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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ILLINOIS SUPERCONDUCTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3688459
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EDWARD W. LAVES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
LAWRENCE D. LEVIN, ESQ.
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661
(312) 902-5200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE COMBINED
PROSPECTUS CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATES TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REG. NO. 333-56601), WHICH
REGISTERED 11,592,000 SHARES OF THE REGISTRANT'S COMMON STOCK AND WAS DECLARED
EFFECTIVE BY THE COMMISSION ON AUGUST 13, 1998.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
(including preferred stock purchase rights) 6,790,683 shares $.6719(1) $ 4,562,660 (1) $1,269
Common Stock, $.001 par value (including
preferred stock purchase rights) 11,592,000 shares (2) (3) $25,006,548 (3) $7,457(4)
Total 18,382,683 shares (5) -- -- $8,726
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of the
average of the high and low prices of the Common Stock as reported by the
Nasdaq National Market on April 26, 1999.
(2) Represents the number of shares of Common Stock which were registered
on the Registrant's Registration Statement on Form S-3 (Reg. No. 333-56601).
(3) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of the
average of the high and low prices of the Common Stock as reported by the
Nasdaq National Market (1) on June 8, 1998 ($2.19) with respect to 11,418,515
of the shares and (2) on July 28, 1998 ($1.5625) with respect to 173,485 of the
shares.
(4) This fee has previously been paid by the Registrant.
(5) Pursuant to Rule 416 under the Securities Act of 1933, this
Registration Statement also covers such additional shares of Common Stock
issuable in connection with the shares registered for sale hereby by reason of
any stock split, stock dividend, recapitalization, or other similar transaction
effected without the receipt of consideration which results in an increase in
the outstanding shares of Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell, and is not soliciting an offer to buy, these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated April 29, 1999
PROSPECTUS
18,382,683 Shares
[ILLINOIS SUPERCONDUCTOR LOGO]
Common Stock
This prospectus relates to the offer and sale from time to time of up to
18,382,683 shares of our common stock (including preferred stock purchase
rights) by our stockholders specified in this prospectus under the caption
"Selling Stockholder" or their pledgees, donees, transferees or other
successors in interest. We will issue the shares upon conversion of senior
convertible notes and exercise of certain warrants held by the selling
stockholders. We will not receive any proceeds from the sale of such shares,
but we will receive proceeds from the exercise of the warrants.
Our common stock is traded on the Nasdaq National Market under the symbol
"ISCO." On April 28, 1999, the closing price of our common stock as reported on
the Nasdaq National Market was $0.6563 per share. Our principal executive
offices are located at 451 Kingston Court, Mt. Prospect, Illinois 60056 and our
telephone number at that address is (847) 391-9400.
AN INVESTMENT IN THE SHARES OFFERED HEREBY ENTAILS A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR INFORMATION THAT YOU SHOULD CONSIDER
BEFORE PURCHASING THE SHARES OFFERED BY THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus if truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this Prospectus is ___________, 1999
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RISK FACTORS
Because we want to provide you with more meaningful and useful
information, this prospectus contains, and incorporates by reference, certain
forward-looking statements, as such term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
that reflect our current expectations regarding our future results of
operations, performance and achievements. We intend for such forward-looking
statements to be covered by the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. We have tried, wherever possible, to
identify these forward-looking statements by using words such as "anticipates,"
"believes," "estimates," "expects" "plans," "intends" and similar expressions.
These statements reflect our current beliefs and are based on information
currently available to us. Accordingly, these statements are subject to certain
risks, uncertainties and contingencies, including the factors set forth in the
risks and uncertainties described below, which could cause our actual results,
performance or achievements for 1999 and beyond to differ materially from those
expressed in, or implied by, any of these statements. We undertake no
obligation to release publicly the results of any revisions to any such
forward-looking statements that may be made to reflect events or circumstances
after the date of this prospectus or to reflect the occurrence of unanticipated
events.
An investment in the shares of our common stock entails a high degree of
risk. You should carefully consider the following risks and uncertainties, and
all other information contained or incorporated by reference in this
prospectus, before purchasing the shares of our common stock offered by this
prospectus. Any of the following risks could materially adversely affect our
business, operating results or financial condition and could result in a
complete loss of your investment.
OUR SUPERCONDUCTING TELECOMMUNICATIONS PRODUCTS MAY NEVER ACHIEVE MARKET
ACCEPTANCE
Our radio frequency, or RF, filter products, which are based on our
patented and proprietary high-temperature superconducting, or HTS, technology,
have not been sold in very large quantities and a sufficient market may not
develop for such products. Our RF filter products may not continue to meet the
demanding product performance and reliability criteria set by cellular and
Personal Communications Services, or PCS, service providers. Also, our products
may not operate reliably on a long-term basis. Repeated or widespread quality
problems could result in significant warranty expenses and/or the loss of
customer confidence. Failure to successfully develop, manufacture and
commercialize products on a timely and cost-effective basis will have a
material adverse effect on our business, operating results and financial
condition.
WE HAVE A LIMITED OPERATING HISTORY; WE HAVE A HISTORY OF SIGNIFICANT LOSSES
AND MAY NEVER BE PROFITABLE
We have only recently begun to generate significant revenues from the sale
of our RF filter products and do not expect revenues to increase dramatically
until we ship a significantly larger amount of our RF products. Accordingly, we
have only a limited operating history upon which an evaluation of our business
and prospects can be based. We must therefore be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stages of product commercialization.
We have incurred substantial net losses in each year since our inception
and expect to continue to incur operating losses through at least the end of
1999. We must overcome significant manufacturing and marketing hurdles to sell
large quantities of our RF filter products. In order to continue to grow
revenues, we may be required to further reduce the prices of our products. In
the event of further price reductions, we may not be able to reduce product
costs sufficiently to achieve acceptable product margins. We may never achieve
profitability or, if profitability is achieved, we may not sustain it.
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INSUFFICIENT FUNDING MAY PREVENT COMMERCIALIZATION OF OUR PRODUCTS; WE MAY BE
UNABLE TO CONTINUE AS A GOING CONCERN
We will require substantial additional funds during the third quarter of
1999 to finance our product development, manufacturing, marketing and sales
activities. If adequate financing is not available on acceptable terms when
needed, we (1) will be required to substantially delay, scale-back or eliminate
the manufacturing, marketing or sales of one or more of our products or
research and development programs or (2) may be required to obtain funds
through arrangements with collaborative partners or others that may require us
to relinquish rights to certain of our technologies or potential products that
we would not otherwise relinquish. In particular, if we do not secure adequate
financing prior to or during the third quarter of 1999, we will have to
substantially reduce our operating plans in order to continue our operations
beyond such date. This would materially adversely affect our business,
operating results and financial condition and impair our ability to compete in
the marketplace.
The report of our independent auditors on our financial statements which
are incorporated by reference into this prospectus contain an explanatory
paragraph that states that we have suffered ongoing operating losses and do not
currently have financing commitments in place to meet expected cash
requirements through 1999. These matters raise substantial doubt about our
ability to continue as a going concern. Our financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Our outstanding debt instruments contain certain restrictions which may
adversely impair our ability to obtain additional financing. See "We Currently
Have Significant Indebtedness with Significant Restrictions" below. In
addition, we currently have a limited number of unreserved authorized shares of
our common stock available for future issuance in connection with financings.
We plan to request that our stockholders approve an increase in the number of
authorized shares at their upcoming annual meeting scheduled for June 1999.
Failure to obtain this approval would limit our ability to raise sufficient
funds to support our business plans. If we raise additional funds by issuing
more common stock or securities convertible into or exercisable for common
stock, our stockholders will probably suffer further dilution.
IF OUR COMMON STOCK IS DELISTED FROM THE NASDAQ NATIONAL MARKET, IT WOULD BE
MORE DIFFICULT FOR STOCKHOLDERS TO SELL SHARES OF OUR COMMON STOCK
We currently do not meet the net tangible assets requirement for continued
listing of our common stock for trading on the Nasdaq National Market. In
addition, the closing price of our common stock as reported on the Nasdaq
National Market has remained below $1.00 per share since March 31, 1999.
Therefore, Nasdaq has recently notified us that our common stock is scheduled
to be delisted for trading on the Nasdaq National Market. We have requested an
oral hearing to appeal Nasdaq's determination. This will stay the delisting
action pending a final decision by Nasdaq. Our appeal may not be successful
and, therefore, our common stock may be delisted for trading on the Nasdaq
National Market in the near future. Such delisting would have a material
adverse effect on the trading market for our common stock and the liquidity of
such market. It could also materially hinder our ability to obtain additional
funding as needed, especially if we do not list our common stock for trading on
another securities market or exchange soon after such delisting.
WE CURRENTLY HAVE SIGNIFICANT INDEBTEDNESS WITH SIGNIFICANT RESTRICTIONS
As of March 31, 1999, our ratio of total debt to total capitalization was
approximately 103%. Our indebtedness primarily consists of senior convertible
notes held by the selling stockholders. The substantial degree to which we are
leveraged may adversely affect our ability to finance our future operations, to
compete effectively against better capitalized competitors and to withstand
downturns in our business or the economy generally. Although our outstanding
senior
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convertible notes currently permit, subject to certain restrictions, us to pay
accrued interest on such securities in shares of our common stock, we may not
be permitted to do so in the future. Our business may not generate sufficient
cash flow, or we may not be able to raise sufficient additional funds, to pay
such interest in cash which may cause the outstanding senior convertible notes
to become due and payable immediately. In addition, the outstanding senior
convertible notes contain restrictions that may adversely affect our ability to
obtain additional equity or debt financing. Under the senior convertible notes,
we are not permitted, without the prior approval of the holders of the senior
convertible notes:
o to incur any additional indebtedness, other than pursuant to a working
capital line of credit in an amount not to exceed $1 million or to trade
creditors in the ordinary course of business;
o to create any lien, pledge, or encumbrance, subject to certain exceptions,
on any of our assets;
o for so long as a significant portion of the senior convertible notes
remain outstanding, to engage in certain sale or merger transactions, or
to engage in certain other transactions which require the approval of our
stockholders;
o to redeem, purchase or otherwise acquire any of our equity or debt
securities which are junior in rights or preferences to the senior
convertible notes; or
o to pay any dividend, other than in shares of common stock, with respect to
such junior securities.
In addition, in the event that we fail to achieve break-even or positive
operating income during the second quarter of 2000, the outstanding senior
convertible notes may become immediately due and payable unless the holders
agree to modify or waive such provision. Furthermore, for so long as the amount
of our common stock issuable upon conversion of the senior convertible notes
represents 5% or more of the total then outstanding shares of our common stock,
the holders of the senior convertible notes have the right to designate two
members for election to our Board of Directors.
OUR COMMON STOCK PRICE HAS FLUCTUATED, AND MAY CONTINUE TO FLUCTUATE, OVER A
WIDE RANGE
The market price of our common stock, like that of many other
high-technology companies, has fluctuated significantly and is likely to
continue to fluctuate in the future. Since January 1, 1998, the closing price
of our common stock has ranged from a low of $0.63 per share to a high of $3.31
per share. We believe the following factors could cause the market price of our
common stock to fluctuate significantly:
o actual or anticipated quarterly variations in our operating results as our
products attempt to gain market acceptance;
o our funding requirements and the terms of additional equity or debt
financings;
o announcements by us or competitors regarding the receipt of customer
orders;
o the sale of a substantial number of shares of our common stock by the
selling stockholders upon the conversion of a substantial portion of the
senior convertible notes and/or the exercise of a substantial portion of
the warrants;
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o changes in earnings estimates or recommendations by securities analysts;
o results of our customer field trials;
o announcements by us or competitors of product developments, technological
innovations or new collaborations;
o the delisting of our common stock for trading on the Nasdaq National
Market;
o the settlement or resolution of our litigation;
o new government regulations applicable to the wireless telecommunications
industry; and
o general market conditions.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING, MARKETING AND SALES
For us to be financially successful, we must manufacture our products in
substantial quantities, at acceptable costs and on a timely basis. We have only
produced limited quantities of our products for commercial installations and
for use in development and customer field trial programs. Production of large
quantities of our products at competitive costs present a number of
technological and engineering challenges for us. We may be unable to
manufacture such products in sufficient volume and may incur substantial costs
and expenses in connection with manufacturing larger quantities of our
products. We may be unable to make the transition to large scale commercial
production successfully.
We must further develop our marketing and sales force in order to
effectively demonstrate the advantages of our products over more traditional
products and competitive superconductive products. We may also elect to enter
into agreements or relationships with third parties regarding the
commercialization or marketing of our products. If we enter into such
agreements or relationships, we will be substantially dependent upon the
efforts of others in deriving commercial benefits from our products. We may be
unable to establish adequate sales and distribution capabilities, we may be
unable to enter into marketing agreements or relationships with third parties
on financially acceptable terms, and any third parties with whom we enter into
such arrangements may not be successful in marketing our products.
THE WIRELESS TELECOMMUNICATIONS EQUIPMENT MARKET IS VERY COMPETITIVE
In cellular and PCS telecommunications applications, we compete with
conventional RF component manufacturers whose products are currently used by
our potential customers. Many of these companies with which we compete have
substantially greater financial resources, larger research and development
staffs and greater manufacturing and marketing capabilities than us. Other
emerging wireless technologies, including "smart antennas" and tower mounted
amplifiers, may also provide protection from RF interference and offer enhanced
range to cellular and PCS service providers at lower prices and/or superior
performance. High performance RF filters may not become a preferred technology
to address the needs of cellular and PCS service providers. Failure of our
products to improve performance sufficiently, reliably, or at an acceptable
price, to achieve commercial acceptance or to otherwise successfully compete
with conventional and new technologies will have a material adverse effect on
our business, operating results and financial condition.
Although the market for superconductive electronics currently is small and
in the early stages of development, we believe it will become intensely
competitive, especially if products with
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significant market potential are successfully developed. In addition, if the
superconducting industry develops, additional competitors with significantly
greater resources are likely to enter the field. In order to compete
successfully, we must:
o continue to develop and maintain technologically advanced products;
o manufacture and market our products in commercial quantities, either alone
or with third parties;
o reduce production costs;
o attract and retain highly qualified personnel; and
o obtain additional patent or other intellectual property rights protection
for our technology and products.
We may be unable to achieve these objectives. Our failure to achieve these
objectives would have a material adverse effect on our business, operating
results and financial condition.
During the fourth quarter of 1998, we implemented a new pricing strategy
pursuant to which we reduced the prices for all of our products. Although sales
of our products increased significantly during the fourth quarter of 1998, such
sales growth may not be sustained over subsequent periods. Similarly, we may be
unable to continue to reduce product costs sufficiently to achieve and maintain
acceptable product margins.
WE MAY BE UNABLE TO MANAGE OUR GROWTH
Our growth to date has caused, and will continue to cause, a significant
strain on our management, operational, financial and other resources. Our
ability to manage our growth effectively will require us to implement new, and
improve our current, operational, financial, manufacturing and management
information systems and better train, manage and motivate our employees. These
demands may require the addition of new management personnel and the
development of additional expertise by management. Any increase in resources
devoted to product development and marketing and sales efforts could have an
adverse effect on our financial performance in the next several fiscal
quarters. If we receive substantial orders, we may have to expand our current
facility, which could cause an additional strain on our management personnel
and development resources. The failure of our management team to effectively
manage growth could have a material adverse effect on our business, operating
results and financial condition.
COMPETING TECHNOLOGIES MAY RENDER OUR PRODUCTS NONCOMPETITIVE OR OBSOLETE
Our success will depend in large part upon our ability to keep pace with
rapidly advancing superconducting technology, high performance RF filter design
and efficient, low cost cryogenic technologies. The Federal Communications
Commission, or FCC, has adopted rules that provide preferential licensing
treatment for parties that develop communications services and technologies.
Therefore, our development efforts may be rendered obsolete by the adoption of
alternative solutions to current wireless operator problems or by technological
advances made by others. In addition, other materials or processes, including
other superconducting materials or fabrication processes, may prove more
advantageous for the commercialization of high performance wireless products
than the materials and processes selected by us.
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WE CURRENTLY FOCUS ON THE WIRELESS TELECOMMUNICATIONS MARKET, BUT MAY PURSUE
OTHER MARKET OPPORTUNITIES
We have selected the wireless telecommunications market, in particular the
cellular and PCS markets, as the first principal target market for our
superconductor-based products. The devotion of substantial resources to the
wireless telecommunications market makes us vulnerable to adverse changes in
this market. Adverse developments in the wireless telecommunications market,
which could come from a variety of sources, including future competition, new
technologies or regulatory decisions, could affect the competitive position of
wireless systems. In addition, the wireless telecommunications market is
currently experiencing an increasing rate of consolidation among the largest
wireless operators, which may cause a significant disruption and/or delay in
the sales of our products. Any adverse developments in the wireless
telecommunications market during the foreseeable future would have a material
adverse effect on our business, operating results and financial condition.
Because HTS product development is a new and emerging field, there may in
the future be new opportunities that are more attractive than those we have
initially identified for our targeted markets. As a result, we may elect in the
future to commit our resources to such other potentially more attractive market
opportunities. Such election may require us to limit or abandon our current
focus on developing, manufacturing, marketing and selling HTS products for
cellular, PCS and other telecommunications markets. The risks associated with
other markets may be different from the risks associated with the cellular, PCS
and other wireless telecommunications markets, and we may be unable to
successfully address such risks.
WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS, MANY OF WHICH HAVE LENGTHY SALES
CYCLES
To date, our marketing and sales efforts have focused on major cellular
service providers in retrofit applications and, to a lesser extent, on PCS
operators and cellular and PCS original equipment manufacturers. During 1998,
sales to three of our customers accounted for over 88% of our total revenues
for 1998. We expect that if our RF filter products achieve market acceptance, a
limited number of wireless service providers and OEMs will account for a
substantial portion of our revenue during any period. Sales of many of our RF
filter products depend in significant part upon the decision of prospective
customers and current customers to adopt and expand their use of our products.
Wireless service providers and our other customers are significantly larger
than, and are able to exert a high degree of influence over, us. We must
generally undergo lengthy approval and purchase processes with these customers,
which can take up to a year or more. Customers' orders and the length of their
approval and purchase processes are affected by a variety of factors,
including:
o the complexity of the product involved and new product introductions;
o the continued consolidation among our customers or potential customers;
o regulatory issues affecting customers;
o end user demand for wireless services;
o customer budgeting cycles;
o inventory levels;
o customer integration requirements;
o competitive conditions; and
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o general economic conditions.
The loss of one or more of our customers or our failure to attract new
customers would have a material adverse effect on our business, operating
results and financial condition. In addition, our inability to shorten
customers' approval and purchase processes could have a material adverse effect
on our business, operating results and financial condition.
WE DEPEND ON LIMITED SOURCES OF SUPPLY
Certain parts and components used in our RF filter products, including
substrates, vacuum components, and cryogenic refrigerators, are only available
from a limited number of sources and involve long lead times. Our reliance on
these limited source suppliers exposes us to certain risks and uncertainties,
including the possibility of a shortage or discontinuation of certain key
components and reduced control over delivery schedules, manufacturing
capabilities, quality and costs. Business disruption, production shortfalls or
financial difficulties of a limited source supplier could increase product
costs or reduce or eliminate the availability of such parts or components. In
such events, our inability to develop alternative sources of supply quickly and
on a cost-effective basis could materially impair our ability to manufacture
and deliver our products on a timely basis. This could result in the
cancellation of customer orders and have a material adverse effect on our
business, operating results and financial condition.
We have no guaranteed supply arrangements with our limited source
suppliers, do not maintain an extensive inventory of parts or components, and
customarily purchase parts and components pursuant to purchase orders placed
from time to time in the ordinary course of business. In the event of increases
in demand for our products, we may be required to stock certain long lead time
parts to satisfy customer requirements and in anticipation of future orders.
The failure of anticipated orders to materialize as forecasted could limit
resources available for other important purposes or accelerate our requirement
for additional funds. In addition, such excess inventory could become obsolete,
which could materially adversely affect our business, operating results and
financial condition.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND PATENTS
Our success will depend in part on our ability to obtain patent protection
for our products and processes, to preserve our trade secrets and to operate
without infringing upon the patent or other proprietary rights of others and
without breaching or otherwise losing rights in the technology licenses upon
which any of our products are based. We believe that, since the discovery of
HTS materials in 1986, a large number of patent applications have been filed
worldwide and many patents have been granted in the U.S. relating to HTS
materials, including yttrium barium copper oxide, which is the principal HTS
material in our present and currently proposed products, RF technologies and
other products and technologies that we are pursuing. The claims in those
patents often appear to overlap and there are interference proceedings pending
in the U.S. Patent and Trademark Office, not currently involving us, regarding
rights to inventions claimed in some of the HTS materials patent applications.
We believe there is a significant risk that current and potential competitors
and other third-parties have filed or will file patent applications for, or
have obtained or will obtain, patents or other proprietary rights relating to
materials, products or processes used or proposed to be used by us. In any such
case, to avoid infringement, we would have to either license such technologies
or design around any such patents. We may be unable to obtain licenses to such
technologies or, if obtainable, such licenses may not be available on terms
acceptable to us or we may be unable to successfully design around these
third-party patents.
The patent applications filed by us or by our licensors may not result in
issued patents or the scope and breadth of any claims allowed in any patents
issued to us or our licensors may not exclude
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competitors or provide competitive advantages to us. In addition, patents
issued to us, or our licensors, may not be held valid if subsequently
challenged or others may claim rights in the patents and other proprietary
technologies owned or licensed by us. Others may have developed or may in the
future develop similar products or technologies without violating any of our
proprietary rights. Furthermore, our loss of any license to technology that we
now have or acquire in the future may have a material adverse effect on our
business, operating results and financial condition. Participation in
litigation or patent office proceedings in the U.S. or other countries may be
necessary to enforce patents issued or licensed to us, to defend against
infringement claims made by others or to determine the ownership, scope or
validity of the proprietary rights of us and others. Such litigation could
result in substantial cost to us and diversion of our efforts. An adverse
outcome in any such proceedings could subject us to significant liabilities to
third parties, require us to seek licenses from third parties and/or require us
to cease using certain technologies. This could have a material adverse effect
on our business, operating results and financial condition.
OUR PRODUCTS AND OPERATIONS MUST COMPLY WITH GOVERNMENT REGULATIONS
The operation of base stations is subject to FCC licensing and the radio
equipment into which our products would be incorporated is subject to FCC
approval. Base stations and the equipment marketed for use therein must meet
specified technical standards. Our ability to sell our wireless
telecommunications products is dependent on the ability of wireless base
station equipment manufacturers and wireless base station operators to obtain
and retain the necessary FCC approvals and licenses. In order for them to be
acceptable to base station equipment manufacturers and to base station
operators, the characteristics, quality and reliability of our base station
products must meet FCC technical standards. Any failure to meet such standards
or delays by base station equipment manufacturers and wireless base station
operators in obtaining the necessary approvals or licenses could have a
material adverse effect on our business, operating results and financial
condition. In addition, HTS RF filters are on the U.S. Department of Commerce's
export regulation list. Therefore, exportation of such RF filters to certain
countries may be restricted or subject to export licenses.
We use certain hazardous materials in our research, development and
manufacturing operations. As a result, we are subject to stringent federal,
state and local regulations governing the storage, use and disposal of such
materials. It is possible that current or future laws and regulations could
require us to make substantial expenditures for preventive or remedial action,
reduction of chemical exposure, or waste treatment or disposal. Our operations,
business or assets could be materially and adversely affected by the
interpretation and enforcement of current or future environmental laws and
regulations. In addition, there is the risk of accidental contamination or
injury from hazardous materials. In the event of an accident, we could be held
liable for any damages that result. Furthermore, the use and disposal of
hazardous materials involves the risk that we could incur substantial
expenditures for such preventive or remedial actions. The liability in the
event of an accident or the costs of such actions could exceed our resources or
otherwise have a material adverse effect on our business, results of operations
and financial condition.
THE LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS
Our success will depend in large part upon our ability to attract and
retain highly qualified management, administrative, manufacturing, marketing,
sales and research and development personnel. Due to the specialized nature of
our business, it may be difficult to locate and hire qualified personnel. The
loss of services of any of our executive officers or other key personnel, or
our failure to attract and retain other executive officers or key personnel,
could have a material adverse effect on our business, operating results and
financial condition.
9
<PAGE> 11
OUR SINGLE FACILITY MAKES US SUSCEPTIBLE TO BUSINESS INTERRUPTIONS
Our primary operations, including engineering, manufacturing, research,
distribution and general administration, are housed in a single facility in Mt.
Prospect, Illinois. Any material disruption in our operations, whether due to
fire, flooding, natural disaster, power loss or otherwise, would have a
material adverse effect on our business, operating results and financial
condition.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE NEW FUNDS IN EQUITY OFFERINGS
Excluding shares which may be issued as interest, an aggregate of at least
16,515,556 shares of our common stock registered for public resale pursuant to
this prospectus are issuable upon conversion of outstanding senior convertible
notes and exercise of outstanding warrants held by the selling stockholders,
which equals approximately 132% of our common stock outstanding as of April 15,
1999. Almost all of our currently outstanding shares of common stock are
registered for sale in the public market under the Securities Act. The sale of
a substantial number of shares of our common stock by us or the selling
stockholders upon the conversion of a substantial portion of the senior
convertible notes and/or the exercise of a substantial portion of the warrants,
or the perception that such sales could occur, could adversely affect the
prevailing market price of our common stock. In addition, any such sale or such
perception could make it more difficult for us to raise capital through future
sales of equity securities at a time and price that we deem appropriate.
WE HAVE PROVISIONS THAT COULD DISCOURAGE TAKEOVER ATTEMPTS
We have certain provisions which may be deemed to have a potential
"anti-takeover" effect in that such provisions may delay, defer or prevent a
change of control of us. For example, we have a stockholders rights plan that,
by substantial dilution to a person or group that attempts to acquire us on
terms not approved by our Board of Directors, may interfere with certain
acquisitions, including acquisitions that may offer a premium over market price
to some or all of our stockholders. In addition, our certificate of
incorporation and by-laws contain provisions that include:
o a requirement that stockholder action may be taken only at
stockholders' meetings;
o the authority of our Board of Directors to issue series of our
preferred stock with such voting rights and other powers as our Board
of Directors may determine;
o notice requirements in our by-laws relating to nominations to our
Board of Directors and to the raising of business matters at
stockholders' meetings; and
o the classification of our Board of Directors into three classes, each
serving for staggered three-year terms.
In addition, the outstanding senior convertible notes held by the selling
stockholders contain provisions which allow them to significantly influence
most matters which would require stockholder approval, including many change of
control transactions. The interests of the holders of senior convertible notes
could conflict with the interests of our stockholders.
10
<PAGE> 12
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of two registration statements we have filed with
the SEC. This prospectus does not contain all of the information contained in
the registration statements or the exhibits to the registration statements. For
further information about us, please see the complete registration statements.
Summaries of agreements or other documents in this prospectus are not
necessarily complete. Please refer to the exhibits to the registration
statements for complete copies of these documents.
We are subject to the information requirements of the Securities Exchange
Act of 1934 and file reports, proxy statements and other information with the
SEC. You may read and copy such reports, proxy statements and other
information, including the registration statements and all of their exhibits,
at the following SEC public reference rooms:
<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661
</TABLE>
You may obtain information on the operation of the SEC public reference
room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. Our SEC filings,
including the registration statements of which this prospectus forms a part,
are also available from the SEC's Web site at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding issuers that file electronically. You may also inspect and copy our
SEC filings, including the complete registration statements of which this
prospectus forms a part, at the offices of The Nasdaq Stock Market located at
1735 K Street, N.W., Washington, D.C. 20006-1500.
The SEC allows us to "incorporate by reference" into this prospectus
certain information that we file with it. This means that we can disclose
important information to you by referring you to another document that we filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this prospectus, except for any information superseded by
information in this prospectus. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede the information contained, or other
information earlier incorporated by reference, in this prospectus.
We incorporate by reference the following documents that we previously
filed with the SEC pursuant to the Securities Exchange Act:
1. The Annual Report on Form 10-K for our fiscal year ended December 31,
1998;
2. The Current Reports on Form 8-K and Form 8-K/A dated March 31, 1999 and
the Current Report on Form 8-K dated April 28, 1999;
3. The description of our common stock contained in our registration
statement on Form 8-A filed August 23, 1993 pursuant to Section 12 of the
Securities Exchange Act and all related amendments and reports we file for the
purpose of updating such description; and
4. The description of the preferred stock purchase rights contained in our
registration statement on Form 8-A filed February 12, 1996 pursuant to Section
12 of the Securities Exchange Act and all related amendments and reports we
file for the purpose of updating such description.
11
<PAGE> 13
This prospectus will also incorporate by reference any of our future SEC
filings under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
until all of the selling stockholders sell all of the shares or the offering is
otherwise terminated. The documents incorporated by reference may be obtained
through the SEC and are also available from us without charge. You may obtain
documents incorporated by reference in this prospectus by telephoning us at
(847) 391-9400 or writing us at the following address:
Corporate Secretary
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
Our Web site is located at http://www.ilsc.com. Information contained in
our Web site is not a part of this prospectus.
USE OF PROCEEDS
The selling stockholders will receive all of the net proceeds from the
sale of their shares of our common stock. Accordingly, we will not receive any
proceeds from the sale of the shares by the selling stockholders. If and when
the selling stockholders exercise their warrants, we will receive any proceeds
from the sale of the up to 5,460,000 shares to be issued to the selling
stockholders. If the warrants are exercised in full and paid for in cash, we
will receive $12,423,000. We intend to use such proceeds for working capital
and other general corporate purposes, including funding of our product
development programs, expansion of our sales and marketing efforts, and
acquisition of manufacturing equipment.
12
<PAGE> 14
SELLING STOCKHOLDERS
The following table lists certain information, as of April 15, 1999,
regarding the beneficial ownership of our outstanding common stock by each of
the selling stockholders, both before the offering of the shares and as
adjusted to reflect the sale of the shares. The 18,382,683 shares of our common
stock registered for public resale pursuant to this prospectus and listed under
the column "Number of Shares Being Offered" include (1) 11,055,561 shares which
may in the future be issued to the selling stockholders upon conversion of
$13.65 million aggregate face principal amount of our senior convertible notes,
(2) 1,867,122 shares which may in the future be issued to the selling
stockholders as interest on the notes and (3) 5,460,000 shares which may in the
future be issued to the selling stockholders upon exercise of warrants.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Prior Number of Shares Beneficial Ownership
Name of Selling Stockholder to Offering Being Offered (1) After Offering (2)
- --------------------------- -------------- ----------------- --------------------
Number of
Shares Percent
--------- -------
<S> <C> <C> <C> <C>
Alexander Finance, LP 6,572,593 (3) 7,223,561 (3)(4) -- --(5)
Elliott Associates, L.P. 4,125,264 (6) 4,514,727 (6)(7) 17,391 * (8)
Westgate International, L.P. 4,125,262 (9) 4,514,725 (7)(9) 17,391 * (8)
State Farm Mutual Automobile
Insurance Company 1,812,027(10) 1,737,384(10)(11) 225,000 * (8)
Spring Point Partners, L.P. 363,001(12) 364,265(12)(13) 11,375 * (8)
Spring Point Offshore Fund 30,673(14) 28,021(14)(15) 3,625 * (8)
</TABLE>
* Less than 1%.
(1) Represents the number of shares that may be sold by each selling
stockholder pursuant to this prospectus. Pursuant to Rule 416 under the
Securities Act of 1933, the registration statements of which this
prospectus is a part also cover any additional shares of our common stock
which become issuable in connection with the such shares because of any
stock dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration which results in an increase
in the number of outstanding shares of our common stock.
(2) Assumes each selling stockholder sells all of its shares offered pursuant
to this prospectus to unaffiliated third parties. Each selling
stockholder may sell all, part or none of its shares.
(3) Includes (a) 4,345,680 shares of our common stock issuable upon
conversion of $5,333,333 principal amount of the notes, (b) 93,580 shares
of our common stock issuable as interest on the notes within 60 days after
April 15, 1999 and (c) 2,133,333 shares of our common stock issuable upon
exercise of the warrants. At our option, we may pay interest on the notes
in cash or shares of our common stock.
(4) Includes 650,968 additional shares of our common stock issuable as
interest on the notes if the entire principal amount of the notes is held
to maturity and such interest is fully paid in shares of our common stock.
(5) Pursuant to the notes and warrants, such selling stockholder cannot
convert its notes or exercise its warrants to the extent such conversion
and/or exercise would cause the number of shares of our common stock
beneficially owned by such selling stockholder and its affiliates, other
than shares deemed beneficially owned through ownership of unconverted
notes and unexercised warrants, to exceed 4.9% of the then issued and
outstanding shares of our common stock following such conversion and/or
exercise.
(6) Includes (a) 2,716,051 shares of our common stock issuable upon
conversion of $3,333,334 principal amount of the notes, (b) 58,488 shares
of our common stock issuable as interest on the notes within 60 days after
April 15, 1999 and (c) 1,350,725 shares of our common stock issuable upon
exercise of the warrants. At our option, we may pay interest on the notes
in cash or shares of our common stock.
(7) Includes 406,854 additional shares of our common stock issuable as
interest on the notes if the entire principal amount of the notes is held
to maturity and such interest is fully paid in shares of our common stock.
Excludes 17,391 shares of our common stock issuable upon exercise of the
warrants, which shares are registered for public resale pursuant to
another prospectus.
(8) Pursuant to the notes and warrants, such selling stockholder cannot
convert its notes or exercise its warrants to the extent such conversion
and/or exercise would cause the number of shares of our common stock
beneficially owned by such selling stockholder and its affiliates, other
than shares deemed beneficially owned through ownership of unconverted
notes and unexercised warrants, to exceed 9.9% of the then issued and
outstanding shares of our common stock following such conversion and/or
exercise.
13
<PAGE> 15
(9) Includes (a) 2,716,050 shares of our common stock issuable upon
conversion of $3,333,333 principal amount of the notes, (b) 58,488 shares
of our common stock issuable as interest on the notes within 60 days after
April 15, 1999 and (c) 1,350,724 shares of our common stock issuable upon
exercise of the warrants. At our option, we may pay interest on the notes
in cash or shares of our common stock.
(10) Includes (a) 1,044,446 shares of our common stock issuable upon
conversion of $1,300,000 principal amount of the notes, (b) 22,581 shares
of our common stock issuable as interest on the notes within 60 days after
April 15, 1999 and (c) 520,000 shares of our common stock issuable upon
exercise of the warrants. At our option, we may pay interest on the notes
in cash or shares of our common stock.
(11) Includes 150,357 additional shares of our common stock issuable as
interest on the notes if the entire principal amount of the notes is held
to maturity and such interest is fully paid in common stock.
(12) Includes (a) 216,667 shares of our common stock issuable upon conversion
of $325,000 principal amount of the notes, (b) 4,959 shares of our common
stock issuable as interest on the notes within 60 days after April 15,
1999 and (c) 130,000 shares of our common stock issuable upon exercise of
the warrants. At our option, we may pay interest on the notes in cash or
shares of our common stock.
(13) Includes 12,639 additional shares of our common stock issuable as
interest on the notes if the entire principal amount of the notes is held
to maturity and such interest is fully paid in shares of our common stock.
(14) Includes (a) 16,667 shares of our common stock issuable upon conversion
of $25,000 principal amount of the notes, (b) 381 shares of our common
stock issuable as interest on the notes within 60 days after April 15,
1999 and (c) 10,000 shares of our common stock issuable upon exercise of
the warrants. At our option, we may pay interest on the notes in cash or
shares of our common stock.
(15) Includes 973 additional shares of our common stock issuable as interest
on the notes if the entire principal amount of the notes is held to
maturity and such interest is fully paid in shares of our common stock.
Mark Brodsky, an employee of a company under common management with
Elliott Associates, L.P. and Westgate International, L.P., served as a director
on our Board of Directors from June 1998 to March 1999. Howard Hoffmann has
served as a director on our Board of Directors since July 1998. Messrs. Brodsky
and Hoffmann were designated as nominees for election to our Board of Directors
by the selling stockholders pursuant to the terms of a securities purchase
agreement, as amended, between the selling stockholders and us.
14
<PAGE> 16
PLAN OF DISTRIBUTION
Pursuant to registration rights agreements dated as of May 15, 1998 and
March 31, 1999, by and between us and the selling stockholders, we agreed to
register for public resale shares of our common stock which may in the future
be issued to the selling stockholders, or their pledgees, donees, transferees
or other successors in interest, upon the conversion of the notes, as accrued
interest on the notes and/or upon exercise of the warrants. The registration
statements of which this prospectus is a part, including our registration
statement on Form S-3 (Reg. No. 333-56601) declared effective by the SEC on
August 13, 1998, have been filed with the SEC pursuant to the registration
rights agreements. We have agreed to use our best efforts to keep each
registration statement effective for a period of four years commencing on the
effective date of the applicable registration statement, or a shorter period if
all of such shares registered under the applicable registration statement have
been sold or may be sold without volume restrictions pursuant to Rule 144 under
the Securities Act prior to the expiration of the four-year period. The
aggregate proceeds to the selling stockholders from the sale of shares offered
pursuant to this prospectus will be the prices at which such securities are
sold, less any commissions. The selling stockholders may choose to not sell any
or all of the shares of our common stock offered pursuant to this prospectus.
The notes provide that if any one of several enumerated events occurs,
including:
o the registration statements of which this prospectus is a part cease
to be effective prior to expiration of the above-mentioned
effectiveness period;
o failure of the shares to be registered or qualified for sale pursuant
to the securities laws of applicable states;
o suspension of trading of our common stock on the Nasdaq National
Market for more than three consecutive trading days or delisting of
our common stock from the Nasdaq National Market, unless such
delisting is due to our failure to satisfy the net tangible assets or
minimum bid price maintenance requirements of the Nasdaq National
Market or unless our common stock is listed on another national market
or exchange within three trading days; and
o suspension of a selling stockholder's rights to convert its notes,
then the conversion price of the notes will be decreased by 2.5% for each
monthly anniversary of such event until the earlier to occur of the second
month anniversary of the event and the curing of such event. After the second
month anniversary, each selling stockholder, at its option, may instead receive
2.5% of the outstanding principal of its notes for each month thereafter until
the applicable event is cured. If the event is not cured by the third month
anniversary, each selling stockholder has the option to require us to redeem
its notes.
The selling stockholders, or their pledgees, donees, transferees or other
successors in interest, may, from time to time, sell all or a portion of the
shares of our common stock at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to such market prices
or at negotiated prices. The selling stockholders may offer their shares of our
common stock at various times in one or more of the following transactions:
o on any national securities exchange or market on which our common
stock may be listed at the time of sale, including the Nasdaq National
Market;
o in the over-the counter market;
15
<PAGE> 17
o through block trades in which the broker or dealer so engaged will
attempt to sell the shares as agent, but may position and resell a
portion of the block as principal to facilitate the transaction;
o through purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this prospectus;
o in ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
o through options, swaps or derivatives;
o in privately negotiated transactions;
o in transactions to cover short sales; and
o through a combination of any such methods of sale.
The selling stockholders may also sell their shares of our common stock in
accordance with Rule 144 under the Securities Act, rather than pursuant to this
prospectus.
The selling stockholders may sell their shares of our common stock
directly to purchasers or may use brokers, dealers, underwriters or agents to
sell such shares. In effecting sales, brokers and dealers engaged by the
selling stockholders may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions, discounts or concessions from a
selling stockholder or, if any such broker-dealer acts as agent for the
purchaser of such shares, from a purchaser in amounts to be negotiated. Such
compensation may, but is not expected to, exceed that which is customary for
the types of transactions involved. Broker-dealers may agree with a selling
stockholder to sell a specified number of such shares at a stipulated price per
share, and, to the extent such broker-dealer is unable to do so acting as agent
for a selling stockholder, to purchase as principal any unsold shares at the
price required to fulfill the broker-dealer commitment to the selling
stockholders. Broker-dealers who acquire shares as principal may thereafter
resell such shares from time to time in transactions, which may involve block
transactions and sales to and through other broker-dealers, including
transactions of the nature described above, in the over-the-counter market or
otherwise at prices and on terms then prevailing at the time of sale, at prices
then related to the then-current market price or in negotiated transactions. In
connection with such resales, broker-dealers may pay to or receive from the
purchasers of such shares commissions as described above.
The selling stockholders and any broker-dealers or agents that participate
with the selling stockholders in sales of their shares of our common stock may
be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of such shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act.
From time to time the selling stockholders may engage in short sales,
short sales against the box, puts and calls and other hedging transactions in
our securities, and may sell and deliver their shares of our common stock in
connection with such transactions or in settlement of securities loans. These
transactions may be entered into with broker-dealers or other financial
institutions. In addition, from time to time a selling stockholder may pledge
its shares pursuant to the margin provisions of its customer agreements with
its broker-dealer. Upon delivery of such shares or a default by a selling
16
<PAGE> 18
stockholder, the broker-dealer or financial institution may offer and sell such
pledged shares from time to time.
We are required to pay all fees and expenses incident to the registration
of the shares of our common stock, including fees and disbursements, not to
exceed an aggregate of $5,000, of counsel to the selling stockholders. We have
agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act. We
have advised the selling stockholders that during such time as they may be
engaged in a distribution of the shares of our common stock, they are required
to comply with the anti-manipulative provisions of Regulation M under the
Securities Exchange Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares offered
by the selling stockholders will be passed upon for us by William M. Kochlefl,
Esq., our Vice President, General Counsel and Secretary.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedules included in our Annual Report on Form 10-K for our
fiscal year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus. Our financial statements and
schedules are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
17
<PAGE> 19
If it is against the law in any state to make an offer to sell the shares,
or to solicit an offer from someone to buy the shares, then this prospectus
does not apply to any person in that state, and no offer or solicitation is
made by this prospectus to any such person. You should rely only on the
information provided or incorporated by reference in this prospectus or any
supplement. Neither we nor any of the selling stockholders have authorized
anyone to provide you with different information. You should not assume that
the information in this prospectus or any supplement is accurate as of any date
other than the date on the front of such documents.
TABLE OF CONTENTS
PAGE
Risk Factors........................... 2
Where You Can Find More Information.... 11
Use of Proceeds........................ 12
Selling Stockholders................... 13
Plan of Distribution................... 15
Legal Matters.......................... 17
Experts................................ 17
[ILLINOIS SUPERCONDUCTOR LOGO]
18,382,683 Shares
Common Stock
__________
PROSPECTUS
__________
__________, 1999
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by us in
connection with the issuance and distribution of our common stock pursuant to
the prospectus contained in this registration statement. We will pay all of
these expenses. All amounts are estimates except the SEC registration fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION> Approximate
Amount
-----------
<S> <C>
Securities and Exchange Commission registration fee $ 1,269
Nasdaq National Market listing fee 17,500
Accountants' fees and expenses 5,000
Legal fees and expenses 15,000
Miscellaneous expenses 1,231
Total $40,000
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of our Certificate of Incorporation provides that we shall
indemnify our directors to the full extent permitted by the General Corporation
Law of the State of Delaware and may indemnify our officers and employees to
such extent, except that we shall not be obligated to indemnify any such person
(1) with respect to proceedings, claims or actions initiated or brought
voluntarily by any such person and not by way of defense, or (2) for any
amounts paid in settlement of an action indemnified against by us without our
prior written consent. We have entered into indemnity agreements with each of
our directors and officers. These agreements may require us, among other
things, to indemnify such directors and officers against certain liabilities
that may arise by reason of their status or service as directors or officers,
as the case may be, to advance expenses to them as they are incurred, provided
that they undertake to repay the amount advanced if it is ultimately determined
by a court that they are not entitled to indemnification and to obtain
directors' and officers' liability insurance if available on reasonable terms.
In addition, Article 8 of our Certificate of Incorporation provides that a
director of ours shall not be personally liable to us or our stockholders for
monetary damages for breach of his or her fiduciary duty as a director, except
for liability (1) for any breach of the director's duty of loyalty to us or our
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds or (iv) for any transaction from which the director
derives an improper personal benefit.
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware which provides for indemnification of directors and officers
in certain circumstances.
The Company has obtained a directors' and officers' liability insurance
policy which entitles the Company to be reimbursed for certain indemnity
payments it is required or permitted to make to its directors and officers.
Under a registration rights agreement, we have agreed to indemnify the
selling stockholders, and the selling stockholders have agreed to indemnify us
and our directors, our officers, and certain
II-1
<PAGE> 21
control persons against, certain liabilities and expenses incurred in
connection with the registration statement, including with respect to their
respective obligations under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <C>
3.1 Certificate of Incorporation of the Company, as amended, incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-3/A filed with the SEC on
August 13, 1998 (Reg. No. 333-56601) (the "August 1998 S-3").
3.2 Bylaws of the Company, incorporated by reference to Exhibit 3.2 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 filed with the SEC on October 23, 1993 (Reg.
No. 33-67756) (the "IPO Registration Statement").
4.1 Specimen stock certificate representing Common Stock, incorporated by reference to
Exhibit 4.1 to the IPO Registration Statement.
4.2 Form of 2% Senior Convertible Note due May 15, 2002, incorporated by reference to Exhibit
4.1 to the August 1998 S-3.
4.3 Form of Warrant dated May 15, 1998, incorporated by reference to Exhibit 4.3 to the
August 1998 S-3.
4.4 Rights Agreement dated as of February 9, 1996, by and between the Company and LaSalle
National Trust, N.A., filed as the Exhibit to the Company's Registration Statement on
Form 8-A, filed February 12, 1996, and incorporated herein by reference.
4.5 Securities Purchase Agreement dated as of May 15, 1998, by and between the Company and
Elliott Associates, L.P., Westgate International, L.P., Alexander Finance, LP, State Farm
Mutual Automobile Insurance Company, Spring Point Partners, L.P. and Spring Point
Offshore Fund incorporated by reference to Exhibit 4.5 to the August 1998 S-3.
4.6 Registration Rights Agreement dated as of May 15, 1998, by and between the Company and
Elliott Associates, L.P., Westgate International, L.P., Alexander Finance, LP, State Farm
Mutual Automobile Insurance Company, Spring Point Partners, L.P. and Spring Point
Offshore Fund, incorporated by reference to Exhibit 4.6 to the August 1998 S-3.
4.7 Form of 6% Senior Convertible Note due May 15, 2002, incorporated by reference to Exhibit
4.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 (the "1998 10-K").
4.8 Form of Warrant dated May 31, 1999, incorporated by reference to Exhibit 4.19 to the 1998
10-K.
4.9 Securities Purchase Agreement dated as of March 31, 1999, by and between the Company and
Elliott Associates, L.P., Westgate International, L.P., Alexander Finance, LP and State
Farm Mutual Automobile Insurance Company, incorporated by reference to Exhibit 4.20 to
the 1998 Form 10-K.
4.10 Registration Rights Agreement dated as of March 31, 1999, by and between the Company and
Elliott Associates, L.P., Westgate International, L.P., Alexander Finance, LP and State
Farm Mutual Automobile Insurance Company, incorporated by reference to Exhibit 4.21 to
the 1998 Form 10-K.
4.11 Amendment to Securities Purchase Agreement dated as of March 31, 1999, by and between the
Company and Elliott Associates, L.P., Westgate International, L.P., Alexander Finance,
LP, State Farm Mutual Automobile Insurance Company, Spring Point Partners, L.P. and
Spring Point Offshore Fund, incorporated by reference to Exhibit 4.22 to the 1998 Form
10-K.
5 Opinion of William M. Kochlefl, Esq. as to the legality of the securities being
registered (including consent).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of William M. Kochlefl, Esq. (contained in his opinion filed as Exhibit 5 hereto).
24 Power of Attorney (included on the signature page hereto).
</TABLE>
II-2
<PAGE> 22
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to
include any material information with respect to the plan of distribution
not previously disclosed in the Registration Statement or any material
change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offer therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mt. Prospect, State of Illinois on the 29th day of
April, 1999.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /S/ EDWARD W. LAVES
-------------------------------------------
Edward W. Laves,
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Edward W. Laves and William M. Kochlefl and each of them his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf, individually and in each capacity stated below, all amendments and
post-effective amendments to this Registration Statement on Form S-3 (including
registration statements filed pursuant to Rule 462(b) under the Securities Act
of 1933, and all amendments thereto) and to file the same, with all exhibits
thereto and any other documents in connection therewith, with the Securities
and Exchange Commission under the Securities Act of 1933, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as each might or could do in
person, hereby ratifying and confirming each act that said attorneys-in-fact
and agents may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on April
29, 1999 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
- --------------------------------- ----------------------------------------
<S> <C>
/S/ EDWARD W. LAVES Chairman of the Board, President and Chief Executive
- --------------------------------- Officer (Principal Executive Officer)
Edward W. Laves
/S/ KENNETH E. WOLF Controller and Treasurer (Principal Financial and
- --------------------------------- Accounting Officer)
Kenneth E. Wolf
/S/ HOWARD HOFFMANN
- ---------------------------------
Howard Hoffmann Director
/S/ ROBERT D. MITCHUM
- ---------------------------------
Robert D. Mitchum Director
/S/ TERRY S. PARKER
- ---------------------------------
Terry S. Parker Director
/S/ TOM L. POWERS
- ---------------------------------
Tom L. Powers Director
</TABLE>
II-4
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ --------------------------------------------------------------------
<S> <C>
5 Opinion of William M. Kochlefl, Esq. as to the legality of the
securities being registered (including consent).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of William M. Kochlefl, Esq. (contained in his opinion filed
as Exhibit 5 hereto).
24 Power of Attorney (included on the signature page hereto).
</TABLE>
<PAGE> 1
EXHIBIT 5
April 29, 1999
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
I am Vice President, General Counsel and Secretary of Illinois
Superconductor Corporation, a Delaware corporation (the "Company"), and have
acted as counsel to the Company in connection with the preparation and filing of
a registration statement on Form S-3 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement includes a combined prospectus which relates to
18,382,683 shares of the Company's Common Stock, $.001 par value per share
("Common Stock"), of which (i) 11,055,561 shares (the "Note Conversion Shares")
may in the future be issued upon the conversion of $13.65 million aggregate face
principal amount of the Company's outstanding Senior Convertible Notes due May
15, 2002 (collectively, the "Notes"), (ii) 1,867,122 shares (the "Interest
Shares") may in the future be issued, at the option of the Company, as accrued
interest on the Notes and (iii) 5,460,000 shares (the "Warrant Shares") may in
the future be issued upon the exercise of certain warrants issued by the Company
which expire on May 15, 2001 and March 31, 2002 (collectively, the "Warrants").
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such instruments, documents and records as I have deemed
relevant and necessary to examine for the purpose of this opinion, including (a)
the Registration Statement, (b) the Certificate of Incorporation of the Company,
as amended, (c) the By-Laws of the Company, (d) the Notes, (e) the Warrants and
(f) resolutions adopted by the Board of Directors of the Company. In connection
with this opinion, I have assumed the accuracy and completeness of all documents
and records that I have reviewed, the genuineness of all signatures, the
authenticity of the documents submitted to me as originals and the conformity to
authentic original documents of all documents submitted to me as certified,
conformed or reproduced copies.
Based upon and subject to the foregoing, it is my opinion that:
(1) The Note Conversion Shares, if and when issued by the Company upon
the conversion of the Notes in accordance with the terms of the Notes, will be
validly issued, fully paid and non-assessable;
(2) The Interest Shares, if and when issued by the Company as accrued
interest on the Notes in accordance with the terms of the Notes, will be validly
issued, fully paid and non-assessable; and
(3) The Warrant Shares, if and when issued by the Company upon the
exercise of the Warrants in accordance with the terms of the Warrants and duly
paid for by the holders of the Warrants at the time of such exercise, will be
validly issued, fully paid and non-assessable.
My opinion expressed above is limited to the General Corporation Law of
the State of Delaware and the relevant federal laws of the United States, and I
do not express any opinion concerning any other laws.
I hereby consent to use of my name under the heading "Legal Matters" in
the prospectus forming a part of the Registration Statement and to use of this
opinion for filing as Exhibit 5 to the Registration Statement.
Very truly yours,
/S/ WILLIAM M. KOCHLEFL
William M. Kochlefl
Vice President, General Counsel and Secretary
951799
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Illinois
Superconductor Corporation for the registration of 18,382,683 shares of its
common stock and to the incorporation by reference therein of our report dated
February 26, 1999 (except Note 3, as to which the date is March 31, 1999), with
respect to the financial statements and schedule of Illinois Superconductor
Corporation included in its Annual Report (Form 10-K) for the year ended
December 31, 1998, filed with the Securities and Exchange Commission.
/S/ Ernst & Young LLP
---------------------------
Chicago, Illinois
April 26, 1999
