<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
ILLINOIS SUPERCONDUCTOR CORP.
- -----------------------------------------
(Name of Issuer)
Common Stock
- -----------------------------------------
(Title of Class Securities)
452284102
- -----------------------------------------
(CUSIP Number)
David J. Allen, Esquire, 290 South County Farm Rd., Third
Floor, Wheaton, IL 60187-4526 (630) 588-7200
- -----------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notice and Communications)
November 5, 1999
- -----------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject
of this Schedule 13D, and is filing this schedule because of
Section 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box / /.
Note: Schedules filed in paper format shall include a
signed original and five copies of the schedule,
including all exhibits. See Section 240.13d-7 for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect
to the subject class of securities, and for any subsequent
amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section
18 of the Securities Exchange Act of 1934 ("Act") or
otherwise subject to the liabilities of that section of the
Act but shall be subject to all other provisions of the Act
(however, see the Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP NO. 452284102 PAGE 2 OF 28 PAGES
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Alexander Finance, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP(See
Instructions)
(a)/ /
(b)/ /
3 SEC USE ONLY
4 SOURCE OF FUNDS(See Instructions)
WC
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)/ /
6 CITIZENSHIP OR PLACE OR ORGANIZATION
ILLINOIS LIMITED PARTNERSHIP
7 SOLE VOTING POWER
NUMBER OF 35,646,428 SHARES
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 35,646,428 SHARES
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
35,646,428 SHARES
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES(See Instructions)/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
73.6%
14 TYPE OF REPORTING PERSON*
BD,PN
<PAGE> 3
SCHEDULE 13D
CUSIP NO. 452284102 PAGE 3 OF 28 PAGES
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
GRACE BROTHERS, LTD.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP(See
Instructions)
(a)/ /
(b)/ /
3 SEC USE ONLY
4 SOURCE OF FUNDS(See Instructions)
WC
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)/ /
6 CITIZENSHIP OR PLACE OR ORGANIZATION
ILLINOIS LIMITED PARTNERSHIP
7 SOLE VOTING POWER
NUMBER OF 222,800
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 222,800
WITH 10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
222,800 SHARES
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES(See Instructions)/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.7%
14 TYPE OF REPORTING PERSON*
BD,PN
<PAGE> 4
Page 4 of 28 Pages
Item 1. Security and Issuer
This statement relates to the common stock, par value $.001
per share (the "Common Stock"), issued by Illinois
Superconductor, Corp., a Delaware corporation (the
"Company"), whose principal executive offices are located at
451 Kingston Court, MT. Prospect, IL 60056.
Item 2. Identity and Background
(a) The statement is filed by Alexander Finance, L.P., an
Illinois limited partnership ("Alexander") and Grace
Brothers, Ltd., an Illinois limited partnership ("Grace").
The foregoing persons are hereafter referred to as the
"Filers". Bun Partners, Inc., ("Bun") and Spurgeon
Corporation ("Spurgeon") are the general partners of
Alexander. Bun is wholly owned by Bradford T. Whitmore
("Whitmore"). Whitmore and Spurgeon are the general partners
of Grace.
(b) The business address of Grace and Whitmore is 1560
Sherman Avenue, Suite 900, Evanston, Illinois 60201. The
business address of Bun is 1560 Sherman Avenue, Suite 900,
Evanston, Illinois 60201. The business address of Spurgeon is
290 South County Farm Road, Third Floor, Wheaton, Illinois
60187.
(c) The principal business of Alexander is to invest in
securities. The principal business of Bun is that of being a
general partner of several investment partnerships. The
principal business of Grace is to purchase, sell, invest and
trade in securities. Whitmore's principal occupation is that
of being a general partner of Grace. The principal business
of Spurgeon is that of being a general partner of Grace. The
names, business addresses, and present principal occupation
or employment of each director and executive officer of
Spurgeon and Bun are set forth in Exhibit A hereto.
(d) None of the persons referred to in this Item 2 has,
during the last five years, been convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors).
(e) None of the persons referred to in this Item 2 has,
during the last five years, been a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is
subject to a judgement, decree or final order enjoining
future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f) Grace is an Illinois limited partnership and Spurgeon
and Bun are Illinois Corporations. Whitmore is a citizen of
the United States.
Item 3. Source and Amount of Funds
The Common Stock beneficially owned by Alexander and Grace
was purchased with working capital and partnership funds.
<PAGE> 5
Page 5 of 28 Pages
Item 4. Purpose of Transaction
The Filers acquired the Common Stock beneficially owned by it
in the ordinary course of its trade or business of
purchasing, selling, trading and investing in securities.
Depending upon market conditions and other factors that it
may deem material, the Filers may purchase additional shares
of Common Stock or related securities or may dispose of all
or a portion of the Common Stock or related securities that
it now beneficially owns or may hereafter acquire.
On November 5, 1999, Alexander, Elliott Associates, L.P.
("Elliott") and Westgate International, L.P. ("Westgate")
(Elliott and Westgate are entities unrelated to the Filers)
entered into a letter agreement with the Issuer (the
"Investment Agreement") pursuant to which Alexander, Elliott
and Westgate have invested, in the aggregate, an additional
$1,000,000 in the Issuer in exchange for convertible secured
promissory notes and warrants exercisable for shares of
Common Stock. In addition, in consideration of the new
investment, (i) certain adjustments have been made to the
strike and conversion prices of the Issuer's warrants and
notes currently held by Alexander, Elliott and Westgate, and
(ii) Alexander, Elliott and Westgate have been given the
right to make future investments in the Issuer until August
5, 2000, under the same terms as described above.
Furthermore, the Investment Agreement requires that following
the execution thereof, the Issuer will reconstitute its Board
of Directors (the "Board") such that Robert Mitchum will
leave the Board and Mark Brodsky, Samuel Perlman and George
Calhoun will be added to the Board. Each of Messrs. Brodsky,
Perlman, and Calhoun are not affiliated with the Filers.
In addition, Alexander, Elliott and Westgate have the
collective right under the Investment Agreement to have their
new and existing notes redeemed by the Issuer under certain
circumstances if persons designated by them (for up to two-
thirds of the Board) are not placed on the Board.
<PAGE> 6
Page 6 of 28 Pages
Under the Investment Agreement, the Issuer is required to
amend its charter to increase its authorized capital to cover
the additional shares of Common Stock issuable as a result of
the Investment Agreement.
Pursuant to a Security Agreement dated as of November 5, 1999
entered into by the Issuer, Alexander, Elliott and Westgate
in connection with the Investment Agreement, both the new
notes issued to Alexander, Elliott and Westgate under the
Investment Agreement and the existing notes of the Issuer
already held by Alexander, Elliott and Westgate are secured
by a lien on the Issuer's assets.
Separately, the Issuer, Alexander, Elliott and Westgate have
agreed to modify covenants in the Issuer's existing notes
that are held by Alexander, Elliott and Westgate including,
without limitation, covenants regarding the Issuer's future
operating income and its incurrence of future indebtedness.
Alexander expressly disclaims the existence of a group with
Elliott and Westgate.
Except as set forth herein Alexander has no plans or
proposals which relate to or would result in any of the
actions set forth in subparagraphs (a) through (j) of Item 4.
Item 5. Interest in Securities of the Issuer.
(a) Alexander, if it exercised its options and warrants and
converted its convertible notes, all as described below,
would beneficially own an aggregate of 35,646,428 shares of
Common Stock, constituting 73.6% of all of the outstanding
shares of Common Stock, assuming no other investor exercises
any options or warrants, or converted notes held by such
investor. Alexander currently holds the following securities
of the Issuer:
- - $1,333,334 face amount of the Issuer's 6% Senior
Convertible Notes due May 15, 2002 ("6% Notes") which,
together with accrued interest thereon, are presently
convertible into 5,490,299 shares of Common Stock,
- - $1,777,778 face amount of the Issuer's 2% Senior
Convertible Notes due May 15, 2002 ("2% Notes") which,
together with accrued interest thereon, are presently
convertible into 7,205,352 shares of Common Stock,
- - $2,222,222 face amount of the Issuer's 2% Senior
Convertible Notes due May 15, 2002 ("Amended 2% Notes")
which, together with accrued interest thereon, are presently
convertible into 9,084,115 shares of Common Stock,
- - $444,445 face amount of the Issuer's 10% Notes due January
2, 2001 ("10% Notes") which are presently convertible into
1,777,776 shares of Common Stock,
- - Warrants expiring on November 5, 2004 ($.25 strike price)
presently exercisable for 177,777 shares of Common Stock
("10% Warrants"),
- - Warrants expiring on March 31, 2002 ($.25 strike price)
presently exercisable for 533,334 shares of Common Stock ("6%
Warrants"),
- - Warrants expiring on March 31, 2002 ($.25 strike price)
presently exercisable for 888,889 shares of Common Stock
("Amended 2% Warrants"),
- - Warrants expiring on May 15, 2001 ($.25 strike price)
presently exercisable for 711,110 shares of Common Stock ("2%
Warrants"),
- - Option (the "Option") to purchase from the Issuer for
$2,222,222 (i) 10% Warrants exercisable for 888,888 shares of
Common Stock, and (ii) 10% Notes convertible into 8,888,888
shares of Common Stock.
<PAGE> 7
Page 7 of 28 Pages
The amount of shares of Common Stock into which Alexander's
convertible notes and warrants are each convertible or
exchangeable is limited, pursuant to the terms of such
instruments, to that amount which would result in Alexander
and its affiliates having beneficial ownership of Common
Stock not exceeding 9.9% of all of the outstanding shares of
Common Stock, subject to Alexander's right to increase this
percentage upon 61 days prior notice to the Company.
(b) The Filers have the sole power to vote and dispose of the
Common Stock.
(c) The following transactions were effected by the Filers
during the past sixty (60) days:
<TABLE>
<CAPTION>
Approx. Price per
Amount of Shs. Share (excl. of
Date Security Bought (Sold) commissions)
<S> <C> <C> <C>
11/05/99 10% Notes $444,445 (face amt) *
11/05/99 10% Warrants 177,777 *
11/05/99 Option $2,222,222 (face amt) *
</TABLE>
* Alexander purchased the 10% Notes, 10% Warrants and the
Option beneficially owned by it for an aggregate price of
$444,445, all directly from the Company.
(d) No person other than the filers is known to have the
right to receive, or the power to direct the receipt of,
dividends from, or the proceeds from the sale of such shares
of Common Stock beneficially owned by the Filers.
(e) Not applicable.
<PAGE> 8
Page 8 of 28 Pages
Item 7. Items to be filed as Exhibits.
Exhibit A - Directors and Officers of Spurgeon Corporation
and Bun Partners, Inc.
Exhibit B - Letter Agreement among the Issuer, Alexander,
Elliott and Westgate dated as of November 5, 1999.
Exhibit C - Security Agreement among the Issuer, Alexander,
Elliott and Westgate dated as of November 5, 1999.
Exhibit D - Letter Agreement among the Issuer, Alexander,
Elliott and Westgate dated as of November 5, 1999 regarding
the modification of covenants.
SIGNATURES
After reasonable inquiry and to the best of its knowledge and
belief, the undersigned each certifies that the information
with respect to it set forth in this statement is true,
complete and correct.
Dated: November 10, 1999
Alexander Finance, L.P.
By:/s/ Bradford T. Whitmore
------------------------
Bradford T. Whitmore
President: Bun Partners
Its: General Partner
Grace Brothers, Ltd.
By:/s/ Bradford T. Whitmore
------------------------
Bradford T. Whitmore
General Partner
<PAGE> 9
Page 9 of 28 Pages
EXHIBIT A
Directors and Executive Officers of Spurgeon Corporation
Judith M. Van Kampen
101 Washington St.
Suite 770
Grand Haven, MI 49417-0070
Director of Spurgeon. Trustee of Judith M. Van Kampen Trust
which is Manager of Van Kampen Asset Management Company, LLC.
Carla M. Van Kampen/Pierre
101 Washington St.
Suite 770
Grand Haven, MI 49417-0070
Director of Spurgeon. Trustee of Judith M. Van Kampen Trust
which is Manager of Van Kampen Asset Management Company, LLC.
David G. Wisen
101 Washington St.
Suite 770
Grand Haven, MI 49417-0070
Director and President of Spurgeon. President of Van Kampen
Asset Management Company, LLC.
David J. Allen
290 South County Farm Road
Third Floor
Wheaton, IL 60187
Director, Vice President and Secretary of Spurgeon. Trustee
of Judith M. Van Kampen Trust which is Manager of Van Kampen
Asset Management Company, LLC. Senior Vice President and
General Counsel of Van Kampen Asset Management Company, LLC.
Jerald A. Trannel
290 South County Farm Road
Third Floor
Wheaton, IL 60187
Vice President and Treasurer of Spurgeon. Controller of
Grace Brothers, Ltd. and Senior Vice President and Treasurer
of Van Kampen Asset Management Company, LLC.
J. Timothy Onufrock
290 South County Farm Road
Third Floor
Wheaton, IL 60187
Assistant Secretary of Spurgeon.
All are United States Citizens.
The business address of Van Kampen Asset Management Company,
LLC is 290 South County Farm Road, Third Floor, Wheaton, Il
60187. The principal business of Van Kampen Asset Management
Company LLC is investment and asset management.
Directors and Officers of Bun Partners, Inc.
Bradford T. Whitmore
1560 Sherman Ave.
Suite 900
Evanston, IL 60201
Sole Shareholder, Sole Director, President of Bun Partners,
Inc., and General Partner, Grace Brothers, Ltd.
Mary Ann Whitmore
1560 Sherman Ave.
Suite 900
Evanston, IL 60201
Secretary and Treasury of Bun Partners, Inc.
Both are United States Citizens.
The business address of Bun Partners, Inc. is 1560 Sherman
Ave., Suite 900, Evanston, IL 60201. The principal business
of Bun Partners, Inc. is to be the general partner of several
partnerships.
<PAGE> 10
Page 10 of 28 Pages
Exhibit B
Elliott Associate, L.P.
712 Fifth Avenue
New York, New York 10019
Westgate International, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Alexander Finance, L.P.
1560 Sherman Avenue
Evanston, Illinois 60201
November 5, 1999
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
RE: Additional Investment
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement, dated
as of March 31, 1999, by and among you (the "Company"), the
undersigned, and State Farm Mutual Automobile Insurance
Company ("State Farm") (the "6% Note Agreement") and the
Notes and Warrants issued thereunder, (the "6% Notes" and "6%
Warrants," respectively) and the Registration Rights
Agreement, dated as of March 31, 1999, by and among the
Company, the undersigned and State Farm (the "Registration
Rights Agreement").
1. Additional Investment
(a) The undersigned, concurrently with the execution and
delivery of this Agreement, hereby purchase from the Company:
(i) new notes in the aggregate principal amount of
$1,000,000, maturing on January 2, 2001 ("New Notes") and
bearing interest thereon at the annual rate of 10%, payable
in kind in the manner provided in the 6% Notes and (ii) new
warrants to purchase until the fifth anniversary of the date
hereof, 400,000 shares of the Company's common stock par
value $.01 per share ("Common Stock") at an exercise price of
$0.25 per share, subject to adjustment as set forth therein
(the "New Warrants"). The New Notes shall be convertible
into shares of Common Stock at the conversion price of $0.25,
subject to adjustment as set forth therein. The amount of
New Notes and New Warrants purchased by each of the
undersigned, and the Purchase Price payable concurrently with
each purchase, is set forth on Schedule I hereto.
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Page 11 of 28 Pages
(b) Except as set forth herein, the New Notes and New
Warrants shall contain the same terms as the 6% Notes and 6%
Warrants, respectively, as modified by this Agreement. The
New Notes and New Warrants are deemed to be outstanding on
the date hereof for all purposes. At the request of any of
the undersigned, but subject to any prior issuance, transfer,
conversion, redemption or exercise by the holders of New
Notes and New Warrants, the Company promptly shall issue to
such person in physical form the New Notes and New Warrants
purchased by such person, which shall be dated as of the date
hereof. At the request of any of the undersigned, the
Company promptly shall issue to such person in physical form
the Notes and Warrants, in each case as defined below (other
than the New Notes and New Warrants) held by such person, at
the time of such request, reflecting the amendments set forth
in this Agreement, but only upon delivery for cancellation to
the Company of such Notes and Warrants (or in lieu thereof an
affidavit from such person of lost note or warrant containing
an agreement reasonably satisfactory to the Company
indemnifying the Company from any loss incurred by it in
connection with such lost Notes or Warrants).
(c) Notwithstanding anything herein or in the 6% Note
Agreement, the 2% Note Agreement (as defined below), New
Notes, 6% Notes, Amended 2% Notes (as defined in the 6% Note
Agreement) or the 2% Notes (as defined below) to the
contrary, the Company shall be entitled to pay pay-in-kind
interest rather than cash interest on such notes through the
one year anniversary of the date hereof and thereafter to the
extent permitted by the applicable documents. In addition,
the Company and the undersigned agree that the market
quotation system on which Common Stock is currently quoted
shall be deemed "an exchange or quotation system" for
purposes of clause (iii) in Section 3(a)(ii) of each of the
New Notes, 6% Notes, Amended 2% Notes and 2% Notes.
2. Security. The Company's obligation to the undersigned
under the New Notes, the 6% Notes, the Amended 2% Notes (as
defined in the 6% Note Agreement) and the 2% Notes issued
pursuant to the securities purchase agreement dated as of May
15, 1998, by and among the Company, the undersigned, State
Farm, Spring Point Partners, LP and Spring Point Offshore
Fund (the "2% Note Agreement") and not amended pursuant to
the 6% Note Agreement (the "2% Notes") and any notes issued
pursuant to the option in Section 7 hereof shall be secured
by a first lien on all the assets of the Company (except in
the case of accounts receivable and inventory, for which a
lien junior to the secured party under the Factoring
Agreement, dated as of October 6, 1999 by and between the
Company and Franklin Capital Corporation, will be issued)
pursuant to the terms of a Security Agreement, dated as of
the date hereof (the "Security Agreement"), by and among the
<PAGE> 12
Page 12 of 28 Pages
Company and the undersigned.
3. Adjustment to Conversion and Exercise Prices. In
consideration of the purchase price paid by the undersigned
pursuant to Section 1(a) (which the Company and the
undersigned agree shall be the sole consideration), (i) the
conversion prices of all of the existing 6% Notes, Amended 2%
Notes and 2% Notes held by the undersigned are hereby reset
to $0.25, subject to further adjustment as set forth therein
and (ii) the exercise prices of the 6% Note Warrants, Amended
2% Note Warrants and 2% Note Warrants (as such terms are
defined in the 6% note Agreement) (the "Note Warrants") held
by the undersigned are hereby reset to $0.25, subject to
further adjustment as set forth therein and (iii) the
exercise price of any warrants to purchase Common Stock
issued to the undersigned on October 29, 1997 and expiring on
October 29, 2001 (the "Series G Warrants" and together with
the Note Warrants and the New Warrants, the "Warrants") is
hereby reset to $0.25, subject to further adjustment as forth
therein.
4. Board Designations
(a) Not later than one business day following the closing of
the sale and issuance of the new Notes and New Warrants and
the amendment of the 6% Notes, Amended 2% Notes, 2% Notes and
Note Warrants, pursuant to the terms of the Agreement, the
Company shall reconstitute its Board of Directors such that
Robert Mitchum will leave the Board and Mark Brodsky, Samuel
Perlman and George Calhoun will be added to the board;
provided that if at the time of reconstitution of the Board,
there have been additional departures from the Board,
if necessary to avoid the obligation to file disclosure
documents under Rule 14f-1 under the Exchange Act (as defined
below) with respect to the undersigned's designees, the
undersigned will appropriately make deletions from its list
of designees.
(b) Thereafter, for so long as any of the undersigned shall
hold any outstanding New Notes, 6% Notes, Amended 2% Notes or
2% Notes, notes issued pursuant to Section 7 hereof (the
"Notes"), if (i) one of the aforementioned persons designated
to be added to the Company's Board of Directors resigns, dies
or becomes incapacitated, and the Company does not within one
week fill such vacancy with a person selected or approved by
the holders of a majority in principal amount of Notes held
by the undersigned; or (ii) at any time the holders of a
majority in principal amount of Notes held by the undersigned
indicate to the Company their selections to be members of the
Company's Board of Directors (which selections
may constitute up to two-thirds of the Board) and the Company
shall fail to take such actions (whether by designation the
undersigned's selections to vacancies (created through
resignations, removals or if necessary by increasing the size
<PAGE> 13
Page 13 of 28 Pages
of the Board), designating the undersigned's selections as
the Company's candidates at the Company's annual meeting, or
otherwise) as shall be necessary to place the undersigned's
selections on the Board within one week of request; or (iii)
the stockholders of the Company shall not have voted in favor
of the selections of the undersigned at the next meeting of
stockholders at which directors are elected, then a "Business
Combination" for purposes of the Notes shall immediately be
deemed to have occurred and the undersigned shall have the
rights to redeem their Notes pursuant to the terms contained
therein in such event. The foregoing clause (ii) is not
intended to permit the holders of Notes to designate the size
of the Company's Board of Directors, but rather to determine
the composition of up to two thirds of the Board. The
obligations of the Company under this Section 4(b) are
subject to the deferral set forth below, to permit compliance
with Rule 14f-1 promulgated under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). Where Rule
14f-1 applies, the company shall file the required
information with the Securities and Exchange Commission (and
send such information to stockholders of record) within one
week of the request by the undersigned to add a person(s) to
the board and the provision of required information by the
undersigned with respect to such person(s)' provided that
such required information shall be filed with the Securities
and Exchange Commission within four weeks of the request by
the undersigned if such request for additions to the Board is
made between December 20, 1999 and January 31, 2000. In
addition, the undersigned's selection of a person to be a
member of the Board of Directors is subject to the Board's
right to refuse to a point a person who the Board deems, in
its reasonable judgment to be not acceptable and so informs
the undersigned within one week of being notified by the
undersigned of its desire that such person be appointed;
provided that it is agreed that certain current employees of
Elliott Associates, L.P., the names and biographical
information of whom have been supplied to the Board, are
acceptable to the Board. The undersigned hereby agree,
solely with respect to this provision, to waive the
restriction on increasing the size of the Board of Directors
referenced to in Section 3.12 the 6% Note Agreement and
corresponding provisions relating to the 2% Notes and Amended
2% Notes.
5. Registration of Additional Securities. The Company
hereby agrees that for purposes of the Registration Rights
Agreement the shares of Common Stock issuable upon conversion
of the New Notes and exercise of the New Warrants and the
additional shares of Common Stock issuable due to the
resetting of conversion and exercise prices pursuant to
Section 3 above, shall be deemed "Registrable Securities";
provided that the company shall not be obligated thereunder
to file a new registration statement, seek listing of the new
shares of Common Stock or seek "blue sky" qualifications
<PAGE> 13
Page 13 of 28 Pages
thereof until the first year anniversary of this Agreement.
Thereafter, the time frames and schedules for remedies set
forth in the Registration Right Agreement shall apply.
Notwithstanding the foregoing, and without limiting any
existing rights under applicable registration rights
agreements, the Company agrees to keep effective and, where
necessary, amend or supplement, any existing registration
statement covering Registrable Securities issued or issuable
upon (i) conversion of the Notes of (ii) exercise of the
Warrants.
6. Payment of Legal Fees. Concurrently with the execution
of this Agreement, the Company is tendering to the
undersigned (which amount is being deducted from the proceeds
of the sale of New Notes and New Warrants hereunder) the sum
of $52,263.27, constituting the outstanding legal fees and
disbursements incurred by the undersigned in connection with
(i) the 6% Note Agreement and the transaction contemplated
thereunder and (ii) any other matters (other than matters
under this Agreement) under which the Company is bound to
reimburse the legal fees and expenses of the undersigned.
The Company agrees to reimburse the undersigned within 2
business days of presentation of an invoice for all legal
fees and disbursements incurred by the undersigned in
connection with the negotiation, preparation and execution of
this Agreement, the Security Agreement and the transactions
contemplated hereunder and thereunder.
7. Option to make Additional Investments. The undersigned
each shall have the right on a pro rata basis, or as
otherwise agreed to by the undersigned, at its option, at any
time prior to the date nine months after the date hereof, to
make additional investments in the Company, up to the
undersigned's pro-rata share of an additional aggregate
amount of $5 million, on the terms set forth in this
Agreement, provided that such terms shall be subject to
adjustment after the date hereof pursuant to any adjustment
provisions contained in the New Notes and New Warrants. The
pro-rata share shall be determined by dividing the
undersigned's purchase price hereunder, as set forth o
Schedule I, by $1 million. Without limiting the generality
of the foregoing, any additional notes and warrants issued in
connection with this option shall have the maturity and
expiration dates set forth in this Agreement, and shall have
the conversion and exercise prices then applicable to the New
Notes and New Warrants and upon their issuance, such notes
and warrants shall become "Notes" and "Warrants" for purposes
of this Agreement.
8. Representation and Warranties of the Company. The
Company hereby restates to the undersigned, as of the date
hereof, the representations and warranties set forth in
Section 2.1 of the 6% Note Agreement, except as set forth on
Schedule II hereto. For purposes of the foregoing
restatement of representations, references to the term
<PAGE> 14
Page 14 of 28 Pages
"Transaction Documents" shall refer to this Agreement, the
Security Agreement, the New Notes and the New Warrants. The
provision of Section 2.1(j), 2.1(o) and 2.1(r) shall refer to
the issuance of the New Notes and the New Warrants and the
amendment of the Notes and Warrants held by the undersigned.
The date in Section 2.1(s) shall be deemed to refer to
October 31, 1999. Also set forth on Schedule II is all of
the Company's Intellectual Property (as defined in the 6%
Note Agreement).
9. Representation and Warranties of the Undersigned.
(a) With respect to their purchase of the New Notes and New
Warrants and this Agreement, the undersigned each make the
representations set forth in 2.2(a) through (h) as of the
date hereof and acknowledge that the provisions of Section
3.1 apply to the New Notes and New Warrants.
(b) Elliott Associates, LP hereby represents that it is the
holder of at least 25.2% of the 6% Notes, at least 23.4% of
the Amended 2% Notes and at least 22.9% of the notes issued
under the 2% Note Agreement ("Original 2% Notes"); Westgate
International, LP hereby represents that it is the holder of
at least 25.2% of the 6% Notes, at least 23.4% of the Amended
2% Notes and at least 22.9% of the Original 2% Notes; and
Alexander Finance, LP hereby represents that it is the holder
of at least 40.40% of the 6% Notes, at least 40.4% of the
Amended 2% Notes and at least 38.65% of the Original 2%
Notes.
10. Legal Opinion. Concurrently with the execution and
delivery of this Agreement, the Company is causing its
outside counsel to deliver a legal opinion, to the
undersigned, regarding the authorization, validity and
enforceability of this Agreement, the New Notes, New Warrants
and Security Agreement and the validity of the lien granted
pursuant to the Security Agreement.
11. Additional Limitations on Conversion and Exercise. The
limitations on conversion of the Notes and exercise of the
Warrants set forth on Schedule III shall hereafter apply to
the Notes and Warrants held by the undersigned. These
provisions supersede any prior provisions pertaining to the
Notes and Warrants with respect to the percentage ownership
of the holders thereof.
12. Amendment to the Charter. At the Company's next annual
meeting of stockholders which meeting shall be held prior to
June 30, 2000, the Company shall amend its Certificate of
Incorporation (the "Charter Amendment") so as to authorize
the additional shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants as a
result of this Agreement and any further financings effected
pursuant to Section 7 hereof. If, until the earlier of the
<PAGE> 15
Page 15 of 28 Pages
filing of the Charter Amendment or June 30, 2000, the Company
is unable to honor conversion notices with respect to Notes
of the undersigned because the Company lacks sufficient
authorized capital, but provided that the Company has
reserved all shares of Common Stock available for such
purpose on the date hereof for issuance upon conversion of
the Notes and exercise of the Warrants, then the undersigned
shall not have the right to redeem their Notes on account of
such failure, except that such exception shall not apply in
the case of: (i) any right to redeem Notes for any other
reason, including, without limitation, a "Business
Combination" (as defined in the Notes); or (ii) a tender
offer, whether by the Company or a third party, for 5% or
more of the outstanding Common Stock. In the event that the
Company shall fail to comply with the foregoing covenant to
file the Charter Amendment, then the undersigned shall have
the right to have their Notes redeemed in the manner provided
in the Notes where a conversion notice has not been honored
in a timely fashion. Notwithstanding anything to the
contrary contained herein or in the Notes and Warrants,
unless and until the foregoing Charter Amendment is effected,
and except with respect to determining the redemption rights
referred to above, the Notes and Warrants shall not represent
a right in the aggregate to acquire (including with respect
to in-kind interest payments) more than the number of shares
of Common Stock currently authorized by the Company's
Certificate of Incorporation reduced by the sum of the number
of shares and options issued and outstanding on the date
hereof and the number of shares that the holders of Notes and
Warrants already have the right to acquire. Until the
Charter Amendment is filed, the shares of Common Stock not
issued and outstanding and not reserved for the benefit of
persons other than the undersigned shall be allocated among
the undersigned on a pro-rata basis in connection with the
conversion of Notes and the exercise of Warrants.
13. Events of Default. With respect to the Notes, the
following shall be added to the "Events of Default" thereof:
(a) failure by the Company for ten (10) days after notice to
it to comply with any provisions of this Agreement or the
Security Agreement; (b) a breach of any representations and
warranties made by the Company in this Agreement or the
Security Agreement. Without limiting the generality of
Section 1(b) hereof, any Event of Default under Default under
the New Notes.
14. Miscellaneous.
(a) In case of any conflict between the terms of this
Agreement and the terms of any other document governing the
Notes or the Warrants, the terms of this Agreement shall
govern.
<PAGE> 16
Page 16 of 28 Pages
(b) As modified herein, the documents relating to the Notes
and Warrants remain in full force and effect.
(c) Except where inapplicable or superseded, the terms of
Article V of the 6% Note Agreement (Miscellaneous) shall
apply mutatis mutandis to this Agreement.
Please indicate your acceptance and agreement of the terms
contained herein by countersigning this Agreement and
returning a signed copy to the undersigned.
Sincerely,
ELLIOTT ASSOCIATES, L.P.
By: /s/
-----------------
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By: /s/
----------------
ALEXANDER FINANCE, L.P.
By: /s/
------------------
AGREED TO AND ACCEPTED
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/
------------------
<PAGE> 17
Page 17 of 28 Pages
Schedule I
<TABLE>
<CAPTION>
Credit Principal Amount of
against Amount of New
Purchase Purchase New Notes Warrants
Purchaser Price Price Purchased Purchased
<S> <C> <C> <C> <C>
Elliott $277,778 $26,131.64 $277,778 111,111
Associates, L.P.
Westgate $277,778 $26,131.64 $277,778 111,111
International,
L.P.
Alexander $444,444 $444,444 177,778
Finance, L.P.
</TABLE>
<PAGE> 18
Page 18 of 28 Pages
Schedule II
(to be prepared by the Company)
Schedule III
Limitation on Conversion and Exercise.
(i) Notwithstanding anything to the contrary herein, the
Holder may not use its ability to exercise this (Note)
(Warrant) if such exercise would result in the total number
of shares of Common Stock deemed beneficially owned by the
Holder (other than by virtue of the ownership of (this
Warrant) (this Note) 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 the
Holder's Affiliates (as defined in applicable purchase
agreement) that would be aggregated for purposes of
determining a group under Section 13(d) of the Exchange Act,
exceeding 9.99% of the total issued and outstanding shares of
the Common Stock (the "Restricted Ownership Percentage");
provided that (w) the Holder shall have the right, at any
time and from time to time, to reduce the Restricted
Ownership Percentage applicable to it immediately upon
written notice to the Company, (x) the Holder shall have the
right to increase its Restricted Ownership Percentage and
otherwise waive in whole or in part the restrictions of this
provision upon 61 days' prior notice to the Company in the
event of an occurrence or notice of an intended or pending
Business Combination (as defined in the (applicable Note)) or
the delivery by the Company of a notice of a redemption of
the (applicable Note) and, (y) unless such right is waived by
the Holder, the Holder can make subsequent adjustments
pursuant to (w) or (x) any number of times (which adjustments
shall each be effective upon 61 days' prior written notice or
immediately in the event of a reduction in the Restricted
Ownership Percentage or in the event of a Business
Combination or redemption). The delivery of an exercise
notice by the Holder shall be deemed a representation by the
Holder that it is in compliance with this paragraph.
(ii) Each time (a "Covenant Time") the Holder delivers an
(Exercise Notice) (Conversion Notice) pursuant to this
(Warrant) (Note) to acquire shares of Common Stock (the
"Triggering Shares"), the Holder will be deemed to covenant
on its own behalf and on behalf of such Holder's Affiliates
that it will not, during the balance of the day on which such
(Exercise Notice) (Conversion Notice) is delivered, and
during the 61-day period beginning immediately after that
day, acquire additional shares of Common Stock pursuant to
rights-to-acquire existing at that Covenant Time, if the
aggregate amount of such additional shares so acquired
(without reducing that amount by any dispositions) would
exceed (i) the Restricted Ownership Percentage of the number
of shares of Common Stock outstanding at that Covenant Time
<PAGE> 19
Page 19 of 28 Pages
(including the Triggering Shares) minus (ii) the number of
shares of Common Stock actually owned by the Holder and the
Holder's Affiliates at that Covenant Time (regardless of how
or when acquired, and including the Triggering Shares). At
each Covenant Time, the Holder shall be deemed to waive any
right it would otherwise have to acquire shares of Common
Stock to the extent that such acquisition would violate any
covenant given by the Holder under this paragraph. The
covenant to be given pursuant to this paragraph will be given
at every Covenant Time and shall be calculated based upon the
circumstances then in effect. The making of a covenant at
one Covenant Time shall not terminate or modify any prior
covenants. The Holder may therefore from time to time be
subject to multiple such covenants, each one having been made
at a different Covenant Time, and some possibly being more
restrictive than others. The Holder at any time must comply
with all such covenants then in effect. Notwithstanding the
foregoing, this paragraph (ii) may be waived by Holder upon
61 days' prior written notice to the Company.
(iii) The foregoing provisions shall only apply during those
periods when the Holder shall not have the status of a
"director" or director by deputization" of the Company for
purposes of Section 16 under the Exchange Act.
<PAGE> 20
Page 20 of 28 Pages
Exhibit C
Security Agreement
Security Agreement, dated as of November 5, 1999, made by and
among Illinois Superconductor Corporation, a Delaware
Corporation with offices at 451 Kingston Court, Mt. Prospect,
Illinois 60056 (the "Company"), Elliott Associates, L.P., a
Delaware limited partnership with offices at 712 Fifth
Avenue, 36th Floor, New York, New York 10019 ("Elliott"),
Westgate International, L.P., a Cayman Islands limited
partnership with offices c/o Stonington Management Corp., 712
Fifth Avenue, New York, New York 10019 ("Westgate"), and
Alexander Finance, LP, and Illinois limited partnership with
offices at 1560 Sherman Avenue, Evanston, Illinois 60201
("Alexander"). Elliott, Westgate and Alexander are sometimes
individually referred to as a "Secured Party" or collectively
referred to as "Secured Parties".
NOW THEREFORE, in consideration of the foregoing, the Company
hereby agrees with the Secured Parties as follows:
SECTION 1. Grant of Security Interest. As collateral
security for all of the Obligations (as defined in Section 2
hereof), the Company hereby pledges and collaterally assigns
to the Secured Parties, and grants to the Secured Parties a
continuing security interest in the following (the
"Collateral"):
"Collateral" means all assets of the Company, including
without limitation all presently existing and hereafter
arising (i) accounts, contract rights, and all other forms of
obligations owing to the Company from any source
("Accounts"); (ii) all of the Company's books and records,
including ledgers, records indicating, summarizing, or
evidencing the Company's assets or liabilities, or the
Collateral, all information relating to the Company's
business operations or financial condition, all computer
programs, disc or tape files, printouts, runs or other
computer prepared information, and any equipment containing
such information (the Company's "Books"); (iii) all of the
Company's present and hereafter acquired equipment, wherever
located, and all attachments, accessories, accessions,
replacements, substitutions, additions and improvements to
any of the foregoing, wherever located ("Equipment"); all of
the Company's general intangibles and other personal property
(including, but not limited to, contract rights, rights
arising under common law, statutes or regulations, choses or
things in action, goodwill, patents, trade names, trademarks,
service marks, copyrights, blueprints, drawings, purchase
orders, customer lists, monies due under any royalty or
licensing agreements, infringements, claims, computer
<PAGE> 21
Page 21 of 28 Pages
programs, discs or tapes, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims, as well as all
cash collateral that is hypothecated to secure letters of
credit or bonding obligations) ("General Intangibles"); all
present and future inventory in which the Company has any
interest, and all of the Company's present and future raw
materials, work in process, finished goods, and packing and
shipping material, wherever located, any documents of title
representing any of the above ("Inventory"); all of the
Company's negotiable collateral, including all of the
Company's present and future letters of credit, notes,
drafts, instruments, certificated securities (including the
shares of stock of any subsidiary), documents, personal
property leases (where the Company is the lessor), chattel
paper and the Company's books and records relating to any of
the foregoing ("Negotiable Collateral"); any money or other
assets of the company which hereafter come into the
possession, custody or control of the Company, and the
proceeds and products, whether tangible or intangible, of any
of the foregoing including proceeds of insurance covering any
or all of the Collateral, and any and all Accounts,
Equipment, General Intangibles, Inventory, Negotiable
Collateral, money, deposit accounts or other tangible or
intangible, real or personal, property resulting from the
sale, exchange, collection or other disposition of the
Collateral, or any portion thereof or interest therein, and
the proceeds thereof;
in each case howsoever the Company's interest therein may
arise or appear (whether by ownership, security interest,
claim or otherwise).
The Secured Parties acknowledge that their security interest
in Accounts and Inventory is junior to the lien, to the
extent there is overlap, granted to Franklin Capital
Corporation (the "Factor") in "accounts" and "inventory"
("Common Collateral"), pursuant to a Factoring Agreement,
dated as of October 6, 1999 by and between the Factor and the
Company (the "Factoring Agreement"), and further acknowledge
that so long as any balances owing to the Factor remain
outstanding under the Factoring Agreement, the Secured
Parties shall not foreclose on the Common Collateral. The
foregoing is subject t the continued perfection of the
Factor's lien in the "accounts" and "inventory" under the
Factoring Agreement and to the rights of the Secured Parties
to pay all outstanding amounts under the Factoring Agreement
and to thereupon become subrogated to the rights of the
Factor.
SECTION 2. Security for Obligations. The security interest
created hereby in the Collateral constitutes continuing
collateral security for the prompt payment by the company, as
and when due and payable, of all amounts from time to time
owing by it to the Secured Parties under the Securities
<PAGE> 22
Page 22 of 28 Pages
Purchase Agreements, dated as of May 15, 1998 and March 31,
1999 (the "Purchase Agreements") by and among the Company,
the Secured Parties and certain other investors and the
additional investment letter agreement, dated the date hereof
("Letter Agreement"), by and among the Company and the
Secured Parties and certain other investors and the Amendment
Agreement relating thereto by and among the Company, Secured
Parties and another investor, the Notes (as defined in the
Letter Agreement) issued to the Secured Parties and any
obligations to the Secured Parties arising out of the option
of the Secured Parties to provide additional financing under
the terms of the Letter Agreement (the "Obligations").
SECTION 3. Representation and Warranties. The Company
represents and warrants as follows:
The Company is and will be at all times the owner of the
Collateral free and clear of any other lien, security
interest or other charge or encumbrance except for Permitted
Liens (as defined in the Purchase Agreements).
SECTION 4. Covenants as to the Collateral. So long as any
of the Obligations shall remain outstanding, unless the
Secured Parties shall otherwise consent in writing,
(a) Further Assurances. The Company will at its expense, at
any time and from time to time, promptly execute and deliver
all further instruments and documents and take all further
action that may be reasonably necessary or desirable (i) to
perfect and protect the security interest to be created
hereby; (ii) to enable Secured Parties to exercise and
enforce their rights and remedies hereunder in respect of the
Collateral; or (iii) to otherwise effect the purposes of this
Agreement.
(b) Provisions Concerning the Collateral. The Company will
(A) give Secured Parties prompt notice of any change in the
Company's name, identity or corporate structure, (B) keep all
originals of all documents relating to the Collateral at
Company's principal office, and (C) keep adequate records
concerning the Collateral and permit representatives of
Secured Parties at any time during normal business hours on
reasonable notice to inspect such records (provided Secured
Parties agree to keep all information inspected strictly
confidential).
(c) Transfer. The Company will not sell, assign, exchange or
otherwise dispose of any of the Collateral except in the
ordinary course of business.
<PAGE> 23
Page 23 of 28 Pages
(d) If the Company fails to perform any agreement contained
herein, Secured Parties may itself perform or cause
performance of such agreement or obligation, and the
reasonable expenses of Secured Parties incurred in connection
therewith shall be payable by the Company pursuant to Section
5(d) hereof.
SECTION 5. Remedies Upon Default. If any of the Obligations
are not paid when due, or if the Company is in default of any
of its obligations under this Agreement, the Letter Agreement
or the Purchase Agreements:
(a) Secured Parties may exercise in respect of the Collateral
in addition to other rights and remedies the rights and
remedies of a secured party under the Uniform Commercial Code
in effect in the state of Illinois (the "Code") and also may
(i) require the Company to, and the Company hereby agrees
that it will at its expense and upon request of Secured
Parties forthwith, assemble all or part of the Collateral as
directed by Secured Parties and make it available to Secured
Parties and make it available to Secured Parties at a place
to be designated by Secured Parties and (ii) upon ten (10)
days' (or such longer period shall be required by law) prior
written notice, sell the Collateral or any part thereof, in
one or more parcels at public or private sale, for cash, on
credit or for future delivery, and at such price or prices
and upon such other terms as Secured Parties may determine
(provided that such terms are commercially reasonable).
Secured Parties shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given.
Secured Parties may adjourn any public or private sale from
time to time by announcement at the time and placed fixed
therefor, and such sale may, without further notices, be made
at the time and place to which it was so adjourned.
(b) Any cash held by Secured Parties as Collateral and all
cash proceeds received by Secured Parties in respect of any
sale of, collection from, or other realization upon, all or
any part of the Collateral may, in the discretion of Secured
Parties, be held by Secured Parties as collateral for and/or
then or at any time thereafter applied in whole or in part by
Secured Parties against, all or any part of the Obligations
in such order as Secured Parties shall elect. Any surplus of
such cash or cash proceeds held by Secured Parties and
remaining after the payment in full of all of the Obligations
shall be paid over to the Company or to such person as may be
lawfully entitled to receive such surplus.
(c) In the event that the proceeds of any such collection or
realization are insufficient to pay all amount to which
Secured Parties is legally entitled, the Company shall be
liable for the deficiency, together with interest thereon at
the highest rate specified in the Notes for interest on
<PAGE> 24
Page 24 of 28 Pages
overdue principal thereof, together with the reasonable costs
of collection.
(d) The Company will upon demand pay to Secured Parties the
amount of any and all reasonable costs and expenses,
including the reasonable fees and disbursements of Secured
Parties' counsel, which Secured Parties may incur in
connection with (i) the sale of, collection from, or other
realization upon, any Collateral, (ii) the exercise or
enforcement of any of the rights of Secured Parties
hereunder, or (iii) the failure by the Company to perform or
observe any of the provisions hereof.
SECTION 6. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing and
shall be sent by certified mail, return receipt requested or
by overnight courier or delivered by hand, to the parties at
their respective addresses specified above (or to such other
address as shall be designated by a party in a written notice
to the other party complying as to delivery with the terms of
this Section 6). All such notices and other communications
shall be effective upon delivery.
SECTION 7. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by the Company
and Secured Parties, and no waiver of any provision of this
Agreement shall be effective unless it is in writing and
signed by Secured Parties, and then such waiver or consent
shall be effective only in the specific instance and for the
specific purpose for which given.
(b) No failure on the part of Secured Parties to exercise,
and no delay in exercising, any right hereunder or under any
other document relating hereto shall operate as a waiver
thereof; nor shall any single or partial exercise of any such
right preclude any other further exercise thereof or the
exercise of any other right. The rights and remedies of
Secured Parties provided herein and in the Notes are
cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining portions hereof thereof or affecting the validity
or enforceability of such provision in any other
jurisdiction.
(d) This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force
<PAGE> 25
Page 25 of 28 Pages
and effect until the payment in full or release of the
Obligations and (ii) be binding on the Company and its
successors and assigns and shall inure, together with all
rights and remedies hereunder, to the benefit of Secured
Parties and their successors, transferee and assigns.
(e) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York,
except as required by mandatory provisions of law and except
to the extent that the validity and perfection and the effect
of perfection or non-perfection of the security interest
created hereby, or remedies hereunder, in respect of any
particular Collateral are governed by the law of a
jurisdiction other than the State of New York. The parties
hereby consent to the exclusive jurisdiction of any New York
State or Federal court in New York City in any action or
proceeding arising hereunder.
(f) The actions of the holders of a majority-in-interest of
the Obligations shall be deemed the actions of Secured
Parties for purposes of giving any notice or enforcing any
rights or remedies.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officers
thereunto duly authorized, as of the date first above
written.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/
-----------------
Name:
Title:
ELLIOTT ASSOCIATES, L.P.
By: /s/
-----------------
Name:
Title:
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By: /s/
----------------
Name:
Title:
ALEXANDER FINANCE, L.P.
By: /s/
----------------
Name:
Title:
<PAGE> 26
Page 26 of 28 Pages
Exhibit D
Elliott Associates, L.P.
712 Fifth Avenue
New York, New York 10019
Westgate International, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Alexander Finance, L.P.
1560 Sherman Avenue
Evanston, Illinois 60201
November 5, 1999
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
RE: Modification of Covenants
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement, dated
as of March 31, 1999, by and among you (the "Company"), the
undersigned, and State Farm Mutual Automobile Insurance
Company ("State Farm") (the "6% Note Agreement") and the
Notes issued thereunder, (the "6% Notes") and the Securities
Purchase Agreement, dated as of May 15, 1998, by and among
the Company, the undersigned, State Farm, Spring Point
Partners, L.P. and Spring Point Offshore Fund (the "2% Note
Agreement").
In consideration of the mutual covenants contained in this
Agreement, the Company and the undersigned hereby agree as
follows:
1. Modification of Covenants.
(a) The undersigned, representing 75% or more of the
principal amount of the Transaction Notes (as defined in the
6% Note Agreement) and the Company hereby agree that Section
3.22 of the 6% Note Agreement is hereby amended such that all
references to the year 2000 set forth therein shall instead
refer to the year 2001 and that the definition of "Operating
Income" in Section 3.22(c) shall be modified such that the
words "operating income" on the first line thereof shall be
amended to "consolidated operating income"; it being
understood that such amendment shall apply not only to such
provisions in the 6% Note Agreement but also to the cross-
<PAGE> 27
Page 27 of 28 Pages
references thereof contained in the 6% Notes and Amended 2%
Notes (as defined in the 6% Note Agreement); provided,
however, that this provision shall become effective only
after the undersigned's designees have been appointed to the
Board pursuant to Section 4(a) of the New Investment
Agreement (as defined below).
(b) The undersigned and the Company also agree that Section
3.15(a) of the 6% Note Agreement and Section 3.17(a) of the
2% Note Agreement shall be amended to read as follows:
"(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 any "Notes" (as defined in the letter
agreement captioned "Additional Investment", dated as of the
date hereof (the "New Investment Agreement") by and among the
Company, Elliott Associates, LP, Westgate International, LP
and Alexander Finance, LP (the "New Investors")), including
without limitation, the Notes issued on May 15, 1998, to
Spring Point Partners, LP and Spring Point Offshore Fund,
whether or not such Notes are held by New Investors; and (ii)
any indebtedness incurred to the New Investors pursuant to
the right to provide additional financing pursuant to an
option under the New Investment Agreement; (iii) amounts
pursuant to the terms of a Factoring Agreement, dated as of
October 6, 1999 by and between the Company and Franklin
Capital Corporation (the "Factoring Agreement"), provided
that (A) the Company will terminate the Factoring Agreement
not later than its initial 12 month term, pursuant to Section
11.1.1 thereunder and (B) the Company will not hereafter
request any further advances under Section 2.7 of the
Factoring Agreement without the prior written consent of New
Investors holding a majority in principal amount of the
outstanding notes of the Company issued to the New Investors;
or (iv) indebtedness to trade creditors in the ordinary
course of business."
2. Business Combination. The undersigned and the Company
hereby agree that for purposes of any "Notes" (as defined in
the New Investment Agreement), the sale and amendment of
securities pursuant to the New Investment Agreement and the
provisions regarding directors of the Company thereunder do
not constitute a "Business Combination".
<PAGE> 28
Page 28 of 28 Pages
3. Governing Law. This Agreement shall be governed by the
internal laws of the State of New York.
Please indicate your acceptance and agreement of the terms
contained herein by countersigning this Agreement and
returning a signed copy to the undersigned.
Sincerely,
ELLIOTT ASSOCIATES, L.P.
By: /s/
---------------------
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By: /s/
----------------------
ALEXANDER FINANCE, L.P.
By: /s/
--------------------
AGREED TO AND ACCEPTED
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/
----------------------------------
