SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
Illinois Superconductor Corporation
(Name of Issuer)
Common Stock, par value $.001
(Title of Class of Securities)
452284102
(CUSIP Number)
Stephen M. Schultz, Esq., Kleinberg, Kaplan, Wolff & Cohen, P.C., 551 Fifth
Avenue, New York, New York 10176
Tel: (212) 986-6000
(Name, Address and Telephone Number of Person Authorized to Receive Notices 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 Rule 13d-1(e), 13d-1(f) or 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 Rule 13d-7(b) 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>
SCHEDULE 13D
Page 4 of 33
SCHEDULE 13D
Page 2 of 33
1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Elliott Associates, L.P.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[x]
(b)[ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d)
or 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7. SOLE VOTING POWER
21,959,490
8 SHARED VOTING POWER
0
9. SOLE DISPOSITIVE POWER
21,959,490
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
21,959,490
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
63.4%
14. TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Westgate International, L.P.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[x]
(b)[ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands, British West Indies
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7. SOLE VOTING POWER
0
8. SHARED VOTING POWER
21,959,585
9. SOLE DISPOSITIVE POWER
0
10. SHARED DISPOSITIVE POWER
21,959,585
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
21,959,585
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
63.4%
14. TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Martley International, Inc.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[x]
(b)[ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
00
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH
REPORTING PERSON WITH
7. SOLE VOTING POWER
0
8. SHARED VOTING POWER
21,959,585
9. SOLE DISPOSITIVE POWER
0
10. SHARED DISPOSITIVE POWER
21,959,585
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
21,959,585
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
63.4%
14. TYPE OF REPORTING PERSON*
CO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
This statement is filed pursuant to Rule 13d-2(a) with respect to the
shares of common stock, $.001 par value (the "Common Stock") of Illinois
Superconductor Corporation (the "Issuer") beneficially owned by the Reporting
Persons specified herein as of November 9, 1999 and amends and supplements the
Schedule 13D dated April 7, 1999, as amended on April 9, 1999 (the "Schedule
13D"). Except as set forth herein, the Schedule 13D, as previously amended, is
unmodified.
ITEM 4. Purpose of Transaction.
Each of Elliott and Westgate 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. Martley has acted as investment
manager with respect to Westgate's acquisition of beneficial ownership of Common
Stock.
Depending upon market conditions and other factors that it may deem
material, each of Elliott and Westgate 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, Elliott, Westgate and Alexander Finance, L.P.
("Alexander") (an entity unrelated to Elliott, Westgate and Martley) entered
into a letter agreement with the Issuer (the "Investment Agreement") pursuant to
which Elliott, Westgate and Alexander 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 Elliott, Westgate and Alexander, and (ii) Elliott, Westgate
and Alexander 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. Messrs. Brodsky and
Perlman are employees of an entity under common control with Elliott and
Westgate, and Mr. Calhoun was previously retained by Elliott to consult with
Elliott and Westgate regarding the telecommunications industry, including their
investments in the Issuer. Pursuant to this provision, on November 8, 1999,
Messrs. Brodsky, Perlman and Calhoun were elected to the Board and Mr. Mitchum
resigned from the Board.
In addition, Elliott, Westgate and Alexander 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.
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, Elliott, Westgate and Alexander in connection with the
Investment Agreement, both the new notes issued to Elliott, Westgate and
Alexander under the Investment Agreement and the existing notes of the Issuer
already held by Elliott, Westgate and Alexander are secured by a lien on the
Issuer's assets.
Separately, the Issuer, Elliott, Westgate and Alexander have agreed to
modify covenants in the Issuer's existing notes that are held by Elliott,
Westgate and Alexander, including, without limitation, covenants regarding the
Issuer's future operating income and its incurrence of future indebtedness.
Elliott, Westgate and Martley each expressly disclaims the existence of
a group with Alexander.
Except as set forth herein and as previously disclosed on the Schedule
13D, none of Elliott, Westgate or Martley has any 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) Elliott beneficially owns an aggregate of 21,959,490 shares of
Common Stock, constituting 63.4% of all of the outstanding shares of Common
Stock. Elliott currently holds the following securities of the Issuer:
- 71,857 shares of Common Stock held outright,
- $833,334 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 3,431,436 shares of Common Stock,
- $1,111,111 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 4,503,345 shares of Common Stock,
- $1,288,889 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 5,268,788 shares of Common
Stock,
- $277,778 face amount of the Issuer's 10% Notes due January
2, 2001 ("10% Notes") which are presently convertible into 1,111,112 shares of
Common Stock,
- Warrants expiring on November 5, 2004 ($.25 strike price)
presently exercisable for 111,111 shares of Common Stock ("10% Warrants")
- Warrants expiring on March 31, 2002 ($.25 strike price)
presently exercisable for 333,334 shares of Common Stock ("6% Warrants"),
- Warrants expiring on March 31, 2002 ($.25 strike price)
presently exercisable for 555,556 shares of Common Stock ("Amended 2%
Warrants"),
- Warrants expiring on May 15, 2001 ($.25 strike price)
presently exercisable for 444,444 shares of Common Stock ("2% Warrants"),
- Warrants expiring on October 29, 2001 ($.25 strike price)
presently exercisable for 17,391 shares of Common Stock,
- Option to purchase from the Issuer for $1,388,890 (i) 10%
Warrants exercisable for 555,556 shares of Common Stock, and (ii) 10% Notes
convertible into 5,555,560 shares of Common Stock.
The amount of shares of Common Stock into which Elliott, Westgate, and
Martley'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 Elliott, Westgate and Martley together having beneficial ownership of
Common Stock not exceeding 9.9% of all of the outstanding shares of Common Stock
(the "Ownership Limitation"). However, the Ownership Limitation is suspended
during any periods when Elliott, Westgate and Martley have the status of
"director" or "director by deputization" of the Issuer for purposes of Section
16 under the Securities Exchange Act of 1934, as amended, as is currently the
case due to the election of Messrs. Brodsky and Perlman to the Board.
Together, Westgate and Martley beneficially own an aggregate of
21,959,585 shares of Common Stock, constituting 63.4% of all of the outstanding
shares of Common Stock. Westgate and Martley currently hold the following
securities of the Issuer:
- 71,957 shares of Common Stock held outright,
- $833,333 face amount of 6% Notes which, together with
accrued interest thereon, are presently convertible into 3,431,432 shares of
Common Stock,
- $1,111,111 face amount of 2% Notes which, together with
accrued interest thereon, are presently convertible into 4,503,345 shares of
Common Stock,
- $1,288,889 face amount of Amended 2% Notes which, together
with accrued interest thereon, are presently convertible into 5,268,788 shares
of Common Stock,
- $277,778 face amount of 10% Notes which are presently
convertible into 1,111,112 shares of Common Stock,
- 10% Warrants presently exercisable for 111,111 shares of
Common Stock,
- 6% Warrants presently exercisable for 333,333 shares of
Common Stock,
- Amended 2% Warrants presently exercisable for 555,555
shares of Common
Stock,
- 2% Warrants presently exercisable for 444,445 shares of
Common Stock, and
- Warrants expiring on October 29, 2001 ($.25 strike price)
presently exercisable for 17,391 shares of Common Stock, and
- Option to purchase from the Issuer for $1,388,890 (i)
additional 10% Warrants exercisable for 555,556 shares of Common Stock, and (ii)
$1,388,890 face amount of 10% Notes convertible into 5,555,560 shares of Common
Stock.
Elliott, Westgate and Martley's aggregate beneficial ownership of
Common Stock equals 43,919,075 shares, comprising 77.7% of all of the
outstanding shares of Common Stock.
(b) Elliott has the power to vote or direct the vote of, and to dispose
or direct the disposition of, the shares of Common Stock beneficially owned by
it.
Westgate has the shared power with Martley to vote or direct the vote
of, and to dispose or direct the disposition of, the shares of Common Stock
owned by Westgate. Information regarding each of Westgate and Martley is set
forth in Item 2 of this Schedule 13D and is expressly incorporated by reference
herein.
(c) The following transactions were effected by Elliott during the past
sixty (60) days:
Approx. Price per
Amount of Shs. Share (excl. of
Date Security Bought (Sold) commissions)
11/5/99 10% Notes $277,778(face amt) *
11/5/99 10% Warrants 111,111 *
11/5/99 Option $1,388,890(face amt) *
10% Notes, and
555,556 10% Warrants
* Elliott purchased the 10% Notes, 10% Warrants and the Option
beneficially owned by it for an aggregate price of $277,778.
The above transactions were effected by Elliott directly with the
Issuer.
The following transactions were effected by Westgate during the past
sixty (60) days:
Approx. Price per
Amount of Shs. Share (excl. of
Date Security Bought (Sold) commissions)
11/5/99 10% Notes $277,778(face amt) **
11/5/99 10% Warrants 111,111 **
11/5/99 Option $1,388,890(face amt) **
10% Notes, and
555,556 10% Warrants
** Westgate purchased the 10% Notes, 10% Warrants and the Option
beneficially owned by it for an aggregate price of $277,778.
The above transactions were effected by Westgate directly with the
Issuer.
No other transactions were effected by either Elliott or Westgate
during the past sixty (60) days.
The increase in Elliott's and Westgate's beneficial ownership of Common
Stock is due to (i) the repricing of the exercise and conversion prices of the
Issuer's notes and warrants held by Elliott and Westgate pursuant to the
Investment Agreement, (ii) Elliott's and Westgate's purchase of additional notes
and warrants under the terms of the Investment Agreement, and (iii) the
suspension of the Ownership Limitation due to the election of Mark Brodsky and
Samuel Perlman to the Board.
(d) No person other than Elliott has the right to receive or the power
to direct the receipt of dividends from, or the proceeds from the sale of, the
shares of Common Stock beneficially owned by Elliott.
No person other than Westgate and Martley has the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the sale
of, the shares of Common Stock beneficially owned by Westgate and Martley.
(e) Not applicable.
ITEM 7. Material to be Filed as Exhibits.
EXHIBIT B - Letter Agreement among the Issuer, Elliott, Westgate and
Alexander dated as of November 5, 1999.
EXHIBIT C - Security Agreement among the Issuer, Elliott, Westgate and
Alexander dated as of November 5, 1999.
EXHIBIT D - Letter Agreement among the Issuer, Elliott, Westgate and
Alexander dated as of November 5, 1999 regarding the modification of covenants.
<PAGE>
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
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul E. Singer
Paul E. Singer
General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
as attorney-in-fact
By: /s/ Paul E. Singer
Paul E. Singer
President
MARTLEY INTERNATIONAL, INC.
By: /s/ Paul E. Singer
Paul E. Singer
President
<PAGE>
EXHIBIT B
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: 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.
(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 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
designating the undersigned's selections to vacancies (created through
resignations, removals or if necessary by increasing the size 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 appoint 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 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 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
on 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 "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 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 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
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 equal to 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 the Notes other
than the New Notes shall be an Event of 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.
(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>
Schedule I
Purchase Credit against Principal Amount
Purchaser Price Purchase Price of New Notes Amount of
Purchased New Warrants
Purchased
Elliott Associates, L.P. $277,778 $26,131.64 $277,778 111,111
Westgate International, $277,778 $26,131.63 $277,778 111,111
L.P.
Alexander Finance, LP $444,444 $444,444 177,778
<PAGE>
SCHEDULE 13D
Page 33 of 33
Schedule II
[to be prepared by the Company]
<PAGE>
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 and immediately upon
written 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 (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>
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, an 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
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 to 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 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, the
Registration Rights Agreements dated as of May 15, 1998 and March 31, 1999 by
and among the Company, 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.
(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 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
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 or 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 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.
<PAGE>
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>
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-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>
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/
