warrant Shares which may then be purchased hereunder. Any
such New Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered
Holder on any business day before 5:30 P.M., New York time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 5:30 P.M., New York time on the Expiration Date, the portion of this Warrant
not exercised prior thereto shall be and become void and of no value.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of
this Warrant, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its office at 451 Kingston Court, Mt.
Prospect, Illinois 60056, Attention: Chief Financial Officer, or at such other
address as the Company may specify in writing to the then registered Holder, and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 5 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
-2-
<PAGE> 3
A "Date of Exercise" means the date on which the Company
shall have received (i) this Warrant (or any New Warrant, as applicable), with
the Form of Election to Purchase attached hereto (or attached to such New
Warrant) appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares so indicated by the holder
hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant Shares so
long as at least 1,000 Warrant Shares are purchased in any one exercise, unless
such exercise would result in the Holder holding less than 1,000 Warrant Shares.
If less than all of the Warrant Shares which may be purchased under this Warrant
are exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4 each as promulgated under the Securities Act of 1933, as
amended, pursuant to which the Company is registering securities pursuant to a
Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction) at any time during which there is not an effective registration
statement covering the resale of the Warrant Shares, unless the Company provides
the Holder with not less than five business days notice to each of the Holder
and Robinson Silverman Peace Aronsohn & Berman LLP, attention Eric L. Cohen, of
its intention to file such registration statement and provides the Purchaser the
option to include any or all of the applicable Warrant Shares therein. The
piggyback registration rights granted to the Holder pursuant to this Section
shall continue until all of the Holder's Warrant Shares have been sold in
accordance with an effective registration statement, or sold pursuant to an
exemption from registration, or upon the expiration of this Warrant. The Company
will pay all registration expenses in connection therewith.
5. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder, and the Company shall not be required to issue or cause
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company may in its discretion issue or cause to be
issued in exchange and substitution for and upon cancellation hereof, or in lieu
of and substitution for this Warrant, a
-3-
<PAGE> 4
New Warrant, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and indemnity, if reasonably
satisfactory to it. Applicants for a New Warrant under such circumstances shall
also comply with such other reasonable regulations and procedures and pay such
other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
8. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 8. Upon each such adjustment of
the Exercise Price pursuant to this Section 8, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated divided
rate) or otherwise make a distribution or distributions on shares of its Common
Stock (as defined below) or on any other class of capital stock and not the
Common Stock) payable in shares of Common Stock, (ii) subdivide outstanding
shares of Common Stock into a larger number of shares, or (iii) combine
outstanding shares of Common Stock into a smaller number of shares, the Exercise
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 (excluding treasury shares, if any) outstanding after such event.
Any adjustment made pursuant to this Section 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 or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person, the sale
or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder
-4-
<PAGE> 5
shall have the right thereafter to exercise this Warrant only into the shares of
stock and other securities and property receivable upon or deemed to be held by
holders of Common Stock following such reclassification, consolidation, merger,
sale, transfer or share exchange, and the Holder shall be entitled upon such
event to receive such amount of securities or property equal to the amount of
Warrant Shares such Holder would have been entitled to had such Holder exercised
this Warrant immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section 8(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Section 8(a) and (b)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise 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 Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price 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 of the Company acting in good faith.
(d) For the purposes of this Section 8, the following
clauses shall also be applicable:
(i) Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them (A)
to receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(e) All calculations under this Section 8 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
-5-
<PAGE> 6
(f) Whenever the Exercise Price is adjusted pursuant to
Section 8(c) above, the Holders of Warrants representing a majority in interest
of the Warrant Shares, after receipt of the determination by the Company's
Board, shall have the right to select an appraiser at the Holder's cost and
expense (which shall be a nationally recognized accounting firm), in which case
the adjustment shall be equal to the average of the adjustments recommended by
each of the Board and such appraiser. The Holders shall promptly mail or cause
to be mailed to the Company, a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such adjustment shall become effective immediately after the record
date mentioned above.
(g) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) 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
(iv) 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, or any compulsory
share exchange whereby the Common Stock is
converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of
the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, 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
-6-
<PAGE> 7
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, share
exchange, dissolution, liquidation or winding up; 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.
9. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 9,
be issuable on the exercise of this Warrant, the Company shall, at its option,
(i) pay an amount in cash equal to the Exercise Price multiplied by such
fraction or (ii) round the number of Warrant Shares issuable, up to the next
whole number.
10. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Eastern Standard Time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 4:30 p.m. (Eastern Standard Time) on any date and earlier
than 11:59 p.m. (Eastern Standard Time) on such date, (iii) the business day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (1) if to
the Company, to Illinois Superconductor Corporation, 451 Kingston Court, Mt.
Prospect, Illinois 60056, Attention: Chief Financial Officer, or to facsimile
no. (847) 391-5015, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 10.
11. Warrant Agent.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be
-7-
<PAGE> 8
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
12. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder.
(b) Subject to Section 12(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant; this Warrant shall be for the sole and exclusive benefit of the Company
and the Holder.
(c) This Warrant 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.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
ILLINOIS SUPERCONDUCTOR
CORPORATION
By: /s/ ORA E. SMITH
------------------------------
Name:Ora E. Smith
Title:President
<PAGE> 10
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Illinois Superconductor Corporation:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.001 par value per share, of Illinois
Superconductor Corporation and encloses herewith $________ in cash or certified
or official bank check or checks, which sum represents the aggregate Exercise
Price (as defined in the Warrant) for the number of shares of Common Stock to
which this Form of Election to Purchase relates, together with any applicable
taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
_______________________________________________________________________________
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
_______________________________________________________________________________
Dated:_____________, ______ Name of Holder:
(Print)___________________________
(By:)_____________________________
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
<PAGE> 11
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Illinois
Superconductor Corporation to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Illinois
Superconductor Corporation with full power of substitution in the premises.
Dated:
_______________, ____
_________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
_________________________
1.1.21
<PAGE> 1
EXHIBIT 5
Katten Muchin & Zavis
525 W. Monroe
Suite 1600
Chicago, Illinois 60661
June 23, 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 715,488 shares of the
Company's Common Stock, $.001 par value per share, of which (i) 637,061 shares
(the "Conversion Shares") may in the future be issued upon the conversion of
certain outstanding shares of Series B Convertible Preferred Stock (the "Series
B Stock"), (ii) 15,927 shares may in the future be issued as accrued dividends
for one year on the Series B Stock (the "Dividend Shares"), and (iii) 62,500
shares (the "Warrant Shares") may in the future be issued upon the exercise of
a certain outstanding warrant (the "Warrant").
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 Certificate of Designation,
Preferences and Rights related to the Series B Stock (the "Certificate of
Designation"), (e) resolutions adopted by the Board of Directors of the Company
and (f) the Warrant.
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
<PAGE> 2
Illinois Superconductor Corporation
June 23, 1997
Page 2
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 Conversion Shares, when issued by the Company upon the
conversion of the Series B Stock in accordance with the terms of the
Certificate of Designation, will be validly issued, fully paid and
non-assessable;
(2) The Dividend Shares, if and when issued by the Company as
accrued dividends on the Series B Stock in accordance with the terms of the
Certificate of Designation, will be validly issued, fully paid and
non-assessable.
(3) The 62,500 Warrant Shares, when issued by the Company upon the
exercise of the Warrant in accordance with its terms, will be validly issued,
fully paid and non-assessable.
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 715,488 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
June 23, 1997
