<PAGE> 1
As filed with the Securities and Exchange Commission on July 31, 1998
Registration No. 333-56601
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________________
ILLINOIS SUPERCONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3688459
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
EDWARD W. LAVES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
________________________
WITH COPIES TO:
LAWRENCE D. LEVIN, ESQ. BRUCE A. ZIVIAN, ESQ.
Katten Muchin & Zavis Ehrenreich Eilenberg Krause & Zivian LLP
525 West Monroe Street 20 North Wacker Drive, Suite 3230
Chicago, Illinois 60661 Chicago, Illinois 60606
(312) 902-5200 (312) 917-9900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value
(including preferred stock purchase
rights) 11,592,000 shares(1) (2) $25,277,619(2) $7,457(3)
===========================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933, this Registration
Statement also covers such additional shares of Common Stock issuable in
connection with the shares registered for sale hereby by reason of any
stock split, stock dividend, recapitalization or other similar transaction
effected without the receipt of consideration which results in an increase
in the outstanding shares of Common Stock.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 on the basis of the average
of the high and low prices of the Common Stock as reported by the Nasdaq
National Market (i) on June 8, 1998 ($2.19) with respect to the 11,418,515
shares initially registered hereby and (ii) on July 28, 1998 ($1.5625) with
respect to the additional 173,485 shares being included herein.
(3) $7,377 of the registration fee has been previously paid.
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
Subject to Completion, Dated July 31, 1998
- --------------------------------------------------------------------------------
PROSPECTUS
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11,592,000 SHARES
[Illinois Superconductor
logo] ILLINOIS
SUPERCONDUCTOR
CORPORATION
COMMON STOCK
------------
The shares (the "Shares") of Common Stock, $.001 par value (including
preferred stock purchase rights) (the "Common Stock"), of Illinois
Superconductor Corporation (the "Company") covered by this Prospectus may be
sold from time to time by the stockholders specified in this Prospectus or their
pledgees, donees, transferees or other successors in interest (the "Selling
Stockholders"). See "Selling Stockholders." This Prospectus relates to
11,592,000 Shares, of which (i) 6,900,002 are Shares which may in the future be
issued to the Selling Stockholders upon the conversion of an aggregate of $10.35
million principal amount of Senior Convertible Notes (the "Notes"), (ii) 551,998
are Shares which may be issued to the Selling Stockholders as accrued interest
for four years on the Notes, and (iii) 4,140,000 are Shares which may in the
future be issued to the Selling Stockholders upon the exercise of outstanding
warrants held by the Selling Stockholders (the "Warrants"). One-half of the
principal amount of the Notes is convertible into shares of Common Stock
beginning on August 13, 1998 and the remaining principal amount of the Notes is
convertible into shares of Common Stock beginning on November 11, 1998. The
principal amount of the Notes, and any outstanding accrued interest thereon, is
due and payable on May 15, 2002. The Shares issuable as interest on the Notes
are subject to adjustment and could be more or less than the estimated amount
listed herein depending on the future market price of the Common Stock and when
the outstanding principal of the Notes is converted. The Warrants are
exercisable between August 13, 1998 and May 15, 2001. The Company will not
receive any of the proceeds from the sale of the Shares by the Selling
Stockholders, but the Company will receive the proceeds from the exercise of the
Warrants by the Selling Stockholders. See "Use of Proceeds."
The Common Stock is traded on the Nasdaq National Market (the "NNM")
under the symbol "ISCO." On July 30, 1998, the closing price of the Common
Stock as reported on the NNM was $1.5625 per share. The Selling Stockholders
may, from time to time during the effectiveness of this registration, sell the
Shares on the NNM, in privately negotiated transactions or otherwise, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to such market prices or at negotiated prices. See "Plan of
Distribution."
AN INVESTMENT IN THE SHARES OFFERED HEREBY ENTAILS A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
___________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
___________________________
The date of this Prospectus is , 1998
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.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company may be inspected and
copied at the public reference facilities maintained by the Commission at the
Commission's Public Reference Room, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 at prescribed rates. Copies of reports, proxy statements and other
information regarding registrants that file electronically, including the
Company, 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, 1997, as amended on Form 10-K/A;
2. The Company's Quarterly Report on Form 10-Q, for the quarterly
period ended March 31, 1998, as amended on Form 10-Q/A;
3. The Company's Current Reports on Form 8-K dated January 16,
1998, April 22, 1998, May 15, 1998 and June 15, 1998;
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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<PAGE> 5
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 Section 27A of
the Securities Act and Section 21E of the Exchange Act) that reflect the
Company's current expectations regarding the future results of operations,
performance and achievements of the Company. Such forward-looking statements
are made pursuant to the safe harbor provisions of 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 "anticipates,"
"believes," "estimates," "expects," "plans," "intends" 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 contingencies, including the
factors set forth in the following Risk Factors, which could cause the
Company's actual results, performance or achievements for 1998 and beyond 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, which are based
on the Company's high temperature superconductor ("HTS") technology, have not
been sold in significant quantities and there is no assurance that a
substantial market will develop for the Company's products. The Company's
customers establish demanding specifications for performance and reliability.
There can be no assurance that the Company's RF filter products will continue
to pass product performance and reliability tests by cellular and Personal
Communications Services ("PCS") service providers. There can also be no
assurance that the Company's products will operate reliably on a long-term
basis, that the Company will be able to manufacture adequate quantities of any
products it develops at commercially acceptable costs or on a timely basis or
that any of the Company's current or future products will achieve market
acceptance. The Company has experienced, and may continue to experience,
quarterly fluctuations in its results of operations as its RF filter products
attempt to gain market acceptance while being subject to the lengthy purchase
processes of customers. Failure to successfully develop, manufacture and
commercialize products on a timely and cost-effective basis will have a
material adverse effect on the Company's business, operating results and
financial condition.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; AND UNCERTAINTY OF FINANCIAL
RESULTS
The Company was founded in October 1989 and to date has been engaged
principally in research and development ("R&D"), product testing, manufacturing
and marketing activities. The Company has only recently begun to generate
limited revenues from the sale of its RF filter products. Prior to the
commencement of these sales, the majority of the Company's revenues were
derived from R&D contracts, primarily from the U.S. government. The Company
does not expect revenues to increase dramatically until it ships a significant
amount of its RF products. Accordingly, the Company has only a limited
operating history upon which an evaluation of the Company and its prospects can
be based. The Company must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stages of
product commercialization.
The Company has incurred substantial net losses in each year since its
inception and as of March 31, 1998 had an accumulated deficit of approximately
$40.5 million. The Company expects to continue to incur operating losses
through at least the end of 1998 as it continues to devote significant
financial resources to its product development, manufacturing, marketing and
sales efforts. Even if the Company
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<PAGE> 6
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.
FUTURE CAPITAL NEEDS
To date, the Company has financed its operations primarily through
public and private equity and debt financings that have raised approximately
$59.4 million, net of related expenses. Although the Company believes that its
current funds are sufficient to finance the Company's operations as planned
through at least the end of June 1999, the Company may require additional funds
to finance its product development, manufacturing and marketing activities
thereafter. In addition, the Company has granted a right of first offer to the
Selling Stockholders to participate in certain future private placements of
securities, which is exercisable during the period any Selling Stockholder's
Notes or Warrants are outstanding. This right of first offer could adversely
impair the Company's ability to obtain additional financing. 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 addition, the failure by the Company to obtain adequate
funding could impair its ability to maintain a level of net tangible assets
required to maintain listing of the Common Stock on the NNM. The failure to
maintain such listing could have a material adverse effect on the liquidity of
the Common Stock.
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 $700,000 in principal
amount of these promissory notes remains outstanding as of the date hereof.
The Company has filed a lawsuit to collect repayment of these promissory notes,
including accrued interest. The debtors have filed a counterclaim against the
Company, and the Company has filed a motion to dismiss such counterclaim.
There can be no assurance when or if such promissory notes will be repaid and a
further delay or failure in repayment could adversely effect the Company's cash
flow and liquidity.
VOLATILITY OF COMMON STOCK PRICE
The market price of the Common Stock, like that of many other
high-technology companies, has fluctuated significantly and is likely to
continue to fluctuate in the future. Since June 1, 1997, the closing price of
the Common Stock has ranged from a low of $0.87 per share to a high of $12.75
per share. Announcements by the Company or others regarding the receipt of
customer orders, quarterly variations in operating results, additional equity or
debt 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. In addition, if in the future the closing
price of the Common Stock as reported on the NNM remains below $1.00 per share
for 30 consecutive days, the Common Stock could be delisted from the NNM. Such
delisting could have a material adverse effect on the liquidity of the Common
Stock.
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<PAGE> 7
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, reliably, 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, 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
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<PAGE> 8
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's business, operating results and
financial condition.
The Federal Communications Commission ("FCC") has adopted rules that
provide preferential licensing treatment for parties that develop new
communications services and technologies. These developments and further
technological advances may make available other alternatives to cellular or PCS
service, thereby creating additional sources of competition. There can be no
assurance that competition to cellular or PCS technologies will not adversely
affect the market for the Company's products, or result in changes in the
Company's development and manufacturing programs.
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<PAGE> 9
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 orignal equipment manufacturers
("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, wireless equipment OEMs and the Company's
other customers are significantly larger than, and are able to exert a high
degree of influence over, the Company. Prior to selling its products to these
customers, the Company must generally undergo lengthy approval and purchase
processes. Technical and business evaluation by potential customers can take
up to a year or more for products based on new technologies such as HTS. The
length of the approval process is affected by a number of factors, including,
among others, the complexity of the product involved, priorities of the
customers, budgets and regulatory issues affecting customers. There can be no
assurance that the Company will obtain the necessary approvals or that ensuing
sales of such products will occur. There can also be no assurance that the
length of its customers' approval process or delays will not have a material
adverse effect on the Company's business, operating results and financial
condition.
DEPENDENCE ON LIMITED SOURCES OF SUPPLY
Certain parts and components used in the Company's RF filter products,
including substrates and cryogenic refrigerators, are only available from a
limited number of sources. The Company's reliance on these limited source
suppliers exposes the Company to certain risks and uncertainties, including the
possibility of a shortage or discontinuation of certain key components and
reduced control over delivery schedules, manufacturing capabilities, quality
and costs. Any reduced availability of such parts or components when required
could materially impair the Company's ability to manufacture and deliver its
products on a timely basis and result in the cancellation of orders, which
could have material adverse effect on the Company's business, operating results
and financial condition. In addition, the purchase of certain key components
involves long lead times and, in the event of unanticipated increases in demand
for the Company's products, the Company may not be able to manufacture products
in a quantity sufficient to meet its customers' demand in any particular
period. The Company has no guaranteed supply arrangements with its limited
source suppliers, does not maintain an extensive inventory of parts or
components, and customarily purchases parts and components pursuant to purchase
orders placed from time to time in the ordinary course of business. Business
disruption, production shortfalls or financial difficulties of a limited source
supplier could materially and adversely effect the Company by increasing
product costs or reducing or eliminating the availability of such parts or
components. In such events, the inability of the Company to develop
alternative sources of supply quickly and on a cost-effective basis could
materially impair the Company's ability to manufacture and deliver its products
on a timely basis and could have a material adverse effect on its business,
operating results and financial condition.
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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, 1998, the
Company owns 14 U.S. patents and has filed and is actively pursuing
applications for 22 other U.S. patents, and is the licensee of nine U.S.
patents and patent applications held by others. One of the Company's patents
is jointly owned with Lucent Technologies, Inc., formerly a subsidiary of AT&T.
The Company believes that, since the discovery of HTS materials in 1986, a
large number of patent applications have been filed worldwide and many patents
have been granted in the U.S. relating to HTS materials. The claims in those
patents often appear to overlap and there are interference proceedings pending
in the United States Patent and Trademark Office (not currently involving the
Company) regarding rights to inventions claimed in some of the HTS materials
patent applications. The Company also believes there are a large number of
patents and patent applications covering RF filter products and other products
and technologies that the Company is pursuing. Accordingly, the patent
positions of companies using HTS materials technologies and RF technologies,
including the Company, are uncertain and involve complex legal and factual
questions. No assurance can be given that the patent applications filed by the
Company or by the Company's licensors will result in issued patents or that the
scope and breadth of any claims allowed in any patents issued to the Company or
its licensors will exclude competitors or provide competitive advantages to the
Company. In addition, there can be no assurance that any patents issued to the
Company or its licensors will be held valid if subsequently challenged or that
others will not claim rights in the patents and other proprietary technologies
owned or licensed by the Company or that others have not developed or will not
develop similar products or technologies without violating any of the Company's
proprietary rights. Furthermore, the Company's loss of any license to
technology that it now has or acquires in the future may have a material
adverse effect on the Company's business, operating results and financial
condition.
Some of the patents and patent applications owned or licensed by the
Company are subject to non-exclusive, royalty-free licenses held by various
governmental units. These licenses permit these U.S. government units to
select vendors other than the Company to produce products for the U.S.
Government which would otherwise infringe the Company's patent rights which are
subject to the royalty-free licenses. In addition, the U.S. Government has the
right to require the Company to grant licenses (including exclusive licenses)
under such patents and patent applications or other inventions to third parties
in certain instances.
Patent applications in the U.S. are currently maintained in secrecy
until patents are issued and in foreign countries this secrecy is maintained
for a period of time after filing. Accordingly, publication of discoveries in
the scientific literature or of patents themselves or laying open of patent
applications in foreign countries tends to lag behind actual discoveries and
filing of related patent applications. Due to this factor and the large number
of patents and patent applications related to HTS materials, RF technologies
and other products and technologies that the Company is pursuing, comprehensive
patent searches and analyses associated with HTS materials, RF technologies and
other products and technologies that the Company is pursuing are often
impractical or not cost-effective. As a result, the 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
9
<PAGE> 11
used or proposed to be used by the Company. In any such case, to avoid
infringement, the Company would have to either license such technologies or
design around any such patents. There can be no assurance that the Company
will be able to obtain licenses to such technologies or that, if obtainable,
such licenses would be available on terms acceptable to the Company or that the
Company could successfully design around these third-party patents.
Participation in litigation or patent office proceedings in the U.S.
or other countries, which could result in substantial cost to and diversion of
effort by the Company, may be necessary to enforce patents issued or licensed
to the Company, to defend the Company against infringement claims made by
others or to determine the ownership, scope or validity of the proprietary
rights of the Company and others. An adverse outcome in any such proceedings
could subject the Company to significant liabilities to third parties, require
the Company to seek licenses from third parties and/or require the Company to
cease using certain technologies, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company believes that a number of patent applications, including
applications filed by International Business Machines Corporation, Lucent
Technologies, Inc., and other potential competitors of the Company are pending
that may cover the useful compositions and uses of certain HTS materials
including yttrium barium copper oxide ("YBCO"), the principal HTS material used
by the Company in its present and currently proposed products. Therefore,
there is a substantial risk that one or more third parties may be granted
patents covering YBCO and other HTS materials and their uses, in which case the
Company could not use these materials without an appropriate license. As with
other patents, the Company has no assurance that it will be able to obtain
licenses to any such patents for YBCO or other HTS materials or their uses or
that such licenses would be available on commercially reasonable terms. Any of
these problems would have a material adverse effect on the Company's business,
operating results and financial condition.
GOVERNMENT REGULATIONS
Although the Company believes that its wireless telecommunications
products themselves would not be subject to licensing by, or approval
requirements of, the FCC, the operation of base stations is subject to FCC
licensing and the radio equipment into which the Company's products would be
incorporated is subject to FCC approval. Base stations and the equipment
marketed for use therein must meet specified technical standards. The
Company's ability to sell its wireless telecommunications products will be
dependent on the ability of wireless base station equipment manufacturers and
wireless base station operators to obtain and retain the necessary FCC
approvals and licenses. In order for them to be acceptable to base station
equipment manufacturers and to base station operators, the characteristics,
quality and reliability of the Company's base station products must enable them
to meet FCC technical standards. Any failure to meet such standards or delays
by base station equipment manufacturers and wireless base station operators in
obtaining the necessary approvals or licenses could have a material adverse
effect on the Company's business, operating results and financial condition.
In addition, HTS RF filters are on the U.S. Department of Commerce's export
regulation list and therefore exportation of such RF filters to certain
countries may be restricted or subject to export licenses.
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
10
<PAGE> 12
affected by the interpretation and enforcement of current or future
environmental laws and regulations. In addition, although the Company believes
that its safety procedures for handling and disposing of such materials comply
with the standards prescribed by state and federal regulations, there is the
risk of accidental contamination or injury from these materials. In the event
of an accident, the Company could be held liable for any damages that result.
Furthermore, the use and disposal of hazardous materials involves the risk that
the Company could incur substantial expenditures for such preventive or
remedial actions. The liability in the event of an accident or the costs of
such actions could exceed the Company's resources or otherwise have a material
adverse effect on the Company's business, results of operations and financial
condition.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in large part upon its ability to
attract and retain highly qualified management, manufacturing, marketing, sales
and R&D personnel. Due to the specialized nature of the Company's business, it
may be difficult to locate and hire qualified personnel. The loss of services
of one of its executive officers or other key personnel, or the failure of the
Company to attract and retain other executive officers or key personnel, could
have a material adverse effect on the Company's business, operating results and
financial condition.
BUSINESS INTERRUPTIONS AND DEPENDENCE ON A SINGLE U.S. FACILITY
The Company's primary operations, including engineering,
manufacturing, research, distribution and general administration, are housed in
a single facility in Mount Prospect, Illinois. Any material disruption in the
Company's operations, whether due to fire, natural disaster, power loss or
otherwise, could have a material adverse effect on the Company's business,
operating results and financial condition.
SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
On May 15, 1998, the Company privately issued an aggregate of $10.35
million principal amount of Notes to the Selling Stockholders. The Notes are
convertible into an aggregate of 6,900,002 Shares, with one-half of the
principal amount of the Notes being convertible into shares of Common Stock
beginning on August 13, 1998 and the remaining principal amount of the Notes
being convertible into shares of Common Stock beginning on November 11, 1998. In
addition, the Notes accrue interest at the rate of 2% per annum, which interest
is payable in cash or Common Stock at the Company's option. If such interest is
paid in Common Stock, the actual number of Shares issued will depend on when the
outstanding principal of the Notes is converted and the then current market
price of the Common Stock. For purposes of registering the Shares herein, the
Company has made a good faith estimate that 552,000 Shares may be issued as
accrued interest for four years on the Notes. The Company may, however, issue
less than such estimated amount or be obligated to register additional shares of
Common Stock for public resale depending on the above-mentioned factors. In
connection with the issuance of the Notes, Warrants exercisable for an aggregate
of 4,140,000 Shares at an exercise price of $3.75 per share were also issued to
the Selling Stockholders. The Warrants are exercisable between August 13, 1998
and May 15, 2001. The aggregate of 11,592,000 Shares registered hereby and
issuable upon conversion of the Notes and exercise of the Warrants is equal to
92% of the Common Stock outstanding as of June 30, 1998.
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. The increase in the number of outstanding shares of Common
Stock that are available for sale without restriction due to the registration
of the Shares and the perception that a substantial number of the Shares may be
sold by the Selling Stockholders, or the actual sale of a substantial number of
the Shares by the Selling Stockholders, could adversely affect the market price
of the Common Stock. The Company is unable to make any prediction as to the
effect, if any, that future sales of Common Stock or the availability of Common
Stock for sale may have on the market price of the Common Stock prevailing from
time to time. In addition, any such sale or such perception could make it more
difficult for the Company to sell equity securities in the future at a time and
price that the Company deems appropriate.
As of June 11, 1998, the Company had outstanding warrants to purchase
4,768,687 shares of Common Stock at a weighted average exercise price of $4.50
per share and options to purchase 1,220,356 shares of Common Stock at a
weighted average exercise price of $7.45 per share (888,008 of which have not
yet vested) issued to employees, directors and consultants pursuant to the
Company's Amended and Restated 1993 Stock Option Plan, as amended, and
individual agreements with management and directors of the Company. In order
to attract and retain key personnel, the Company may issue additional
securities, including stock options, in connection with its employee benefit
plans. During the terms of the Notes and such options and warrants (including
the Warrants), the holders thereof are given the opportunity to benefit from a
rise in the market price of the Common Stock.
The conversion of the Notes into, or the exercise of options and
warrants (including the Warrants) for Common Stock, as well as the sale or
issuance by the Company of additional shares of Common Stock and/or rights to
purchase Common Stock, would likely have an adverse or dilutive effect on the
market value of the Common Stock, including the Shares being offered hereby. 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.
11
<PAGE> 13
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and
does not expect to do so in the foreseeable future. Interest on the Notes is
payable at the rate of 2% per annum and is payable in cash or shares of Common
Stock at the option of the Company.
ANTI-TAKEOVER PROVISIONS
The Company has certain provisions which may be deemed to have a
potential "anti-takeover" effect in that such provisions may delay, defer or
prevent a change of control of the Company. In February 1996, the Board of
Directors of the Company (the "Board of Directors") adopted a stockholders
rights plan (the "Rights Plan"). By causing substantial dilution to a person
or group that attempts to acquire the Company on terms not approved by the
Board of Directors, the Series A Rights and Series B Rights of the Rights Plan
may interfere with certain acquisitions, including acquisitions that may offer
a premium over market price to some or all of the Company's stockholders. In
addition, the Company's Certificate of Incorporation and Bylaws contain
provisions that include (i) a requirement that stockholder action may be taken
only at stockholders meetings; (ii) the authority of the Board of Directors to
issue series of the Company's preferred stock with such voting rights and other
powers as the Board of Directors may determine; (iii) notice requirements in
the Bylaws relating to nominations to the Board of Directors and to the raising
of business matters at stockholders meetings; and (d) the classification of the
Board of Directors into three classes, each serving for staggered three-year
terms.
12
<PAGE> 14
RECENT DEVELOPMENTS
Reference is made to Note 13 to the Notes to the Financial Statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended on Form 10-K/A, and "Item 1. Legal Proceedings" in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
as amended on Form 10-Q/A (the "Form 10-Q"), wherein is reported information
concerning litigation involving the Company. With respect to the litigation
brought by the Company pursuant to a complaint dated July 10, 1997, effective
July 22, 1998, one of the defendants, Merrill Weber & Co., Inc., and the
Company reached a settlement of their respective claims. With respect to the
litigation brought by Mr. Sheldon Drobny against the Company in November 1997
reported in the Form 10-Q, which information is hereby incorporated by
reference herein, Mr. Drobny's motion seeking voluntary dismissal of his
complaint was granted on July 20, 1998 and the case was dismissed without
prejudice. With respect to the litigation between the Company and Jerome H.
Lipman, individually and on behalf of all others similarly situated, against
the Company and eight of its former or current directors reported in the Form
10-Q, which information is hereby incorporated by reference herein, on June 1,
1998, the Court granted the Company's and the Board of Directors' motion to
dismiss the complaint. Concurrently, Mr. Lipman withdrew his motion to amend
the proposed putative class and certify the class. On June 30, 1998, Mr. Lipman
filed an amended complaint against the Company's eight former or current
directors but no longer included the Company itself as a defendant. The amended
complaint alleges that the directors breached their duties of loyalty and due
care to the putative class of stockholders by selecting financing for the
Company in June 1997 and thereafter drawing two tranches of that financing. The
amended complaint seeks certification of a class consisting of all owners of
the Company's Common Stock during the period from May 15, 1997 through December
31, 1997, excluding the directors. Mr. Lipman's amended complaint alleges that
the stock owned by the putative class lost $61 million due to the financing the
directors selected, and seeks an unspecified amount of compensatory and
punitive damages. The Company and the Board of Directors regard the amended
complaint as without factual or legal merit. Accordingly, the Board of
Directors filed a motion to dismiss Mr. Lipman's amended complaint on July 29,
1998.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Stockholders. If and when all or a portion of the Warrants are
exercised and up to 4,140,000 Shares are issued to the Selling Stockholders,
the Company will receive the proceeds from the sale of such Shares to the
Selling Stockholders. If the Warrants are exercised in full, the Company will
receive $15,525,000. 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.
13
<PAGE> 15
S-3
SELLING STOCKHOLDERS
The following table sets forth, as of June 8, 1998, certain
information regarding the beneficial ownership of the outstanding Common Stock
by the Selling Stockholders, consisting of the Shares which the Selling
Stockholders may be issued upon conversion of the Notes, the Shares which the
Selling Stockholders may be issued as interest on the Notes and the Shares
which the Selling Stockholders may acquire upon exercise of the Warrants, both
before the offering of the Shares and as adjusted to reflect the sale of the
Shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
SHARES AFTER OFFERING (2)
BENEFICIALLY NUMBER OF -----------------------
OWNED PRIOR SHARES BEING NUMBER OF
NAME OF SELLING STOCKHOLDERS TO OFFERING OFFERED (1) SHARES PERCENT
- ------------------------------------------- ----------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Alexander Finance, LP 3,000,380(3) 4,480,000(3) 0 0%(4)
Elliott Associates, L.P. 1,997,028(5) 2,800,000(5) 70,900 * (4)
Westgate International, L.P. 1,997,028(6) 2,800,000(6) 69,300 * (4)
State Farm Mutual Automobile
Insurance Company 975,095(7) 1,120,000(7) 225,000 1.8 (8)
Spring Point Partners, L.P. 243,780(9) 364,000(9) 0 0 (4)
Spring Point Offshore Fund 18,752(10) 28,000(10) 0 0 (4)
- ------------------
</TABLE>
* Less than 1%.
(1) Represents the specified number of Shares that may be sold by the Selling
Stockholders pursuant to this Prospectus; provided, however, that, pursuant
to Rule 416 under the Securities Act, the Registration Statement of which
this Prospectus is a part shall also cover any additional shares of Common
Stock which become issuable in connection with the Shares registered for
sale hereby 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.
(2) Assumes the Selling Stockholders sell all of their Shares offered hereby to
unaffiliated third parties pursuant to this Prospectus. The Selling
Stockholders may sell all or part of their Shares.
(3) Alexander Finance, LP ("Alexander") holds $4 million principal amount of
Notes (the "Alexander Note") which may be converted into 2,666,667 shares
of Common Stock from time to time. Since $2 million principal amount of
the Alexander Note is not convertible into Common Stock until November 11,
1998, 1,333,334 of such shares are not reflected as beneficially owned
prior to the offering of the Shares. The 4,480,000 shares of Common Stock
shown in the table as being offered includes (i) 2,666,667 shares of Common
Stock into which the Alexander Note may be converted, (ii) 213,333 shares
issuable as interest on the Alexander Note (based on a share price of
$1.50), and (iii) 1,600,000 shares of Common Stock issuable upon exercise of
a Warrant exercisable within 60 days of the date of this Prospectus.
Interest on the Notes is payable at the rate of 2% per annum and is payable
in cash or shares of Common Stock at the Company's option.
(4) The Purchase Agreement dated as of May 15, 1998 by and between the Company
and the Selling Stockholders (the "Purchase Agreement") limits the
conversion and exercise rights of such Selling Stockholder, subject to
waiver by such Selling Stockholder on 61 days' notice, to the extent that
the maximum number of shares of Common Stock held by such Selling
Stockholder and its affiliates after such conversion of the Notes and/or
exercise of its Warrant would exceed 4.9% of the then issued and outstanding
shares of Common Stock following such conversion and/or exercise.
(5) Elliott Associates, L.P. ("Elliott") holds $2.5 million principal amount of
Notes (the "Elliott Note") which may be converted into 1,666,667 shares of
Common Stock from time to time. Since $1.25 million principal amount of
the Elliott Note is not convertible into Common Stock until November 11,
1998, 833,334 of such shares are not reflected as beneficially owned prior
to the offering of the Shares. The number of shares of Common Stock shown
in the table as being beneficially owned before and after the offering of
the Shares includes 17,391 shares issuable upon exercise of a presently
exercisable warrant. The 2,800,000 shares of Common Stock shown in the
table as being offered includes (i) 1,666,667 shares of Common Stock into
which the Elliott Note may be converted, (ii) 133,333 shares issuable as
interest on the Elliott Note (based on a share price of $1.50), and (iii)
1,000,000 shares of Common Stock issuable upon exercise of a Warrant
exercisable within 60 days of the date of this Prospectus. Interest on the
Notes is payable at the rate of 2% per annum and is payable in cash or
shares of Common Stock at the Company's option.
(6) Westgate International, L.P. ("Westgate") holds $2.5 million principal
amount of Notes (the "Westgate Note") which may be converted into 1,666,667
shares of Common Stock from time to time. Since $1.25 million principal
amount of the Westgate Note is not convertible into Common Stock until
November 11, 1998, 833,334 of such shares are not reflected as beneficially
owned prior to the offering of the Shares. The number of shares of Common
Stock shown in the table as being
14
<PAGE> 16
beneficially owned before and after the offering of the Shares includes
17,391 shares issuable upon exercise of a presently exercisable warrant.
The 2,800,000 shares of Common Stock shown in the table as being offered
includes (i) 1,666,667 shares of Common Stock into which the Westgate Note
may be converted, (ii) 133,333 shares issuable as interest on the Westgate
Note (based on a share price of $1.50), and (iii) 1,000,000 shares of
Common Stock issuable upon exercise of a Warrant exercisable within 60 days
of the date of this Prospectus. Interest on the Notes is payable at the
rate of 2% per annum and is payable in cash or shares of Common Stock at
the Company's option.
(7) State Farm Mutual Automobile Insurance Company ("State Farm") holds $1
million principal amount of Notes (the "State Farm Note") which may be
converted into 666,667 shares of Common Stock from time to time. Since $0.5
million principal amount of the State Farm Note is not convertible into
Common Stock until November 11, 1998, 333,334 of such shares are not
reflected as beneficially owned prior to the offering of the Shares. The
1,120,000 shares of Common Stock shown in the table as being offered
includes (i) 666,667 shares of Common Stock into which the State Farm Note
may be converted, (ii) 53,333 shares issuable as interest on the State Farm
Note (based on a share price of $1.50), and (iii) 400,000 shares of Common
Stock issuable upon exercise of a Warrant exercisable within 60 days of the
date of this Prospectus. Interest on the Notes is payable at the rate of 2%
per annum and is payable in cash or shares of Common Stock at the Company's
option.
(8) The Purchase Agreement limits the conversion and exercise rights of State
Farm, subject to waiver by State Farm on 61 days' notice, to the extent
that the maximum number of shares of Common Stock held by State Farm and
its affiliates after such conversion of the Notes and/or exercise of its
Warrant would exceed 8.0% of the then issued and outstanding shares of
Common Stock following such conversion and/or exercise.
(9) Spring Point Partners, L.P. ("SPP") holds $325,000 principal amount of Notes
(the "SPP Note") which may be converted into 216,667 shares of Common Stock
from time to time. Since $162,500 principal amount of the SPP Note is not
convertible into Common Stock until November 11, 1998, 108,334 of such
shares are not reflected as beneficially owned prior to the offering of the
Shares. The 364,000 shares of Common Stock shown in the table as being
offered includes (i) 216,667 shares of Common Stock into which the SPP Note
may be converted, (ii) 17,333 shares issuable as interest on the SPP Note
(based on a share price of $1.50), and (iii) 130,000 shares of Common Stock
issuable upon exercise of a Warrant exercisable within 60 days of the date
of this Prospectus. Interest on the Notes is payable at the rate of 2% per
annum and is payable in cash or shares of Common Stock at the Company's
option.
(10)Spring Point Offshore Fund ("SPOF") holds $25,000 principal amount of Notes
(the "SPOF Note") which may be converted into 16,667 shares of Common Stock
from time to time. Since $12,500 principal amount of the SPOF Note is not
convertible into Common Stock until November 11, 1998, 8,334 of such shares
are not reflected as beneficially owned prior to the offering of the Shares.
The 28,000 shares of Common Stock shown in the table as being offered
includes (i) 16,667 shares of Common Stock into which the SPOF Note may be
converted, (ii) 1,333 shares issuable as interest on the SPOF Note (based on
a share price of $1.50), and (iii) 10,000 shares of Common Stock issuable
upon exercise of a Warrant exercisable within 60 days of the date of this
Prospectus. Interest on the Notes is payable at the rate of 2% per annum and
is payable in cash or shares of Common Stock at the Company's option.
15
<PAGE> 17
PLAN OF DISTRIBUTION
Pursuant to the Registration Rights Agreement dated as of May 15, 1998,
by and between the Company and the Selling Stockholders (the "Registration
Rights Agreement"), the Company agreed to file with the Commission by the 30th
day following the issuance of the Notes, a registration statement registering
for public resale shares of Common Stock which may in the future be issued to
the Selling Stockholders upon the conversion of the Notes, as accrued interest
for four years on the Notes and/or upon exercise of the Warrants. The Company
also agreed to use its best efforts to cause such registration statement to be
declared effective as promptly as possible after the filing thereof, but in any
event prior to the 90th day following the issuance of such Notes (August 13,
1998). The Registration Statement of which this Prospectus is a part has been
filed with the Commission pursuant to the Registration Rights Agreements. The
Company has agreed that it will use all reasonable efforts to keep the
registration statements effective for a period of four years commencing on the
effective date of the applicable registration statement (or a shorter period if
all of such Shares registered under the applicable registration statement have
been sold or may be sold without volume restrictions pursuant to Rule 144 under
the Securities Act prior to the expiration of the four-year period). The
aggregate proceeds to the Selling Stockholders from the sale of Shares offered
by the Selling Stockholders hereby will be the prices at which such securities
are sold, less any commissions. There is no assurance that the Selling
Stockholders will sell any or all of the Shares offered hereby.
The Notes provide that if any one of a number of enumerated events
occurs, including (i) the Registration Statement is not declared effective by
August 13, 1998, (ii) the Registration Statement ceases to be effective prior
to expiration of the above-mentioned effectiveness period, (iii) suspension of
trading of the Common Stock on the NNM for more than three consecutive trading
days (unless listed on another national market or exchange) and (iv) suspension
of a Selling Stockholder's rights to convert its Notes, then the conversion
price of the Notes shall be decreased by 2.5% for each monthly anniversary of
such event until the earlier to occur of the second month anniversary of the
event and the curing of such event. After the second month anniversary, each
Selling Stockholder, at its option, may instead receive 2.5% of the outstanding
principal of its Notes for each month thereafter until the applicable event is
cured; provided, however, that if the event is not cured by the third month
anniversary, each Selling Stockholder has the option to require the Company to
redeem its Notes.
The Selling Stockholders may, from time to time, sell all or a portion
of the Shares on the NNM, in privately negotiated transactions or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such market prices or at negotiated prices. The
Shares may be sold by the Selling Stockholders by one or more of the following
methods, without limitation: (a) block trades in which the broker or dealer so
engaged will attempt to sell the Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction, (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus, (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, (d) privately negotiated
transactions, (e) short sales and (f) a combination of any such methods of sale.
In effecting sales, brokers and dealers engaged by the Selling Stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from the Selling Stockholders (or, if any such
broker-dealer acts as agent for the purchaser of such shares, from such
purchaser) in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with
the Selling Stockholders to sell a specified number of such Shares at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a Selling Stockholders, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions and, in connection with such resales, may pay to or receive from
the purchasers of such Shares commissions as described above. The Selling
Stockholders may also sell the Shares in accordance with Rule 144 under the
Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the Shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act.
16
<PAGE> 18
From time to time the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. In addition, from
time to time the Selling Stockholders may pledge their Shares pursuant to the
margin provisions of its customer agreements with its brokers. Upon a default by
the Selling Stockholders, the broker may offer and sell the pledged Shares from
time to time.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements (not to exceed an
aggregate of $5,000) of counsel to the Selling Stockholders. The Company has
agreed to indemnify the Selling Stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Shares will
be passed upon for the Company by Katten Muchin & Zavis, a partnership
including professional corporations, Chicago, Illinois.
EXPERTS
The financial statements and schedule of the Company appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
17
<PAGE> 19
=================================== ===================================
No dealer, sales representative
or any other person has been
authorized to give any information
or to make any representations in [LOGO] ILLINOIS
connection with this offering other SUPERCONDUCTOR
than those contained in this CORPORATION
Prospectus, and, if given or made,
such information or representations 11,592,000 SHARES
must not be relied upon as having
been authorized by the Company or
the Selling Stockholders.
This Prospectus does not constitute
an offer to sell or a solicitation
of an offer to buy any securities COMMON STOCK
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> PROSPECTUS
<CAPTION> -----------
TABLE OF CONTENTS
PAGE
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE . . . . . 3 , 1998
RISK FACTORS . . . . . . . . . . . 4
RECENT DEVELOPMENTS . . . . . . . . 13
USE OF PROCEEDS . . . . . . . . . . 13
SELLING STOCKHOLDERS . . . . . . . 14
PLAN OF DISTRIBUTION . . . . . . . 16
LEGAL MATTERS . . . . . . . . . . . 17
EXPERTS . . . . . . . . . . . . . . 17
======================================== ===================================
</TABLE>
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The
Company will pay all of these expenses. All amounts are estimates except the
Securities and Exchange Commission registration fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
------------
<S> <C>
Securities and Exchange Commission registration fee . . . . . $ 7,457
Nasdaq National Market listing fee . . . . . . . . . . . . . 17,500
Accountants' fees and expenses . . . . . . . . . . . . . . . 5,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . 20,000
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . 10,043
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,000
=============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of the Company's Certificate of Incorporation provides that
the Company shall indemnify its directors to the full extent permitted by the
General Corporation Law of the State of Delaware and may indemnify its officers
and employees to such extent, except that the Company shall not be obligated to
indemnify any such person (i) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or (ii) for any amounts paid in settlement of an action indemnified against by
the Company without the prior written consent of the Company. The Company has
entered into indemnity agreements with each of its directors. These agreements
may require the Company, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their status or service
as directors, to advance expenses to them as they are incurred, provided that
they undertake to repay the amount advanced if it is ultimately determined by a
court that they are not entitled to indemnification and to obtain directors'
liability insurance if available on reasonable terms.
In addition, Article 8 of the Company's Certificate of Incorporation
provides that a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for willful or negligent conduct in paying
dividends or repurchasing stock out of other than lawfully available funds or
(iv) for any transaction from which the director derives an improper personal
benefit.
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware which provides for indemnification of directors and officers
in certain circumstances.
The Company has obtained a directors' and officers' liability
insurance policy which entitles the Company to be reimbursed for certain
indemnity payments it is required or permitted to make to its directors and
officers.
II-1
<PAGE> 21
Under the Registration Rights Agreement, the Company has agreed to
indemnify the Selling Stockholders and the Selling Stockholders has agreed to
indemnify the Company and its directors, its officers, and certain control
persons against certain liabilities and expenses incurred in connection with
the Registration Statement, including with respect to their respective
obligations under the Securities Act.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<S> <C>
3.1* Certificate of Incorporation of the Company, as amended.
3.2** Bylaws of the Company.
4.1** Specimen stock certificate representing Common Stock.
4.2* Form of Senior Convertible Note dated May 15, 1998.
4.3* Form of Warrant dated May 15, 1998.
4.4 Rights Agreement dated as of February 9, 1996, by and between the Company and LaSalle
National Trust, N.A., filed as the Exhibit to the Company's Registration Statement on Form 8-
A, filed February 12, 1996, and incorporated herein by reference.
4.5* Securities Purchase Agreement dated as of May 15, 1998, by and between the Company and
Elliott Associates, L.P., Westgate International, L.P., Alexander Finance, LP, State Farm
Mutual Automobile Insurance Company, Spring Point Partners, L.P. and Spring Point Offshore
Fund.
4.6* Registration Rights Agreement dated as of May 15, 1998, by and between the Company and
Elliott Associates, L.P., Westgate International, L.P., Alexander Finance, LP, State Farm
Mutual Automobile Insurance Company, Spring Point Partners, L.P. and Spring Point Offshore
Fund.
5 Opinion of Katten Muchin & Zavis as to the legality of the securities being registered
(including consent).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Katten Muchin & Zavis (contained in its opinion filed as Exhibit 5 hereto).
24 Power of Attorney (also previously included on the signature page hereto).
- ------------------
</TABLE>
* Previously filed.
** Incorporated by reference from the same exhibit number to the Company's
Registration Statement on Form S-1 dated August 20, 1993, Reg. No. 33-67756.
II-2
<PAGE> 22
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, as amended (the "Securities Act"),
each such post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offer therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the Company in thee
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
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 31st day
of July, 1998.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /S/ EDWARD W. LAVES
----------------------------
Edward W. Laves,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on July
31, 1998 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
- ------------------------- ----------------------------------------------
/S/ EDWARD W. LAVES President, Chief Executive Officer
- ------------------------- (Principal Executive Officer), Chairman of the
Edward W. Laves Board and Director
/S/ KENNETH E. WOLF CONTROLLER
- ------------------------- (Principal Financial and Accounting Officer)
Kenneth E. Wolf
*
- -------------------------
Peter S. Fuss Director
*
- -------------------------
Steven Lazarus Director
*
- -------------------------
Robert D. Mitchum Director
*
- -------------------------
Terry S. Parker Director
*
- -------------------------
Tom L. Powers Director
- -------------------------
Mark D. Brodsky Director
/S/ HOWARD S. HOFFMANN Director
- -------------------------
Howard S. Hoffmann
*BY: /S/ EDWARD W. LAVES
---------------------
Edward W. Laves
AS ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER
- -------- -----------------------------------------------------------------------------
<S> <C>
5 Opinion of Katten Muchin & Zavis as to the legality of the securities being
registered (including consent).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Katten Muchin & Zavis (contained in its opinion filed as
Exhibit 5 hereto).
24 Power of Attorney (also previously included on the signature page hereto).
</TABLE>
<PAGE> 1
EXHIBIT 5
July 31, 1998
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 11,592,000 shares of the
Company's Common Stock, $.001 par value per share ("Common Stock"), of which
(i) 6,900,002 shares (the "Note Conversion Shares") may in the future be issued
upon the conversion of certain of the Company's outstanding convertible Notes
(the "Notes"), (ii) 551,998 shares (the "Interest Shares") may in the future
be issued as accrued interest for four years on the Notes, (iii) 4,140,000
shares (the "Warrant Shares") may in the future be issued upon the exercise of
certain warrants (the "Warrants").
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, as amended (c) the By-Laws of the Company, (d) the Senior Convertible
Notes, (e) the Warrants and (f) resolutions adopted by the Board of Directors
of the Company.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the
genuineness of all signatures, the authenticity of the documents submitted to
us as originals and the conformity to authentic original documents
<PAGE> 2
Illinois Superconductor Corporation
July 31, 1998
Page 2
of all documents submitted to us as certified, conformed or reproduced copies.
Based upon and subject to the foregoing, it is our opinion that:
(1) The Note Conversion Shares, when issued by the Company upon
the conversion of the Notes in accordance with the terms of the Notes, will be
validly issued, fully paid and non-assessable;
(2) The Interest Shares, if and when issued by the Company as
accrued dividends on the Notes in accordance with the terms of the Notes, will
be validly issued, fully paid and non-assessable; and
(3) The Warrant Shares, if and when issued by the Company upon the
exercise of the Warrants in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable.
Our opinion expressed above is limited to the General Corporation Law
of the State of Delaware and the relevant federal laws of the United States,
and we do not express any opinion concerning any other laws.
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
Amendment No. 1 to the Registration Statement and related Prospectus of
Illinois Superconductor Corporation for the registration of 11,592,000 shares
of its common stock and to the incorporation by reference therein of our report
dated February 27, 1998, except for paragraph 2 of Note 14, as to which the
date is May 15, 1998, with respect to the financial statements and schedule of
Illinois Superconductor Corporation included in its Annual Report (Form
10-K/A) for the year ended December 31, 1997, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
-----------------------
ERNST & YOUNG LLP
Chicago, Illinois
July 31, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward W. Laves 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 (File No. 333-56601)(including registration statements related thereto 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 attorney- in-fact and agent 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 he might or could do in person, hereby ratifying and confirming each
act that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue thereof.
By: /s/ KENNETH WOLF
---------------------
Kenneth Wolf
<PAGE> 2
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Edward W. Laves 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 (File No. 333-56601)(including registration statements related thereto 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 attorney- in-fact and agent 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 he might or could do in person, hereby ratifying and confirming each
act that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue thereof.
By: /s/ HOWARD S. HOFFMANN
----------------------
Howard S. Hoffmann
