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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 5, 1999
Illinois Superconductor Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-22302 36-3688459
- ---------------------------- ----------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
451 Kingston Court, Mt. Prospect, Illinois 60056
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 391-9400
(Former name or former address, if changed since last report.)
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Item 1. Changes in Control of Registrant.
(a) On November 5, 1999, Illinois Superconductor Corporation (the
"Company") entered into and closed a letter agreement ("Letter Agreement") with
Elliott Associates, L.P., Westgate International, L.P. and Alexander Finance,
L.P. (the "Investors"). The effect of the Letter Agreement and related matters,
including changes in the membership of the Company's Board of Directors
described below, may be an acquisition of control of the Company by the
Investors and/or their designees to the Board of Directors of the Company, from
the Board of Directors of the Company as previously constituted.
Under the Letter Agreement and related agreements between the Company
and the Investors, the Investors from their general funds collectively invested
$1.0 million in the Company in a transaction in which the Investors acquired:
- $1.0 million in aggregate initial principal amount of senior
convertible notes, bearing annual interest at 10% payable in kind
or at the Company's option (or if the Company does not meet certain
requirements commencing November 5, 2000), in cash, which notes
("New Notes") are convertible (based on their principal amount plus
accrued interest to the extent such interest is paid in kind) into
Company common stock at a conversion price of $0.25 per share, and
mature in January 2, 2001;
- five year warrants ("New Warrants") exercisable for an aggregate of
400,000 shares of Company common stock at an exercise price of
$0.25 per share;
- the right, but not the obligation, to invest up to an additional $5
million during the next nine months (on the same terms as their
acquisition of the New Notes and the New Warrants.)
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Except for terms specified in the Letter Agreement, the New Notes and New
Warrants have the same terms as the Notes and Warrants issued by the Company in
March, 1999.
The Letter Agreement also reduces to $.25 per share the conversion and
exercise prices, respectively, of (i) $11.8 million in aggregate principal
amount of outstanding senior convertible notes ("Old Notes") and (ii) Warrants
to acquire 4,834,782 shares ("Old Warrants") held by the Investors. The Old
Notes and Old Warrants originally were issued in May 1998 and March 1999 and, in
the case of the Old Warrants, October, 1997. The New Notes and the Old Notes as
amended are secured by a pledge of the Company's assets (subject to a first lien
in favor of the Company's factor, Franklin Capital Corporation, on up to $1
million in receivables and inventory).
After reserving for shares of Common Stock currently outstanding and shares
that the Company was already obligated to issue prior to entering into the
Letter Agreement, the Company would not have sufficient shares authorized in the
event that all outstanding Old Notes (as amended), New Notes, Old Warrants (as
amended) New Warrants and other outstanding notes and warrants of the Company
(collectively, "the Notes and Warrants") were converted or exercised, as the
case may be. Accordingly unless, and until the charter amendment described below
is effected, the Letter Agreement (as amended by a letter dated November 12,
1999) limits the Company's obligation to issue shares upon conversion and
exercise of the Notes and warrants currently held by the Investors regardless of
whether transferred at any time ("Investor Notes and Warrants") to the number of
shares equal to the difference between the 60 million shares that the Company
has authorized and the sum of (i) the number of shares and shares subject to
options outstanding on November 5, 1999 (ii) the number of shares subject to
additional options granted under the Company's 1993 Stock Option Plan, as
amended through June, 1999 ("Plan"), (iii) the number of shares subject to any
options granted outside the Plan with the written consent of the Investors, and
(iv) the number of shares (including with respect to in-kind interest payments
paid and to be paid through November 5, 2000,) that the Notes and Warrants other
than the Investor Notes and Warrants carry the right to acquire. Consistent with
its obligations under the Letter Agreement, the Company's Board of Directors has
approved an amendment to its Certificate of Incorporation, to be submitted to
stockholders for their approval at their annual meeting in 2000, increasing the
number of authorized shares to 120 million. If the charter amendment is not
adopted prior to June 30, 2000 (upon which adoption the limitation on conversion
and exercise by the Investors is eliminated), the Investors would have the right
to have their Notes redeemed. Prior to
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effectiveness of the Charter Amendment, the Investors collectively have the
right to acquire approximately 77% of the Company's outstanding Common Stock,
calculated in accordance with Rule 13d-3 under the Securities Exchange Act.
The Letter Agreement also grants the Investors certain registration
rights with respect to the Common Stock issuable on the conversion of the New
Notes and exercise of the New Warrants.
A separate agreement with the Investors restricts the Company's
ability to incur additional debt and defers from the second quarter of 2000 to
the second quarter of 2001 the Company's obligation to achieve break-even
or positive operating income; if the Company fails to meet that obligation, the
Investors will have the right to redeem the Old Notes.
(b) The Letter Agreement granted the Investors the right to designate
for selection as members of the Company's Board of Directors up to two-thirds of
the Company's Board of Directors and affords the Investors the right to
accelerate the New Notes and the Old Notes in the event that, with certain
exceptions, and after specified periods, such selections are not appointed or
elected as directors. The Board of Directors accepted the resignations of board
members Robert Mitchum and Terry Parker on November 5, 1999, expanded the Board
to six members and, effective November 8, 1999, appointed Mark Brodsky and Sam
Perlman of Elliott Associates and George Calhoun of Divinci Partners, each a
designee of the Investors, to the Company's board of directors. Mr. Howard
Hoffman, who was designated by the Investors in July, 1998 to be a director of
the Company, has served on the Board since that time and continues as a
Director.
(c) Not Applicable, except as indicated in (a) and (b), above.
******
The description of the Letter Agreement and the transactions
contemplated thereby contained in this Item 1 is qualified by reference to (i)
such Letter Agreement and related
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documents, filed as Exhibits 10(a), 10(b), 10(c) and 10(f) hereto and
incorporated herein by reference, and (ii) the forms of the Notes and Warrants
issued by the Company in March, 1999, which forms are incorporated herein by
reference. The disclosure concerning forward looking statements contained in the
last paragraph of Exhibit 99.1 to this Form 8-K is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
Exhibit 10(a): Letter Agreement, dated November 5, 1999, by and among
the Company and Elliott Associates, L.P., Westgate International, L.P. and
Alexander Finance, L.P. (the "Investors"). Exhibit 10(b): Letter Agreement re
Modification of Covenants, dated November 5, 1999, by and among the Company and
(the "Investors").
Exhibit 10(c): Security Agreement, dated November 5, 1999, by and
among the Company and the Investors.
Exhibit 10(d): Form of 6% Senior Convertible Note due May 15, 2002,
issued by the Company in March, 1999 (incorporated by reference to Exhibit 4.18
to the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
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Exhibit 10(e): Form of Warrant dated March 31, 1999 (incorporated
by reference to Exhibit 4.19 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998).
Exhibit 10(f): Form of Letter Agreement dated November 12, 1999,
amending the Letter Agreement filed as Exhibit 10(a).
Exhibit 99.1: Press Release issued by Illinois Superconductor
Corporation (the "Company") on November 5, 1999, announcing the completion of
the $1.0 million fixed price convertible debt financing, and changes to the
Company's Board of Directors.
******
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ CYNTHIA QUIGLEY
--------------------------------
Cynthia Quigley
Acting Chief Financial Officer
Date: November 12, 1999
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
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Exhibit 10(a) Letter Agreement, dated November 5, 1999, by and among
the Company and Elliott Associates, L.P., Westgate
International, L.P. and Alexander Finance, L.P. (the
"Investors").
Exhibit 10(b) Letter Agreement re Modification of Covenants, dated
November 5, 1999, by and among the Company and the Investors.
Exhibit 10(c) Security Agreement, dated November 5, 1999, by and among
the Company and the Investors
Exhibit 10(d): Form of 6% Senior Convertible Note due May 15, 2002 issued by
the Company in March, 1999 (incorporated by reference to
Exhibit 4.18 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
Exhibit 10(e): Form of Warrant dated March 31, 1999 (incorporated by
reference to Exhibit 4.19 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998).
Exhibit 10(f): Form of Letter Agreement amending the Letter Agreement filed as
Exhibit 10(a).
Exhibit 99.1 Press Release issued by Illinois Superconductor Corporation
(the "Company") on November 5, 1999, announcing the completion
of the $1.0 million fixed price convertible debt financing,
and changes to the Company's Board of Directors.
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EXHIBIT 10-A
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
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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.
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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
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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
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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
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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.
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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:
--------------------------------------
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
--------------------------
ALEXANDER FINANCE, L.P.
By:
----------------------------------
AGREED TO AND ACCEPTED
ILLINOIS SUPERCONDUCTOR CORPORATION
By:
-------------------------------
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SCHEDULE I
<TABLE>
<CAPTION>
CREDIT AGAINST PRINCIPAL AMOUNT OF AMOUNT OF
PURCHASER PURCHASE PRICE PURCHASE PRICE NEW NOTES PURCHASED NEW WARRANTS PURCHASED
- --------- -------------- -------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Elliott Associates, L.P. $277,778 $ 26,131.64 $277,778 111,111
Westgate International, L.P. $277,778 $ 26,131.63 $277,778 111,111
Alexander Finance, LP $444,444 $444,444 177,778
</TABLE>
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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
10
<PAGE> 10
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.
11
<PAGE> 1
EXHIBIT 10-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: 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).
<PAGE> 2
(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".
3. Governing Law. This Agreement shall be governed by the internal laws of the
State of New York.
2
<PAGE> 3
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:
------------------------------------
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
----------------------------
ALEXANDER FINANCE, L.P.
By:
------------------------------------
AGREED TO AND ACCEPTED
ILLINOIS SUPERCONDUCTOR CORPORATION
By:
-------------------------------
3
<PAGE> 1
EXHIBIT 10-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
<PAGE> 2
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
<PAGE> 3
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
<PAGE> 4
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.
<PAGE> 5
(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> 6
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:
Name:
Title:
ELLIOTT ASSOCIATES, L.P.
By:
Name:
Title:
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
Name:
Title:
ALEXANDER FINANCE, L.P.
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10(f)
November 12, 1999
Illinois Superconductor Corporation
451 Kingston Court
Mount Prospect, Illinois 60056
Ladies and Gentlemen:
This letter amends the letter agreement ("Agreement") captioned
"Additional Investment" by and among Elliott Associates, L.P., Westgate
International, L.P., and Alexander Finance, L.P. ("Investors") and Illinois
Superconductor Corporation ("Company"), dated November 5, 1999, by deleting the
last two sentences of Section 12 of the Agreement and replacing those sentences
with the following:
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 held by the undersigned on
the date of the Agreement after giving effect thereto and regardless of
whether such Notes and Warrants are transferred at any time (such Notes
and Warrants are the "Investor Notes and Warrants") shall represent a
right in the aggregate, allocated pro rata among them, to acquire
(including with respect to in-kind interest payments paid and to be
paid) that number of shares (but not more than that 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 (i) the number of shares and shares subject to options
outstanding on the date hereof, (ii) the number of shares subject to
additional options granted under the Illinois Superconductor
Corporation 1993 Stock Option Plan, as amended through June, 1999
("Plan"), (iii) the number of shares subject to any options granted
outside the Plan with the written consent of the undersigned, and (iv)
the number of shares (including with respect to in-kind interest
payments paid and to be paid through November 5, 2000) that the Notes
and Warrants other than the Investor Notes and Warrants carry the right
to acquire.
<PAGE> 2
This letter amending the Agreement may be executed in multiple
counterparts which together shall constitute the amendment to the Agreement. As
modified herein, the documents relating to the Notes and Warrants remain in full
force and effect.
Sincerely,
ELLIOTT ASSOCIATES, L.P.
By:
---------------------------
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
-----------------------
ALEXANDER FINANCE, L.P.
By:
---------------------------
AGREED TO AND ACCEPTED:
ILLINOIS SUPERCONDUCTOR CORPORATION
By:
--------------------------------
<PAGE> 1
EXHIBIT 99.1
.
ILLINOIS NEWS .
SUPERCONDUCTOR .
CORP. . RELEASE
.
FOR IMMEDIATE RELEASE CONTACT: Monique Showalter
AS OF 11/05/99 at 5 PM CST PHONE: (847) 391-9426
INTERNET: [email protected]
ILLINOIS SUPERCONDUCTOR
ANNOUNCES NEW $1 MILLION FINANCING AND CHANGES TO ITS BOARD
OF DIRECTORS
Mount Prospect, IL (November 5, 1999) -- Illinois Superconductor
Corporation (OTC BB: ISCO), a leading supplier of superconducting technology
for the wireless telecommunications industry, today announced the completion of
a new privately placed $1 million fixed price convertible debt financing
facility as well as changes to the composition of its board of directors.
Under the terms of the new financing, ISC issued $1.0 million
in aggregate initial principal amount of senior convertible notes to a
syndicate which consists of Alexander Finance, LP, Elliott Associates, L.P.,
and Westgate International, L.P. The new notes accrue interest at 10%, which is
payable in-kind or at the Company's option in cash, are convertible into ISC
common stock at a conversion price of $0.25 per share, and mature on January 2,
2001 In connection with the issuance of the new notes, ISC also
-more-
<PAGE> 2
ILLINOIS SUPERCONDUCTOR CORP.
Company Announces New Financing & Change in Board Membership
November 5, 1999, 5PM CST
PAGE -2-
issued warrants exercisable for an aggregate of 400,000 shares of ISC common
stock at an exercise price of $ 0.25 per share. The investors have the right,
but not the obligation, to invest an additional $5 million during the next nine
months on the same terms.
Concurrently with the issuance of the new notes, ISC amended certain
terms of $12 million in aggregate principal amount of outstanding senior
convertible notes which were issued in May 1998 and March 1999 to Alexander,
Elliott, and Westgate, as well as terms for warrants previously issued to such
investors. The fixed conversion price for the amended notes was reduced to
$0.25 per share. In addition, the exercise price for the amended warrants was
reduced to $0.25 per share. With this new financing and amendment of previous
notes and warrants, Alexander, Elliott and Westgate now hold notes and warrants
exercisable for an aggregate of 57.2 million shares of ISC common stock. The
new and amended notes are also secured by a pledge of ISC's assets.
Furthermore, Alexander, Elliott and Westgate were granted the right to
designate for approval by the Company's Board of Directors up to 2/3rds of the
Company's Board of Directors and the Company has agreed to not assume other
debt without the permission of the investors. The financing proceeds will be
used for working capital and general corporate purposes.
ISC also announced the appointment effective November 8, 1999 of Mark
Brodsky and Sam Perlman of Elliott Associates and George Calhoun of Davinci
Solutions to the Company's board of directors and the resignation of board
members Robert Mitchum and Terry Parker. "ISC appreciates the service of these
talented and productive members of the board," commented Mr. Laves. "We
extend our sincere thanks to them for their contributions to the growth of the
Company." With these changes, the size of ISC's board of directors has been
increased from five to six directors. Illinois Superconductor Corporation is a
leader in the commercialization of high temperature superconducting technology
for the wireless telecommunications industry. The Company develops,
manufactures and markets radio frequency (RF) products to enhance the quality
and capacity of cellular telephone, personal communications services and other
wireless
<PAGE> 3
ILLINOIS SUPERCONDUCTOR CORP.
Company Announces New Financing & Change in Board Membership
November 5, 1999, 5PM CST
PAGE -3-
telecommunications services. More information about Illinois Superconductor is
available on the Company's internet web site at http://www.ilsc.com.
Statements contained in this news release that are not historical facts are
forward-looking statements. Such forward-looking statements reflect the
Company's current expectations regarding the future results of operations,
performance and achievements of the Company. The Company has tried, whenever
possible, to identify these forward-looking statements by using words such as
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions. These statements reflect the Company's current beliefs and
are based on information currently available to it. Accordingly, these
statements are subject to certain risks, uncertainties, and contingencies which
could cause the Company's actual results, performance or achievements for 1999
and beyond to differ materially from those expressed in, or implied by, such
statements. These important factors include, without limitation, the Company's
ability to obtain additional financing in the near future; the Company's history
of net losses and the lack of assurance that the Company's earnings will be
sufficient to cover fixed charges in the future; the degree to which the Company
is leveraged; the fact that its assets are pledged and restrictions imposed on
the Company under its existing debt instruments which may adversely affect the
Company's ability to finance its future operations; uncertainty about the
Company's ability to compete effectively against better capitalized competitors
and to withstand downturns in its business or the economy generally; the adverse
effects on liquidity of the Company's common stock and acceptance of the
Company's products because of its de-listing from the Nasdaq National Market in
June 1999; the Company's ability to obtain additional funding as needed;
continued downward pressure on the prices charged for the Company's products due
to the competition of rival manufacturers of front end systems for the wireless
telecommunications market; the timing and receipt of customer orders; the
Company's inability to attract and retain key personnel; and the effects of
legal proceedings. A more complete description of these risks, uncertainties and
assumptions are included in the Company's filings with the Securities and
Exchange Commission, including those described under the heading "Risk Factors"
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, and those disclosed under the heading "Risk Factors" in the Company's
Registration Statement on Form S-2, as amended, filed on July 9, 1999. The
Company undertakes no obligation to update or revise these forward-looking
statements to reflect new events or uncertainties.
####
