<PAGE> 1
As filed with the Securities and Exchange Commission on June 11, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________________
ILLINOIS SUPERCONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3688459
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
EDWARD W. LAVES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
________________________
WITH COPIES TO:
LAWRENCE D. LEVIN, ESQ. BRUCE A. ZIVIAN, ESQ.
Katten Muchin & Zavis 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) 11,418,515 shares $2.19 (1) $25,006,548 (1) $7,377
============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended (the
"Securities Act"), on the basis of the average of the high and low prices
of the Common Stock as reported by the Nasdaq National Market on June 8,
1998.
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 June 11, 1998
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PROSPECTUS
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11,418,515 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 (a) 11,418,515 Shares, of which (i) 6,900,000 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) 378,515 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") and (b) such presently indeterminate number of
additional Shares as may be issuable in connection with the Shares registered
for sale hereby (i) by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt of
consideration which results in an increase in the Company's number of
outstanding shares of Common Stock or (ii) payment of interest thereon,
pursuant to fluctuations in the price of the Common Stock thereof in accordance
with Rule 416 under the Securities Act of 1933, as amended (the "Securities
Act"). One-half of the principal amount of the Notes is convertible into
shares of Common Stock beginning on August 13, 1998 and the remainder beginning
on November 11, 1998. 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. 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 June 8, 1998, the closing price of the Common
Stock as reported on the NNM was $2.1875 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 are available on the
Commission's Web site at http://www.sec.gov. The Common Stock is traded on the
NNM, and such reports, proxy statements and other information concerning the
Company can also be inspected at the offices of The Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (herein, together with all amendments, exhibits and schedules thereto,
referred to as the "Registration Statement") under the Securities Act with
respect to the securities offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement which may
be inspected and copied in the manner and at the sources described above. Any
statements contained herein concerning the provisions of any document filed as
an Exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete and, in each instance, reference is made to the
copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1997;
2. The Company's Quarterly Report on Form 10-Q, for the quarterly
period ended March 31, 1998;
3. The Company's Current Reports on Form 8-K, dated January 16,
1998, April 22, 1998 and May 18, 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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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, 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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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 its listing on the Nasdaq National Market. 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 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.
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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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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
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 addition, in connection with the Registration Statement of
which this Prospectus is a part, a presently indeterminate number of additional
Shares, which may be issuable as payment of interest thereon, are being
registered by the Company for public resale in accordance with Rule 416 under
the Securities Act. The increase in the number of outstanding shares of Common
Stock that are available for sale without restriction due to the registration
of the Shares and the perception that a substantial number of the Shares may be
sold by the Selling Stockholders, or the actual sale of a substantial number of
the Shares by the Selling Stockholders, could adversely affect the market price
of the Common Stock. The Company is unable to make any prediction as to the
effect, if any, that future sales of Common Stock or the availability of Common
Stock for sale may have on the market price of the Common Stock prevailing from
time to time. In addition, any such sale or such perception could make it more
difficult for the Company to sell equity securities in the future at a time and
price that the Company deems appropriate.
The Company currently has outstanding warrants to purchase 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
such options and warrants, the holders thereof are given the opportunity to
benefit from a rise in the market price of the Common Stock.
11
<PAGE> 13
DILUTION AND DIVIDEND POLICY
The conversion of Notes or the exercise of options and warrants,
including the Warrants, 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 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. 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.
RECENT DEVELOPMENTS
Reference is made to Note 14 to the Notes to the Financial Statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997 and "Item 1. Legal Proceedings" in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (the "Form 10-Q"), wherein is
reported information concerning litigation involving the Company. 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, further proceedings on Mr. Drobny's motion seeking voluntary
dismissal of his complaint and the case were continued to July 20, 1998. 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, at a hearing on
June 1, 1998, the Court granted the Company's and the Board's motion to dismiss
the complaint with leave to amend by June 30, 1998. Concurrently, Mr. Lipman
withdrew his motion to amend the proposed putative class and certify the class.
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.
12
<PAGE> 14
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 2,933,333(3) 4,412,953(3) 0(4) 0%(4)
Elliott Associates, L.P. 1,955,124(5) 2,758,096(5) 121,791(4) * (4)
Westgate International, L.P. 1,955,124(6) 2,758,096(6) 121,791(4) * (4)
State Farm Mutual Automobile
Insurance Company 958,333(7) 1,103,238(7) 225,000(8) 1.8 (8)
Spring Point Partners, L.P. 238,333(9) 358,553(9) 0(4) 0 (4)
Spring Point Offshore Fund 18,333(10) 27,581(10) 0(4) 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 (i) by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the Company's number of
outstanding shares of Common Stock or (ii) upon conversion of the Notes or
the payment of interest thereon, pursuant to fluctuations in the price of
the Common Stock thereof.
(2) Assumes the Selling Stockholders sell all of their Shares offered hereby to
unaffiliated third parties pursuant to this Prospectus. The Selling
Stockholders may sell all or part of their Shares.
(3) 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. The 4,412,953 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) 146,286 shares issuable as
interest on the Alexander Note (based on a share price of $2.1875), 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 limits the conversion and exercise rights of such
stockholder to the extent that the maximum number of shares of Common Stock
held by such 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. The number of shares of Common Stock shown in the table
as being beneficially owned before and after the Offering includes 17,391
shares issuable upon exercise of a presently exercisable warrant. The
2,758,096 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) 91,429 shares issuable as interest on the Elliott
Note (based on a share price of $2.1875), 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. The number of shares of Common Stock shown in
the table as being
13
<PAGE> 15
beneficially owned before and after the Offering includes 17,391 shares
issuable upon exercise of a presently exercisable warrant. The 2,758,096
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) 91,429 shares issuable as interest on the Westgate Note
(based on a share price of $2.1875), 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. The 1,103,238
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) 36,571 shares issuable as interest on the State Farm Note
(based on a share price of $2.1875), 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 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.
The 358,553 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) 11,886 shares issuable as interest on the SPP Note (based
on a share price of $2.1875), 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. The
27,581 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) 914 shares issuable as interest on the SPOF Note (based on a share
price of $2.1875), 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.
14
<PAGE> 16
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 additional 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 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 Selling Stockholders may, from time to time, sell all or a portion
of the Shares on the NNM, in privately negotiated transactions or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such market prices or at negotiated prices. The
Shares may be sold by the Selling Stockholders by one or more of the following
methods, without limitation: (a) block trades in which the broker or dealer so
engaged will attempt to sell the Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction, (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus, (c) an exchange distribution in accordance
with the rules of such exchange, (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, (e) privately negotiated
transactions, (f) short sales and (g) a combination of any such methods of
sale. In effecting sales, brokers and dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
(or, if any such broker-dealer acts as agent for the purchaser of such shares,
from such purchaser) in amounts to be negotiated which are not expected to
exceed those customary in the types of transactions involved. Broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
Shares at a stipulated price per share, and, to the extent such broker-dealer
is unable to do so acting as agent for a Selling Stockholders, to purchase as
principal any unsold Shares at the price required to fulfill the broker-dealer
commitment to the Selling Stockholders. Broker-dealers who acquire Shares as
principal may thereafter resell such Shares from time to time in transactions
(which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Shares commissions as described above. The
Selling Stockholders may also sell the Shares in accordance with Rule 144 under
the Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the Shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act.
15
<PAGE> 17
From time to time the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver the
Shares in connection therewith or in settlement of securities loans. If the
Selling Stockholders engage in such transactions, the Conversion Price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements (not to exceed an
aggregate of $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.
16
<PAGE> 18
=================================== ===================================
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 11,418,515 SHARES
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 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. -----------
____________________ PROSPECTUS
<TABLE> -----------
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE . . . . . 3 , 1998
RISK FACTORS . . . . . . . . . . . 4
RECENT DEVELOPMENTS . . . . . . . . 12
USE OF PROCEEDS . . . . . . . . . . 12
SELLING STOCKHOLDERS . . . . . . . 13
PLAN OF DISTRIBUTION . . . . . . . 15
LEGAL MATTERS . . . . . . . . . . . 16
EXPERTS . . . . . . . . . . . . . . 16
======================================== ===================================
</TABLE>
<PAGE> 19
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 . . . . . $ 7,377
Nasdaq National Market listing fee . . . . . . . . . . . . . 17,500
Accountants' fees and expenses . . . . . . . . . . . . . . . 5,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . 20,000
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . 10,123
------------
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> 20
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 (included on the signature page hereto).
- ------------------
</TABLE>
* Incorporated by reference from the same exhibit number to the Company's
Registration Statement on Form S-1 dated August 20, 1993, Reg. No. 33-67756.
II-2
<PAGE> 21
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> 22
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 9th day
of June, 1998.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /S/ EDWARD W. LAVES
----------------------------
Edward W. Laves,
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Edward W. Laves 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
9, 1998 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
- ------------------------- --------------------------------------------
/S/ EDWARD W. LAVES President, Chief Executive Officer
- ------------------------- (Principal Executive Officer) and Director
Edward W. Laves
/S/ STEPHEN G. WASKO Vice President, Chief Financial Officer, Treasurer
- ------------------------- and Secretary (Principal Financial and Accounting
Stephen G. Wasko Officer)
/S/ PETER S. FUSS
- -------------------------
Peter S. Fuss Director
/S/ STEVEN LAZARUS
- -------------------------
Steven Lazarus Director
/S/ ROBERT D. MITCHUM
- -------------------------
Robert D. Mitchum Director
/S/ TERRY S. PARKER
- -------------------------
Terry S. Parker Director
/S/ TOM L. POWERS
- -------------------------
Tom L. Powers Director
/S/ ORA E. SMITH
- -------------------------
Ora E. Smith Chairman of the Board and Director
</TABLE>
II-4
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER
- -------- ------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended.
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 (included on the signature page hereto).
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ILLINOIS SUPERCONDUCTOR CORPORATION OF DELAWARE
THE UNDERSIGNED, a natural person, in order to form a corporation under
the General Corporation Law of the State of Delaware (as amended from time to
time, the "Law"), hereby certifies that:
ARTICLE 1. NAME
The name of the Corporation is ILLINOIS SUPERCONDUCTOR CORPORATION OF
DELAWARE (the "Corporation").
ARTICLE 2. REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Delaware is Suite L-100, 32 Loockerman Square, in the City of Dover, 19901,
County of Kent. The name of the Corporation's registered agent at such address
is The Prentice-Hall Corporation System, Inc.
ARTICLE 3. PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE 4. AUTHORIZED STOCK
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Nineteen Million Nine Hundred
Sixty-Six Thousand (19,966,000), of which Fifteen Million (15,000,000) shares
are of a class designated "Common Stock" (referred to in this Certificate as
"Common"), and Four Million Nine Hundred Sixty-Six Thousand shares are of a
class designated "Preferred Stock" (referred to in this Certificate as
"Preferred"). The total number of shares of all classes of stock which the
Corporation shall have authority to issue, and the number of shares of
Preferred, may be reduced from time to time in accordance with Section of this
Certificate. The Common shall have a par value of $.001 per share. The Preferred
shall have a par value of $.001 per share.
<PAGE> 2
ARTICLE 5. POWERS AND QUALIFICATIONS OF COMMON STOCK
The powers, preferences and rights, and the qualifications,
limitations, and restrictions thereof, of the Common are as follows:
5.1. VOTING RIGHTS. Except as otherwise required by law or
provided in this Certificate, each share of Common shall entitle the holder
thereof to one vote on each matter submitted to a vote of the stockholders of
the Corporation.
5.2. DIVIDEND RIGHTS. Except as otherwise provided by law or
this Certificate, the holders of Common shall be entitled to receive dividends
at such times and in such amounts as may be determined by the Board of Directors
of the Corporation.
5.3. LIQUIDATION RIGHTS. In the event of any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders of any outstanding
shares of Preferred shall be entitled upon dissolution, liquidation, or winding
up, the holders of Common shall be entitled to share ratably in the remaining
assets of the Corporation.
ARTICLE 6. POWERS AND QUALIFICATIONS OF PREFERRED STOCK
6.1 POWERS AND QUALIFICATIONS IN GENERAL. The Preferred shall
be divided into one or more series. One series shall consist of One Million Five
Hundred Thousand shares and is designated "Series A Convertible Preferred Stock"
(referred to in this Certificate as "Series A Preferred"). A second series shall
consist of One Million Three Hundred Sixty-Six Thousand shares and is designated
"Series B Convertible Preferred Stock" (referred to in this Certificate as
"Series B Preferred"). A third series shall consist of Two Million shares and is
designated "Series C Convertible Preferred Stock" (referred to in this
Certificate as "Series C Preferred"). The Board of Directors of the Corporation
is expressly authorized to provide from time to time for the issue of all or any
of the shares of Preferred remaining undesignated in one or more series, and to
fix the number of shares and to determine or alter for each such series, such
voting powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional or other special rights and
such qualifications, limitations, or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board of Directors
of the Corporation providing for the issue of such shares and as may be
permitted by the Law.
6.2 POWERS AND QUALIFICATIONS OF SERIES A PREFERRED, SERIES B
PREFERRED AND SERIES C PREFERRED. The powers, preferences and rights, and the
qualifications, limitations, and restrictions thereof, of the Series A Preferred
and Series B Preferred and Series C Preferred (referred to collectively and
individually as the "Old Preferred") are as set forth in this Section.
(a) VOTING RIGHTS. Except as otherwise required by law, each share of
Old Preferred shall entitle the holder thereof to vote on each matter submitted
to a vote of the shareholders of the Corporation and to have the number of votes
equal to the number (including any fraction)
-2-
<PAGE> 3
of shares of Common into which such share of Old Preferred is then convertible
pursuant to the provisions hereof at the record date for the determination of
shareholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders becomes effective. Except as otherwise required by law, the holders
of shares of Common and Old Preferred shall vote together and not as separate
classes, and the holders of Series A Preferred, Series B Preferred and Series C
Preferred shall vote together as a single class of Preferred and not as separate
series.
(b) DIVIDENDS. The holders of the Old Preferred shall be entitled to
receive, as, when and if declared by the Board, but only out of funds legally
available therefor, cash dividends in such amounts as the Board may determine.
No dividends shall be declared or paid on the shares of any series of Old
Preferred for any dividend period unless at the same time such dividend shall be
declared or paid on all shares of Old Preferred equally.
In addition, in the event any dividend or other distribution payable in
cash or other property (other than securities of the Corporation the issuance of
which gives rise to adjustment of the Conversion Price pursuant to Section of
this Article) is declared on the Common, each holder of shares of Old Preferred
on the record date for such dividend or distribution shall be entitled to
receive on the date of payment or distribution of such dividend or other
distribution the same cash or other property which such holder would have
received on such record date if such holder was the holder of record of the
number (including any fraction) of shares of Common into which the shares of Old
Preferred then held by such holder are then convertible.
(c) LIQUIDATION RIGHTS. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up, the holder of each then
outstanding share of Series A Preferred, Series B Preferred or Series C
Preferred shall be entitled to receive out of the assets of the Corporation
available for distribution to shareholders, and before any payment or
declaration and setting apart for payment of any amount with respect of the
Common or any other equity security, the amount of $1.00, $1.25 or $1.50 per
share (such amounts to be adjusted proportionally in the event the shares of
Preferred, or any series thereof, are subdivided into a greater number or
combined into a lesser number), respectively, plus any and all accrued or
declared but unpaid dividends declared on such share. The Series A Preferred,
Series B Preferred and Series C Preferred shall rank on a parity as to the
receipt of the respective preferential amounts for each such series upon the
occurrence of such event. If the Corporation shall have insufficient assets and
funds to pay such preferential amounts in full to the holders of the Series A
Preferred, Series B Preferred and Series C Preferred, then all assets and funds
of the Corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred, Series B Preferred and
Series C Preferred in proportion to the preferential amount each such holder is
otherwise entitled to receive.
Whenever the distribution provided in this Section shall be payable in
securities or property other than cash, the value of such distribution shall be
the fair market value of such securities or other property as determined in good
faith by the Board.
-3-
<PAGE> 4
(d) CONVERSION.
(i) TERMS OF CONVERSION.
(A) OPTIONAL CONVERSION FOR SERIES A PREFERRED. The holder of
each share of Series A Preferred shall have the right (the "Series A Conversion
Right"), at such holder's option, to convert such share at any time, without
cost and otherwise on the terms of this Section, into the number of fully paid
and non-assessable shares of Common that results from dividing:
(1) $1.00 (such amount to be adjusted proportionately in
the event the shares of Series A Preferred are subdivided into a
greater number or combined into a lesser number),
by:
(2) the Series A Conversion Price (as defined below) per
share in effect at the time of conversion.
The "Series A Conversion Price" per share shall initially be $1.00, subject to
adjustment from time to time as provided in this Section.
(B) OPTIONAL CONVERSION FOR SERIES B PREFERRED. The holder of
each share of Series B Preferred shall have the right (the "Series B Conversion
Right"), at such holder's option, to convert such share at any time, without
cost and otherwise on the terms of this Section, into the number of fully paid
and non-assessable shares of Common that results from dividing:
(1) $1.25 (such amount to be adjusted proportionately in
the event the shares of Series B Preferred are subdivided into a
greater number or combined into a lesser number),
by:
(2) the Series B Conversion Price (as defined below) per
share in effect at the time of conversion.
The "Series B Conversion Price" per share shall initially be $1.25, subject to
adjustment from time to time as provided in this Section.
(C) OPTIONAL CONVERSION FOR SERIES C PREFERRED. The holder of
each share of Series C Preferred shall have the right (the "Series C Conversion
Right"), at such holder's option, to convert such share at any time after the
first anniversary (referred to below as the "First Anniversary") of the date on
which the Corporation first sells and issues any share of Series C Preferred,
without cost and otherwise on the terms of this Section, into the number of
fully paid and non-assessable shares of Common that results from dividing:
-4-
<PAGE> 5
(1) $1.50 (such amount to be adjusted proportionately in
the event the shares of Series C Preferred are subdivided into a
greater number or combined into a lesser number),
by:
(2) the Series C Conversion Price (as defined below) per
share in effect at the time of conversion.
The "Series C Conversion Price" per share shall initially be $1.50, subject to
adjustment from time to time as provided in this Section. The "Series A
Conversion Right," the "Series B Conversion Right" and the "Series C Conversion
Right" are sometimes collectively referred to below as the "Conversion Right".
The "Series A Conversion Price," the "Series B Conversion Price" and the "Series
C Conversion Price" are sometimes collectively referred to below as the
"Conversion Price".
(D) MANDATORY CONVERSION FOR SERIES A PREFERRED AND SERIES B
PREFERRED. Upon the consummation of the issuance and sale of Common in the
Corporation's Qualified Initial Public Offering (as hereinafter defined), each
share of Series A Preferred and Series B Preferred shall be automatically
converted, without cost and on the terms of this Section, into the number of
shares of Common into which such share of Series A Preferred or Series B
Preferred would respectively be convertible under Section and Section above
immediately prior to such Qualified Initial Public Offering.
(E) MANDATORY CONVERSION FOR SERIES C PREFERRED. Each share of
Series C Preferred shall be automatically converted, without cost and on the
terms of this Section as follows:
(1) upon the consummation of the issuance and sale of Common
in the Corporation's Qualified Initial Public Offering on or prior to
the First Anniversary, into the number of shares of Common that results
from dividing:
(y) $1.50 (such amount to be adjusted proportionately in
the event the shares of Series C Preferred are subdivided into a
greater number or combined into a lesser number),
by:
(z) a fraction, the numerator of which is the Series C
Conversion Price then applicable, and the denominator of which
is the price per share at which the Corporation issues and sells
Common in the Qualified Initial Public Offering; or
(2) upon the consummation of the issuance and sale of Common
in the Corporation's Qualified Initial Public Offering after the First
Anniversary, into the number of shares of Common into which such share
of Series C Preferred would be convertible under Section above
immediately prior to such Qualified Initial Public Offering.
-5-
<PAGE> 6
(ii) MECHANICS OF CONVERSION.
(A) OPTIONAL CONVERSION. A holder of any share of Old
Preferred may exercise the Conversion Right of such share by surrendering the
certificate therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Old Preferred, together with a written notice to the
Corporation which shall state:
(1) that such holder elects to convert the same, and
(2) the number of shares of Old Preferred being converted.
Thereupon the Corporation shall promptly issue and deliver to the holder of such
shares a certificate or certificates for the number of shares of Common to which
such holder shall be entitled. If the certificate evidencing the Old Preferred
being converted shall also evidence shares of Old Preferred not being converted,
then the Corporation shall also deliver to the holder of such certificate a new
stock certificate evidencing the Old Preferred not converted.
The conversion of any shares of Old Preferred shall be deemed to have
been made immediately prior to the close of business on the date that the shares
of Old Preferred to be converted are surrendered to the Corporation, and the
person or persons entitled to receive the shares of Common issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common on such date. Any dividends or distributions declared but
unpaid at the time of conversion with respect to the Old Preferred so converted
shall be paid to the holder of such Common.
(B) MANDATORY CONVERSION. The Corporation shall give written
notice to each holder of a share of Old Preferred not more than forty (40) nor
less than twenty (20) days before the anticipated effective date of the
registration statement with respect to any Qualified Initial Public Offering,
and shall also give written notice to each such holder upon the consummation of
the issuance and sale of Common in the Corporation's Qualified Initial Public
Offering. Following the conversion of such shares, each holder of shares so
converted may surrender the certificate therefor at the office of the
Corporation or any transfer agent for the Old Preferred. Upon such surrender,
the Corporation shall issue and deliver to each holder a certificate or
certificates for the number of shares of Common to which such holder is
entitled.
The conversion of shares of Old Preferred shall take place upon the
consummation of the issuance and sale of Common in the Corporation's Qualified
Initial Public Offering, whether or not the certificates representing such
shares of Old Preferred shall have been surrendered or new certificates
representing the shares of Common into which such shares have been converted
shall have been issued.
(iii) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price for each
share of Old Preferred and the kind of securities issuable upon the conversion
of each share of Old Preferred shall be adjusted from time to time as follows:
(A) SUBDIVISION OR COMBINATION OF SHARES. If the Corporation
at any time effects a subdivision or combination of the outstanding Common, each
Conversion Price shall
-6-
<PAGE> 7
be decreased, in the case of a subdivision, or increased, in the case of a
combination, in the same proportions as the Common is subdivided or combined, in
each case effective automatically upon, and simultaneously with, the
effectiveness of the subdivision or combination which gives rise to the
adjustment.
(B) STOCK DIVIDENDS. If the Corporation at any time pays a
dividend, or makes any other distribution, to holders of Common payable in
shares of Common, or fixes a record date for the determination of holders of
Common entitled to receive a dividend or other distribution payable in shares of
Common, the Conversion Price shall be decreased by multiplying it by a fraction:
(1) the numerator of which shall be the total number of shares
of Common outstanding immediately prior to such dividend or
distribution, and
(2) the denominator of which shall be the total number of
shares of Common outstanding immediately after such dividend or
distribution (plus, if the Corporation paid cash instead of fractional
shares otherwise issuable in such dividend or distribution, the number
of additional shares which would have been outstanding had the
Corporation issued fractional shares instead of cash),
in each case effective automatically as of the date the Corporation shall take a
record of the holders of its Common for the purpose of receiving such dividend
or distribution (or if no such record is taken, as of the effectiveness of such
dividend or distribution).
(C) RECLASSIFICATION, CONSOLIDATION OR MERGER. If at any time,
as a result of:
(1) a capital reorganization or reclassification (other than a
subdivision, combination or dividend which gives rise to an adjustment
of each Conversion Price pursuant to clauses (i) or (ii) of this
Section), or
(2) a merger or consolidation of the Corporation with another
corporation (whether or not the Corporation is the surviving
corporation),
the Common issuable upon the conversion of the Old Preferred shall be changed
into or exchanged for the same or a different number of shares of any class or
classes of stock of the Corporation or any other corporation, or other
securities convertible into such shares, then, as a part of such reorganization,
reclassification, merger or consolidation, appropriate adjustments shall be made
in the terms of the Old Preferred (or of any securities into which the Old
Preferred is changed or for which the Old Preferred is exchanged), so that:
(y) the holders of Old Preferred or of such substitute
securities shall thereafter be entitled to receive, upon conversion of
the Old Preferred or of such substitute securities, the kind and amount
of shares of stock, other securities, money and property which such
holders would have received at the time of such capital reorganization,
reclassification, merger, or consolidation, if such holders had
converted their Old Preferred immediately prior to such capital
reorganization, reclassification, merger, or consolidation, and
-7-
<PAGE> 8
(z) the Old Preferred or such substitute securities shall
thereafter be adjusted on terms as nearly equivalent as may be
practicable to the adjustments theretofore provided in this Section.
No consolidation or merger in which the Corporation is not the surviving
corporation shall be consummated unless the surviving corporation shall agree,
in writing, to the provisions of this Section. The provisions of this Section
shall similarly apply to successive capital reorganizations, reclassifications,
mergers, and consolidations.
(D) OTHER ACTION AFFECTING COMMON. If at any time the
Corporation takes any action affecting its Common, other than an action
described in any of Sections through which, in the opinion of the Board, would
have an adverse effect upon the Conversion Rights of the Old Preferred, the
Conversion Price or the kind of Securities issuable upon the conversion of Old
Preferred, or both, shall be adjusted in such manner and at such time as the
Board may in good faith determine to be equitable in the circumstances.
(E) NOTICE OF ADJUSTMENT EVENTS. Whenever the Corporation
contemplates the occurrence of an event which would give rise to adjustments
under Sections through above, the Corporation shall mail to each holder of Old
Preferred, at least 30 days prior to the record date with respect to such event
or, if no record date shall be established, at least 30 days prior to such
event, a notice specifying (A) the nature of the contemplated event, and (B) the
date on which any such record is to be taken for the purpose of such event, and
(C) the date on which such event is expected to become effective, and (D) the
time, if any is to be fixed, when the holders of record of Common (or other
securities) shall be entitled to exchange their shares of Common (or other
securities) for securities or other property deliverable in connection with such
event.
(F) NOTICE OF ADJUSTMENTS. Whenever the Conversion Price or
the kind of securities issuable upon the conversion of any or all of the Series
A Preferred, the Series B Preferred or the Series C Preferred shall be adjusted
pursuant to Sections through above, the Corporation shall make a certificate
signed by its President or a Vice President and by its Chief Financial Officer,
Secretary or Assistant Secretary, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board made any determination hereunder), and the Conversion Price and the kind
of securities issuable upon the conversion of any or all of the Series A, Series
B Preferred or Series C Preferred after giving effect to such adjustment, and
shall cause copies of such certificate to be mailed (by first class mail postage
prepaid) to each holder of Old Preferred promptly after each adjustment.
(iv) RESERVATION OF SHARES. The Corporation will take such corporate
action as may be necessary from time to time so that at all times it will have
authorized, and reserved out of its authorized but unissued Common for the sole
purpose of issuance upon conversion of shares of Old Preferred, a sufficient
number of shares of Common to permit the conversion in full of all outstanding
shares of Old Preferred.
-8-
<PAGE> 9
(v) FULL CONSIDERATION. All shares of Common which shall be issued upon
the conversion of any Old Preferred (which is itself fully paid and
non-assessable) will, upon issuance, be fully paid and non-assessable. The
Corporation will pay such amounts and will take such other action as may be
necessary from time to time so that all shares of Common which shall be issued
upon the conversion of any Old Preferred will, upon issuance and without cost to
the recipient, be free from all preemptive rights, taxes, liens and charges with
respect to the issue thereof.
(e) QUALIFIED INITIAL PUBLIC OFFERING. For the purposes of this
Article, "Qualified Initial Public Offering" shall mean the first public
offering and sale of at least $5,000,000 of Common of the Corporation, at a
price of not less than $5.00 per share (as equitably adjusted for stock splits,
stock dividends, combinations, or other reclassifications of shares), pursuant
to an effective registration statement under the Securities Act of 1933, as
amended from time to time.
(f) CANCELLATION UPON CONVERSION. Upon the conversion of any shares of
Old Preferred, the Corporation shall not reissue such shares of Old Preferred,
and the number of shares of the series of Preferred to which the converted
shares belong authorized by Article shall be automatically reduced by the number
of shares of such series of Old Preferred so converted. Upon the conversion of
all then-outstanding shares of any series of Old Preferred, the series of Old
Preferred shall no longer be deemed designated, and all reference to such series
in this Certificate shall be deemed eliminated.
ARTICLE 7. BOARD OF DIRECTORS.
7.1 NUMBER OF DIRECTORS. The number of directors composing the
Board of Directors of the Corporation shall be not less than four nor more than
nine. The exact number shall be determined from time to time by resolution
adopted by the affirmative vote of a majority of the directors in office at the
time of adoption of such resolution.
7.2 ELECTION OF DIRECTORS. Elections of directors need not be
by written ballot unless the by-laws of the Corporation so provide.
7.3 CLASSIFICATION OF DIRECTORS. Except as otherwise provided
in this Certificate, the directors of the Corporation shall be divided into
three classes. The term of office of the directors of Class I shall expire at
the annual meeting of the stockholders of the Corporation in 1994. The term of
office of the directors of Class II shall expire at the annual meeting of the
stockholders of the Corporation in 1995. The term of office of the directors of
the Class III shall expire at the annual meeting of the stockholders of the
Corporation in 1996. At each annual election of directors, directors shall be
chosen for a full three-year term to succeed those whose terms expire. Directors
elected from time to time other than as successors to directors whose terms have
expired, or to fill the remaining term of a director previously elected, shall
be assigned by the Board of Directors of the Corporation to the first, second or
third class so as to maintain, so far as is possible, equal numbers of directors
in each class. This Section shall not limit the power of the Corporation,
through this Certificate, to confer upon holders of any class or series of stock
the right to elect one or more directors who shall
-9-
<PAGE> 10
serve for such term, and have such voting powers, as shall be stated in this
Certificate, and the directors so elected shall not be divided into classes
pursuant to this Section.
7.4 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Except as
required by law or this Certificate, all vacancies on the Board and
newly-created directorships resulting from any increase in the authorized number
of directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director, or by the vote of
the holders of a majority of the outstanding shares of stock entitled to vote on
the election of directors.
7.5 INITIAL DIRECTORS. Until changed by resolution of the
directors in accordance with Section of this Certificate, the number of
directors shall be four. The names and mailing addresses of the persons who are
to serve as directors until the first annual meeting of the stockholders of the
Corporation or until their successors are elected and qualified are as follows,
each of whom shall serve in the class of directors set forth beneath his or her
name:
<TABLE>
<CAPTION>
Name and Class Mailing Address
- ------------- ---------------
<S> <C>
Ora E. Smith 1840 Oak Avenue
Class I 3rd Floor
Evanston, Illinois 60201
Craig M. Siegler 135 South LaSalle Street
Class II 42nd Floor
Chicago, Illinois 60637
Leonard A. Batterson 303 West Madison Street
Class III Suite 1110
Chicago, Illinois 60606
Steven Lazarus 20 North Wacker Drive
Class III Suite 1849
Chicago, Illinois 60606
</TABLE>
ARTICLE 8. LIABILITY OF DIRECTORS
No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that to the extent required by the Law
this provision shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
-10-
<PAGE> 11
ARTICLE 9. INDEMNIFICATION OF DIRECTORS AND OTHER PERSONS
The Corporation shall indemnify, in accordance with and to the
full extent now or hereafter permitted by law, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he or she is or was a director of the Corporation (and
the Corporation, in the discretion of the Board, may so indemnify a person by
reason of the fact that he or she is or was an officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding;
provided, however, that, the Corporation shall not be obligated to indemnify any
such person (i) with respect to proceedings, claims or actions initiated or
brought voluntarily by such person and not by way of defense, or (ii) for any
amounts paid in settlement of an action effected without the prior written
consent of the Corporation to such settlement. Such indemnification is not
exclusive of any other right to indemnification provided by law, agreement or
otherwise.
ARTICLE 10. PROSPECTIVE AMENDMENTS
No amendment to or repeal of Article or Article of this
Certificate shall apply to or have any effect on the rights of any individual
referred to in Article or Article for or with respect to acts or omissions of
such individual occurring prior to such amendment or repeal.
ARTICLE 11. STOCKHOLDER ACTIONS
At any time after the first sale to the public of any of the
Corporation's securities pursuant to an effective registration statement under
the Securities Act of 1933, as amended, any action required or permitted to be
taken by the holders of the Common (whether voting separately as a class or
together with other classes) must be taken at a duly convened annual or special
meeting of such stockholders, and may not be taken without a meeting by a
consent in writing by such holders.
ARTICLE 12. BUSINESS COMBINATIONS
The Corporation hereby expressly elects not to be governed by
Section 203 of the Law.
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<PAGE> 12
ARTICLE 13. BY-LAWS
In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the By-Laws of the Corporation.
ARTICLE 14. INCORPORATOR
The name and mailing address of the Sole Incorporator are as
follows:
Thomas M. Fitzpatrick
20 North Wacker Drive, Suite 1849
Chicago, Illinois 60606
IN WITNESS WHEREOF, I have hereunto set my hand this August
19, 1993.
/s/ Thomas M. Fitzpatrick
----------------------------------------
Thomas M. Fitzpatrick, Sole Incorporator
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<PAGE> 13
PLAN AND AGREEMENT OF MERGER
OF
ILLINOIS SUPERCONDUCTOR CORPORATION
AN ILLINOIS CORPORATION
WITH AND INTO
ILLINOIS SUPERCONDUCTOR CORPORATION OF DELAWARE
A DELAWARE CORPORATION
SECTION 15. AGREEMENT TO MERGE. Illinois Superconductor
Corporation, an Illinois corporation ("ISC-Illinois"), shall be merged into
Illinois Superconductor Corporation of Delaware, a Delaware corporation
("ISC-Delaware"), in accordance with applicable provisions of the laws of
Illinois and Delaware. ISC-Delaware shall be the surviving corporation.
SECTION 16. TERMS AND CONDITIONS.
16.1 The terms and conditions of the merger and the mode of
carrying the same into effect are as follows.
16.2 ISC-Illinois and ISC-Delaware shall become a single
corporation which shall be ISC-Delaware, the surviving corporation. The separate
existence of ISC-Illinois shall cease but the existence of ISC-Delaware shall
continue.
16.3 ISC-Delaware shall possess all the rights, privileges,
immunities, and franchises, of a public as well as of a private nature, of
ISC-Delaware and of ISC-Illinois. All property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
other choses in action, and all and every other interest, of or belonging to or
due to ISC-Illinois shall be taken and deemed to be transferred to and vested in
ISC-Delaware without further act. The title to any real estate, or any interest
therein, vested in ISC-Illinois shall be taken and deemed to be transferred to
ISC-Delaware and shall not revert or be in any way impaired by reason of the
merger.
16.4 ISC-Delaware shall be responsible and liable for all the
liabilities and obligations of ISC- Illinois.
16.5 The aggregate amount of the net assets of ISC-Delaware
and ISC-Illinois available for the payment of dividends or the purchase of
treasury shares immediately prior to the merger, to the extent that the value
thereof is not transferred to paid-in capital by the issuance of shares of
ISC-Delaware or otherwise, shall continue to be available for the payment of
dividends or the purchase of treasury shares by ISC-Delaware.
<PAGE> 14
SECTION 17. CONVERSION OF SHARES.
17.1 The manner and basis of converting the shares of
ISC-Delaware and ISC-Illinois into shares or other securities or obligations of
ISC-Delaware are as follows.
17.2 The number of shares which ISC-Illinois has authority to
issue is:
(a) 10,208,036 shares of Common Stock of which 483,868 shares
are issued; and
(b) 4,866,000 shares of Preferred Stock, of which 1,500,000
are designated Series A Convertible Preferred Stock, 1,366,000 are
designated Series B Convertible Preferred Stock, and 2,000,000 are
designated Series C Convertible Preferred Stock.
Of the shares designated Series A Convertible Preferred Stock, 1,500,000 shares
are issued. Of the shares designated Series B Convertible Preferred Stock,
1,366,000 shares are issued. Of the shares designated Series C Convertible
Preferred Stock, 1,446,667 shares are issued.
17.3 The number of shares which ISC-Delaware has authority to
issue is:
(a) 15,000,000 shares of Common Stock, none of which is
issued; and
(b) 4,966,000 shares of Preferred Stock, of which 1,500,000
are designated Series A Convertible Preferred Stock, 1,366,000 are
designated Series B Convertible Preferred Stock, and 2,000,000 are
designated Series C Convertible Preferred Stock.
None of the shares of Preferred Stock of any series is issued.
17.4 Upon the issuance of a Certificate of Merger:
(a) Each share of Common Stock of ISC-Illinois which is issued
and outstanding on the effective date of the merger shall be
converted, by and upon the merger and without any action on the part
of the holder of such share, into one share of fully paid and
non-assessable Common Stock of ISC-Delaware.
(b) Each share of Series A Convertible Preferred Stock of
ISC-Illinois which is issued and outstanding on the effective date of
the merger shall be converted, by and upon the merger and without any
action on the part of the holder of such share, into one share of
fully paid and non-assessable Series A Convertible Preferred Stock of
ISC-Delaware.
(c) Each share of Series B Convertible Preferred Stock of
ISC-Illinois which is issued and outstanding on the effective date of
the merger shall be converted, by and upon the merger and without any
action on the part of the holder of such share, into one share of fully
paid and non-assessable Series B Convertible Preferred Stock of
ISC-Delaware.
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<PAGE> 15
(d) Each share of Series C Convertible Preferred Stock of
ISC-Illinois which is issued and outstanding on the effective date of
the merger shall be converted, by and upon the merger and without any
action on the part of the holder of such share, into one share of fully
paid and non-assessable Series C Convertible Preferred Stock of
ISC-Delaware.
(e) The paid-in capital of ISC-Illinois shall be transferred
to the paid-in capital of ISC-Delaware.
(f) Certificates for the shares of Common Stock, Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock of
ISC-Delaware shall be issued to the holders of all of the outstanding
Common Stock, Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock, respectively, as of the merger date, in
place and upon the surrender of previously issued stock certificates,
on the aforesaid basis. Stock certificates of ISC-Illinois shall be
surrendered to ISC-Delaware at its office located at 1840 Oak Avenue,
Third Floor, Evanston, Illinois 60201. However, upon the merger
becoming effective, the holders of the shares of ISC-Illinois
outstanding immediately prior to the merger shall thereupon cease to be
holders of said shares and shall be and become holders of shares of
ISC-Delaware upon the basis hereinabove specified, whether or not stock
certificates representing the previously outstanding shares of
ISC-Illinois are surrendered or stock certificates representing shares
of ISC-Delaware are issued and delivered.
SECTION 18. CERTIFICATE OF INCORPORATION.
18.1 The Certificate of Incorporation of the surviving
corporation shall be amended by the merger by the deletion of Article 1 in its
entirety and the insertion in lieu thereof of the following Article 1:
"ARTICLE 1. NAME
The name of the Corporation is ILLINOIS SUPERCONDUCTOR
CORPORATION (the "Corporation")."
18.2 As of the effective time of the merger, the Certificate
of Incorporation of ISC-Delaware, amended in accordance with Section above, and
the By-Laws of ISC-Delaware shall be the Certificate of Incorporation and the
By-Laws of the surviving corporation.
SECTION 19. ADOPTION. This Plan and Agreement of Merger has
been approved, adopted, certified, executed and acknowledged by ISC-Illinois and
ISC-Delaware in accordance with the laws under which each is, respectively,
organized.
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<PAGE> 16
ILLINOIS SUPERCONDUCTOR CORPORATION Dated September 23, 1993
By /s/ Ora E. Smith Attested by /s/ Stephen G. Wasko
------------------------------ ---------------------
Ora E. Smith, Stephen G. Wasko,
President Secretary
ILLINOIS SUPERCONDUCTOR CORPORATION Dated September 23, 1993
OF DELAWARE
By /s/ Ora E. Smith Attested by /s/ Stephen G. Wasko
------------------------------ ---------------------
Ora E. Smith, Stephen G. Wasko,
President Secretary
-4-
<PAGE> 17
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ILLINOIS SUPERCONDUCTOR CORPORATION
ILLINOIS SUPERCONDUCTOR CORPORATION (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware (as amended from time to time, the "Law"), does hereby
certify:
I. That, by a written consent executed in accordance with Section
141(f) of the Law and effective September 27, 1993, the Board of Directors of
the Corporation adopted a resolution setting forth the Amendment to Certificate
of Incorporation set forth below (the "Amendment"), declaring its advisability,
and submitting it to the stockholders entitled to vote in respect thereof.
"RESOLVED, that Article 4 of the certificate of incorporation of the
Corporation is hereby amended in its entirety to read as follows:
"ARTICLE 4. AUTHORIZED STOCK
"4.1. NUMBER, CLASSIFICATION AND PAR VALUE. The total
number of shares of all classes of stock which the Corporation shall
have authority to issue is Nineteen Million Nine Hundred Sixty-Six
Thousand (19,966,000), of which Fifteen Million (15,000,000) shares are
of a class designated "Common Stock" (referred to in this Certificate
as "Common"), and Four Million Nine Hundred Sixty-Six Thousand shares
are of a class designated "Preferred Stock" (referred to in this
Certificate as "Preferred"). The total number of shares of all classes
of stock which the Corporation shall have authority to issue, and the
number of shares of Preferred, may be reduced from time to time in
accordance with Section of this Certificate. The Common shall have a
par value of $.001 per share. The Preferred shall have a par value of
$.001 per share.
"4.2. COMBINATION OF COMMON STOCK. At the time the
filing of the Certificate of Amendment of Certificate of Incorporation
containing these Sections 4.2 and 4.3 with the Secretary of State of
the State of Delaware becomes effective, a reverse stock split will
take effect whereby each outstanding whole share of the Corporation's
Common shall automatically and without the necessity of any other
action become 0.545th of one share of the Corporation's Common and
correspondingly each fraction of a share of Common shall automatically
and without the necessity of any other action be reduced by the same
proportion. Upon the occurrence of the combination of the Common
effected by this Section 4.2, each certificate for outstanding shares
of Common dated prior to the effective date of the combination of the
Common effected by this Section 4.2 shall evidence, and be deemed to
evidence, the number of shares of Common
<PAGE> 18
into which the shares previously evidenced by such certificate shall
have been combined in accordance with this Section 4.2, and the
combination of the Common effected by this Section 4.2 shall become
effective in accordance with the terms hereof, whether or not any or
all of the certificates evidencing Common shall have been surrendered
or new certificates evidencing the number of shares of Common into
which such shares have been combined shall have been issued in
accordance with Section 4.3 hereof.
"4.3. SUBSEQUENT REISSUANCE OF CERTIFICATES.
Following the occurrence of the combination of the Common effected by
Section 4.2, the holders of shares of Common shall either a) surrender
each certificate evidencing any such shares at the office of the
Corporation, or b) notify the Corporation that such certificate has
been lost, stolen or destroyed and execute an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by
it in connection with the reissuance of such lost, stolen or destroyed
certificate. The Corporation shall thereupon issue and deliver to each
such holder a certificate or certificates, in the name shown on such
certificate evidencing Common, for the number of shares of Common into
which the shares of Common evidenced by the surrendered (or lost,
stolen or destroyed) certificate have been combined, dated as of the
date on which the combination of the Common effected by Section 4.2
becomes effective. The Corporation shall not be obligated to issue any
certificate evidencing shares of Common in connection with the
combination effected by this Amendment except in accordance with this
Section 4.3."
II. That, by a written consent executed in accordance with Section 228
of the Law, the holders of a majority of the outstanding stock entitled to vote
thereon, and a majority of the outstanding stock of each class entitled to vote
thereon as a class, have voted in favor of the adoption of the Amendment, and
written notice of such action has been given as provided in Section 228(d) of
the Law.
III. That the Amendment has been duly adopted in accordance with
Section 242 of the Law.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to Certificate of Incorporation to be signed by its
President and attested by its Secretary, all on September 27, 1993.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ Ora E. Smith
---------------------------------
Attest: Ora E. Smith, President
/s/ Stephen G. Wasko
- ------------------------------
Stephen G. Wasko, Secretary
-2-
<PAGE> 19
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ILLINOIS SUPERCONDUCTOR CORPORATION
ILLINOIS SUPERCONDUCTOR CORPORATION (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware (as amended from time to time, the "Law"), does hereby
certify:
I. That, at a meeting held in accordance with Section 141(b) of the Law
and effective March 9, 1998, the Board of Directors of the Corporation adopted a
resolution setting forth the Amendment to Certificate of Incorporation set forth
below (the "Amendment"), declaring its advisability, and submitting it to the
stockholders entitled to vote in respect thereof.
"RESOLVED, that Article 4, Section 4.1 of the certificate of
incorporation of the Corporation is hereby amended in its entirety to
read as follows:
"ARTICLE 4. AUTHORIZED STOCK
"4.1. NUMBER, CLASSIFICATION AND PAR VALUE. The total
number of shares of all classes of stock which the Corporation shall
have authority to issue is Thirty Million One Hundred Thousand
(30,100,000), of which Thirty Million (30,000,000) shares are of a
class designated "Common Stock" (referred to in this Certificate as
"Common"), and One Hundred Thousand (100,000) shares are of a class
designated "Preferred Stock" (referred to in this Certificate as
"Preferred"). The total number of shares of all classes of stock which
the Corporation shall have authority to issue, and the number of shares
of Preferred, may be reduced from time to time in accordance with
Section of this Certificate. The Common shall have a par value of $.001
per share. The Preferred shall have a par value of $.001 per share."
II. That, at a special meeting of the stockholders called in accordance
with Section 222 of the Law, the holders of a majority of the outstanding stock
entitled to vote thereon, and a majority of the outstanding stock of each class
entitled to vote thereon as a class, have voted in favor of the adoption of the
Amendment, and written notice of the meeting has been given as provided in
Section 222(b) of the Law.
III. That the Amendment has been duly adopted in accordance with
Section 242 of the Law.
<PAGE> 20
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to Certificate of Incorporation to be signed by its
President and attested by its Secretary, all on April 22, 1998.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ Edward W. Laves
---------------------------------
Attest: Edward W. Laves, President
/s/ Stephen G. Wasko
- ----------------------------
Stephen G. Wasko, Secretary
-2-
<PAGE> 1
EXHIBIT 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE 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.
THE SECURITIES REPRESENTED BY THIS NOTE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND CONVERSION SET FORTH IN SECTIONS 3.1 AND 3.15 OF A SECURITIES
PURCHASE AGREEMENT, DATED AS OF MAY 15, 1998, BETWEEN ILLINOIS SUPERCONDUCTOR
CORPORATION (THE "COMPANY") AND THE PURCHASERS LISTED THEREIN, INCLUDING THE
ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY.
SENIOR CONVERTIBLE NOTE
Mt. Prospect, Illinois Note No.:___
May 15, 1998 $______
FOR VALUE RECEIVED, ILLINOIS SUPERCONDUCTOR CORPORATION, a Delaware
corporation (the "Company"), hereby promises to pay to the order of
__________________________ or its registered assigns ("Holder") the principal
amount of ____________________________ ($______), together with all accrued but
unpaid interest thereon, on May 15, 2002 (the "Maturity Date") to the extent
such principal amount and interest has not been converted into the Company's
Common Stock, $.001 par value per share (the "Common Stock"), in accordance with
the terms hereof, and to pay interest on the unpaid principal balance hereof at
the rate of 2% per annum from May 15, 1998 (the "Issuance Date") until the same
becomes due and payable on the Maturity Date, or such earlier date upon
acceleration or by conversion or redemption in accordance with the terms hereof.
Interest on this Note shall commence accruing on the Issuance Date and shall be
computed on the basis of a 360-day year, 30-day months and actual days elapsed
and shall be payable at the time of conversion of the principal to which such
interest relates in accordance with Section 3 hereof. Notwithstanding anything
contained herein, this Note shall bear interest, from and after the occurrence
and during the continuance of a default pursuant to Section 5(a), at the rate
equal to the lower of fifteen percent (15%) per annum or the highest rate
permitted by law. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs, then to unpaid
interest and fees and any remaining amount to principal.
All payments of principal and interest on this Note (to the extent such
principal and/or interest is not converted into Common Stock in accordance with
the terms hereof) shall be made
<PAGE> 2
in lawful money of the United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to time designate by
written notice in accordance with the provisions of this Note or by Company
check. Whenever any amount expressed to be due by the terms of this Note is due
on any day which is not a Business Day (as defined below), the same shall
instead be due on the next succeeding day which is a Business Day. For purposes
of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which commercial banks in the City of New York are authorized or
required by law or executive order to remain closed. Each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
the Securities Purchase Agreement, dated May 15, 1998, pursuant to which this
Note was originally issued (the "Purchase Agreement"). This Note and the other
senior convertible notes issued by the Company on the Issuance Date pursuant to
the Purchase Agreement are collectively referred to in this Note as the "Notes."
The following terms and conditions shall apply to this Note:
Section 1. Voting Rights. The rights of holders of Notes to
elect or designate directors to the Company's Board of Directors is limited to
the provisions of Section 3.12 of the Purchase Agreement. So long as any
principal amount of Notes is outstanding, the Company shall not, without the
affirmative vote of the holders of at least 75% of the principal amount of the
Notes then outstanding, authorize or create any class of debt securities or
capital stock ranking as to dividends, interest or distribution of assets upon a
Liquidation payment at maturity, if applicable, (as defined in Section 2 hereof)
senior to, prior to or pari passu with the Notes.
Section 2. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Notes shall be entitled to receive in cash out of the assets of
the Company, whether such assets are capital or surplus, an amount equal to the
outstanding principal thereon plus all accrued but unpaid interest thereon
before any distribution or payment shall be made to the holders of any Junior
Securities (as defined in Section 6 hereof), and if the assets of the Company
shall be insufficient to pay in full the amounts due to the holders of the Notes
and holders of other classes or series of debt securities of the Company that
rank pari passu with the Notes as to distributions of assets, then the entire
assets to be distributed to the holders of Notes and the holders of such debt
securities ranking pari passu shall be distributed among the holders of Notes
and the holders of such debt securities ranking pari passu ratably in accordance
with the respective amounts that would be payable on the Notes and such debt
securities if all amounts payable thereon were paid in full. A sale, conveyance
or disposition (either singly or in the aggregate) of all or substantially all
of the assets of the Company or the effectuation by the Company or a third party
of a transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of, or a consolidation or merger of the
Company with or into any other company or companies shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 3 hereof.
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 Notes.
Section 3. Conversion. The Holder shall have the right, at the
Holder's option, to convert this Note into shares of Common Stock on the
following terms and conditions:
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<PAGE> 3
(a)(i) Up to one-half (1/2) of the initial principal amount of
this Note shall be convertible into shares of Common Stock (subject to reduction
pursuant to Section 3.15 of the Purchase Agreement) at the Conversion Ratio (as
defined in Section 6 hereof) at the option of the Holder in whole or in part at
any time after ninety (90) days following the Issuance Date. Any part of the
outstanding and unpaid principal of this Note shall be convertible into shares
of Common Stock (subject to reduction pursuant to Section 3.15 of the Purchase
Agreement) at the Conversion Ratio at the option of the Holder in whole or in
part at any time after the 180th day following the Issuance Date up to and
including the day that all of the principal of this Note and interest accrued
thereon are paid in full. Each conversion by the Holder shall be for at least
$10,000 in principal, or such lesser amount of principal as shall remain unpaid
and outstanding at the time of conversion. The accrued interest on any principal
amount of this Note converted into Common Stock shall be simultaneously
converted into Common Stock in accordance with Section 3(a)(ii) below, unless
the Company elects to pay such interest in cash. The Holder shall effect
conversions by surrendering to the Company a fully executed notice of conversion
in the form of conversion notice attached hereto as Exhibit A (the "Conversion
Notice"), which may be transmitted by facsimile, and this Note. Each Conversion
Notice shall specify the outstanding principal amount of this Note 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 received by the Company
hereunder (the "Conversion Date"); provided, however, that if this Note is not
received by the Company (other than by facsimile) within two (2) Trading Days of
the date specified in the Conversion Notice as the date on which such conversion
is to be effected, then the Conversion Date shall be the date on which this Note
is received by the Company (other than by facsimile). 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 3(h) hereof; provided,
however, that if this Note is not received (other than by facsimile) by the
Company within two (2) Trading Days of such date, then the Conversion Date shall
be the date on which this Note is received by the Company (other than by
facsimile). Subject to Section 3(b) hereof and Section 3.15 of the Purchase
Agreement, each Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the outstanding principal amount of this
Note 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 the Holder (in the manner and within the time set forth in Section
3(b) hereof) a Note for such principal amount as has not been converted.
(ii) Interest. The Company shall have the right to elect to
pay accrued interest in cash, in lieu of conversion into Common Stock in
accordance with this Section 3, by providing thirty (30) days' prior notice to
the Holder. Following such notice, all payments of interest on this Note shall
be made in cash, until such time as the Company provides thirty (30) days' prior
notice to the Holder of its election to pay interest on this Note in Common
Stock. If the Company elects to pay accrued interest in cash, such cash shall be
paid simultaneously with the delivery to the Holder of the certificates
representing the Common Stock issuable upon conversion in accordance with
Section 3(b) below. If the Company elects to pay accrued interest in Common
Stock, certificates representing such Common Stock shall be issued
simultaneously with the delivery to the Holder of the certificates representing
the Common Stock issuable upon conversion of principal in accordance with
Section 3(b) below; provided that in determining the number of shares of Common
Stock to be issued as accrued interest, such Common Stock shall be valued at the
Per Share Market Value (as defined in Section 6 below)
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<PAGE> 4
for the twenty (20) consecutive Trading Days (as defined in Section 6 below)
preceding the Conversion Date.
Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of interest (and must
deliver cash in respect thereof) on the Notes 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 interest to be paid in shares of Common Stock;
(ii) such shares are not registered for resale pursuant to
an effective registration statement and covered by a current related prospectus,
the use of which has not been suspended, that names the recipient of such
dividend as a selling stockholder thereunder and may not be sold without
restrictions pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to the Company's transfer agent,
in the form and substance reasonably acceptable to the holder;
(iii) such shares are not listed on the Nasdaq National
Market, The Nasdaq SmallCap Market, the New York Stock Exchange, the American
Stock Exchange or any other exchange or quotation system on which the Common
Stock is then listed for trading.
(b) Not later than three (3) 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 this
Note, including as accrued interest, if the Company elects to pay such interest
in Common Stock, and (ii) a Note representing the remaining principal amount of
this Note not converted, if any, and (iii) a check drawn on the account of the
Company or a wire transfer of immediately available funds, payable to the Holder
in an amount equal to any accrued interest, if the Company elects or is required
to pay such interest in cash; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of this Note until this Note is either delivered for conversion
(other than by facsimile) to the Company, or the Holder notifies the Company
that such Note has 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 3(b) 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 interest hereunder, are not
delivered to or as directed by the 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 this Note tendered for conversion. If the Company fails
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<PAGE> 5
to deliver to the Holder such certificate or certificates pursuant to this
Section 3(b), including for purposes hereof, any shares of Common Stock to be
issued on the Conversion Date on account of accrued interest hereunder, prior to
the fifth Trading Day after the Conversion Date, the Company shall pay to the
Holder, in cash, an amount equal to the actual damages which the Holder can
prove it has suffered as a direct result of the Company's failure to deliver to
the Holder such certificate or certificates prior to the fifth Trading Day after
the Conversion Date. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section prior to the 20th day after
the Conversion Date, the Company shall (i) deliver notice of such failure to all
holders of the Notes and (ii) at the option of any holder of the Notes, and upon
such holder's written notice to the Company, redeem all or a portion of the
outstanding principal amount of the Notes held by such holder, as requested by
such holder. The aggregate redemption price shall be equal to the greater of (i)
the outstanding principal amount being redeemed plus any unpaid interest thereon
and (ii) the product of (x) the average of the Per Share Market Value for the
five (5) Trading Days preceding the Conversion Date and (y) the Conversion
Ratio. If a holder has requested that the Company redeem such holder's Notes
pursuant to this Section 3(b) and the Company fails for any reason to pay the
redemption price above within seven (7) days after such notice is deemed
delivered pursuant to Section 3(b), the Company will pay interest on the
redemption price at a rate of 15% per annum, in cash to such holder, accruing
from such seventh day until the redemption price and any accrued interest
thereon is paid in full; provided, however, if any portion of the redemption
price under this Section 3(b) shall not be paid by the Company within seven (7)
days of such notice of redemption being delivered, the applicable holder by
written notice given to the Company within 30 days of such 7th day, may elect to
invalidate ab initio such redemption and the Company shall, within three (3)
Trading Days of receipt of such notice, return to such holder that portion of
this Note for which the redemption price has not been paid.
(c) (i) The conversion price ("Conversion Price") applicable
to conversions of the principal of this Note into Common Stock hereunder shall
be $1.50, subject to adjustment as provided herein. Notwithstanding the
foregoing, if (a) the registration statement contemplated by the Registration
Rights Agreement (as defined in Section 6 below), which among other things,
requires the Company to register the resale of the shares of Common Stock
issuable upon conversion of the Notes (the "Underlying Shares Registration
Statement") is not filed on or prior to the 30th day after the Issuance 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 Issuance 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 ten (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 (3) consecutive Trading Days or five (5) Trading Days in the
aggregate or if the Common Stock shall be delisted from the
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<PAGE> 6
Nasdaq National Market (unless the Common Stock is listed for trading on The
Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange within three (3) Trading Days), or (f) if the conversion rights of the
Holder are suspended for any reason, or (g) the Company postpones or suspends
the filing or effectiveness of any Registration Statement in excess of 20
consecutive days or 60 days in the aggregate during any twelve month period, or
(h) a holder of Registrable Securities must discontinue disposition of its
Registrable Securities pursuant to the fourth paragraph of Section 3(o) of the
Registration Rights Agreement, or (i) if during the Effectiveness Period (as
defined in the Registration Rights Agreement), the Registrable Securities shall
not be qualified for resale under the state securities laws of those states in
the United States which shall have been reasonably requested by the holders of
the Notes (any such occurrence being referred to as an "Event," and for purposes
of clauses (a), (c), (f),(h) and (i) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period is exceeded,
or for purposes of clause (d) the date which such 10 Business Day-period is
exceeded, or for purposes of clause (e) the date on which such three Trading Day
period is exceeded, or for purposes of clause (g) the date on which such 20
consecutive day or 60 aggregate day period is exceeded, being referred to as an
"Event Date"), the Conversion Price for all of the Notes shall be decreased by
2.5% for each monthly anniversary of an Event Date until the earlier to occur of
the second month anniversary after the Event Date and such time as the
applicable Event is cured (e.g. if an Event has not been cured on the first
month anniversary of its Event Date, the Conversion Price for all of the Notes
shall be reduced to $1.4625; if the Event has not been cured on the second month
anniversary of its Event Date, the Conversion Price for all of the Notes in
effect on a Conversion Date shall be further reduced to $1.425). Commencing the
second month anniversary after the Event Date, at the option of any holder of
the Notes, to be exercised by written notice, for each applicable monthly period
either (a) the Company shall pay to such holder 2.5% of the outstanding
principal of such holder's Notes or (b) the Conversion Price for such Notes
shall be decreased by 2.5% for each such additional month (to be effective in
full on the monthly anniversary of an applicable Event Date) as liquidated
damages, and not as a penalty, on the first day of each monthly anniversary of
the Event Date, in either case until such time as the applicable Event is cured.
Any decreased Conversion Price in effect pursuant to this Section 3(c)(i) shall
continue notwithstanding the fact that the Event causing such decrease has been
subsequently cured. If an Event is not cured by the third month anniversary of
an Event Date (or the second week anniversary of an Event Date for the purpose
of clause (f)), then each holder of Notes shall have the option by written
notice to require the Company to redeem such holder's Notes, in whole or in
part, at an aggregate redemption price equal to the greater of (i) the
outstanding principal amount being redeemed plus any unpaid interest thereon and
(ii) the product of (x) the average of the Per Share Market Value for the five
(5) Trading Days immediately preceding such holder's redemption notice and (y)
the Conversion Ratio. If the Holder has requested that the Company redeem this
Note pursuant to this Section 3.1(c)(i) and the Company fails for any reason to
pay the redemption price within seven (7) days after the notice of redemption is
deemed delivered pursuant to Section 3(h), the Company will pay interest on such
redemption price in cash at a rate of 15% per annum to the applicable holder,
accruing from the date the notice of redemption is deemed delivered until the
redemption price plus any accrued interest thereon is paid in full; provided,
however, if any portion of the redemption price under this Section 3.1(c)(i)
shall not be paid by the Company within seven (7) days of such notice of
redemption being delivered, such holder by written notice given to the Company
within 30 days of such 7th day, may elect to invalidate ab initio such
redemption and the Company shall, within
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<PAGE> 7
three (3) Trading Days of receipt of such notice, return to such holder the
portion of this Note for which the redemption price has not been paid. The
provisions of this Section 3(c)(i) are not exclusive and shall in no way limit
the Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any principal
amount of this Note is 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 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
3(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 principal
amount of this Note is outstanding, shall distribute to all holders of Common
Stock evidences of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in Section 3(c)(ii)
above), then in each such case the Conversion Price shall be determined by
multiplying the 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 Company's Board of
Directors in good faith; provided, however, that if the holders of a majority of
the outstanding principal of the Notes 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 the outstanding principal of the Notes
then outstanding, in which case the fair market value shall be equal to the
average of the determinations by the Company's Board of Directors and such
Appraiser. In either case the adjustments shall be described in a statement
provided to the holders of the Notes 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.
(iv) All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(v) Whenever the Conversion Price is adjusted pursuant to
Section 3(c)(ii) or (iii) above, the Company shall promptly mail to each holder
of the Notes, a notice
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<PAGE> 8
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(vi) In case of (i) an acquisition after the date hereof
by an individual, legal entity or "group" within the meaning of Section 13(d)
under the Exchange Act of voting securities of the Company pursuant to which,
after giving effect to such acquisition, such individual, legal entity or group
will beneficially own in excess of 50% of the issued and outstanding voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's Board of Directors which is not approved by those
individuals who are members of the Company's Board of Directors on the date
thereof in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, consolidation or sale, transfer or
disposition of all or substantially all of the assets of the Company in one or a
series of transactions or (iv) the execution by the Company of an agreement to
which the Company is a party or which it is bound providing for an event set
forth in (i), (ii) or (iii) above, pursuant to which the Common Stock is
converted into other securities, cash or property (each, a "Business
Combination"), the Holder shall have the right thereafter to, at its option, (A)
convert this Note, in whole or in part, only into the shares of stock and other
securities, cash and/or property receivable upon or deemed to be held by holders
of Common Stock following such Business Combination, and the Holder 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 this Note could have
been converted immediately prior to such Business Combination would have been
entitled, subject to such further applicable adjustments set forth in this
Section 3 or (B) require the Company to redeem this Note, in whole or in part,
at a redemption price equal to the greater of (i) the outstanding principal
amount being redeemed plus any unpaid interest thereon and (ii) the product of
(x) the average of the Per Share Market Value for the five (5) Trading Days
immediately preceding the Purchaser's election to have its Notes redeemed and
(y) the Conversion Ratio. If any portion of the applicable redemption price
under this Section 3.1(c)(vi) shall not be paid by the Company within seven (7)
days after the date due, interest shall accrue thereon at the rate of 15% per
annum until the redemption price plus all such interest is paid in full (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of such redemption price remains unpaid for more than seven (7)
days after the date due, the Holder of this Note being 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 3 of the portion of
this Note for which such redemption price, plus accrued liquidated damages
thereof, has not been paid in full (the "Unpaid Redemption Notes") 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 Notes
subject to the Holder's 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 the Holder's notice of such election, return to the Holder all
of the Unpaid Redemption Notes. The terms of any such Business Combination shall
include such terms so as to continue to give to the Holders the right to receive
the amount of securities, cash and/or property upon any conversion or redemption
following such Business Combination to which a holder of the number of shares of
Common Stock deliverable upon such conversion would have been entitled
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<PAGE> 9
in such Business Combination. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
(vii) If:
A. the Company shall declare a dividend (or
any other distribution) on its Common
Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the granting
to all holders of the Common Stock rights
or warrants to subscribe for or purchase
any shares of capital stock of any class
or of any rights; or
D. the approval of any stockholders of the
Company shall be required in connection
with any reclassification of the Common
Stock of the Company, any consolidation or
merger to which the Company is a party,
any sale or transfer of all or
substantially all of the assets of the
Company, of any compulsory share of
exchange whereby the Common Stock is
converted into other securities, cash or
property; or
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 this Note, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the 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. During the period covered by
such notice, subject to Section 3.15 of the Purchase Agreement, the Holder shall
be entitled to convert this Note, in whole or in part, notwithstanding Section
3(a)(i) above.
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<PAGE> 10
(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 this Note (including payment of
interest thereon in Common Stock), free from preemptive rights or any other
actual contingent purchase rights of persons other than the holders of the
Notes, 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 3(c) above) upon the conversion of this
Note (including payment of interest thereon in Common Stock) hereunder. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, 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
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 this Note shall be made without charge to the Holder for any
documentary stamp or similar taxes 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 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) After all principal and accrued interest at any time owed
on this Note has been paid in full or converted into Common Stock, this Note
shall automatically be deemed be canceled.
(h) Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by facsimile,
or by a nationally recognized overnight courier service to the attention of the
Chief Financial Officer of the Company at the facsimile telephone number or
address of the principal place of business of the Company as set forth in the
Purchase Agreement. Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or by a nationally recognized overnight courier
service addressed to the Holder at the facsimile telephone number or address of
the Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder shall be
deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by
facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Central Time), or on the first Business Day following such receipt if received
on a Business Day after 5:00 p.m. (Central Time) or (iii) the Business Day
following the date of depositing with a nationally recognized overnight courier
service.
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<PAGE> 11
(i) Notwithstanding anything herein to the contrary, in the
event that within 180 days of the Issuance Date the Company or a third party
announces the occurrence of, or the intent to engage in:
(i) A transaction which will result in a Change in Control
(as defined in the Purchase Agreement);
(ii) A "going private" transaction under Rule 13e-3
promulgated pursuant to the Exchange Act;
(iii) A tender offer by the Company under Rule 13e-4
promulgated pursuant to the Exchange Act;
(iv) That the Company (A) is or has become insolvent; (B)
admits in writing its inability to pay its debts generally as
they mature; (C) makes an assignment for the benefit of
creditors or commence proceedings for its dissolution; (D)
applies for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial part of its
property or business;
(v) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any
Bankruptcy Law (as defined herein) or any law for the relief
of debt shall be instituted by or against the Company (except
for such proceedings that the Company in good faith believes
are without basis, actively contests and is successful in
having dismissed with prejudice within 30 days) or the Company
shall by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in
any such proceedings; or
(vi) Any material acquisition or disposition of assets, or
any merger or consolidation with any other company or entity,
if such transaction would be required by the rules and
regulations of the Exchange Act to be reported by the Company
on a Current Report on Form 8-K,
then upon such announcement, subject to Section 3.15 of the Purchase Agreement,
the full principal amount of this Note may be converted into shares of Common
Stock in accordance with the terms hereof.
Section 4. Redemption. (a) The Company shall have the right,
exercisable at any time upon thirty (30) days' notice to the holders of the
Notes given at any time on or after the second anniversary of the Issuance Date
to redeem all or any portion of the Notes which have not previously been
converted or redeemed, at a redemption price equal to the outstanding principal
(plus accrued interest thereon), provided the Per Share Market Value for the
Common Stock has been at least $4.50 per share for each of the twenty (20)
consecutive Trading Days preceding the date on which the Company delivers a
redemption notice pursuant to this Section 4(a). The entire redemption price
plus all interest accrued thereon shall be paid in cash. Holders of the Notes
may convert the Notes, including those subject to a redemption notice
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<PAGE> 12
given under this Section 4(a), during the period from the date of such
redemption notice through the date on which the redemption price for such Notes
is paid by the Company and the Company shall honor all properly tendered
Conversion Notices during such period. Any redemption notice under this Section
4(a) shall indicate the principal amount of Notes to be redeemed and the date
(subject to the terms hereof) on which such redemption is to occur. The holders
of the Notes to be redeemed shall tender by overnight mail, the Notes 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 Notes, it shall do so on a pro
rata basis among such holders in accordance with this Section 4(a). If any
portion of the applicable redemption price under this Section shall not be paid
by the Company within seven (7) days after the date due, interest shall accrue
thereon at the rate of 15% per annum until the redemption price plus all such
interest is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). In addition, if any portion of such redemption price remains
unpaid for more than seven (7) days after the date due, the holder of this Note
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 of the Unpaid
Redemption Notes in accordance with the formula and the time frame therefor set
forth in Section 3 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 Notes 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 the Holder's notice
of such election, return to the Holder all of the Unpaid Redemption Notes.
Failure by the Company to redeem this Note on a timely basis after notifying the
holders of its intent to redeem the Notes pursuant to this Section 4(a) shall
result in the Company being prohibited from exercising such right pursuant to
this Section 4(a) again.
(b) Notwithstanding anything to the contrary herein, the
Company shall be prohibited from exercising its right to redeem the Notes
pursuant to Section 4(a) if at the time of such redemption and for the 30 days
preceding the Company's notice of such redemption and at all times between the
date of such notice and the redemption (i) an Underlying Shares Registration
Statement is not effective, (ii) the Common Stock is not listed on the Nasdaq
National Market, The Nasdaq SmallCap Market, the New York Stock Exchange or the
American Stock Exchange or trading on such market or exchange is suspended or
(iii) the use of a Prospectus (as defined in the Registration Rights Agreement)
is suspended.
Section 5. Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) default
in payment of the principal amount or interest thereon of any of the Notes on or
after the date such payment is due (to the extent such principal and/or amount
has not been converted into Common Stock in accordance with the terms hereof or
thereof, as applicable); (ii) failure by the Company for ten (10) days after
notice to it to comply with any other material provision of any of the Notes,
the Purchase Agreement, the Registration Rights Agreement (other than an Event)
or the common stock purchase warrants of the Company issued to the Holder
pursuant to the Purchase Agreement; (iii) a material breach by the Company of
its representations or warranties in the
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<PAGE> 13
Purchase Agreement or Registration Rights Agreement; (iv) any default under or
acceleration prior to maturity of any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or for money borrowed the
repayment of which is guaranteed by the Company, whether such indebtedness or
guarantee now exists or shall be created hereafter, provided that the Company's
obligation with respect to any such borrowed or accelerated amount exceeds, in
the aggregate, $500,000; (v) if the Company pursuant to or within the meaning of
any Bankruptcy Law; (A) commences a voluntary case; (B) consents to the entry of
an order for relief against it in an involuntary case; (C) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors; or
(E) admits in writing that it is generally unable to pay its debts as the same
become due; or (vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (1) is for relief against the Company in an
involuntary case; (2) appoints a Custodian of the Company or for all or
substantially all of its property; or (3) orders the liquidation of the Company
or any subsidiary, and the order or decree remains unstayed and in effect for
ninety (90) days. The Term "Bankruptcy Law" means Title 11, U.S. Code, or any
similar Federal or State Law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
(b) Remedies. If an Event of Default occurs and is continuing
with respect to any of the Notes, the Holder may declare all of the then
outstanding principal amount of this Note and all other Notes held by the
Holder, including any interest due thereon, to be due and payable immediately,
except that in the case of an Event of Default arising from events described in
clauses (v) and (vi) of Section 5(a), this Note shall become due and payable
without further action or notice. The remedies under this Note shall be
cumulative.
Section 6. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is the principal amount of this Note (and any accrued interest
thereon) to be converted in such conversion, and of which the denominator is the
Conversion Price at such time.
"Junior Securities" means the Company's capital stock and all
other equity securities and all debt securities of the Company which are junior
in rights and liquidation preference to the Notes.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange or quotation system on which the Common
Stock is then listed or if there is no such price on such date, then the closing
bid price on such exchange or quotation system on the date nearest preceding
such date, or (b) if the Common Stock is not listed then on the Nasdaq National
Market or any stock exchange or quotation system, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by The Nasdaq
Stock Market, Inc. or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar
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<PAGE> 14
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 principal amount of the Notes; 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, a
limited liability company, an organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of May 15, 1998, between the Company and the original
holders of the Notes.
"Trading Day" means 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.
"Underlying Shares" means the number of shares of Common Stock
into which the Notes are convertible in accordance with the terms hereof and the
Purchase Agreement.
Section 7. General
(a) Payment of Expenses. The Company agrees to pay all
reasonable debts and expenses, including attorneys' fees and expenses, which may
be incurred by the Holder in successfully enforcing this Note and/or collecting
any amount due under this Note.
(b) Savings Clause. In case any provision of this Note is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in
any way be affected or impaired thereby. In no event shall the amount of
interest paid hereunder exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is collected in
excess of the applicable maximum rate, the excess collected shall be applied to
reduce the principal debt. If the interest actually collected hereunder is still
in excess of the applicable maximum rate, the interest rate shall be reduced so
as not to exceed the maximum allowable under law.
(c) Amendment. Neither this Note nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the Company and Holder.
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<PAGE> 15
(d) Assignment, Etc. The Holder may assign or transfer this
Note to any transferee; provided, however, that if such transferee is not
already a holder of the Notes or an Affiliate of any holder of the Notes then
such transferee shall not have the ability to participate in the nomination of
directors pursuant to Section 3.12 of the Purchase Agreement. This Note shall be
binding upon the Company and its successors and shall inure to the benefit of
the Holder and its successors and assigns.
(e) No Waiver. No failure on the part of the Holder to
exercise, and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by the
Holder of any right, remedy or power hereunder preclude any other or future
exercise of any other right, remedy or power. Each and every right, remedy or
power hereby granted to the Holder or allowed it by law or other agreement shall
be cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
(f) Governing Law; Jurisdiction.
(i) THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE
APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
(ii) The Company irrevocable submits to the exclusive
jurisdiction of any State or Federal Court sitting in the State of New York over
any suit, action, or proceeding arising out of or relating to this agreement.
The Company irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posed as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Holder's right to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgement in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(iii) The Company hereto knowingly and voluntarily waives
any and all rights it may have to a trial by jury with respect to any litigation
based on, or arising out of, under, or in connection with, this Note.
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<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Note to be
signed by Edward W. Laves, its President and Chief Executive Officer, on the day
and in the year first above written.
ILLINOIS SUPERCONDUCTOR CORPORATION
By:/s/ Edward W. Laves
---------------------------------------------
Name: Edward W. Laves
Title: President and Chief Executive Officer
<PAGE> 17
EXHIBIT A
FORM OF NOTICE OF CONVERSION
(To be Executed by the Holder
in order to Convert a Note)
The undersigned hereby elects to convert the aggregate principal amount
indicated below of Note No. ___, into shares of Common Stock, par value $.001
per share (the "Common Stock"), of Illinois Superconductor Corporation (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
The undersigned hereby represents that the number of shares of Common Stock
issuable pursuant to this Notice of Conversion does not violate or breach the
restrictions on conversions contained in Section 3.15 of the Securities Purchase
Agreement dated as of May 15, 1998 by and between the Company and the purchasers
listed therein, including the original holder of the note be converted herewith.
Conversion calculations: --------------------------------------------------
Date to Effect Conversion
Note No.:
-----------------------------------------
--------------------------------------------------
Aggregate Principal Amount of Note Being Converted
--------------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Signature
--------------------------------------------------
Name
--------------------------------------------------
Address
<PAGE> 1
EXHIBIT 4.3
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. WCN-00_ Dated May 15, 1998
Illinois Superconductor Corporation, a Delaware corporation (the
"Company"), hereby certifies that, for value received,
__________________________, or its registered assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to a total of _______ 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 $3.75 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
any time and from time to time, subject to Section 3(e), on or after the 90th
day following the date hereof and through and including May 15, 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 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"),
<PAGE> 2
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 in the name of such Holder, 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 90th day following 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) 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 or wire transfer of immediately
available funds, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than three (3)
trading 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 Securities Purchase Agreement, dated as of May 15, 1998,
between the Company and the Purchasers listed therein, including the initial
Holder of this Warrant (the "Purchase Agreement"). 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.
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
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<PAGE> 3
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 to the
Holder, 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.
(d) If and while the Warrant Shares issuable upon the
exercise of this Warrant are not registered for public resale pursuant to an
effective registration statement with a current available prospectus, then upon
exercise of this Warrant the aggregate Exercise Price may be paid by the Holder
notifying the Company that it should subtract from the number of Warrant Shares
issuable to the Holder upon such exercise an amount of Warrant Shares, the
aggregate Per Share Market Value (as defined in the Purchase Agreement) of
which, as determined on the date immediately preceding the date of the Form of
Election to Purchase, equals such aggregate Exercise Price of the Warrant Shares
for which this Warrant is being exercised.
(e) Notwithstanding anything herein to the contrary, in the
event that within 90 days of the date hereof the Company or a third party
announces the occurrence of, or the intent to engage in:
(i) A transaction which will result in a Change in
Control (as defined in the Purchase Agreement);
(ii) A "going private" transaction under Rule 13e-3
promulgated pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act");
(iii) A tender offer by the Company under Rule 13e-4
promulgated pursuant to the Exchange Act;
(iv) That the Company (A) is or has become insolvent;
(B) admits in writing its inability to pay its debts generally
as they mature; (C) makes an assignment for the benefit of
creditors or commence proceedings for its dissolution; (D)
applies for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial part of its
property or business;
(v) Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings, or relief under
any Bankruptcy Law (as defined herein) or any law for the
relief of debt shall be instituted by or against the
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<PAGE> 4
Company (except for such proceedings that the Company in good
faith believes are without basis, actively contests and is
successful in having dismissed with prejudice within 30 days)
or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit to
any material allegations of, or default in answering a
petition filed in any such proceedings; or
(vi) Any material acquisition or disposition of assets,
or any merger or consolidation with any other company or
entity, if such transaction would be required by the rules and
regulations of the Exchange Act to be reported by the Company
on a Current Report on Form 8-K;
then upon such announcement, subject to Section 3.15 of the Purchase Agreement,
this Warrant may be fully converted into shares of Common Stock in accordance
with the terms hereof.
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 Kleinberg, Kaplan, Wolff & Cohen, P.C., attention Stephen M. Schultz, 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
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<PAGE> 5
New Warrant, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and indemnity. 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 authorized, validly issued, 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
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<PAGE> 6
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, subject to such further adjustments as set
forth in this Section 8. 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 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.
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<PAGE> 7
(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
of Directors (the "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 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
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<PAGE> 8
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 to have been
delivered (i) upon receipt, when delivered personally; (ii) when sent by
facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Central Time), or the first Business Day following such receipt if received on
a Business Day after 5:00 p.m. (Central Time); or (iii) on the Business Day
following the date of depositing with a nationally recognized overnight express
courier service, fully prepaid, in each case properly addressed to the party to
receive the same. The addresses and facsimile number 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 mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
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<PAGE> 9
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.
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<PAGE> 10
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/ Edward W. Laves
------------------------------------------
Name: Edward W. Laves
Title: President
<PAGE> 11
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 (the "Company") and encloses herewith $________ in
cash or certified or official bank check or checks or by wire transfer of
immediately available funds or (to the extent permitted by the terms of the
Warrant) hereby notifies the Company to effect a "cashless" exercise by
subtracting ___________ shares of Common Stock valued at $________ per share
from the shares of Common Stock issuable hereby, 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> 12
[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:
- --------------------------
<PAGE> 1
EXHIBIT 4.5
================================================================================
SECURITIES PURCHASE AGREEMENT
by and among
ILLINOIS SUPERCONDUCTOR CORPORATION
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
------------------------------
Dated as of May 15, 1998
------------------------------
================================================================================
<PAGE> 2
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 15,
1998, by and among Elliott Associates, L.P., a limited partnership organized
and existing under the laws of Delaware, Westgate International, L.P., a
limited partnership organized and existing under the laws of the Cayman
Islands, Alexander Finance, LP, a limited partnership organized and existing
under the laws of Illinois, State Farm Mutual Automobile Insurance Company, an
insurance company organized and existing under the laws of Illinois, Spring
Point Partners, L.P., a limited partnership organized and existing under the
laws of California and Spring Point Offshore Fund, a corporation organized and
existing under the laws of the Cayman Islands (each, a "Purchaser" and
collectively, the "Purchasers"), and Illinois Superconductor Corporation, a
corporation organized and existing under the laws of Delaware (the "Company").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desires to acquire from the Company, senior convertible notes of the
Company substantially in the form of Exhibit A attached hereto (the "Notes").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
1.1 Purchase and Sale. Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Purchasers, and the
Purchasers shall purchase from the Company, (i) $10,350,000 in aggregate
principal amount of Notes, in the respective principal amounts set forth
opposite each Purchaser's name on the Schedule of Purchasers attached hereto,
and (ii) warrants substantially in the form of Exhibit B attached hereto (the
"Warrants") to purchase an aggregate of 4,140,000 shares of the Company's
Common Stock, par value $.001 per share (the "Common Stock"), at an exercise
price of $3.75 per share, subject to adjustment as herein provided, at any time
during the period beginning 90 days after the Closing Date (as defined herein),
subject to Section 3(e) of the Warrants, and ending on the third anniversary of
the Closing Date, in the respective amounts set forth opposite each Purchaser's
name on the Schedule of Purchasers.
For purposes of this Agreement, "Trading Day, "Business Day" and "Per
Share Market Value" shall have the meanings set forth in the Notes.
1.2 Purchase Price. The purchase price of each Note shall be set
forth opposite each Purchaser's name on the Schedule of Purchasers.
1.3 The Closing.
(a) Time and Place. The closing of the purchase and sale
of the Notes and the Warrants (the "Closing") shall take place at the offices
of Kleinberg, Kaplan, Wolff & Cohen, P.C., 551 Fifth Avenue, New York, New York
on May 15, 1998, or such later date as the parties shall agree, but not prior
to the date that the conditions set forth in Section 4 have
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<PAGE> 3
been satisfied or waived by the appropriate party. The date of the Closing is
hereinafter referred to as the "Closing Date." At the Closing, the Company
shall sell and issue to the Purchasers, and the Purchasers shall purchase, the
Notes and the Warrants for an aggregate purchase price of $10,350,000.
(b) Closing Deliveries. At the Closing, (i) the Company
shall deliver to each Purchaser, in such denominations as are requested by such
Purchaser, one or more Notes representing, in the aggregate, such principal
amount of Notes which such Purchaser is then buying (as indicated opposite such
Purchaser's name on the Schedule of Purchasers) and a Warrant to purchase such
number of shares of Common Stock as indicated opposite such Purchaser's name on
the Schedule of Purchasers, each registered in the name of such Purchaser, and
all other documents, instruments and writings required to have been delivered
at or prior to the Closing by the Company pursuant to this Agreement, including
the Registration Rights Agreement by and between the Company and the
Purchasers, substantially in the form of Exhibit C attached hereto (the
"Registration Rights Agreement"), and (ii) each Purchaser shall deliver to the
Company that portion of $10,350,000 which represents the purchase price for the
Notes and Warrant to be issued and sold to such Purchaser (as indicated
opposite such Purchaser's name on the Schedule of Purchasers), in United States
dollars in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose prior to the Closing
Date, and all documents, instruments and writings required to have been
delivered at or prior to the Closing by such Purchaser pursuant to this
Agreement, including the Registration Rights Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company.
The Company hereby makes the following representations and warranties to each
Purchaser:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries. The Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually
or in the aggregate, (x) adversely affect the legality, validity or
enforceability of any of the Transaction Documents (as defined below) in any
material respect, (y) have a material adverse effect on the results of
operations, assets, prospects, or financial condition of the Company or (z)
adversely impair in any material respect the Company's ability to perform fully
on a timely basis its obligations under the Transaction Documents (a "Material
Adverse Effect").
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<PAGE> 4
(b) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and by the Warrants, the Notes, the
Registration Rights Agreement, and otherwise to carry out its obligations
hereunder and thereunder. This Agreement, the Notes, 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 requisite corporate action on the part of the
Company. At the Closing, each of the Transaction Documents will be duly
executed and delivered by the Company and when delivered in accordance with the
terms hereof will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company is not in
violation of any of the provisions of its Certificate of Incorporation, as
amended (the "Certificate of Incorporation"), By-laws or other charter
documents.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in Schedule 2.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Notes and the Warrant hereunder, securities,
rights or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings, or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. To the knowledge of the Company, except as specifically
disclosed in the SEC Documents (as defined below) or Schedule 2.1(c), no Person
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock.
(d) Issuance of Shares and Underlying Shares. The Notes
and the Warrants are duly authorized, and when issued and paid for in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable. The Company, as at the Closing Date, will have, and at all
times while the Notes and the Warrants are outstanding will maintain, an
adequate reserve of duly authorized shares of Common Stock to enable it to
perform its obligations under this Agreement, the Warrants and the Notes with
respect to the principal amount of Notes and number of Warrants issued and
outstanding at the Closing Date and in no circumstances shall such reserved and
available shares of Common Stock be less than the sum of (i) the number of
shares of Common Stock which would be issuable upon conversion of the Notes
issued pursuant to the terms hereof, including such Common Stock issuable as
interest (the "Underlying Shares"), with respect to the principal amount of
Notes issued and outstanding at the Closing
-4-
<PAGE> 5
Date were such conversion effected on the Closing Date and (ii) the number of
shares of Common Stock which would be issuable upon exercise in full of the
Warrants (the "Warrant Shares") issued and outstanding at the Closing Date.
When issued in accordance with the terms hereof and the Notes, the Underlying
Shares will be duly authorized, validly issued, fully paid and nonassessable.
When issued upon exercise of the Warrants in accordance with the terms thereof,
the Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable.
(e) No Conflicts. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation by
the Company of the transactions contemplated thereby do not and will not (i)
conflict with or violate any provision of its Certificate of Incorporation or
By-laws or (ii) subject to obtaining the consents referred to in Section 2.1(f)
below, conflict with, constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws
and regulations), or by which any material property or asset of the Company is
bound or affected, except in the case of each of clauses (ii) and (iii), such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, do not have a
Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set
forth in Schedule 2.1(f), the Company is not required to obtain any consent,
waiver, authorization or order of, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other
person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, except for (i) the filing of the
registration statement(s) contemplated by the Registration Rights Agreement
(the "Underlying Shares Registration Statement(s)") with the Securities and
Exchange Commission (the "Commission"), which shall be filed in the time
periods set forth in the Registration Rights Agreement, (ii) 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 3.7 hereof (and with any other
national securities exchange or market on which the Common Stock is then
listed), (iii) any filings, notices or registrations under applicable state
securities laws, and (iv) other than, in all other cases, where the failure to
obtain such consent, waiver, authorization or order, or to give or make such
notice or filing, would not materially impair or delay the ability of the
Company to effect the Closing and to deliver to the Purchasers the Notes (and,
upon conversion of the Notes 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"). The Company has no reason to
believe that it will be unable to obtain the Required Approvals.
-5-
<PAGE> 6
(g) Litigation; Proceedings. Except as specifically
disclosed in the Disclosure Materials (as defined below) or set forth in
Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the 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, (ii) could, individually or
in the aggregate, have a Material Adverse Effect or (iii) could, individually
or in the aggregate, materially impair the ability of the Company to perform
fully on a timely basis its obligations under the Transaction Documents.
(h) No Default or Violation. The Company (i) is not in
default under or in violation of any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound, (ii) is not in violation of any order of any court,
arbitrator or governmental body, and (iii) is not in violation of any statute,
rule or regulation of any governmental authority, except as could not, in any
such case (individually or in the aggregate), (x) adversely affect the
legality, validity or enforceability of any of the Transaction Documents, (y)
have a Material Adverse Effect or (z) adversely impair the Company's ability or
obligation to perform fully on a timely basis its obligations under any of the
Transaction Documents.
(i) Schedules. The Schedules to this Agreement furnished
by or on behalf of the Company do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(j) Private Offering. Assuming (without any independent
investigation or verification by or on behalf of the Company) the accuracy of
the representations and warranties of the Purchasers set forth in Section 2.2,
the offer and sale of the Notes, 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 Notes, 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 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, the Company's Registration Statement on Form S-3
(File No. 333-41731) filed with the Commission December 8, 1997, and any press
releases issued by the Company subsequent to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, 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
-6-
<PAGE> 7
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 Annual Report on Form 10-K, there has been no event,
occurrence or development that has had a Material Adverse Effect which is not
specifically disclosed in any of the Disclosure Materials.
(l) Seniority. No class of debt securities of the
Company is senior to the Notes in right of payment, whether upon liquidation,
dissolution or otherwise. No debt is secured except as disclosed in the
Disclosure Materials.
(m) Investment Company. The Company is not "controlled
by", or under common control with, an affiliate (within the meaning of Rule 405
of the Securities Act, an "Affiliate") of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(n) Certain Fees. No fees or commissions will be payable
by the Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated by this Agreement, except
for such fees to be paid to Houlihan Lokey Howard & Zakin, which will not
exceed $100,000.
(o) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering and sale of
the Notes, 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, or (ii) solicited any offer to buy or
sell the Notes, 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 of selling stockholders
for resale with the Commission under Form S-3 promulgated under the Securities
Act.
(q) Intellectual Property. Except as disclosed in its
filings pursuant to the Exchange Act or Securities Act, the Company (i) is
aware of no patents or trademarks ("Intellectual Property") to which the
Company does not possess rights or licenses to use, which are necessary to
conduct its business as now conducted; (ii) has no knowledge or reason to
believe of infringement by the Company of the Intellectual Property rights of
others and is unaware of any proceeding involving such infringement being
brought or threatened against the
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<PAGE> 8
Company; (iii) has no knowledge of the material infringement of its
Intellectual Property by third parties; and (iv) has no reason to believe that
any of its Intellectual Property is unenforceable.
(r) Stockholder Rights Plan. The issuance of the Notes
and the Warrants directly from the Company to the Purchasers does not, and the
issuance of the Underlying Shares and the Warrant Shares directly from the
Company to the Purchasers, will not (together with other shares of Common Stock
deemed to be beneficially owned by such Purchasers pursuant to the Company's
issuance of Common Stock, Series G Preferred Stock and warrants under that
certain Convertible Preferred Stock Purchaser Agreement dated October 29, 1997)
in and of itself cause a Purchaser to become an Acquiring Person as such term
is defined in the Rights Agreement, dated as of February 9, 1996, by and
between the Company and LaSalle National Trust, N.A., as Rights Agent.
(s) Outstanding Indebtedness. The outstanding
indebtedness of the Company as of April 30, 1998 is set forth in Schedule
2.1(s). Since April 30, 1998, the Company has not incurred any further
indebtedness, other than trade debt in the ordinary course of business.
(t) No Violation of Confidentiality. Beginning thirty
(30) days following the Closing Date, trading in the Common Stock by a
Purchaser shall not constitute a breach of any confidentiality or
non-disclosure agreement previously entered into between such Purchaser and the
Company.
2.2 Representations and Warranties of the Purchaser. Each
Purchaser hereby represents and warrants to the Company as follows:
(a) Organization; Authority. Such Purchaser is a limited
partnership or corporation, as applicable, duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization with
the requisite legal power and authority to enter into and to consummate the
transactions contemplated hereby and by the Registration Rights Agreement and
otherwise to carry out its obligations hereunder and thereunder. The purchase
by the Purchaser of the Notes and the Warrant hereunder has been duly
authorized by all necessary action on the part of such Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly executed and
delivered by such Purchaser or on its behalf and constitutes the valid and
legally binding obligation of such Purchaser, enforceable against the Purchaser
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity.
(b) Investment Intent. Such Purchaser is acquiring the
Notes, the Warrant, the Underlying Shares and the Warrant Shares for its own
account for investment purposes only and not with a view to or for distributing
or reselling such Notes, Warrant, Underlying Shares or Warrant Shares or any
part thereof or interest therein, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Notes, Underlying Shares, Warrant or Warrant Shares
pursuant to an effective registration statement under the
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<PAGE> 9
Securities Act and in compliance with applicable State securities laws or under
an exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was
offered the Notes and the Warrant, it was, and at the date hereof, it is, and
at the Closing Date and each exercise date under the Warrant, it will be, an
"accredited investor" as defined in Rule 501 under the Securities Act.
(d) Experience of Purchaser. Such Purchaser, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Notes, the
Warrant, the Underlying Shares and the Warrant Shares, and has so evaluated the
merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment.
Such Purchaser is able to bear the economic risk of an investment in the Notes,
the Warrant, 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. Such Purchaser acknowledges
receipt of the Disclosure Materials and further acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Notes and the Warrant, and the
merits and risks of investing in the Notes and the Warrant; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information contained in the Disclosure Materials.
(g) Prohibited Transactions. The Notes and the Warrant
being purchased by such Purchaser are not being acquired, directly or
indirectly, with the assets of any "employee benefit plan" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended.
(h) Reliance. Such Purchaser understands and
acknowledges that (i) the Notes and the Warrant are being offered and sold to
such Purchaser without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
under Section 4(2) of the Securities Act or Regulation D promulgated thereunder
and (ii) the availability of such exemption, depends in part on, and the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and such Purchaser hereby consents to such reliance.
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<PAGE> 10
The Company acknowledges and agrees that the Purchasers make
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) If a Purchaser should decide to
dispose of Notes or any portion of the Warrant (and upon conversion or exercise
thereof, as the case may be, any of the Underlying Shares or Warrant Shares)
held by it, the Purchaser understands and agrees that it may do so only
pursuant to an effective registration statement under the Securities Act, to
the Company or pursuant to an available exemption from the registration
requirements of the Securities Act. In connection with any transfer of any
Notes, 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) Each Purchaser agrees to the imprinting, so long as
is required by this Section 3.1(b), of the following legend on its Notes,
Warrant, Underlying Shares and Warrant Shares:
[NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] [THE SECURITIES REPRESENTED
HEREBY] HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.
[FOR NOTES ONLY] THE SECURITIES REPRESENTED BY THIS NOTE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND CONVERSION SET FORTH
IN SECTIONS 3.1 AND 3.15 OF A SECURITIES PURCHASE AGREEMENT, DATED AS
OF MAY 15, 1998, BETWEEN ILLINOIS SUPERCONDUCTOR CORPORATION (THE
"COMPANY") AND THE PURCHASERS LISTED THEREIN, INCLUDING THE ORIGINAL
HOLDER
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<PAGE> 11
HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY.
The Underlying Shares issuable upon conversion of Notes 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 Notes 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 a written opinion of counsel reasonably
acceptable to the Company and experienced in the area of United States
securities laws, such counsel determines that such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company agrees that it will provide each Purchaser, upon request, with a
certificate or certificates representing Underlying Shares and Warrant Shares,
free from such legend at such time as such legend is no longer required
hereunder. Each Purchaser agrees that, in connection with any transfer of
Underlying Shares or Warrant Shares by it pursuant to an effective registration
statement under the Securities Act, it will comply with the prospectus delivery
requirements of the Securities Act provided copies of a current prospectus
relating to such effective registration statement are or have been supplied to
such Purchaser. The Company makes no representation, warranty or agreement as
to the availability of any exemption from registration under the Securities Act
with respect to any resale of Notes, Warrants, Underlying Shares or Warrant
Shares.
3.2 Stop Transfer Instruction. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as a Purchaser owns Notes,
Underlying Shares, Warrants or Warrant Shares, the Company covenants to timely
file (or obtain extensions in respect thereof) all reports required to be filed
by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchaser with true and complete
copies of all such filings. If the Company is not at the time required to file
reports pursuant to such sections, it will prepare and furnish to each
Purchaser annual and quarterly financial statements, together with a discussion
and analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act in the time period that
such filings would have been required to have been made under the Exchange Act.
The Company shall use its best efforts to at all times comply with Rule 144(c)
promulgated under the Securities Act.
3.4 Copies and Use of Disclosure Materials. The Company shall
furnish each Purchaser, without charge, as many copies of the Disclosure
Materials, and any amendments or supplements thereto, as such Purchaser may
reasonably request. The Company consents to the use of the SEC Documents, and
any amendments and supplements thereto, by each Purchaser in connection with
resales of the Underlying Shares or the Warrant Shares.
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<PAGE> 12
3.5 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares and the Warrant
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may request and shall continue such qualification at all times
through the third anniversary of the Closing Date; provided, however, that the
Company shall not be required in connection therewith to qualify as a foreign
corporation where they are not now so qualified or to take any action that
would subject the Company to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
3.6 Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate of the Company shall sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
such term is defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Notes, 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 Notes, the Warrants, the Underlying
Shares or the Warrant Shares to the Purchaser.
3.7 Listing of Underlying Shares and Warrant Shares. The Company
shall (a) not later than the fifth Business Day following the Closing Date
prepare and file with the Nasdaq National Market (as well as any other national
securities exchange or market on which the Common Stock is then listed) an
additional shares listing application or a letter acceptable to the Nasdaq
National Market covering and listing such number of shares of Common Stock as
required under the Notes, (b) take all steps necessary to cause the Underlying
Shares and the Warrant Shares issuable upon conversion of the Notes or the
exercise of the Warrants to be approved for listing on the Nasdaq National
Market (as well as on any other national securities exchange or market on which
the Common Stock is then listed) as soon as possible thereafter and in no event
later than ten (10) Business Days after the Closing Date, and (c) provide to
the Purchasers evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange or market.
3.8 Conversion Procedures. Exhibit D attached hereto sets forth
the form of legal opinion, if necessary, that shall be rendered to the
Company's transfer agent as may be reasonably necessary to enable each
Purchaser to exercise its right of conversion smoothly and expeditiously.
3.9 Redemption Restrictions. As of the date hereof, the Company
is not a party to any agreement which prohibits the redemption or payment of
the Notes, Warrants, Underlying Shares or Warrant Shares otherwise required or
permitted under the Notes or the Registration Rights Agreement. The Company
shall not enter into any agreement which restricts its ability to redeem the
Notes, the Warrants, the Underlying Shares or the Warrant Shares, without the
prior written consent of the Purchasers.
3.10 Notice of Breaches. Each of the Company and the Purchasers
shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in this Agreement or in
the Registration Rights Agreement, as well as any events or
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<PAGE> 13
occurrences arising after the date hereof and prior to the Closing Date to
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained herein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section 3.10 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Registration Rights Agreement.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchasers of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated hereby and by the Registration Rights Agreement
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the Purchasers a copy of any written statement in support of or relating to
such claim or notice.
3.11 Conversion Obligations of the Company. Subject to Section
3.15, the Company covenants to convert principal and, if applicable, accrued
interest thereon of the Notes and to deliver Underlying Shares in accordance
with the terms and conditions and time period set forth in the Notes, and to
deliver Warrant Shares in accordance with the terms and conditions and time
period set forth in the Warrants. Subject to Section 3.15, this is an
independent covenant which is not subject to any offset or other defense for
any reason based upon any claim that the Company may have against a Purchaser.
3.12 Board Seats. The Company shall cause two individuals
designated by a plurality of the principal amount outstanding on the Notes and
approved by the current members of the Company's Board of Directors (which
approval shall not be unreasonably withheld) to be appointed to the Company's
Board of Directors immediately following the Closing. The term of one such
director shall expire at the year 1999 annual meeting of the Company's
stockholders and the term of such other director shall expire at the year 2000
annual meeting of the Company's stockholders. Until such time as the amount of
Common Stock issuable upon conversion of the then outstanding Notes is less
than 5% of the then outstanding Common Stock, the Company shall cause such
individuals (or such other individual(s) designated by a plurality of the
principal amount outstanding on the Notes as replacement(s), and acceptable to
a majority of the members of the Board of Directors (not including the
Purchasers' designees), such acceptance not to be unreasonably withheld) to be
nominated to the Board of Director(s) of the Company and will solicit proxies
from stockholders voting in favor of such nominees. For so long as the
Purchasers have the right to appoint members to the Company's Board of
Directors pursuant to this Section 3.12 the Company covenants not to increase
the size of its Board of Directors above nine (9) members.
3.13 Right of First Offer. For so long as a Purchaser's Notes or
Warrants shall be outstanding, the Company may not, directly or indirectly,
consummate a transaction involving the sale or issuance of any of its, or any
of its subsidiary's, if any, equity or debt securities (a "Transaction") unless
the Company first provides a written notice to such Purchaser(s) describing the
terms of such Transaction and attaching to such notice any written term sheet
or other similar writing with respect thereto. Subject to the provisions of
this Section 3.13, the
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<PAGE> 14
Purchasers holding outstanding Notes or Warrants shall have the right, in
proportion to the Underlying Shares or Warrant Shares, as applicable,
exercisable within ten (10) Business Days of their receipt of such notice, to
elect, by written request to the Company, to purchase all or any portion of the
securities in the Transaction on the same exact terms as set forth in such
notice to such Purchasers; provided that the Company and such Purchasers shall
use their best efforts to consummate the Transaction on the original timetable
and in any event as soon as practicable. To the extent such right is not
exercised by a Purchaser holding outstanding Notes or Warrants, it shall be
re-allocated, pro-rata, among the other Purchasers holding outstanding Notes or
Warrants. Any material changes or modifications to the Transaction shall be
reoffered to the applicable Purchasers pursuant to the procedures of this
Section 3.13; provided, however, that the applicable Purchasers will have ten
(10) Business Days to elect to exercise their right to participate in the
Transaction as described herein. The Purchasers and the Company hereby
acknowledge that the term "Transaction" shall not include any transaction
involving the Company's issuance of securities in connection with (a) the
acquisition of a business, product or license by the Company where securities
are being issued to the couterparty; (b) a merger, consolidation or sale of
assets; (c) any strategic partnership or joint venture; (d) the issuance of
securities pursuant to the exercise or conversion of options, warrants,
preferred stock or debt securities of the Company which were (i) issued
previous to the Closing Date, (ii) offered to a Purchaser(s) in compliance with
this Section 3.13 or (iii) issued in connection with a transaction described in
clauses (a) through (f) of this Section 3.13 ; (e) the granting of options or
other securities pursuant to an employee benefit plan of the Company or (f) the
issuance of Common Stock in a firm commitment, underwritten public offering;
provided that the primary purpose of a transaction described in the foregoing
clauses (a) through (e) is not to raise equity capital.
3.14 Letter to Stockholders. The Company covenants (i) to within
five (5) Business Days following the Closing Date mail to its stockholders a
letter which states that the Company is not obtaining stockholder approval for
the issuance of the Notes in reliance on an exception from the Nasdaq Stock
Market to its requirement that such stockholder approval be obtained and (ii)
to take such other action as shall be required by the Nasdaq Stock Market in
connection with such exception as soon as possible, and in any event within the
time periods required by the Nasdaq National Market.
3.15 Purchaser Ownership of Common Stock. No Purchaser may use its
ability to convert Notes or to acquire shares of Common Stock upon exercise of
the Warrants if such conversion or exercise would result in the total number of
shares of Common Stock deemed beneficially owned by such Purchaser (other than
by virtue of the ownership of the Notes and Warrants or ownership of other
securities that have limitations on a holder's right to convert or exercise
similar to those limitations set forth herein), together with all shares of
Common Stock deemed beneficially owned by such Purchaser's Affiliates that
would be aggregated for purposes of determining a group under Section 13(d) of
the Exchange Act, exceeding the percentage of the total issued and outstanding
shares of the Company's Common Stock for such Purchaser specified on Schedule
3.15 to this Agreement (the "Restricted Ownership Percentage"); provided that
(w) each Purchaser shall have the right, at any time and from time to time to
reduce its Restricted Ownership Percentage immediately upon notice to the
Company, (x) each holder shall have the right at any time and from time to
time, to increase its Restricted Ownership Percentage and otherwise waive in
whole or in part the restrictions of this Section 3.15 upon 61 days' prior
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<PAGE> 15
notice to the Company or immediately in the event of an occurrence or notice of
an intended or pending Change of Control (as defined in Section 4(b)) ("Change
of Control Notice") or the tendering of a notice of a redemption of the Notes
by the Company (a "Note Redemption"), (y) each Purchaser can make subsequent
adjustments pursuant to (w) or (x) any number of times from time to time (which
adjustment shall be effective immediately if it results in a decrease in the
percentage or shall be effective upon 61 days' prior written notice or
immediately in the event of a Change of Control Notice or a Note Redemption if
it results in an increase in the percentage) and (z) each Purchaser may
eliminate or reinstate this limitation at any time and from time to time (which
elimination will be effective upon 61 days' prior notice and which
reinstatement will be effective immediately). Without limiting the foregoing,
in the event of a Change of Control Notice or a Note Redemption, any Purchaser
may reinstate immediately (in whole or in part) the requirement that any
increase in its Restricted Ownership Percentage be subject to 61 days' prior
written notice, notwithstanding such Change of Control Notice or a Note
Redemption, without imposing such requirement on, or otherwise changing such
Purchaser's rights with respect to, any other Change of Control Notice or a
Note Redemption. For this purpose, any material modification of the terms of a
Change of Control Notice will be deemed to result in a new Change of Control
Notice. The delivery of a Conversion Notice or Warrant exercise notice by any
Purchaser shall be deemed a representation by such Purchaser that it is in
compliance with this paragraph.
3.16 Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. In the event that at any time while the Notes are outstanding the
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
on The Nasdaq Small CapMarket, the New York Stock Exchange or the American
Stock Exchange within three Trading Days), for more than three consecutive
Trading Days or five (5) Trading Days in the aggregate, at each Purchaser's
option exercisable by written notice to the Company and tender of such
Purchaser's Notes, the Company shall redeem all Notes owned by such Purchaser
at an aggregate purchase price equal to (A) the outstanding principal amount,
plus any unpaid accrued interest thereon and (B) interest on such amount
accruing from the 7th day after the Company's receipt of such notice and the
Notes to be redeemed until paid at the rate of 15% per annum; provided,
however, if any portion of the redemption price under this Section 3.16 shall
not be paid by the Company within seven (7) days of the delivery of such notice
of redemption and Notes to be redeemed, such Purchaser, by written notice to
the Company given within 30 days of such 7th day, may elect to invalidate ab
initio such redemption and the Company shall, within three (3) Trading Days of
receipt of such notice, return to the Purchaser all Notes for which the
redemption price has not been paid.
3.17 Certain Negative Covenants of the Company. The Company
covenants that from the date hereof and for so long as at least $500,000 of
principal amount under the Notes (or any amendment thereto or instrument issued
in exchange therefor) remain outstanding, it will not, without the prior
written approval of holders of at least 75% in outstanding principal amount
under the Notes:
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<PAGE> 16
(a) Directly or indirectly create, incur, assume, guarantee, or
otherwise become or remain directly or indirectly liable with respect to, any
indebtedness of any kind, other than (i) indebtedness under the Notes, (ii)
indebtedness pursuant to a working capital line of credit, in an amount not to
exceed $1,000,000; or (iii) indebtedness to trade creditors in the ordinary
course of business.
(b) Directly or indirectly create, incur, assume or permit to
exist any lien, pledge, charge or encumbrance on or with respect to any of its
property or assets (including any document or instrument in respect of goods or
accounts receivable) whether now owned or held or hereafter acquired, or any
income or profits therefrom, except for Permitted Liens.
As used herein, "Permitted Liens" means (i) liens on the Company's inventory
and accounts receivable to secure a working capital line of credit, in an
amount not to exceed $1,000,000; (ii) liens imposed by mandatory provisions of
law such as materialmen's, mechanic's or warehousemen's; (iii) liens for taxes,
assessments and governmental charges or levies imposed upon the Company or any
subsidiaries or their income, profits or property, if the same are not yet due
and payable or if the same are contested in good faith and as to which adequate
reserves have been provided; (iv) pledges or deposits made to secure payment of
workers' compensation insurance, unemployment insurance, pensions or social
security programs or to secure the performance of letters of credits, bids,
tenders, public or statutory obligations, surety, performance bonds and other
similar obligations; and (v) encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property, provided that
such do not impair the use of such property for the uses intended and none of
which is violated by existing or proposed structures or land use.
(c) Directly or indirectly, issue any note, capital stock, option,
warrant, right or other instrument which is convertible into, exchangeable for,
or confers the right to subscribe for or purchase, shares of Common Stock where
the price at which such conversion, exchange, subscription or purchase is to
occur cannot be determined at the time such instrument is issued because it is
based, in whole or in part, on the future market trading prices of the Common
Stock.
3.17A Further Covenant of the Company. Furthermore, the Company
covenants that as long as at least $5,625,000 of principal amount of Notes
remain outstanding the Company will provide notice to the holders of the Notes
prior to seeking stockholders approval of a proposal by its Board of Directors,
and the Company further covenants that it will not seek such stockholder
approval if within ten (10) Business Days of the Company providing such notice,
the holders of at least $5,625,000 of outstanding principal amount of the Notes
notify the Company in writing that they object to the Company seeking such
stockholder approval; provided, however, that the foregoing shall not apply to
the Company's seeking stockholder approval for (i) the election of directors,
(ii) the ratification of auditors of the Company's financial statements, (iii)
an increase in the authorized capital stock of the Company or (iv) the adoption
or amendment of an employee benefit plan, if and only if, such adoption or
amendment does not authorize shares of Common Stock equaling more than 15% of
the then outstanding shares of Common Stock and does not provide for options
having an exercise price less than the then market price of the Common Stock.
The Company covenants that within ten (10) days of
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<PAGE> 17
(i) the applicable holders of the Notes notifying the Company that they do or
do not object to the Company seeking stockholder approval or (ii) the lapse of
the 10 Business Day period without the Company being notified by the applicable
holders of the Notes as to whether or not they object to the Company seeking
stockholder approval, each pursuant to this Section 3.17A, the Company will
either (x) publicly disclose the information disclosed to the holders of the
Notes pursuant to this Section 3.17A which it deems to be material, non-public
information and with respect to the balance of such information, if any, notify
such holders in writing that it does not deem such information to be material,
non-public information and that it will not deem such information to have been
misappropriated if such holders trade in the Common Stock while in possession
of such information, or (y) notify such holders in writing that it does not
deem the information disclosed to the holders of the Notes pursuant to this
Section 3.17A to be material, non-public information and that it will not deem
such information to have been misappropriated if such holders trade in the
Common Stock while in possession of such information; provided that the Company
acknowledges that if, and only if, it fails to do either (x) or (y) within the
applicable ten (10) day period the holders of the Notes may publicly disclose
such information.
3.18 Certain Affirmative Covenants of the Company. The Company
covenants that from the date hereof and for so long as any portion of the Notes
(or any amendment thereto or instrument issued in exchange therefor) shall
remain outstanding, it will (and will cause any subsidiaries to) observe or
perform the following:
(a) Corporate Existence. It will maintain its corporate existence
in good standing and remain qualified to do business as a foreign corporation
in each jurisdiction in which the nature of its activities or the character of
the properties it owns or leases makes such qualification necessary.
(b) Continuation of Business. It will continue to conduct its
business in compliance with all applicable rules and regulations of applicable
governmental authorities, except for such non-compliance which would not have a
Material Adverse Effect.
ARTICLE IV
CONDITIONS
4. (a) Conditions Precedent to the Obligation of the
Company to Sell the Notes and Warrants. The obligation of the Company to sell
the Notes and the Warrants hereunder to each Purchaser is subject to the
satisfaction, or waiver by the Company, at or before the Closing Date, of each
of the following conditions:
(i) Accuracy of such Purchaser's Representations
and Warranties. The representations and warranties of such Purchaser shall be
true and correct in all material respects as of the date when made and as of
the Closing Date, as though made on and as of such date (except for
representations and warranties that speak as of a specific date);
(ii) Performance by such Purchaser. Such
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and
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<PAGE> 18
conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement; and
(iv) Required Approvals. All Required Approvals
shall have been obtained.
(b) Conditions Precedent to the Obligation of Each
Purchaser to Purchase the Notes and the Warrants. The obligation of such
Purchaser hereunder to acquire and pay for the Notes and the Warrant is subject
to the satisfaction or waiver by such Purchaser, at or before the Closing Date,
of each of the following conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company set forth herein
and in the Registration Rights Agreement shall be true and correct in all
material respects as of the date when made and as of the Closing Date, as
though made on and as of such date (except for representations and warranties
that speak as of a specific date);
(ii) Performance by the Company. The Company
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement;
(iv) Adverse Changes. Since the date hereof, 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);
-18-
<PAGE> 19
(vi) Listing of Common Stock. The Common Stock
shall have at all times between the date hereof and the Closing Date been, and
on the Closing Date be, listed for trading on the Nasdaq National Market, The
Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange;
(vii) Legal Opinion. The Company shall have
delivered to such Purchaser the opinion of Katten Muchin & Zavis, counsel to
the Company, in substantially the form of Exhibit E attached hereto;
(viii) Required Approvals. All Required Approvals
shall have been obtained;
(ix) Shares of Common Stock. On or prior to the
Closing Date, the Company shall have duly reserved for issuance upon conversion
of the Notes and exercise of the Warrants such number of Underlying Shares and
Warrant Shares as required by Section 2.1(d);
(x) Delivery of Notes. The Company shall have
delivered to Kleinberg, Kaplan, Wolff & Cohen, P.C. in escrow, pending the
Closing Date, the Notes being purchased by such Purchaser, registered in the
name of such Purchaser and in form satisfactory to such Purchaser;
(xi) Registration Rights Agreement. The Company
shall have executed and delivered the Registration Rights Agreement;
(xii) Warrant. The Company shall have executed and
delivered the Warrant being purchased by such Purchaser, registered in the name
of such Purchaser, in accordance with the terms of the Agreement;
(xiii) Company Certificates. Such Purchaser shall
have received a certificate, dated the Closing Date, signed by the Secretary or
an Assistant Secretary of the Company and certifying (i) that attached thereto
is a true, correct and complete copy of (A) the Certificate of Incorporation,
(B) the Company's By-laws, 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 issuance and sale of
the Notes, the Warrants, the Underlying Shares and the Warrant Shares and (ii)
the incumbency of the officers executing the Transactions Documents and the
Warrants; and
(xiv) Change of Control. No Change of Control
shall have occurred between the date hereof and the Closing Date. "Change of
Control" means the occurrence of any of (i) an acquisition after the date
hereof by an individual, legal entity or "group" within the meaning of Section
13(d) of the Exchange Act of voting securities of the Company pursuant to
which, after giving effect to such acquisition, such individual, legal entity
or group will beneficially own in excess of 50% of the issued and outstanding
voting securities of the Company, (ii) a replacement of more than one-half of
the members of the Company's Board of Directors which is not approved by those
individuals who are members of the Company's Board
-19-
<PAGE> 20
of Directors on the date thereof in one or a series of related transactions,
(iii) the merger of the Company with or into another entity, consolidation or
sale of all or substantially all of the assets of the Company in one or a
series of related transactions or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing
for any of the events set forth above in (i), (ii) or (iii).
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Except as provided in the
Registration Rights Agreement, the Company shall pay (i) upon submission of an
itemized statement, the reasonable fees and expenses of one legal counsel for
the Purchasers, and (ii) the expenses incurred by the Company incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all stamp and other taxes and duties levied
in connection with the issuance of the Notes pursuant hereto. Each Purchaser
shall be responsible for its own tax liability that may arise as a result of
the investment hereunder or the transactions contemplated by this Agreement.
5.2 Entire Agreement; Amendments. This Agreement,
together with the Exhibits and Schedules hereto, the Registration Rights
Agreement, the Notes and the Warrants contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
5.3 Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) when sent
by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Central Time), or the first Business Day following such receipt if received on
a Business Day after 5:00 p.m. (Central Time); or (iii) upon receipt, when
deposited with a nationally recognized overnight express courier service, fully
prepaid, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company: Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
Attn: Chief Financial Officer and
Chief Executive Officer
Fax: (847) 391-5015
-20-
<PAGE> 21
With copies to: Katten Muchin & Zavis
525 W. Monroe St. Suite 1600
Chicago, Illinois 60661
Attn: Lawrence D. Levin
Fax: (312) 902-1061
If to a Purchaser: Elliott Associates, L.P.
712 Fifth Avenue, 36th Floor
New York, New York 10019
Attn: Mark Brodsky
Fax: (212) 974-2092
Westgate International, L.P.
c/o Stonington Management Corp.
712 Fifth Avenue, 36th Floor
New York, New York 10019
Attn: Mark Brodsky
Fax: (212) 974-2092
Alexander Finance, LP
1560 Sherman Avenue
Suite 900
Evanston, Illinois 60201
Attn: Brian D. Brookover
Fax: (847) 733-0339
State Farm Mutual Automobile Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710
Attn: Common Stocks, E-9
Fax: (309) 766-7423
Spring Point Partners, L.P.
655 Montgomery Street
Suite 600
San Francisco, California 94111
Attn: Matthew Robison
Fax: (415) 399-9828
Spring Point Offshore Fund
655 Montgomery Street
Suite 600
San Francisco, California 94111
Attn: Matthew Robison
Fax: (415) 399-9828
-21-
<PAGE> 22
With copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, NY 10176
Attn: Stephen M. Schultz
Fax: (212) 986-8866
or such other address or facsimile number as may be designated in writing
hereafter, in the same manner, by such person.
5.4 Amendments; Waivers. No provision of this Agreement
may be waived or amended except in a written instrument signed, in the case of
an amendment, by both the Company and the Purchasers representing at least 75%
of the then outstanding principal amount of the Notes; 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 any 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, except that, in connection with a transfer, in whole or
in part, of the Notes or the Warrants as provided therein, a Purchaser may
assign its rights hereunder to any such transferee of the Notes or the
Warrants. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
5.8 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements and covenants contained in
Article III and this Article V shall survive the delivery and conversion of the
Notes pursuant to this Agreement and the representations and warranties of the
Company and the Purchasers contained in Article II shall survive until a date
that is two years after the Closing Date.
-22-
<PAGE> 23
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 parties, it being understood
that all 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 executing party with the same force and
effect as if such facsimile signature page were an original thereof.
5.11 Publicity. The Company and the Purchasers shall
consult with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby and
neither the Company nor the Purchasers 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 parties 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.
5.13 Like Treatment of Purchasers. Neither the Company
nor any of its Affiliates shall, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee, payment for the
redemptions or exchange of the Notes, or otherwise, to any holder of Notes, for
or as an inducement to, or in connection with the solicitation of, any consent,
waiver or amendment of any terms or provisions of the Notes or this Agreement
or the Registration Rights Agreement or the Warrants, unless such consideration
is required to be paid to all holders of Notes bound by such consent, waiver or
amendment whether or not such holders so consent, waive or agree to amend and
whether or not such holders tender their Notes for redemption or exchange. The
Company shall not, directly or indirectly, redeem any Notes unless such offer
of redemption is made pro rata to all holders on identical terms.
5.14 Obligation of Purchasers Several, not Joint. The
obligations of the Purchasers under this Agreement, or under the Registration
Rights Agreement, the Notes or the Warrants are several and not joint.
5.15 Payment of Expenses. The Company agrees to pay all
costs and expenses, including reasonable attorneys' fees and expenses, which
may be incurred by the Purchasers in successfully enforcing this Agreement, the
Notes, the Registration Rights Agreement or the Warrants.
-23-
<PAGE> 24
5.16 Indemnification. The Company hereby agrees to
indemnify, defend and hold harmless each Purchaser and such Purchaser's
partners, directors, officers, employees or agents ("Indemnified Parties"),
from and against any and all losses, claims, damages, liabilities and costs,
including reasonable legal fees (collectively "Losses"), as incurred, involving
a third-party claim and arising out of or relating to the purchase by such
Purchaser of the Notes and Warrants issued and sold to it by the Company
pursuant to this Agreement; provided, that any Indemnified Party shall
reimburse the Company for any amount paid pursuant to this Section 5.16 to the
extent a final judgment by a court or body of proper jurisdiction, which has
been fully appealed, determines that such Indemnified Party was at fault in
connection with the claim or action pursuant to which such Losses were
incurred. In connection with the foregoing, the Company may elect to assume
the defense of a claim made against an Indemnified Party, provided that if the
Company does not notify an Indemnified Party that it is assuming such defense
within ten (10) days of receipt from Indemnified Party of the notice of Loss,
it shall reimburse such Indemnified Party for its reasonable legal fees and
expenses, as incurred, on a monthly basis.
-24-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
Company:
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ Edward W. Laves
--------------------------------------------
Name: Edward W. Laves
Title: President and Chief Executive Officer
Purchasers:
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Singer
--------------------------------------------
Name: Paul Singer
Title: General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International, L.P.
As Attorney-in-fact
By: /s/ Paul Singer
--------------------------------------------
Name: Paul Singer
Title: President
ALEXANDER FINANCE, LP
By: /s/ Bradford T. Whitmore
--------------------------------------------
Name: Bradford T. Whitmore
Title: General Partner
<PAGE> 26
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY
By: /s/ Lyle Triebwasser
--------------------------------------------
Name: Lyle Triebwasser
Title: Senior Investment Advisor
By: /s/ Julie Pierce
--------------------------------------------
Name: Julie Pierce
Title: Investment Officer
SPRING POINT PARTNERS, L.P.
By: /s/ Matthew Robison
--------------------------------------------
Name: Matthew Robison
Title: General Partner
SPRING POINT OFFSHORE FUND
By: /s/ Matthew Robison
--------------------------------------------
Name: Matthew Robison
Title: General Partner
<PAGE> 27
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
PURCHASER'S NAME OF NOTES PURCHASE PRICE WARRANT SHARES
- ---------------- ----------- -------------- --------------
<S> <C> <C> <C>
Elliott Associates, L.P. $ 2,500,000 $ 2,500,000 1,000,000
Westgate International, L.P. $ 2,500,000 $ 2,500,000 1,000,000
Alexander Finance, LP $ 4,000,000 $ 4,000,000 1,600,000
State Farm Mutual Automobile
Insurance Company $ 1,000,000 $ 1,000,000 400,000
Spring Point Partners, L.P. $ 325,000 $ 325,000 130,000
Spring Point Offshore Fund $ 25,000 $ 25,000 10,000
</TABLE>
<PAGE> 28
SCHEDULE 2.1(c)
CAPITALIZATION
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:
Series A Preferred Stock, 10,000 shares authorized, no shares
issued and outstanding
Series B Convertible Preferred Stock, 600 shares authorized, no
shares issued and outstanding
Series C Convertible Preferred Stock, 600 shares authorized, no
shares issued and outstanding
Series G Convertible Preferred Stock, 700 shares authorized, no
shares issued and outstanding
Common Stock, $.001 par value, 30,000,000 shares authorized, 12,556,772
shares issued and outstanding
The Company also has outstanding warrants to purchase 628,678 shares of
Common Stock and options to purchase 1,233,148 shares of Common Stock. The
Company also has 446,246 shares of Common Stock reserved for issuance upon the
exercise of options which may be granted under the Company's Restated 1993
Stock Option Plan as amended.
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.
Subject to Section 3.17(d) of the Purchase Agreement, the Company has
the option to issue up to 1,800,000 shares of additional convertible preferred
stock to Southbrook International Investments, Ltd. ("Southbrook") in up to
three additional tranches if certain conditions, including without limitation,
maintaining certain price levels for the Common Stock, no material adverse
change in the Company's business and no significant changes in the Company's
senior management, are satisfied by the Company or waived by Southbrook. The
Company does not currently expect to issue any of such additional convertible
preferred stock to Southbrook. The Company is obligated to issue a warrant to
Southbrook exercisable for 31,250 shares of Common Stock, which warrant has not
yet been issued.
<PAGE> 29
SCHEDULE 2.1(f)
REQUIRED CONSENTS
None
<PAGE> 30
SCHEDULE 2.1(g)
LITIGATION
See "Item 3. Legal Proceedings" in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
<PAGE> 31
SCHEDULE 2.1(s)
OUTSTANDING INDEBTEDNESS
The outstanding indebtedness of the Company as of April 30, 1998
consisted of the following:
Installment Loan Notes from First National Bank of Chicago, secured by
certain engineering test equipment:
Loan Number 034, $32,465.20 in principal outstanding as of
April 30, 1998, interest rate = 8.5% annually, monthly
installment payments of $4,760.65, due through October 1998.
Loan Number 036, $38,075.33 in principal outstanding as of
April 30, 1998, interest rate = 8.5% annually, monthly
installment payments of $2,915.61, due through May 1999.
<PAGE> 32
SCHEDULE 3.15
RESTRICTED OWNERSHIP PERCENTAGE
<TABLE>
<CAPTION>
PURCHASER'S NAME RESTRICTED OWNERSHIP PERCENTAGE
---------------- -------------------------------
<S> <C>
Elliott Associates, L.P. 4.9%
Westgate International, L.P. 4.9%
Alexander Finance, LP 4.9%
State Farm Mutual Automobile Insurance Company 8.0%
Spring Point Partners, L.P. 4.9%
Spring Point Offshore Fund 4.9%
</TABLE>
<PAGE> 1
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of May 15, 1998, by and among Illinois Superconductor
Corporation, a Delaware corporation (the "Company"), and Elliott Associates,
L.P., a limited partnership organized and existing under the laws of Delaware,
Westgate International, L.P., a limited partnership existing under the laws of
the Cayman Islands, Alexander Finance, LP, a limited partnership organized and
existing under the laws of Illinois, Spring Point Partners, L.P., a limited
partnership organized and existing under the laws of California, Spring Point
Offshore Fund, a corporation organized and existing under the laws of the Cayman
Islands, and State Farm Mutual Automobile Insurance Company, an insurance
company organized and existing under the laws of Illinois (each, a "Purchaser"
and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of May 15, 1997, between the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
-1-
<PAGE> 2
"Common Stock" means the Company's Common Stock, par value
$.001 per share.
"Effectiveness Date" means the 90th day following the 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 the 30th day following the Closing Date.
"Holder" or "Holders" means the record holder or holders, as
the case may be, from time to time of Registrable Securities as reflected on the
books of the Company.
"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).
"Notes" means the senior convertible notes of the Company
issued to the Purchasers pursuant to the Purchase Agreement.
"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.
"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 (i) the shares of Common Stock
or other securities of the Company issuable upon (A) conversion of the Notes
(including as payment of interest thereon) and (B) exercise of the Warrants and
(ii) any securities of the Company received in exchange for, or as a
distribution with respect to, the Notes or Warrants and any securities
-2-
<PAGE> 3
received upon conversion or exercise of such securities received in exchange
for, or as a distribution with respect to, the Notes or Warrants.
"Registration Statement" means the registration statements
contemplated by Section 2(a) (and any additional Registration Statements
contemplated in the definition of Registrable Securities), for the public resale
of the 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 a single special counsel selected by
the Holders of a majority of the Registrable Securities to be covered by a
Registration Statement, 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.
"Warrants" means the common stock purchase warrants of the
Company issued to the Purchasers pursuant to the Purchase Agreement.
2. Shelf Registration
(a) On or prior to the 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
-3-
<PAGE> 4
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 shall use its best efforts to cause such Registration
Statement to be declared effective prior to the Effectiveness Date, and the
Company shall keep such Registration Statement continuously effective under the
Securities Act until the date which is four years after the date that such
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by such Registration Statement have
been sold or may be sold without restrictions pursuant to Rule 144 as determined
by the counsel to the Company pursuant to a written opinion letter, in form and
substance reasonably satisfactory to the Purchasers, 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) At any time when there is not an effective Registration
Statement, if the Holders of a majority of the Registrable Securities so elect,
an offering of Registrable Securities 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 that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering upon consultation with the Company. No Holder may
participate in any Underwritten Offering hereunder unless such Person (i) agrees
to sell its Registrable Securities on the basis provided in any underwriting
agreements approved by the Persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
-4-
<PAGE> 5
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 the
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, 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 whose Registrable Securities are covered by
such Registration Statement, 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 Special Counsel to such Holders and
counsel to 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 covered by such
Registration Statement, 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 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.
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<PAGE> 6
(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
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.
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<PAGE> 7
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, within two business days after a Registration Statement is
declared effective by the Commission, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request; and the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders and any underwriters in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least two Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact
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<PAGE> 8
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 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
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<PAGE> 9
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, if any, and cause the officers, directors, agents and employees of
the Company and its subsidiaries, if any, 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 such Holder and 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. The Company shall also
disclose in the Registration Statement such other information regarding each
Holder and its plan of distribution of the Registrable Securities as such Holder
shall reasonably request, except where such inclusion of information would
violate applicable law.
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.
Each Holder by its acquisition of the Registrable Securities
covenants and agrees that (i) such Holder 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
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<PAGE> 10
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) such Holder 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)(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 Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (b) there is a significant
business opportunity (including but not limited to the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a Registration Statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section for more than 60 days in the aggregate during any
12 month period; provided, however, that no such postponement of suspension
shall be permitted for consecutive 20 day periods, arising out of the same set
as of facts, circumstances or transactions.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(b), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with the Nasdaq National Market and each other
securities exchange or market on which Registrable Securities are required
hereunder to be listed and (B) in compliance with state securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel for the
Holders in connection with Blue Sky qualifications of the Registrable Securities
and 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 the
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<PAGE> 11
applicable 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 Holders or the underwriters shall bear the expenses of
the fees and disbursements of any legal counsel or accounting firm retained by
the underwriters in connection with such Underwritten Offering and the costs of
any determination (but not filing) by the underwriters of the eligibility of the
Registrable Securities for investment under the applicable state securities
laws. By way of illustration which is not intended to diminish from the
provisions of Section 4(a), the Holders shall not be responsible for, and the
Company shall be required to pay the fees or disbursements incurred by the
Company (including by its legal counsel and accountants) in connection with, the
preparation and filing of a Registration Statement and related Prospectus for
such offering, the maintenance of such Registration Statement in accordance with
the terms hereof, the listing of the Registrable Securities in accordance with
the requirements hereof, and printing expenses incurred to comply with the
requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such 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
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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, and
provided, however, that, with respect to any untrue statement or alleged untrue
statement or omission or alleged omission made in a preliminary prospectus or
Prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any selling Holder, brokers, investment advisors or employees thereof, from whom
the Person asserting any such Losses purchased the Registrable Securities
concerned, or any Person controlling such Holder, to the extent that any such
Loss results from the fact that a copy of the Prospectus or Prospectus as
amended or supplemented was not sent or given to such Person, if required by the
Securities Act so to have been delivered, at or prior to the written
confirmation of the sale of such Registrable Securities to such Person and the
untrue statement or alleged untrue statement or omission or alleged omission was
corrected in such Prospectus or Prospectus as amended or supplemented, if the
Company had previously furnished copies of such Prospectus or Prospectus as
amended or supplemented to such Holder.
(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
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<PAGE> 13
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the 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 or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened Proceeding in respect of which any Indemnified Party is a
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of such Indemnified Party.
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
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<PAGE> 14
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
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), no Holder shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the proceeds actually received by such Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder 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, the Company 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.
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The Company further covenants that it will take such further action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144;
provided, however, that the Company shall not be obligated to provide an opinion
to any Holder regarding the sale of Registrable Securities pursuant to
exemptions provided by Rule 144. Upon the request of any Holder, the Company
shall deliver to such Holder a written certification of a duly authorized
officer as to whether it has complied with such requirements.
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 Registration Rights Agreements. Except and to the
extent specifically set forth on Schedule 7(b) attached hereto, the Company has
not previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, without the written consent of the Holders of at least 75% of
the then underlying and outstanding Registrable Securities, the Company shall
not grant to any Person the right to request the Company to register any
securities of the Company under the Securities Act unless the rights so granted
are subject in all respects to the prior rights in full of the Holders set forth
herein, and are not otherwise in conflict or inconsistent with the provisions of
this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specifically set forth on Schedule 7(c) attached hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send
-15-
<PAGE> 16
to each Holder 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 amount of the Registrable Securities which in the opinion of such
managing underwriter(s) can be sold. Any exclusion of Registrable Securities
shall be made pro rata among the Holders seeking to include Registrable
Securities, in proportion to the number of Registrable Securities sought to be
included by such Holders; provided, however, that the Company shall not exclude
any Registrable Securities unless the Company has first excluded all outstanding
securities the holders of which are not entitled by right to inclusion of
securities in such registration statement; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in such registration statement. No
right to registration of Registrable Securities under this Section shall be
construed to limit any registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Notes, Warrants
and 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
certain Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least 75% of the underlying and
outstanding Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed delivered (i) upon receipt, when delivered personally; (ii)
when sent by facsimile, upon receipt if received on a Business Day prior to 5:00
p.m. (Central Time), or the first Business Day following such receipt if
received on a Business Day after 5:00 p.m. (Central Time); or (iii) on the
Business Day following the date of depositing with a nationally recognized
overnight express courier service, fully prepaid, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
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<PAGE> 17
the Company: Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
Attn: Chief Financial Officer
Fax: (847) 391-5015
copies to: Katten Muchin & Zavis
525 W. Monroe St. Suite 1600
Chicago, Illinois 60661
Attn: Lawrence D. Levin
Fax: (312) 902-1061
If to a Purchaser: Elliott Associates, L.P.
712 Fifth Avenue, 36th Floor
New York, New York 10019
Attn: Mark Brodsky
Fax: (212) 974-2092
Westgate International, L.P.
c/o Stonington Management Corp.
712 Fifth Avenue, 36th Floor
New York, New York 10019
Attn: Mark Brodsky
Fax: (212) 974-2092
Alexander Finance, LP
1560 Sherman Avenue
Suite 900
Evanston, Illinois 60201
Attn: Brian D. Brookover
Fax: (847) 733-0339
State Farm Mutual Automobile Insurance Company
One State Farm Plaza
Bloomington, Illinois 61701
Attn: Common Stocks, E-9
Fax: (309) 766-7423
Spring Point Partners, L.P.
655 Montgomery Street
Suite 600
San Francisco, California 94111
Attn: Matthew Robison
Fax: (415) 399-9828
-17-
<PAGE> 18
Spring Point Offshore Fund
655 Montgomery Street
San Francisco, California 94111
Suite 600
Attn: Matthew Robison
Fax: (415) 399-9828
With copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Attn: Stephen M. Schultz
Fax: (212) 986-8866
If to any other Person who is then the registered Holder:
To the address or facsimile number of such Holder as
it appears in the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchasers may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of each
Purchaser hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by such Purchaser to any assignee or transferee of all
or a portion of the Notes, the Warrants or the Registrable Securities if: (i)
such 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 such Purchaser's (and to subsequent)
successors and assigns.
-18-
<PAGE> 19
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ Edward W. Laves
----------------------------------------------
Name: Edward W. Laves
Title: President and Chief Executive Officer
Purchasers:
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Singer
----------------------------------------------
Name: Paul Singer
Title: General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International, L.P.
As Attorney-in-fact
By: /s/ Paul Singer
----------------------------------------------
Name: Paul Singer
Title: President
ALEXANDER FINANCE, LP
By: /s/ Bradford T. Whitmore
----------------------------------------------
Name: Bradford T. Whitmore
Title: General Partner
<PAGE> 21
SPRING POINT PARTNERS, L.P.
By: /s/ Matthew Robison
----------------------------------------------
Name: Matthew Robison
Title: General Partner
SPRING POINT OFFSHORE FUND
By: /s/ Matthew Robison
----------------------------------------------
Name: Matthew Robison
Title: General Partner
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY
By: /s/ Lyle Triebwasser
----------------------------------------------
Name: Lyle Triebwasser
Title: Senior Investment Advisor
By: /s/ Julie Pierce
----------------------------------------------
Name: Julie Pierce
Title: Investment Officer
<PAGE> 22
Schedule 7(b)
Third Amended and Restated Registration Rights Agreement, dated as of July
14, 1993 between the Company and the persons named therein.
Representative's Warrant Agreement, dated October 23, 1993, between the
Company and Gruntal & Co., Incorporated.
Registration Rights Agreement, dated June 6, 1997, between the Company and
Southbrook International Investments, Ltd.
Registration Rights Agreement, dated October 29, 1997, between the Company
and Elliott Associates, L.P. and Westgate International, L.P.
<PAGE> 23
Schedule 7(c)
Third Amended and Restated Registration Rights Agreement, dated as of July
14, 1993 between the Company and the persons named therein.
Representative's Warrant Agreement, dated October 23, 1993, between the
Company and Gruntal & Co., Incorporated.
Registration Rights Agreement, dated June 6, 1997, between the Company and
Southbrook International Investments, Ltd.
Registration Rights Agreement, dated October 29, 1997, between the Company
and Elliott Associates, L.P. and Westgate International, L.P.
<PAGE> 1
EXHIBIT 5
June 10, 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 (a) 11,418,515 shares of the
Company's Common Stock, $.001 par value per share ("Common Stock"), of which
(i) 6,900,000 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) 378,515 shares (the "Dividend Shares") may in the future
be issued as accrued dividends 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") and (b) such presently indeterminate number
of shares of Common Stock (the "Indeterminate Shares") which may be issued as
dividends on the Notes, based upon fluctuations in the price of the Common
Stock, in accordance with Rule 416 under the Securities Act of 1933, as
amended.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and
upon affidavits, certificates and written statements of directors, officers and
employees of, and the accountants and transfer agent for, the Company. We have
also examined originals or copies, certified or otherwise identified to our
satisfaction, of such instruments, documents and records as we have deemed
relevant and necessary to examine for the purpose of this opinion, including
(a) the Registration Statement, (b) the Certificate of Incorporation of the
Company, 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
June 10, 1998
Page 2
of all documents submitted to us as certified, conformed or reproduced copies.
We have further assumed that all natural persons involved in the transactions
contemplated by the Registration Statement (the "Offering") have sufficient
legal capacity to enter into and perform their respective obligations and to
carry out their roles in the Offering.
Based upon and subject to the foregoing, it is our opinion that:
(1) The 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 Dividend 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;
(3) The Indeterminate Shares, if and when issued as accrued
dividends thereon in accordance with the Notes, will be validly issued, fully
paid and non-assessable; and
(4) The Warrant Shares, if and when issued by the Company upon the
exercise of the Warrants in accordance with the terms thereof, will be validly
issued fully paid and non-assessable.
Our opinion expressed above is limited to the General Corporation Law
of the State of Delaware and the relevant federal laws of the United States,
and we do not express any opinion concerning any other laws.
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 11,418,515 shares of its common stock and
to the incorporation by reference therein of our report dated February 27,
1998, 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, 1997, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
-----------------------
ERNST & YOUNG LLP
Chicago, Illinois
June 10, 1998
