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Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ILLINOIS SUPERCONDUCTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 36-3688459
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
DR. GEORGE CALHOUN
CHIEF EXECUTIVE OFFICER
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, (847) 391-9400
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With Copies to:
ANDREW L. WEIL, ESQ.
SONNENSCHEIN NATH & ROSENTHAL
8000 SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 876-8000
APPROXIMATE DATE OF COMMENCEMENT OF SALE TO PUBLIC: From time to time after
the effective date of this Registration Statement.
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 the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box: [ ]
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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
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Common Stock, $0.001 par value,
including preferred stock purchase
rights 3,440,526 $3.00 $10,321,578 $2,724.90
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(1) Includes an indeterminate number of shares of Illinois Superconductor
Corporation Common Stock that may be issuable by reason of stock splits,
stock dividends or similar transactions.
(2) The amount is based on the average of the bid and asked price of Illinois
Superconductor Common Stock as of September 6, 2000 and is used solely for
the purpose of calculating the registration fee pursuant to Rule 457(c)
under the Securities Act of 1933.
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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 SEPTEMBER 7, 2000
PROSPECTUS
3,440,526 SHARES
ILLINOIS SUPERCONDUCTOR CORPORATION
Common Stock
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This prospectus relates to the offer and sale from time to time of up to
3,440,526 shares of our common stock ("Common Stock"), including preferred stock
purchase rights, by the selling stockholders specified in this prospectus. The
shares have been acquired from the Company under an Agreement and Plan of Merger
dated as of May 17, 2000 by and among the Company, SSI Acquisition Corp., a
Colorado corporation and wholly-owned subsidiary of the Company, Spectral
Solutions, Inc. ("SSI") and certain stockholders of SSI. The Company will
receive no part of the proceeds from the sale of the shares.
Our Common Stock is traded on the National Association of Securities
Dealers, Inc. over-the-counter electronic bulletin board under the symbol
"ISCO.OB." On September 6, 2000, the closing price of our Common Stock as
reported on the over-the-counter bulletin board was $3.00 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 5 FOR INFORMATION THAT YOU SHOULD CONSIDER
BEFORE PURCHASING THE SHARES OFFERED BY THIS PROSPECTUS.
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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 September 7, 2000
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TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE INFORMATION......................... 2
RECENT DEVELOPMENTS......................................... 3
RISK FACTORS................................................ 5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS........ 5
USE OF PROCEEDS............................................. 14
SELLING STOCKHOLDERS........................................ 14
PLAN OF DISTRIBUTION........................................ 16
DESCRIPTION OF OFFERED SECURITIES........................... 17
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW
PROVISIONS................................................ 18
EXPERTS..................................................... 18
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION................. 19
INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 19
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.................. 20
UNDERTAKINGS................................................ 24
SIGNATURES
INDEX TO EXHIBITS
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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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*WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement we have filed with the
SEC. This prospectus does not contain all of the information contained in the
registration statement or the exhibits to the registration statement. For
further information about us, please see the complete registration statement.
Summaries of agreements or other documents in this prospectus are not
necessarily complete. Please refer to the exhibits to the registration statement
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 statement and all exhibits, at the following SEC
public reference rooms:
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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
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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 statement of which this prospectus forms a part and
the documents incorporated by reference that are listed below, 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.
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. You should read the information incorporated by reference
because it is an important part of 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,
1999.
2. The Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
3. The Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
4. The Company's Definitive Additional Proxy Materials filed June 7, 2000.
5. A copy of the Company's Current Report on Form 8-K filed on July 7, 2000
reporting on the postponement of the Company's annual stockholders meeting and
the forbearance by certain major investors in the Company of their rights to
demand redemption of certain senior convertible notes.
6. A copy of the Company's current report on Form 8-K filed on July 18,
2000 announcing that at its annual stockholders meeting, the Company's
stockholders approved all of the proposals contained in the Company's proxy
materials.
7. A copy of the Company's current report on Form 8-K filed on August 7,
2000 announcing that the Company has opened an office in Japan with the
assistance of CTR Ventures KK.
8. A copy of the Company's current report on Form 8-K filed on August 10,
2000 announcing that the Company acquired Spectral Solutions, Inc. pursuant to
the Agreement and Plan of Merger dated May 17, 2000 by and among the Company,
SSI Acquisition Corp., SSI and certain shareholders of SSI.
9. A copy of the Company's current report on Form 8-K filed on August 11,
2000 reporting on the Company's earnings for the second quarter 2000.
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The documents incorporated by reference in this prospectus that are not
delivered with this prospectus may be obtained from us without charge. You may
obtain these 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.
*RECENT DEVELOPMENTS
ACQUISITION OF SSI
On August 8, 2000, Illinois Superconductor Corporation (the "Company")
acquired Spectral Solutions, Inc. ("SSI"), through the merger (the "Merger") of
SSI with and into SSI Acquisition Corp., a wholly-owned subsidiary of the
Company.
SSI develops cryogenic superconducting radio frequency ("RF") front-end
systems for the wireless industry. SSI recently introduced the industry's first
commercial tower-mounted superconducting system incorporating a superconducting
receiver filter and a cryogenic low-noise amplifier. SSI has pioneered the
development of a super-cooled receive enhancer that can significantly expand a
wireless network's coverage and call quality. Combining the latest in advanced
filtering and low noise amplifier technologies, SSI offers the first
self-contained, high volume manufacturable, tower-top unit that operates in all
weather conditions. SSI maintains a website at http://www.spectralsolutions.com.
SSI is the successor to the business of Superconducting Core Technologies,
Inc. ("SCT"). SCT was founded in the late 1980s at about the time high
temperature superconducting was first discovered. SCT in February 1998 ceased
commercial operation, and filed for bankruptcy protection in September 1998. SSI
purchased all of SCT's assets out of bankruptcy and succeeded to its businesses
in April 1999.
Upon consummation of the Merger SSI, as the surviving entity, became a
wholly-owned subsidiary of the Company. Pursuant to the merger agreement (the
"Merger Agreement"), the Company acquired 100% of the outstanding stock of SSI
in exchange for 3,500,000 shares of common stock of the Company (including
shares reserved for SSI stock options and 111,111 shares issuable to Falkenberg
Capital, SSI's financial advisor). The total purchase price for SSI was
approximately $14,325,500, based on the $4.093 per share closing price of the
Company's stock on August 8, 2000.
Pursuant to the Merger Agreement, the Company agreed to file, within 30
days of the closing of the Merger (the "Effective Time"), a registration
statement with respect to the shares of the Company's Common Stock issued to SSI
security holders, and to use commercially reasonable efforts to cause such
registration statement to be promptly declared effective. Each of the Company
and the SSI security holders whose shares are included in this registration
statement under the Merger Agreement, will, with limitations, indemnify and hold
the other harmless against any damages to which it becomes liable under federal
or state securities laws as a result of the other's acts or omissions. If, more
than one year after the Effective Time, the Company proposes to register any of
its securities under the Securities Act, and the registration form to be used
may be used for the registration of the Company's common stock for resale, the
Company will promptly notify all SSI stockholders receiving Company common stock
in the Merger of its intention to effect such a registration and, subject to
certain limitations, will include in the registration the Company common stock
issued to SSI stockholders pursuant to the Merger Agreement which may not be
resold by the holder thereof under Rule 144.
Pursuant to the Merger Agreement, SSI and its principal stockholders (the
"Principal Stockholders") have agreed to indemnify the Company, its subsidiaries
and certain related parties for certain liabilities arising
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out of any breach by SSI and the Principal Stockholders of any representation,
warranty or covenant of SSI or Principal Stockholders in the Merger Agreement or
any other document delivered by SSI or a Principal Stockholder(s) pursuant to
the Merger Agreement.
The Company has agreed to indemnify SSI, the Principal Stockholders and
certain related parties for certain liabilities arising out of the Company's
breach of any representation, warranty or covenant of the Company in the Merger
Agreement or any other document delivered by the Company pursuant to the Merger
Agreement.
With certain exceptions relating to taxes, employment matters,
organization, ownership, and certain other matters, the right of any party to
indemnity under the Merger Agreement will expire upon the earlier of March 31,
2001, or 30 days after delivery to the Company by its auditors of audited
financial statements of the surviving entity for calendar year 2000. No
indemnity claims will be permitted until the aggregate amount of claims exceed
$650,000, but then the applicable party shall be entitled to recover the full
amount of damages. Furthermore, each of the Principal Stockholders will
generally not be required to make any payments for indemnification in an
aggregate amount in excess of the fair market value of the Company's common
stock (as of the date such damages are paid) received by such Principal
Stockholder pursuant to the Merger Agreement plus the proceeds of any sale of
the Company's common stock received pursuant to the Merger.
OPENING OF JAPANESE OFFICE
On August 3, 2000 the Company announced that it was opening an office in
Japan with the assistance of CTR Ventures KK, its president Derek Schneideman,
and Dr. Philip Parker.
ANNUAL STOCKHOLDERS' MEETING
At the Company's annual stockholders meeting held July 18, 2000, the
Company's stockholders approved:
1. the election of Dr. George Calhoun and Mr. Samuel Perlman to the
Company's Board of Directors, for a term expiring at the Company's annual
stockholders meeting in 2003, or until their successors are duly elected and
qualify;
2. an amendment to the Company's Certificate of Incorporation increasing
the authorized share capital of the Company to 250,300,000 shares, of which
250,000,000 shares are designated Common Stock and of which 300,000 shares are
designated Preferred Stock;
3. an amendment to the Company's Amended and Restated 1993 Stock Option
Plan which, among other things, increases the maximum number of shares for which
stock options may be granted to any individual during any calendar year, and
provides for an additional 3,500,000 shares to be reserved for issuance under
the Plan.
4. the appointment of Ernst & Young LLP as the independent auditors of the
Company's financial statements for the fiscal year ending December 31, 2000.
ADDITIONAL INVESTMENT
On March 27, 2000, pursuant to a letter agreement (the "Letter Agreement")
dated November 5, 1999 between the Company and Elliott Associates, L.P.
("Elliott Associates"), Westgate International, L.P. ("Westgate") and Alexander
Finance, L.P. (collectively, the "Investors") in connection with a $1 million
financing transaction (the "November 1999 Financing"), the Investors invested an
additional $4 million in the Company (the "March Financing") and received
warrants and convertible notes on the same terms as the warrants and convertible
notes issued in the November Financing.
The terms of the Letter Agreement and the November 1999 and March
Financings, as well as a related financing completed December 28, 1999 (the
"December 1999 Financing") are described below in greater detail under "Risk
Factors - Substantial Number of Shares Eligible for Future Sale; Dilution."
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*CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Because we want to provide you with more meaningful and useful information,
this prospectus contains, and incorporates by reference, certain forward-looking
statements that reflect our current expectations regarding our future results of
operations, performance and achievements. 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 under
the caption "Risk Factors," which could cause our actual results, performance or
achievements for 2000 and beyond to differ materially from those expressed in,
or implied by, any of these statements. You should not place undue reliance on
any forward-looking statements. Except as otherwise required by federal
securities laws, 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.
*RISK FACTORS
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.
The following factors, in addition to the other information contained
elsewhere herein, should be considered carefully in evaluating the Company and
its business.
Future Capital Needs and Delisting of Common Stock
To date, the Company has financed its operations primarily through public
and private equity and debt financings. Despite the new issuance of Senior
Convertible Notes in March 2000, the Company believes that during the fourth
quarter of 2000, it will require substantial additional funds to finance its
operations and to re-pay or re-finance $6.2 million of Senior Convertible Notes
due January 2, 2001, if the Notes are not converted by that date. In addition,
the Company's outstanding debt instruments contain certain restrictions which
may adversely impair the Company's ability to obtain additional financing. See
"Substantial Leverage; Restrictions Contained in Debt Instruments" below. If
additional funds are raised by issuing other equity or convertible debt
securities, further dilution to existing or future stockholders is likely to
result. If adequate funds are not available on acceptable terms when needed, the
Company would be required to substantially delay, scale-back or eliminate the
manufacturing, marketing or sales of one or more of its products and research
and development programs, or may be required to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
potential products that the Company would not otherwise relinquish. This would
materially adversely affect the Company's business, operating results and
financial condition. Inadequate funding also could impair the Company's ability
to compete in the marketplace.
The Company regularly examines opportunities to expand its technology base
and product line through means such as licenses, joint ventures and acquisitions
of assets or ongoing businesses, and may issue securities in connection with
such transactions. The acquisition of SSI is one such transaction. No
commitments to enter into or pursue any other such transactions have been made
at this time, and any such discussions may not result in any other such
transaction being concluded.
The Common Stock is not listed on the Nasdaq Stock Market. Instead, the
Common Stock trades in the over-the-counter market and is quoted on the National
Association of Securities Dealers, Inc. electronic bulletin board. These sources
do not provide the same type of trading information as Nasdaq, and the over-
the-counter market does not provide the same liquidity for trading as Nasdaq.
The Company has applied to have its Common Stock listed on the Nasdaq
SmallCap Market. There can be no assurance, however, whether or when the
application will be approved and the Common Stock listed.
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Uncertain Market Acceptance of Superconducting Telecommunications Products
The Company's radio frequency ("RF") filter products, which are based on
the Company's high temperature superconductor ("HTS") technology, have not been
sold in very large quantities and a sufficient market may not develop for the
Company's products. The Company's customers establish demanding specifications
for performance and reliability. The Company's RF filter products may not
continue to meet product performance and reliability criteria set by cellular
and Personal Communications Services ("PCS") service providers. Also, the
Company's products may not operate reliably on a long-term basis, the Company
may be unable to manufacture adequate quantities of any products it develops at
commercially acceptable costs or on a timely basis, or the Company's current or
future products may not achieve market acceptance. The Company has experienced,
and may continue to experience, quarterly fluctuations in its results of
operations as its RF filter products attempt to gain market acceptance while
being subject to the lengthy purchase processes of customers. Failure to
successfully develop, manufacture and commercialize products on a timely and
cost-effective basis will have a material adverse effect on the Company's
business, operating results and financial condition.
Limited Operating History; History of Losses; and Uncertainty of Financial
Results
The Company was founded in October 1989 and through 1996 was engaged
principally in research and development ("R&D"), product testing, manufacturing,
marketing and sales activities. The Company has only recently begun to generate
significant revenues from the sale of its RF filter products. Prior to the
commencement of these sales, the majority of the Company's revenues were derived
from R&D contracts, primarily from the U.S. government. The Company does not
expect revenues to increase dramatically until it ships a significantly larger
amount of its RF products. Accordingly, the Company has only a limited operating
history upon which an evaluation of the Company and its prospects can be based.
SSI has a similar operating history, and the integration of SSI's business with
the Company will also be time consuming and potentially costly. The Company must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stages of product commercialization.
The Company and SSI have each incurred substantial net losses in each year
since their inception. The Company expects to continue to incur operating losses
through at least the end of 2000 as it continues to devote significant financial
resources to its product development, manufacturing, marketing and sales
efforts. Even if the Company is able to overcome the significant remaining
manufacturing and marketing hurdles necessary to sell large quantities of its RF
filter products, the Company may never achieve a profitable level of operations
or, if profitability is achieved, it may not be sustained.
The Company's customers are highly concentrated. The loss of an individual
customer may have a material adverse effect on the Company's business. 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 the Company's products. In
order to continue to grow revenues, the Company may be required to further
reduce the prices of its products. In the event of further price reductions, the
Company may not be able to reduce product costs sufficiently to achieve
acceptable product margins.
Certain Risks Associated with SSI Transaction
The Company acquired Spectral Solutions, Inc. ("SSI"), a Colorado-based
company that develops and manufactures cryogenic superconducting RF front-end
systems for the wireless industry. As a result of this transaction, SSI became a
wholly-owned subsidiary of the Company. The Company has also added to its board
of directors Dr. Richard Herring, former President of SSI.
There are certain risks associated with the SSI transaction, including the
risk that the Company and SSI will not be able to successfully integrate their
businesses. SSI develops and manufactures primarily "thin-film" applications for
the wireless industry. The Company has concentrated its manufacturing and
marketing efforts to date on "thick-film" applications, and there can be no
assurance that the Company will successfully
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integrate thin-film technology into its product offerings. There is also no
assurances that the Company will be able to achieve the synergies it believes
will result from the acquisition of SSI.
Substantial Leverage; Restrictions Contained in Debt Instruments
The Company is substantially leveraged. The degree to which the Company is
leveraged may adversely affect the Company's ability to finance its future
operations, to compete effectively against better capitalized competitors and to
withstand downturns in its business or the economy generally. Although the
Company's outstanding Notes (as defined below under "Substantial Number of
Shares Eligible for Future Sale; Dilution") currently permit, subject to certain
restrictions, the Company to pay accrued interest on such securities in shares
of Common Stock, the Company may not be permitted to do so in the future. If the
Company is no longer permitted to pay accrued interest on the Notes in shares of
Common Stock, the Company may not be successful in generating sufficient cash
flows from its operations or raising additional equity or debt financing
sufficient to enable it to pay such interest in cash. In addition, the Company's
outstanding Notes contain restrictions that may adversely affect the Company's
ability to raise additional equity or debt financing. Under the Notes, the
Company is not permitted, without the prior approval of the holders of the
Notes, (i) 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) or to create any lien, pledge, or
encumbrance, subject to certain exceptions, on any assets of the Company, (ii)
for so long as a significant portion of the Notes remain outstanding, to engage
in certain sale or merger transactions, or to engage in certain other
transactions which require the approval of the Company's stockholders, or (iii)
to redeem, purchase or otherwise acquire any equity or debt securities of the
Company which are junior in rights or preferences to the Notes, or to pay any
dividend (other than in shares of Common Stock) with respect to such securities.
In addition, in the event that the Company fails to achieve break-even or
positive operating income during the second quarter of 2001, the Notes may
become immediately due and payable unless the holders thereof agree to modify or
waive such provision. Under the Letter Agreement, the Investors have the right
to designate up to two-thirds of the Company's board of directors.
Volatility of Common Stock Price
The market price of the Common Stock, like that of many other
high-technology companies, has fluctuated significantly and is likely to
continue to fluctuate in the future. Since January 1, 1999 and through September
6, 2000, the closing price of the Common Stock has ranged from a low of $0.3438
per share to a high of $39.00 per share. Announcements by the Company or others
regarding the receipt of customer orders, quarterly variations in operating
results, additional equity or debt financings, changes in recommendations of
securities analysts, results of customer field trials, scientific discoveries,
technological innovations, litigation, product developments, patent or
proprietary rights, government regulation and general market conditions may have
a significant impact on the market price of the Common Stock. In addition,
fluctuations in the price of the Common Stock could affect the Company's ability
to have the Common Stock accepted for listing on a securities market or
exchange.
Limited Experience in Manufacturing, Marketing and Sales
For the Company to be financially successful, it must manufacture its
products in substantial quantities, at acceptable costs and on a timely basis.
Although the Company to date has produced limited quantities of its products for
commercial installations and for use in development and customer field trial
programs, production of large quantities at competitive costs presents a number
of technological and engineering challenges for the Company. The Company may be
unable to manufacture such products in sufficient volume. The Company has
limited experience in manufacturing, and substantial costs and expenses may be
incurred in connection with attempts to manufacture larger quantities of the
Company's products. The Company may be unable to make the transition to large
scale commercial production successfully.
The Company's marketing and sales experience to date is very limited. The
Company will be required to further develop its marketing and sales force in
order to effectively demonstrate the advantages of its products over more
traditional products, as well as competitive superconductive products. The
Company may also elect
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to enter into agreements or relationships with third parties regarding the
commercialization or marketing of its products. If the Company enters into such
agreements or relationships, it will be substantially dependent upon the efforts
of others in deriving commercial benefits from its products. The Company may be
unable to establish adequate sales and distribution capabilities, it may be
unable to enter into marketing agreements or relationships with third parties on
financially acceptable terms, and any third parties with whom it enters into
such arrangements may not be successful in marketing the Company's products.
To date, the Company's products have been installed in over 300 cell sites
with a wide geographic dispersion. Although the Company's products have not
experienced any significant reliability problems to date, the Company's products
may develop quality problems in the future. Repeated or widespread quality
problems could result in significant warranty expenses and/or the loss of
customer confidence. The occurrence of such quality problems could have a
material adverse effect on the Company's business, operating results and
financial condition.
Competition
The wireless telecommunications equipment market is very competitive. The
Company's products compete directly with products which embody existing and
future competing commercial technologies. In particular, in cellular and PCS
telecommunications applications, the Company competes with conventional RF
component manufacturers whose products are currently in use by the Company's
potential customers. Many of these companies have substantially greater
financial resources, larger R&D staffs and greater manufacturing and marketing
capabilities than the Company. Other emerging wireless technologies, 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, and may therefore compete with the
Company's products. High performance RF filters may not become a preferred
technology to address the needs of cellular and PCS service providers. Failure
of the Company's products to improve performance sufficiently, reliably, or at
an acceptable price or to achieve commercial acceptance or otherwise compete
with conventional and new technologies will have a material adverse effect on
the Company's business, operating results and financial condition.
Although the market for superconductive electronics currently is small and
in the early stages of development, the Company believes it will become
intensely competitive, especially if products with significant market potential
are successfully developed. In addition, if the superconducting industry
develops, additional competitors with significantly greater resources are likely
to enter the field. In order to compete successfully, the Company must continue
to develop and maintain technologically advanced products, reduce production
costs, attract and retain highly qualified personnel, obtain additional patent
or other protection for its technology and products and manufacture and market
its products, either alone or with third parties. The Company may be unable to
achieve these objectives. Failure to achieve these objectives would have a
material adverse effect on the Company's business, operating results and
financial condition.
In the past, the Company has had some success in increasing sales through
pricing strategies pursuant to which it reduced the prices for all of its
products. Such growth, however, was not consistently sustained. Similarly, the
Company may not be able to reduce product costs sufficiently to achieve and
maintain acceptable profit margins.
Management of Growth
The Company's growth to date has caused, and will continue to cause, a
significant strain on its management, operational, financial and other
resources. The Company's ability to manage its growth effectively will require
it to implement and improve its operational, financial, manufacturing and
management information systems and expand, train, manage and motivate its
employees. These demands may require the addition of new management personnel
and the development of additional expertise by management. Any increase in
resources devoted to product development and marketing and sales efforts could
have an adverse effect on the Company's financial performance in the next
several fiscal quarters. If the Company were to receive substantial orders, the
Company may have to expand its current facility, which could cause an
8
<PAGE> 11
additional strain on the Company's management personnel and development
resources. The failure of the Company's management team to effectively manage
growth could have a material adverse effect on the Company's business, operating
results and financial condition.
Rapid Technological Change; Possible Pursuit of Other Market Opportunities
The field of superconductivity is characterized by rapidly advancing
technology. The success of the Company will depend in large part upon its
ability to keep pace with advancing superconducting technology, high performance
RF filter design and efficient, low cost cryogenic technologies. Rapid changes
have occurred, and are likely to continue to occur, in the development of
superconducting materials and processes. The Company's 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 the Company.
Because HTS product development is a new and emerging field, there may in
the future be new opportunities that are more attractive than those initially
identified by the Company for its targeted markets. As a result, the Company may
elect in the future to commit its resources to such other potentially more
attractive market opportunities. Such election may require the Company to limit
or abandon its current focus on developing, manufacturing, marketing and selling
HTS products for cellular, PCS and other telecommunications markets. The risks
associated with other markets may be different from the risks associated with
the cellular, PCS and other wireless telecommunications markets.
Focus on Wireless Telecommunications Market; Current and Future Competitive
Technologies
The Company has selected the wireless telecommunications market, in
particular the cellular and PCS markets, as the first principal target market
for its superconductor-based products. The devotion of substantial resources to
the wireless telecommunications market makes the Company vulnerable to adverse
changes in this market. Adverse developments in the wireless telecommunications
market, which could come from a variety of sources, including future
competition, new technologies or regulatory decisions, could affect the
competitive position of wireless systems. Any adverse developments in the
wireless telecommunications market during the foreseeable future would have a
material adverse effect on the Company's business, operating results and
financial condition.
The Federal Communications Commission ("FCC") has adopted rules that
provide preferential licensing treatment for parties that develop new
communications services and technologies. These developments and further
technological advances may make available other alternatives to cellular or PCS
service, thereby creating additional sources of competition. Competition to
cellular or PCS technologies could adversely affect the market for the Company's
products, or result in changes in the Company's development and manufacturing
programs.
Dependence on a Limited Number of Customers
To date, the Company's marketing and sales efforts have focused on major
cellular service providers in retrofit applications and, to a lesser extent, on
PCS operators and cellular and PCS original equipment manufacturers. During
1999, sales to three of the Company's customers accounted for over 65% of the
Company's total revenues for 1999. Sales to these customers accounted for over
% of the Company's total revenues in the first six months of 2000. The Company
expects that if its RF filter products achieve market acceptance, a limited
number of wireless service providers and Original Equipment Manufacturers
("OEMs") will account for a substantial portion of its revenue during any
period. Sales of many of the Company's RF filter products depend in significant
part upon the decision of prospective customers and current customers to adopt
and expand their use of the Company's products. Wireless service providers and
the Company's other customers are significantly larger than, and are able to
exert a high degree of influence over, the Company. Customers' orders are
affected by a variety of factors such as new product introductions,
9
<PAGE> 12
regulatory approvals, end user demand for wireless services, customer budgeting
cycles, inventory levels, customer integration requirements, competitive
conditions and general economic conditions. The loss of one or more of the
Company's customers or the failure to attract new customers would have a
material adverse effect on the Company's business, operating results and
financial condition.
Lengthy Sales Cycles
Wireless service providers, wireless equipment OEMs and the Company's other
customers are significantly larger than, and are able to exert a high degree of
influence over, the Company. Prior to selling its products to these customers,
the Company must generally undergo lengthy approval and purchase processes.
Technical and business evaluation by potential customers can take up to a year
or more for products based on new technologies such as HTS. The length of the
approval process is affected by a number of factors, including, among others,
the complexity of the product involved, priorities of the customers, budgets and
regulatory issues affecting customers. The Company may not obtain the necessary
approvals or ensuing sales of such products may not occur. The length of the
Company's customers' approval process or delays could have a material adverse
effect on the Company's business, operating results and financial condition.
Dependence on Limited Sources of Supply
Certain parts and components used in the Company's RF filter products,
including substrates, vacuum components, and cryogenic refrigerators, are only
available from a limited number of sources. The Company's reliance on these
limited source suppliers exposes the Company to certain risks and uncertainties,
including the possibility of a shortage or discontinuation of certain key
components and reduced control over delivery schedules, manufacturing
capabilities, quality and costs. Any reduced availability of such parts or
components when required could materially impair the Company's ability to
manufacture and deliver its products on a timely basis and result in the
cancellation of orders, which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
purchase of certain key components involves long lead times and, in the event of
unanticipated increases in demand for the Company's products, the Company may be
unable to manufacture products in a quantity sufficient to meet its customers'
demand in any particular period. The Company has no guaranteed supply
arrangements with its limited source suppliers, does not maintain an extensive
inventory of parts or components, and customarily purchases parts and components
pursuant to purchase orders placed from time to time in the ordinary course of
business.
To satisfy customer requirements, the Company may be required to stock
certain long lead time parts in anticipation of future orders. The failure of
such orders to materialize as forecasted could limit resources available for
other important purposes or accelerate the Company's requirement for additional
funds. In addition, such excess inventory could become obsolete which would
adversely affect the Company's financial performance. Business disruption,
production shortfalls or financial difficulties of a limited source supplier
could materially and adversely effect the Company by increasing product costs or
reducing or eliminating the availability of such parts or components. In such
events, the inability of the Company to develop alternative sources of supply
quickly and on a cost-effective basis could materially impair the Company's
ability to manufacture and deliver its products on a timely basis and could have
a material adverse effect on its business, operating results and financial
condition.
Intellectual Property and Patents
The Company's success will depend in part on its ability to obtain patent
protection for its products and processes, to preserve its trade secrets and to
operate without infringing upon the patent or other proprietary rights of others
and without breaching or otherwise losing rights in the technology licenses upon
which any Company products are based. As of June 30, 2000, the Company had been
issued 30 U.S. patents, had filed and was actively pursuing applications for 6
other U.S. patents, and was the licensee of 10 U.S. patents and patent
applications held by others. One of the Company's patents is jointly owned with
Lucent Technologies, Inc. The Company believes that, since the discovery of HTS
materials in 1986, a large number of patent applications have been filed
worldwide and many patents have been granted in the U.S. relating to HTS
materials. The claims in those patents often appear to overlap and there are
interference proceedings pending
10
<PAGE> 13
in the United States Patent and Trademark Office (not currently involving the
Company) regarding rights to inventions claimed in some of the HTS materials
patent applications. The Company also believes there are a large number of
patents and patent applications covering RF filter products and other products
and technologies that the Company is pursuing. Accordingly, the patent positions
of companies using HTS materials technologies and RF technologies, including the
Company, are uncertain and involve complex legal and factual questions. The
patent applications filed by the Company or by the Company's licensors may not
result in issued patents or the scope and breadth of any claims allowed in any
patents issued to the Company or its licensors may not exclude competitors or
provide competitive advantages to the Company. In addition, patents issued to
the Company or its 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 the Company. Others may have developed or may in the future
develop similar products or technologies without violating any of the Company's
proprietary rights. Furthermore, the Company's loss of any license to technology
that it now has or acquires in the future may have a material adverse effect on
the Company's business, operating results and financial condition.
Some of the patents and patent applications owned or licensed by the
Company are subject to non-exclusive, royalty-free licenses held by various
governmental units. These licenses permit these U.S. government units to select
vendors other than the Company to produce products for the U.S. Government which
would otherwise infringe the Company's patent rights which are subject to the
royalty-free licenses. In addition, the U.S. Government has the right to require
the Company to grant licenses (including exclusive licenses) under such patents
and patent applications or other inventions to third parties in certain
instances.
Patent applications in the U.S. are currently maintained in secrecy until
patents are issued. In foreign countries, this secrecy is maintained for a
period of time after filing. Accordingly, publication of discoveries in the
scientific literature or of patents themselves or laying open of patent
applications in foreign countries tends to lag behind actual discoveries and
filing of related patent applications. Due to this factor and the large number
of patents and patent applications related to HTS materials, RF technologies and
other products and technologies that the Company is pursuing, comprehensive
patent searches and analyses associated with HTS materials, RF technologies and
other products and technologies that the Company is pursuing are often
impractical or not cost-effective. As a result, the Company's patent and
literature searches cannot fully evaluate the patentability of the claims in the
Company's patent applications or whether materials or processes used by the
Company for its planned products infringe or will infringe upon existing
technologies described in U.S. patents or may infringe upon claims in patent
applications made available in the future. Because of the volume of patents
issued and patent applications filed relating to HTS materials, RF technologies
and other products and technologies that the Company is pursuing, the Company
believes there is a significant risk that current and potential competitors and
other third-parties have filed or will file patent applications for, or have
obtained or will obtain, patents or other proprietary rights relating to
materials, products or processes used or proposed to be used by the Company. In
any such case, to avoid infringement, the Company would have to either license
such technologies or design around any such patents. The Company may be unable
to obtain licenses to such technologies or, if obtainable, such licenses may not
be available on terms acceptable to the Company or the Company may be unable to
successfully design around these third-party patents.
Participation in litigation or patent office proceedings in the U.S. or
other countries, which could result in substantial cost to and diversion of
effort by the Company, may be necessary to enforce patents issued or licensed to
the Company, to defend the Company against infringement claims made by others or
to determine the ownership, scope or validity of the proprietary rights of the
Company and others. The parties to such litigation may be larger, better
capitalized than the Company and better able to support the cost of litigation.
An adverse outcome in any such proceedings could subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from third parties and/or require the Company to cease using certain
technologies, any of which could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company believes that a number of patent applications, including
applications filed by International Business Machines Corporation, Lucent
Technologies, Inc., and other potential competitors of the Company are pending
that may cover the useful compositions and uses of certain HTS materials
including yttrium
11
<PAGE> 14
barium copper oxide ("YBCO"), the principal HTS material used by the Company in
its present and currently proposed products. Therefore, there is a substantial
risk that one or more third parties may be granted patents covering YBCO and
other HTS materials and their uses, in which case the Company could not use
these materials without an appropriate license. As with other patents, the
Company has no assurance that it will be able to obtain licenses to any such
patents for YBCO or other HTS materials or their uses or that such licenses
would be available on commercially reasonable terms. Any of these problems would
have a material adverse effect on the Company's business, operating results and
financial condition.
Government Regulations
Although the Company believes that its wireless telecommunications products
themselves would not be subject to licensing by, or approval requirements of,
the FCC, the operation of base stations is subject to FCC licensing and the
radio equipment into which the Company's products would be incorporated is
subject to FCC approval. Base stations and the equipment marketed for use
therein must meet specified technical standards. The Company's ability to sell
its wireless telecommunications products 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 the Company's base
station products must enable them to meet FCC technical standards. Any failure
to meet such standards or delays by base station equipment manufacturers and
wireless base station operators in obtaining the necessary approvals or licenses
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, HTS RF filters are on the U.S.
Department of Commerce's export regulation list. Therefore, exportation of such
RF filters to certain countries may be restricted or subject to export licenses.
The Company is subject to governmental labor, safety and discrimination
laws and regulations with substantial penalties for violations. In addition,
employees and others may bring suit against the Company for perceived violations
of such laws and regulations. Defense against such complaints could result in
significant legal costs for the Company. Although the Company endeavors to
comply with all applicable laws and regulations, it may be the subject of
complaints in the future which could have material adverse effect on the
Company's business, operating results and financial condition.
The Company uses certain hazardous materials in its research, development
and manufacturing operations. As a result, the Company is subject to stringent
federal, state and local regulations governing the storage, use and disposal of
such materials. It is possible that current or future laws and regulations could
require the Company to make substantial expenditures for preventive or remedial
action, reduction of chemical exposure, or waste treatment or disposal. The
Company believes it is in material compliance with all environmental regulations
and to date the Company has not had to incur significant expenditures for
preventive or remedial action with respect to the use of hazardous materials.
However, the operations, business or assets of the Company could be materially
and adversely affected by the interpretation and enforcement of current or
future environmental laws and regulations. In addition, although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, there is
the risk of accidental contamination or injury from these materials. In the
event of an accident, the Company could be held liable for any damages that
result. Furthermore, the use and disposal of hazardous materials involves the
risk that the Company could incur substantial expenditures for such preventive
or remedial actions. The liability in the event of an accident or the costs of
such actions could exceed the Company's resources or otherwise have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company carries property and workman's compensation insurances in
full force and effect through nationally known carriers which include pollution
cleanup or removal and medical claims for industrial incidents.
Dependence on Key Personnel
The Company's success will depend in large part upon its ability to attract
and retain highly qualified management, administrative, manufacturing,
marketing, sales and R&D personnel. Due to the specialized
12
<PAGE> 15
nature of the Company's business, it may be difficult to locate and hire
qualified personnel. The loss of services of one of its executive officers or
other key personnel, or the failure of the Company to attract and retain other
executive officers or key personnel, could have a material adverse effect on the
Company's business, operating results and financial condition.
Business Interruptions and Dependence on a Single U.S. Facility
The Company's primary operations, including engineering, manufacturing,
research, distribution and general administration, are housed in a single
facility in Mt. Prospect, Illinois. Any material disruption in the Company's
operations, whether due to fire, flooding, natural disaster, power loss or
otherwise, would have a material adverse effect on the Company's business,
operating results and financial condition. The Company carries property
insurance in full force and effect through a nationally known carrier which
extends coverage for most material disruptions.
International Operations
The Company is in discussions with several companies in non-U.S. markets,
in particular in Japan and other parts of Asia, to form joint ventures or other
marketing and consulting arrangements in order to increase sales of the
Company's products in these markets. The Company believes that non-U.S. markets
could provide a substantial source of revenue in the future. However, there are
certain risks applicable to doing business in foreign markets that are not
applicable to companies doing business solely in the U.S. For example, the
Company will be subject to risks related to fluctuations in the exchange rate
between the U.S. dollar and foreign currencies in countries in which the Company
does business. In addition, the Company will be subject to the additional laws
and regulations of these foreign jurisdictions, some of which laws and
regulations might be substantially more restrictive than similar U.S. ones.
Foreign jurisdictions may also provide less patent protection than is available
in the U.S., and the Company may be less able to protect its intellectual
property from misappropriation and infringement in these foreign markets.
Substantial Number of Shares Eligible for Future Sale; Dilution
Under the Letter Agreement dated November 5, 1999 and related agreements
between the Company and the Investors, the Company received $1 million in the
November 1999 Financing, $1 million in the December 1999 Financing, and $4
million in the March Financing, in exchange for:
* $6.0 million in aggregate principal amount of senior convertible notes,
bearing annual interest at 10% payable in kind or, at the Company's option in
cash (unless the Company does not meet certain requirements commencing
November 5, 2000, in which case interest must be paid in cash), which notes
(the "New Notes") are convertible, based on their principal amount plus
accrued interest to the extent such interest is payable in kind, into Common
Stock at a conversion price of $0.25 per share, and mature on January 2, 2001;
and
- five-year warrants (the "New Warrants") exercisable for an aggregate of
2,400,000 shares of Common Stock at an exercise price of $0.25 per share.
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 reduced to $0.25 per share the conversion and
exercise prices, respectively, of (i) $11.8 million in aggregate principal
amount of outstanding senior convertible notes (the "Old Notes" and, together
with the New Notes, the "Notes"), and (ii) warrants to acquire 4,834,782 shares
(the "Old Warrants" and, together with the New Warrants, the "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.
As of September 1, 2000, the Company had (i), including the Warrants,
outstanding warrants to purchase 4,876,578 shares of Common Stock at a weighted
average exercise price of $0.60 per share and (ii) options to purchase 3,663,717
shares of Common Stock at a weighted average exercise price of $ 3.08 per
13
<PAGE> 16
share (2,828,040 of which have not yet vested) issued to employees, directors
and consultants pursuant to the Company's Amended and Restated 1993 Stock Option
Plan, as amended, the Merger Agreement, and individual agreements with
management and directors of the Company. In order to attract and retain key
personnel, the Company may issue additional securities, including stock options,
in connection with its employee benefit plans. During the terms of the Notes and
such options and warrants (including the Warrants), the holders thereof are
given the opportunity to benefit from a rise in the market price of the Common
Stock.
In addition, in the Merger the Company issued 3,440,526 shares of its
Common Stock (all of which shares are being registered pursuant to the
registration statement of which this prospectus is a part) and options to
purchase up to an additional 59,450 shares of Common Stock.
The conversion of the Notes into, or the exercise of options and warrants
(including the Warrants) for, Common Stock, as well as the sale or issuance by
the Company of additional shares of Common Stock and/or rights to purchase
Common Stock, would likely have, and issuance of shares pursuant to the Merger
Agreement does have, an adverse and dilutive effect on the market value of the
Common Stock. The Company also may in the future offer equity participation in
connection with the obtaining of non-equity financing, such as debt or leasing
arrangements accompanied by warrants to purchase equity securities of the
Company. This could also have a dilutive effect upon the holders of Common
Stock.
Anti-Takeover Provisions
The Company has certain arrangements which may be deemed to have a
potential "anti-takeover" effect in that such provisions may delay, defer or
prevent a change of control of the Company. In February 1996, the Board of
Directors of the Company (the "Board of Directors") adopted a stockholders
rights plan (the "Rights Plan"). By causing substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board of
Directors, the Series A Rights and Series B Rights of the Rights Plan may
interfere with certain acquisitions, including acquisitions that may offer a
premium over market price to some or all of the Company's stockholders. In
addition, the Company's Certificate of Incorporation and By-Laws provide that
(i) stockholder action may be taken only at stockholders meetings; (ii) the
Board of Directors has authority to issue series of the Company's preferred
stock with such voting rights and other powers as the Board of Directors may
determine; (iii) prior specified notice must be given by a stockholder making
nominations to the Board of Directors or raising business matters at
stockholders meetings; and (iv) the Board of Directors is divided into three
classes, each serving for staggered three-year terms. In addition, the Company's
outstanding debt instruments contain provisions which may be deemed to have a
potential "anti-takeover" effect. The interests of the holders of such debt
instruments could conflict with the interests of the Company's stockholders. See
"Substantial Leverage; Restrictions Contained in Debt Instruments" above.
*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.
*SELLING STOCKHOLDERS
The following table lists certain information, as of August 31, 2000,
regarding the beneficial ownership of our outstanding Common Stock by each of
the selling stockholders, as adjusted to reflect the sale of the shares. The
3,440,526 shares of our Common Stock registered for public resale pursuant to
this prospectus and listed under the column "Number of Shares Being Offered"
include 166,451 shares currently held in escrow (pursuant to the Merger
Agreement) and 111,111 shares issued to Falkenberg Capital Corporation for its
services as SSI's financial advisor in connection with the Merger. None of the
Selling Stockholders owned shares of our Common Stock prior to the offering of
shares pursuant to this prospectus.
The shares listed under the column "Number of Shares Being Offered"
represent the number of shares that may be sold by each selling stockholder
pursuant to this prospectus. Pursuant to Rule 416 under the
14
<PAGE> 17
Securities Act of 1933, the registration statement of which this prospectus is a
part also covers any additional shares of our Common Stock which become issuable
in connection with 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.
The information under the heading "Beneficial Ownership After Offering"
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.
BENEFICIAL OWNERSHIP AFTER OFFERING
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF SELLING STOCKHOLDER BEING OFFERED NUMBER OF SHARES PERCENT
--------------------------- ---------------- ---------------- -------
<S> <C> <C> <C>
Allwire, Inc.......................................... 24 0 *
Apex Limited Partners................................. 48,513 0 *
Robert Arentz......................................... 1,469 0 *
Dave Bartlett......................................... 33,027 0 *
Michael J. Butler..................................... 8,085 0 *
Commercial Microwave Technology....................... 369 0 *
Michael Cromar........................................ 49,541 0 *
Denver Beta Wintronics Co............................. 5 0 *
Pierre Dogan.......................................... 49,541 0 *
Shawn Doyle........................................... 33,027 0 *
FORE Partners......................................... 33,493 0 *
Tom & Jerrice Fritzlen................................ 15,362 0 *
Gelt, Paddison & Zinn................................. 3,048 0 *
Stephen Hall.......................................... 8,256 0 *
Richard Herring....................................... 122,265 0 *
Stephen P. Kennard.................................... 32,342 0 *
H. David Kenyon....................................... 32,342 0 *
Michael L. Maruhashi.................................. 3,234 0 *
MaxM, Inc............................................. 8,256 0 *
Micro-Precision Technologies.......................... 285 0 *
Negler Family, LLLP................................... 608,714 0 *
Steve Nurnberg........................................ 8,256 0 *
Robert Paige.......................................... 20,800 0 *
Precision Mechanical Assembly......................... 715 0 *
Quality Concepts Manufacturing, Inc................... 141 0 *
Kerry Russell......................................... 8,256 0 *
Linda Bowen Scott..................................... 44,036 0 *
Russell Scott III 1959 Trust.......................... 755,832 0 *
Russell Scott III 1964 Trust.......................... 688,133 0 *
Russell Scott III & Co., LLC.......................... 123,260 0 *
Russell Scott, Jr..................................... 20,642 0 *
Russell Scott, Jr. 1976 Irrevocable Trust............. 82,569 0 *
S.C.A.G. Partnership.................................. 55,046 0 *
Jonathan Scupin....................................... 6,605 0 *
Jon Sharp............................................. 16,513 0 *
Tyco Electronics...................................... 330,276 0 *
Gary Wirkkala......................................... 8,256 0 *
Robert Yandrofski..................................... 66,055 0 *
Eric Jon Zinn......................................... 2,826 0 *
Falkenberg Capital.................................... 111,111 0 *
TOTAL:......................................... 3,440,526
</TABLE>
-------------------------
* Less than 1%.
15
<PAGE> 18
Dr. Richard Herring, former President of SSI, is Chief Operating Officer
and a member of the Board of the Directors of the Company. Michael Cromar is
Vice-President of Engineering for the Company. Shawn Doyle is Director of Sales
for the Company.
*PLAN OF DISTRIBUTION
Pursuant to the Merger Agreement, the Company has agreed to register for
public resale shares of our Common Stock which have been issued to the selling
stockholders. The registration statement of which this prospectus is a part has
been filed with the SEC pursuant to the Merger Agreement. The Company has agreed
to use its best efforts to keep such registration statement effective for a
period of one year commencing on the effective date of the merger, or a shorter
period if all of such shares registered under the 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 one 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 the Company's Common Stock offered pursuant to this prospectus.
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 ordinary brokerage transactions.
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
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. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and
16
<PAGE> 19
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.
*DESCRIPTION OF OFFERED SECURITIES
GENERAL
Our authorized capital stock consists of 250,000,000 shares of Common Stock
and 300,000 shares of preferred stock. As of September 1, 2000 there were
34,367,383 shares of our Common Stock and no shares of our preferred stock
outstanding.
COMMON STOCK
Holders of our Common Stock will be entitled to one vote per share on all
matters submitted to a vote of stockholders. However, outstanding senior
convertible notes held by certain major investors in the Company contain
provisions which allow such investors to significantly influence most matters
which would require stockholder approval, including many change of control
transactions.
The interests of the holders of the senior convertible notes could conflict
with the interests of holders of our Common Stock.
Subject to the rights of holders of any outstanding shares of our preferred
stock, the holders of outstanding shares of our Common Stock will be entitled to
the dividends and other distributions as may be declared from time to time by
our Board of Directors from legally available funds. Holders of our Common Stock
do not have preemptive, subscription, redemption or conversion rights. Subject
to the rights of holders of any shares of our outstanding preferred stock, upon
our liquidation, dissolution or winding up and after payment of all prior
claims, the holders of shares of our Common Stock outstanding at that time will
be entitled to receive pro rata all of our assets. All shares of our Common
Stock currently outstanding are, and all shares of our Common Stock offered in
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Our Board of Directors, without further stockholder approval, may issue our
preferred stock in one or more series from time to time and fix or alter the
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions of the shares of each series. The rights,
preferences, limitations and restrictions of different series of our preferred
stock may differ with respect to dividend rates, amounts payable on liquidation,
voting rights, conversion rights, redemption provisions, sinking fund provisions
and other matters. Our Board of Directors may authorize the issuance of our
preferred stock which ranks senior to our Common Stock for the payment of
dividends and the distribution of assets on liquidation. In addition, our Board
of Directors can fix limitations and restrictions, if any, upon the payment of
dividends on our Common Stock to be effective while any shares of our preferred
stock are outstanding. Our Board of Directors, without stockholder approval, can
also issue our preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. Our issuance
of our preferred stock may delay, defer or prevent a change in our control. We
have no present intention to issue shares of our preferred stock.
We have designated 10,000 shares of our preferred stock as series A junior
participating preferred stock in connection with our stockholder rights
agreement. As of the date of this prospectus, we have not issued any shares of
our series A preferred stock. Please read "Item 5. Market for Registrant's
Common Equity and Related Stockholder Matters -- Rights Plan" in our Annual
Report on Form 10-K accompanying this prospectus for a description of our
stockholder rights agreement and the series A preferred stock.
17
<PAGE> 20
*ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS
Our certificate of incorporation and by-laws contain a number of provisions
relating to corporate governance and to the rights of stockholders. These
provisions include:
- a requirement that stockholder action may be taken only at stockholder
meetings and not by written consent;
- notice requirements relating to nominations to our Board of Directors and
to the raising of business matters at stockholder meetings;
- a requirement that special meetings of stockholders can only be called by
certain of our officers or a majority of our Board of Directors;
- 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; and
- the classification of our Board of Directors into three classes, with
directors serving for staggered three-year terms.
These provisions may be deemed to have a potential "anti-takeover" effect in
that they may delay, defer or prevent a change of our control.
*EXPERTS
Ernst & Young LLP, independent auditors, have audited (i) our financial
statements and schedule included in our Annual Report on Form 10-K for the year
ended December 31, 1999, as set forth in their report (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
the Company's ability to continue as a going concern as described in Note 3 to
the financial statements), and (ii) the financial statements of Spectral
Solutions, Inc. as of December 31, 1999 and 1998, and for the year ended
December 31, 1999 and the period from November 20, 1998 (date of inception) to
December 31, 1999 included in Illinois Superconductor Corporation's Supplement
to its 1999 Proxy Statement filed with the Securities and Exchange Commission
pursuant to Section 14(a) of the Securities Exchange Act of 1934 as set forth in
their report (which contains an explanatory paragraph describing conditions that
raise substantial doubt about Spectral Solutions, Inc.'s ability to continue as
a going concern as described in the Notes to the financial statements), which
are incorporated by reference in this prospectus. These financial statements and
schedule are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
18
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
*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.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee......... $ 2,725
Accountants' fees and expenses.............................. 5,000
Legal fees and expenses..................................... 20,000
Miscellaneous expenses...................................... 1,231
-------
Total.................................................. $28,956
=======
</TABLE>
*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 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.
II-1
<PAGE> 22
*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
3.1 Certificate of Incorporation of the Company, incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-3/A, filed with the Securities and
Exchange Commission ("SEC") on August 13, 1998, Registration
No. 333-56601 (the "August 1998
S-3").
3.2 By-Laws 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 26,
1993, Registration No. 33-67756 (the "IPO Registration
Statement").
3.3 Certificate of Amendment of Certificate of Incorporation of
the Company, incorporated by reference to Exhibit 3.3 to the
IPO Registration Statement.
3.4 Certificate of Amendment of Certificate of Incorporation of
the Company, incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3/A, filed with
the SEC on July 1, 1999, Registration No. 333-77337.
3.5 Certificate of Amendment of Certificate of Incorporation of
the Company filed July 18, 2000, increasing the authorized
share capital of the Company, incorporated by reference to
the Company's registration statement on Form S-8 filed
August 7, 2000 (the "August 2000 S-8").
4.1 Specimen stock certificate representing Common Stock,
incorporated by reference to Exhibit 4.1 to the IPO
Registration Statement.
4.2 Form of Series B Warrants, incorporated by reference to
Exhibit 4.2 to the IPO Registration Statement.
4.3 Form of Series C Warrants, incorporated by reference to
Exhibit 4.3 to the IPO Registration Statement.
4.4 Form of Representative Warrant, incorporated by reference to
Exhibit 4.4 to the IPO Registration Statement.
4.5 Rights Agreement dated as of February 9, 1996 between the
Company and LaSalle National Trust, N.A., incorporated by
reference to the Exhibit to the Company's Registration
Statement. on Form 8-A, filed with the SEC on February 12,
1996.
4.6 Convertible Preferred Stock Purchase Agreement dated as of
June 6, 1997, by and between the Company and Southbrook
International Investments, Ltd., incorporated by reference
to Exhibit 4.3 to the Company's Registration Statement on
Form S-3, filed with the SEC on June 23, 1997, Registration
No. 333-29797(the "June 1997 S-3").
4.7 Registration Rights Agreement dated as of June 6, 1997, by
and between the Company and Southbrook International
Investments, Ltd., incorporated by reference to Exhibit 4.5
to the June 1997 S-3.
4.8 Warrant dated June 6, 1997 issued to Southbrook
International Investments, Ltd., incorporated by reference
to Exhibit 4.5 to the June 1997 S-3.
4.9 Certificate of Designation, Preferences and Rights relating
to the Company's Series C Convertible Preferred Stock,
incorporated by reference to Exhibit 4.9 to the Company's
Registration Statement on Form S-3, filed with the SEC on
September 22, 1997, Registration No. 333-36089.
4.10 Certificate of Designation, Preferences and Rights relating
to the Company's Series G Convertible Preferred Stock,
incorporated by reference to Exhibit 4.8 to the Company's
Registration Statement on Form S-3, filed with the SEC on
December 8, 1997, Registration No. 333-41731 (the "December
1997 S-3").
</TABLE>
II-2
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
4.11 Convertible Preferred Stock Purchase Agreement dated as of
October 29, 1997, by and between the Company and Elliott
Associates, L.P. and Westgate International, L.P.,
incorporated by reference to Exhibit 4.9 to the December
1997 S-3.
4.12 Registration Rights Agreement dated as of October 29, 1997,
by and between the Company and Elliott Associates, L.P. and
Westgate International, L.P., incorporated by reference to
Exhibit 4.10 to the December 1997 S-3.
4.13 Agreement dated as of October 29, 1997, by and between the
Company and Brown Simpson Strategic Growth Fund, L.P. and
Southbrook International Investments, Ltd., incorporated by
reference to Exhibit 4.11 to the December 1997 S-3.
4.14 Form of 2% Senior Convertible Note due May 15, 2002,
incorporated by reference to Exhibit 4.2 to the August 1998
S-3.
4.15 Form of Warrant dated May 15, 1998, incorporated by
reference to Exhibit 4.3 to the August 1998 S-3.
4.16 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.
4.17 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.
4.18 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 year ended December 31,
1998.
4.19 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.
4.20 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 Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
4.21 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 Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
4.22 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 Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
5 Opinion of Sonnenschein Nath & Rosenthal, outside counsel to
the Company, as to the legality of the securities being
registered (including consent).*
10.1 1993 Amended and Restated Stock Option Plan, as amended,
incorporated by reference to Exhibit 4.6 to the Company's
August 2000 S-8.
10.2 Form of Amended and Restated Director Indemnification
Agreement, incorporated by reference to Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998.
10.3 Third Amended and Restated Registration Rights Agreement
dated as of July 14, 1993, as amended, incorporated by
reference to Exhibit 10.4 to the IPO Registration Statement.
</TABLE>
II-3
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.4 Public Law Agreement dated February 2, 1990 between Illinois
Department of Commerce and Community Affairs and the
Company, incorporated by reference to Exhibit 10.5 to the
IPO Registration Statement.
10.5 Public Law Agreement dated December 30, 1991 between
Illinois Department of Commerce and Community Affairs and
the Company, amended as of June 30, 1992, incorporated by
reference to Exhibit 10.6 to the IPO Registration Statement.
10.6 Representative Warrant Agreement, incorporated by reference
to Exhibit 10.7 to the IPO Registration Statement.
10.7 Subcontract and Cooperative Development Agreement dated as
of June 1, 1993 between American Telephone and Telegraph
Company and the Company, incorporated by reference to
Exhibit 10.9 to the IPO Registration Statement.
10.8 Intellectual Property Agreement dated as of June 1, 1993
between American Telephone and Telegraph Company and the
Company, incorporated by reference to Exhibit 10.10 to the
IPO Registration Statement.
10.9 License Agreement dated January 31, 1990 between the Company
and Northwestern University, incorporated by reference to
Exhibit 10.13 to the IPO Registration Statement.
10.10 License Agreement dated February 2, 1990 between the Company
and ARCH Development Corporation, incorporated by reference
to Exhibit 10.14 to the IPO Registration Statement.
10.11 License Agreement dated August 9, 1991 between the Company
and ARCH Development Corporation, incorporated by reference
to Exhibit 10.15 to the IPO Registration Statement.
10.12 License Agreement dated October 11, 1991 between the Company
and ARCH Development Corporation, incorporated by reference
to Exhibit 10.16 to the IPO Registration Statement.
10.13 Public Law Agreement dated August 18, 1993 between Illinois
Department of Commerce and Community Affairs and the
Company, incorporated by reference to Exhibit 10.17 to the
IPO Registration Statement.
10.14 Form of Officer Indemnification Agreement incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
10.15 Employment Agreement dated November 9, 1998 between the
Company and Dennis Craig incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
10.16 Employment Agreement dated April 12, 1999 between the
Company and Amr Abdelmonem, incorporated by reference to the
Company's Registration Statement on Form S-2A, filed with
the SEC on July 9, 1999, Registration Number 333-77337.
10.17 Single-Tenant Industrial building Lease between Teachers'
Retirement System of the State of Illinois, landlord, and
Illinois Superconductor Corporation, tenant, dated June 24,
1994, incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarterly period ending June 30,
1994.
10.18 Letter Agreement, dated November 5, 1999, by and among the
Company and the Investors, incorporated by reference to
Exhibit 10(a) to the Company's Current Report on Form 8-K
filed with the SEC on November 15, 1999.
10.19 Letter Agreement re Modification of Covenants, dated
November 5, 1999, by and among the Company and the
Investors, incorporated by reference to Exhibit 10(b) to the
Company's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
10.20 Security Agreement, dated November 5, 1999, by and among the
Company and the Investors, incorporated by reference to
Exhibit 10(c) to the Company's Current Report on Form 8-K
filed with the SEC on November 15, 1999.
</TABLE>
II-4
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.21 Letter Agreement dated November 12, 1999, amending the
Letter Agreement filed as Exhibit 10.18, incorporated by
reference to Exhibit 4.26 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000, filed
with the SEC on May 12, 2000 (the "First Quarter 2000
10-Q").
10.22 Securities Purchase Letter Agreement dated December 28,
1999, by and among the Company, Elliott Associates, Westgate
and Alexander, incorporated by reference to Exhibit 4.27 to
the First Quarter 2000 10-Q.
10.23 Securities Purchase Letter Agreement dated March 27, 2000,
by and among the Company, Elliott Associates, Westgate and
Alexander, incorporated by reference to Exhibit 4.28 to the
First Quarter 2000 10-Q.
10.24 Agreement and Plan of Merger, dated May 17, 2000 among the
Company, SSI Acquisition, Corp., Spectral Solutions, Inc.,
Russell Scott III, and Certain Other Stockholders of
Spectral Solutions, Inc., incorporated by reference to Annex
A to the Company's definitive additional proxy materials
filed June 9, 2000.
10.25 Escrow Agreement dated August 8, 2000 among the Company,
Russell Scott, III, as stockholder representative, and
American National Bank and Trust Company, as escrow agent.*
10.26 Employment Agreement dated August 2, 2000 between the
Company and Richard Herring.*
10.27 Management Services Agreement, dated July 17, 2000, by and
between the Company and CTR Ventures, K.K.*
23.1 Consent of Ernst & Young LLP.*
</TABLE>
-------------------------
* Filed herewith.
II-5
<PAGE> 26
*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:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) 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) 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 SEC 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-6
<PAGE> 27
*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-2 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 7th day of
September, 2000.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ GEORGE M. CALHOUN
-------------------------------------
George M. Calhoun
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons on
September 7, 2000 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ GEORGE M. CALHOUN Chief Executive Officer and Director
-------------------------------------------- (Principal Executive Officer and Director)
George M. Calhoun
/s/ CHARLES F. WILLES Chief Financial Officer (Principal Financial
-------------------------------------------- and Accounting Officer)
Charles F. Willes
/s/ MARK D. BRODSKY Director
--------------------------------------------
Mark D. Brodsky
/s/ HOWARD HOFFMANN Director
--------------------------------------------
Howard Hoffmann
/s/ SAMUEL A. PERLMAN Director
--------------------------------------------
Samuel A. Perlman
/s/ THOMAS L. POWERS Director
--------------------------------------------
Thomas L. Powers
/s/ RICHARD N. HERRING Director
--------------------------------------------
Richard N. Herring
</TABLE>
II-7
<PAGE> 28
*INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C> <C>
5 Opinion of Sonnenschein Nath & Rosenthal, outside counsel to
the Company, as to the legality of the securities being
registered (including consent).
10.25 Escrow Agreement dated August 8, 2000 among the Company,
Russell Scott, III, as stockholder representative, and
American National Bank and Trust Company, as escrow agent.
10.26 Employment Agreement dated August 2, 2000 between the
Company and Richard Herring.
10.27 Management Services Agreement, dated July 17, 2000, by and
between the Company and CTR Ventures, K.K.
23.1 Consent of Ernst & Young LLP.
</TABLE>
