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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-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ILLINOIS SUPERCONDUCTOR CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 36-3688459
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(State or other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
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 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, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par value,
including preferred stock purchase
rights
Preferred Stock
Warrants
Total $50,000,000 $12,500
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</TABLE>
(1) (2) Such amount as shall result in an aggregate initial offering
price for all securities of $50,000,000. 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.
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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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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.
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Subject to completion, dated January 12, 2001
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PROSPECTUS
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$50,000,000
ILLINOIS
SUPERCONDUCTOR
CORPORATION
COMMON STOCK
PREFERRED STOCK
WARRANTS
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This prospectus relates to our offer and sale from time to time of
shares of our common stock, shares of our preferred stock, and warrants to
purchase our common stock or preferred stock in such amounts as shall result in
an aggregate initial offering price for all securities of $50,000,000.
We will provide specific terms of the securities offered pursuant to
this prospectus (the "Offered Securities") in supplements to this prospectus.
You should read this prospectus and any supplement carefully before you invest.
This prospectus may not be used to sell these securities without a supplement.
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 OFFERED SECURITIES 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 January ___, 2001
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TABLE OF CONTENTS
ABOUT THIS PROSPECTUS........................................................2
WHERE YOU CAN FIND MORE INFORMATION..........................................2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.........................4
OUR COMPANY..................................................................4
RECENT DEVELOPMENTS..........................................................5
RISK FACTORS.................................................................5
USE OF PROCEEDS.............................................................14
DESCRIPTION OF OFFERED SECURITIES...........................................14
PLAN OF DISTRIBUTION........................................................15
LEGAL MATTERS...............................................................16
EXPERTS.....................................................................16
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.................................17
INDEMNIFICATION OF DIRECTORS AND OFFICERS...................................17
EXHIBITS....................................................................18
SIGNATURES..................................................................20
INDEX TO EXHIBITS...........................................................21
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement (including any
amendments and exhibits, the "Registration Statement") that we filed with the
Securities and Exchange Commission (the "SEC") utilizing a "shelf" registration
process. Under this shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $50,000,000. This prospectus provides you with a general description
of the securities that we may offer. Each time we sell securities, we will
provide a prospectus supplement that will contain specific information about the
terms of that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
under the heading WHERE YOU CAN FIND MORE INFORMATION. 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.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. These filings are
available to the public from commercial document retrieval services and from the
SEC's web site at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington,
D.C. 20549, and in New York, New York and Chicago, Illinois. Please call the SEC
at 1(800)SEC-0330 for further information on the public reference rooms and copy
charges.
The SEC allows us to "incorporate by reference" the information we file
with it. This permits us to disclose important information to you by referencing
these filed documents. We incorporate by reference in this prospectus the
following documents which have been filed with the SEC (File No. 0-22302):
- Our Annual Report on Form 10-K for the fiscal year ended December
31, 1999, filed with the SEC on March 22, 2000;
- Our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, filed with the SEC on May 12, 2000;
- Our Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000, filed with the SEC on August 11, 2000;
- Our Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2000, filed with the SEC on November 14, 2000.
- Our Current Report on Form 8-K concerning the investment of $4
million in our company by Elliott Associates, L.P., Elliott
International, L.P. (formerly known as Westgate International,
L.P.) and Alexander Finance, L.P., filed with the SEC on March 28,
2000;
- Our Current Report on Form 8-K concerning our earnings report for
the quarter ended March 31, 2000, filed with the SEC on May 15,
2000;
- Our Current Report on Form 8-K concerning the announcement of our
agreement to acquire Spectral Solutions, Inc. for 3.5 million
shares of our common stock, filed with the SEC on May 19, 2000;
- Our Current Report on Form 8-K concerning the adjournment of our
annual meeting until July 18, 2000 and the Extension Letter
received from Elliott Associates, L.P., Elliott International,
L.P. (formerly known as Westgate International, L.P.,) and
Alexander Finance, L.P. regarding their agreement to refrain from
exercising redemption rights in connection with their convertible
notes, filed with the SEC on July 7, 2000;
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- Our Current Report on Form 8-K concerning stockholder approval
obtained at our annual meeting of all proposals contained in our
proxy material, filed with the SEC on July 18, 2000;
- Our Current Report on Form 8-K concerning our opening of an office
in Japan, filed with the SEC on August 7, 2000;
- Our Current Report on Form 8-K concerning the announcement of our
acquisition of Spectral Solutions, Inc. and the appointment of Dr.
Richard Herring, CEO of Spectral Solutions, Inc. prior to the
merger, to our Board of Directors, filed with the SEC on August
10, 2000;
- Our Current Report on Form 8-K concerning our earnings report for
the quarter ended June 30, 2000, filed with the SEC on August 14,
2000;
- Our Current Report on Form 8-K concerning our acquisition of
Spectral Solutions, Inc., filed with the SEC on August 23, 2000,
and our amended Current Report on Form 8-K/A setting forth the
financial statements for such acquisition, filed with the SEC on
October 20, 2000;
- Our Current Report on Form 8-K concerning our receipt of an
initial order for the deployment of HTS filter systems by
Telefonica, a telecommunications operating company in Spain, filed
with the SEC on September 22, 2000;
- Our Current Report on Form 8-K reporting on an additional $5
million investment in our company by Elliott Associates, L.P. and
an affiliated investment firm, filed with the SEC on October 26,
2000.
- Our Current Report on Form 8-K announcing that we had entered into
an agreement to acquire Lockheed Martin Canada's Adaptive Notch
Filtering business unit, filed with the SEC on November 2, 2000.
- Our Current Report on Form 8-K reporting on our change in
certifying accountants, filed with the SEC on December 13, 2000.
- Our Current Report on Form 8-K reporting on the acquisition of
Lockheed Martin Canada Inc.'s Adaptive Notch Filtering business
unit and the appointment of Daniel Spoor, President and CEO of
Lockheed Martin Canada Inc., to our Board of Directors, filed with
the SEC on December 27, 2000 .
- Our Current Report on Form 8-K concerning our acquisition of the
Adaptive Notch Filtering business unit of Lockheed Martin Canada
Inc., and reporting on the conversion of senior convertible notes
by certain of our principal stockholders, filed with the SEC on
January 4, 2001.
- Our Current Report on Form 8-K concerning our agreement with KMW,
Inc. of Korea to jointly develop an advanced-design cryogenic
receiver front-end (CRFE) system to meet the requirements of
third-generation (3G) Wideband-CDMA wireless systems, and
reporting on the conversion of our senior convertible notes into
shares of common stock in accordance with their terms, filed with
the SEC on January 8, 2001.
- Our definitive Proxy Statement filed with the SEC on April 7, 2000
and our additional definitive proxy materials filed with the SEC
on June 9, 2000.
- The description of our common stock contained in our Registration
Statement on Form 8-A, as amended, and any other amendments or
reports for the purpose of updating that description.
We incorporate by reference all documents filed pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this prospectus and prior to the termination of this offering.
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We will provide promptly without charge to you, upon written or oral
request, a copy of any document incorporated by reference in this prospectus,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Requests should be directed as
follows:
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
(847) 391-9400
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Because we want to provide you with 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 2001 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.
OUR COMPANY
We were founded in 1989 by ARCH Development Corporation, an affiliate
of the University of Chicago, to commercialize superconductor technologies
initially developed by Argonne National Laboratory. Superconductor materials,
when cooled below a critical temperature, are able to transmit an electric
current with either no or minimal loss of energy.
We use our patented and proprietary high temperature superconductor
("HTS") materials, radio frequency ("RF") filter designs and cryogenic
technologies to develop, manufacture and market high performance products
designed to enhance the quality, capacity, coverage and flexibility of cellular
and other wireless telecommunications services.
In August 2000, we acquired Spectral Solutions, Inc. ("Spectral
Solutions") for our common stock valued at approximately $14.3 million. Spectral
Solutions develops cryogenic superconducting radio frequency front-end systems
for the wireless communications industry. In December 2000, we acquired Lockheed
Martin Canada's Adaptive Notch Filtering business unit in exchange for 2,500,000
shares of our common stock. The ANF business unit has developed a technology to
monitor and suppress sources of narrow-band interference that can reduce quality
and capacity of CDMA-based wireless systems.
We were incorporated in Illinois on October 18, 1989 and reincorporated
in Delaware on September 24, 1993. Our principal executive offices are located
at 451 Kingston Court, Mt. Prospect, Illinois 60056 and our telephone number is
(847) 391-9400.
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RECENT DEVELOPMENTS
Conversion of Senior Convertible Notes
On December 29, 2000, holders of our senior convertible notes converted
$14,354,778 principal amount of such notes plus accrued interest into 63,283,309
shares of common stock.
Change in Certifying Accountants
On December 7, 2000, we advised Ernst & Young LLP that we intended to
retain a different firm of independent auditors for the audit of our financial
statements for the fiscal year ending December 31, 2000. We have engaged Grant
Thornton LLP as our new independent principal accountant to audit our
consolidated financial statements. This engagement was effective as of December
7, 2000.
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus and in the documents incorporated by reference
herein before deciding to purchase shares in this offering. Our shares are
subject to significant investment risks. Many factors, including the risks
described below and other risks we have not recognized, could cause our
operating results to differ from our expectations and plans.
RISKS RELATED TO THE OPERATIONS AND FINANCING OF OUR COMPANY GENERALLY
Limited Operating History; History of Losses; and Uncertainty of Financial
Results
We were founded in October 1989 and through 1996 were engaged
principally in research and development, product testing, manufacturing,
marketing and sales activities. We have incurred net losses since our inception.
As of September 30, 2000, our accumulated deficit was approximately $94,373,000.
We have only recently begun to generate revenues from the sale of our RF filter
products. Prior to the commencement of these sales, the majority of our revenues
were derived from R&D contracts, primarily from the U.S. government. We do not
expect revenues to increase dramatically until we ship a significantly larger
amount of our RF products. Accordingly, we expect to continue to experience net
losses, and we cannot be certain if or when we will become profitable. Spectral
Solutions and the Adaptive Notch Filtering business unit of Lockheed Martin
Canada, both of which we recently acquired, have similar operating histories and
financial uncertainties.
We have only a limited operating history upon which an evaluation of us
and our prospects can be based. We must therefore be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stages of product commercialization.
Future Capital Needs
Although we have raised over $10 million in equity capital during the
past year, we anticipate that we will need additional cash to continue our
operations at their current level past March 2001. Our planned expansion in
sales of our RF filter product lines may require the commitment of substantial
additional funding, beyond our current funding level, to continue product
redesign, expansion of manufacturing capabilities and development of a sales and
marketing effort to sell our RF front-end products.
The actual amount of our future funding requirements will depend on
many factors, including: the amount and timing of future revenues, the level of
product marketing and sales efforts to support our commercialization plans, the
magnitude of our research and product development programs, our ability to
improve product margins, the cost of additional plant and equipment for
manufacturing and the costs involved in protecting our patents or other
intellectual property.
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Consequences of Inability to Obtain Adequate Future Funding
If we are unable to obtain adequate funds when needed in the future, we
would be required to substantially delay, scale-back or eliminate the
manufacturing, marketing or sales of one or more of our products or research and
development programs, or may be required to obtain funds through arrangements
with collaborative partners or others that may require us to relinquish rights
to certain of our technologies, or potential products that we would not
otherwise relinquish. In particular, if we do not secure adequate additional
financing, we believe that we may not be able to continue as a going concern.
Qualified Audit Opinion
Ernst & Young's report on our financial statements for the years ended
December 31, 1998 and December 31, 1999 contained an explanatory paragraph which
stated that our history of operating losses and our need to obtain additional
financing raised substantial doubt about our ability to continue as a going
concern. Since the most recent opinion, we have raised in excess of $10 million
in external funding. However, the qualification of the audit opinion has raised
the concerns of our suppliers and potential customers and has therefore had an
adverse effect on our business.
Limited Experience in Manufacturing, Marketing and Sales
For us to be financially successful, we must manufacture our products
in substantial quantities, at acceptable costs and on a timely basis. Although
to date we have produced limited quantities of our products for commercial
installations and for use in development and customer field trial programs,
production of large quantities of our products at competitive costs presents a
number of technological and engineering challenges for us. We may be unable to
manufacture such products in sufficient volume. We have limited experience in
manufacturing, and substantial costs and expenses may be incurred in connection
with attempts to manufacture larger quantities of our products. We may be unable
to make the transition to large scale commercial production successfully.
Our marketing and sales experience to date is very limited. We will be
required to further develop our marketing and sales force in order to
effectively demonstrate the advantages of our products over more traditional
products, as well as competitive superconductive products. We may also elect to
enter into agreements or relationships with third parties regarding the
commercialization or marketing of our products. If we enter into such agreements
or relationships, we will be substantially dependent upon the efforts of others
in deriving commercial benefits from our products. We may be unable to establish
adequate sales and distribution capabilities, may be unable to enter into
marketing agreements or relationships with third parties on financially
acceptable terms, and any third parties with whom we enter into such
arrangements may not be successful in marketing our products.
Management of Growth
Our growth to date has caused, and will continue to cause, a
significant strain on our management, operational, financial and other
resources. Our ability to manage growth effectively will require us to implement
and improve our operational, financial, manufacturing and management information
systems and expand, train, manage and motivate our employees. These demands may
require the addition of new management personnel and the development of
additional expertise by management. Any increase in resources devoted to product
development and marketing and sales efforts could have an adverse effect on our
financial performance in the next several fiscal quarters. If we were to receive
substantial orders, we may have to expand our current facilities, which could
cause an additional strain on our management personnel and development
resources. The failure of our management team to effectively manage growth could
have a material adverse effect on our business, operating results and financial
condition.
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RISKS RELATED TO OUR COMMON STOCK AND CHARTER PROVISIONS
Delisting of Common Stock
Our common stock was de-listed from trading on the Nasdaq National
Market in June 1999 due to our inability to meet the net tangible assets
requirement for continued listing. Our common stock is now traded in the
over-the-counter market and quoted on the over-the-counter bulletin board. This
may not provide the same liquidity for the trading of securities as the Nasdaq
National Market. We intend to apply for relisting on the Nasdaq Stock Market
when we are reasonably confident that our application would be approved.
Volatility of Common Stock Price
The market price of our common stock, like that of many other
high-technology companies, has fluctuated significantly and is likely to
continue to fluctuate in the future. Since January 1, 1999 and through December
31, 2000, the closing price of our common stock has ranged from a low of $0.3438
per share to a high of $39.00 per share. Announcements by us or others regarding
the receipt of customer orders, quarterly variations in operating results,
acquisitions or divestitures, additional equity or debt financings, 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 our common stock. In addition, fluctuations in the price of our
common stock could affect our ability to have our common stock accepted for
listing on a securities market or exchange.
Substantial Number of Shares Eligible for Future Sale; Dilution
As of December 31, 2000, we had (i) outstanding warrants to purchase
95,533 shares of common stock at a weighted average exercise price of $10.20 per
share and (ii) outstanding options to purchase 5,315,096 shares of common stock
at a weighted average exercise price of $3.02 per share (3,774,078 of which have
not yet vested) issued to employees, directors and consultants pursuant to our
1993 Stock Option Plan, the merger agreement with Spectral Solutions, and
individual agreements with our management and directors. In order to attract and
retain key personnel, we may issue additional securities, including stock
options, in connection with our employee benefit plans, or may lower the price
of existing stock options.
In December 2000, holders of our senior convertible notes converted
$14,354,778 principal amount of such notes plus accrued interest into 63,283,309
shares of common stock. We may in the future issue additional equity or rights
to purchase equity, either alone, in connection with acquisition transactions or
in connection with debt financings, at prices below the then-current market
price of the common stock.
On January 8, 2001 we filed a registration statement on Form S-3 for
the sale of up to $20 million of shares of our common stock in a rights
offering.
The exercise of options and warrants for common stock and the issuance
of additional shares of common stock and/or rights to purchase common stock at
prices below market value will be dilutive to existing stockholders and may have
an adverse effect on the market value of the common stock.
Concentration of Our Stock Ownership
Our officers, directors and principal stockholders (holding greater
than 5% of outstanding shares) together control approximately 66% of our
outstanding voting power. Consequently, these stockholders, if they act
together, would be able to exert significant influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. In addition, this concentration of
ownership may delay or prevent a change of control of our company, even when a
change may be in the best interests of our stockholders. The interests of these
stockholders may not always
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coincide with our interests as a company or the interests of other stockholders.
Accordingly, these stockholders could cause us to enter into transactions or
agreements that we would not otherwise consider.
Anti-Takeover Provisions
We have 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 our company. In February 1996, our Board of Directors
adopted a stockholders rights plan. In addition, our 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 our 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. The effect of
the rights plan and the anti-takeover provisions in our charter documents may be
to deter business combination transactions not approved by our Board of
Directors, including acquisitions that may offer a premium over market price to
some or all of our stockholders.
TECHNOLOGY AND MARKET RISKS
Uncertain Market Acceptance of Superconducting Telecommunications Products
Our radio frequency ("RF") filter products, which are based on our high
temperature superconductor ("HTS") technology, have not been sold in very large
quantities and a sufficient market may not develop for our products. Our
customers establish demanding specifications for performance and reliability.
Our RF filter products may not continue to meet product performance and
reliability criteria set by wireless communication service providers. We may be
unable to manufacture adequate quantities of any products it develops at
commercially acceptable costs or on a timely basis, or our current or future
products may not achieve market acceptance. We have experienced, and may
continue to experience, quarterly fluctuations in our results of operations as
we attempt to gain market acceptance of our RF filter products while being
subject to the lengthy testing process of customers. Failure to successfully
develop, manufacture and commercialize products on a timely and cost-effective
basis will have a material adverse effect on our business, operating results and
financial condition.
Rapid Technological Change; Possible Pursuit of Other Market Opportunities
The field of superconductivity is characterized by rapidly advancing
technology. Our success will depend in large part upon our 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. Our development efforts may be rendered obsolete by the adoption of
alternative solutions to current wireless operator problems or by technological
advances made by others. In addition, other materials or processes, including
other superconducting materials or fabrication processes, may prove more
advantageous for the commercialization of high performance wireless products
than the materials and processes selected by us.
Focus on Wireless Telecommunications Market; Current and Future Competitive
Technologies
Our principal target market for our superconductor-based products is
wireless telecommunications. The devotion of substantial resources to the
wireless telecommunications market makes us vulnerable to adverse changes in
this market. Adverse developments in the wireless telecommunications market,
which could come from a variety of sources, including future competition, new
technologies or regulatory decisions, could affect the competitive position of
wireless systems. Any adverse developments in the wireless telecommunications
market during the foreseeable future would have a material adverse effect on our
business, operating results and financial condition.
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BUSINESS RISKS
Dependence on a Limited Number of Customers
To date, our marketing and sales efforts have focused on major cellular
service providers in retrofit applications and, to a lesser extent, on PCS
operators. During 1999, sales to three of our customers accounted for over 65%
of our company's total revenues for 1999. Sales to these customers accounted for
over 80% of our total revenues in the first nine months of 2000. We expect that
if our RF filter products achieve market acceptance, a limited number of
wireless service providers and Original Equipment Manufacturers ("OEMs") will
account for a substantial portion our revenue during any period. Sales of many
of our 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
our products. Wireless service providers, wireless equipment OEMs and our other
customers are significantly larger than, and are able to exert a high degree of
influence over, us. Customers' orders are affected by a variety of factors such
as new product introductions, regulatory approvals, end user demand for wireless
services, customer budgeting cycles, inventory levels, customer integration
requirements, competitive conditions and general economic conditions. The
failure to attract new customers would have a material adverse effect on our
business, operating results and financial condition.
Lengthy Sales Cycles
Prior to selling our products to our customers, we 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. We may not obtain the necessary approvals or ensuing sales
of such products may not occur. The length of our customers' approval process or
delays could have a material adverse effect on our business, operating results
and financial condition.
Dependence on Limited Sources of Supply
Certain parts and components used in our RF filter products, including
substrates, vacuum components, and cryogenic coolers, are only available from a
limited number of sources. Our reliance on these limited source suppliers
exposes us to certain risks and uncertainties, including the possibility of a
shortage or discontinuation of certain key components and reduced control over
delivery schedules, manufacturing capabilities, quality and costs. Any reduced
availability of such parts or components when required could materially impair
our ability to manufacture and deliver our products on a timely basis and result
in the cancellation of orders, which could have a material adverse effect on our
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 our products, we may be unable to
manufacture products in quantities sufficient to meet our customers' demand in
any particular period. We have no guaranteed supply arrangements with our
limited source suppliers, do not maintain an extensive inventory of parts or
components, and customarily purchase parts and components pursuant to purchase
orders placed from time to time in the ordinary course of business.
To satisfy customer requirements, we 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 our requirement for additional funds. In
addition, such excess inventory could become obsolete, which would adversely
affect our financial performance. Business disruption, production shortfalls or
financial difficulties of a limited source supplier could materially and
adversely affect us by increasing product costs or reducing or eliminating the
availability of such parts or components. In such events, our inability to
develop alternative sources of supply quickly and on a cost-effective basis
could materially impair our ability to manufacture and deliver our products on a
timely basis and could have a material adverse effect on our business, operating
results and financial condition.
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Dependence on Key Personnel
Our success will depend in large part upon our ability to attract and
retain highly qualified management, engineering, manufacturing, marketing, sales
and R&D personnel. Due to the specialized nature of our business, it may be
difficult to locate and hire qualified personnel. The loss of services of one of
our executive officers or other key personnel, or the failure to attract and
retain other executive officers or key personnel, could have a material adverse
effect on our business, operating results and financial condition.
Product Liability
To date, our products have been installed in over 300 cell sites with a
wide geographic dispersion. Although our products have not experienced any
significant reliability problems to date, our products may develop reliability
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 our
business, operating results and financial condition.
Competition
The wireless telecommunications equipment market is very competitive.
Our products compete directly with products which embody existing and future
competing commercial technologies. Many of these companies have substantially
greater financial resources, larger R&D staffs and greater manufacturing and
marketing capabilities than we do. Other emerging wireless technologies,
including "smart antennas" and tower mounted amplifiers, may also provide
protection from RF interference and offer enhanced range to wireless
communication service providers at lower prices and/or superior performance, and
may therefore compete with our products. High performance RF filters may not
become a preferred technology to address the needs of wireless communication
service providers. Failure of our 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 our business, operating results and financial condition.
Although the market for superconductive electronics currently is small
and in the early stages of development, we believe it will become intensely
competitive, especially if products with significant market potential are
successfully developed. In addition, if the superconducting industry develops,
additional competitors with significantly greater resources are likely to enter
the field. In order to compete successfully, we must continue to develop and
maintain technologically advanced products, reduce production costs, attract and
retain highly qualified personnel, obtain additional patent or other protection
for our technology and products and manufacture and market our products, either
alone or with third parties. We may be unable to achieve these objectives.
Failure to achieve these objectives would have a material adverse effect on our
business, operating results and financial condition.
In the past, we have had some success in increasing sales through
pricing strategies pursuant to which we reduced the prices for all of our
products. Such growth, however, was not consistently sustained. Similarly, we
may not be able to continue to reduce product costs sufficiently to achieve and
maintain acceptable profit margins.
LEGAL MATTERS
Intellectual Property and Patents
Our success will depend in part on our ability to obtain patent
protection for our products and processes, to preserve our trade secrets and to
operate without infringing upon the patent or other proprietary rights of others
and without breaching or otherwise losing rights in the technology licenses upon
which any of our products are based. As of December 31, 2000, we had been issued
35 U.S. and 4 foreign patents, had filed and were actively pursuing applications
for 13 other U.S. and 23 other foreign
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<PAGE> 14
patents, and were the licensee of 7 U.S. patents and patent applications held by
others. We acquired additional patents, through assignment of a license from the
Canadian government, in connection with our purchase of the Adaptive Notch
Filtering business unit of Lockheed Martin Canada. One of our patents is jointly
owned with Lucent Technologies, Inc. We believe that, since the discovery of HTS
materials in 1986, a large number of patent applications have been filed
worldwide, and many patents have been granted in the U.S. relating to HTS
materials. The claims in those patents often appear to overlap and there are
interference proceedings pending in the United States Patent and Trademark
Office (not currently involving our company) regarding rights to inventions
claimed in some of the HTS materials patent applications. We also believe there
are a large number of patents and patent applications covering RF filter
products and other products and technologies that we are pursuing. Accordingly,
the patent positions of companies using HTS materials technologies and RF
technologies, including our company, are uncertain and involve complex legal and
factual questions. The patent applications filed by us or by our licensors may
not result in issued patents or the scope and breadth of any claims allowed in
any patents issued to us or our licensors may not exclude competitors or provide
competitive advantages to us. In addition, patents issued to us, our
subsidiaries or our licensors may not be held valid if subsequently challenged
or others may claim rights in the patents and other proprietary technologies
owned or licensed by us. Others may have developed or may in the future develop
similar products or technologies without violating any of our proprietary
rights. Furthermore, our loss of any license to technology that we now have or
acquire in the future may have a material adverse effect on our business,
operating results and financial condition.
Some of the patents and patent applications owned or licensed by us are
subject to non-exclusive, royalty-free licenses held by various U.S.
governmental units. These licenses permit these U.S. government units to select
vendors other than us to produce products for the U.S. Government, which would
otherwise infringe our patent rights that are subject to the royalty-free
licenses. In addition, the U.S. Government has the right to require us 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 we are pursuing, comprehensive patent
searches and analyses associated with HTS materials, RF technologies and other
products and technologies that we are pursuing are often impractical or not
cost-effective. As a result, our patent and literature searches cannot fully
evaluate the patentability of the claims in our patent applications or whether
materials or processes used by us for our 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 we are
pursuing, we believe there is a significant risk that current and potential
competitors and other third-parties have filed or will file patent applications
for, or have obtained or will obtain, patents or other proprietary rights
relating to materials, products or processes used or proposed to be used by us.
In any such case, to avoid infringement, we would have to either license such
technologies or design around any such patents. We may be unable to obtain
licenses to such technologies or, if obtainable, such licenses may not be
available on terms acceptable to us or we may be unable to successfully design
around these third-party patents.
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 our company, may be necessary to enforce patents issued or licensed to
us, to defend our company against infringement claims made by others or to
determine the ownership, scope or validity of the proprietary rights of our
company and others. The parties to such litigation may be larger, better
capitalized than us and better able to support the cost of litigation. An
adverse outcome in any such proceedings could subject us to significant
liabilities to third parties, require us to seek licenses from third parties
and/or require us to cease using certain technologies, any of which could have a
material adverse effect on our business, operating results and financial
condition.
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We believe that a number of patent applications, including applications
filed by International Business Machines Corporation, Lucent Technologies, Inc.,
and other potential competitors of our company are pending that may cover the
useful compositions and uses of certain HTS materials including yttrium barium
copper oxide ("YBCO"), the principal HTS material used by us in our 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 we could not use these materials without an
appropriate license. As with other patents, we have no assurance that we 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 our
business, operating results and financial condition.
Government Regulations
Although we believe that our 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 our products would be incorporated is subject to FCC
approval. Base stations and the equipment marketed for use therein must meet
specified technical standards. Our ability to sell our wireless
telecommunications products is dependent on the ability of wireless base station
equipment manufacturers and wireless base station operators to obtain and retain
the necessary FCC approvals and licenses. In order for them to be acceptable to
base station equipment manufacturers and to base station operators, the
characteristics, quality and reliability of our base station products must
enable them to meet FCC technical standards. We may be subject to similar
regulations of the Canadian federal and provincial governments. Any failure to
meet such standards or delays by base station equipment manufacturers and
wireless base station operators in obtaining the necessary approvals or licenses
could have a material adverse effect on our business, operating results and
financial condition. In addition, HTS RF filters are on the U.S. Department of
Commerce's export regulation list. Therefore, exportation of such RF filters to
certain countries may be restricted or subject to export licenses.
We are subject to governmental labor, safety and discrimination laws
and regulations with substantial penalties for violations. In addition,
employees and others may bring suit against us for perceived violations of such
laws and regulations. Defense against such complaints could result in
significant legal costs for us. Although we endeavor to comply with all
applicable laws and regulations, we may be the subject of complaints in the
future, which could have a material adverse effect on our business, operating
results and financial condition.
Environmental Liability
We use certain hazardous materials in our research, development and
manufacturing operations. As a result, we are subject to stringent federal,
state and local regulations governing the storage, use and disposal of such
materials. It is possible that current or future laws and regulations could
require us to make substantial expenditures for preventive or remedial action,
reduction of chemical exposure, or waste treatment or disposal. We believe we
are in material compliance with all environmental regulations and to date we
have not had to incur significant expenditures for preventive or remedial action
with respect to the use of hazardous materials. However, our operations,
business or assets could be materially and adversely affected by the
interpretation and enforcement of current or future environmental laws and
regulations. In addition, although we believe that our 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, we could be held
liable for any damages that result. Furthermore, the use and disposal of
hazardous materials involves the risk that we could incur substantial
expenditures for such preventive or remedial actions. The liability in the event
of an accident or the costs of such actions could exceed the our resources or
otherwise have a material adverse effect on our business, results of operations
and financial condition. We carry 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.
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Litigation
We are party to several pending litigation matters, as described in our
quarterly report on Form 10-Q for the third quarter 2000. If decided adversely,
such litigation could have a material adverse effect on our business, results of
operations and financial condition.
RISKS RELATED TO ACQUISITIONS AND BUSINESS EXPANSION
Risks Associated with Lockheed Martin Canada Transaction
We acquired the Adaptive Notch Filtering business unit of Lockheed
Martin Canada in December 2000. There are certain risks associated with this
transaction, including the risk that we will not be able to successfully
integrate the Adaptive Notch Filtering business into our existing business.
Risks Associated with Spectral Solutions Transaction
We acquired Spectral Solutions in August 2000. There are certain risks
associated with this transaction, including the risk that we will not be able to
successfully integrate the Spectral Solutions business. Spectral Solutions
develops and manufactures primarily "thin-film" HTS RF applications for the
wireless communications industry. We have concentrated our manufacturing and
marketing efforts to date on "thick-film" applications, and there can be no
assurance that we will successfully integrate thin-film technology into our
product offerings. There is also no assurance that we will be able to achieve
the synergies we believe should result from the acquisition of Spectral
Solutions.
Risks of future acquisitions
In the future, we may pursue acquisitions to obtain products, services
and technologies that we believe will complement or enhance our current product
or services offerings. At present, we have no agreements or other arrangements
with respect to any acquisition. An acquisition may not produce the revenue,
earnings or business synergies that we anticipated and may cause us to assume
significant unforeseen liabilities, and an acquired product, service or
technology might not perform as we expected. If we pursue any acquisition, our
management could spend a significant amount of time and effort in identifying
and completing the acquisition and may be distracted from the operations of our
business. If we complete an acquisition, we would probably have to devote a
significant amount of management resources to integrating the acquired business
with our existing business, and that integration may not be successful.
To pay for an acquisition, we might use equity securities or cash,
including proceeds of this offering. Alternatively, we might borrow money from a
bank or other lender. If we use equity securities, our stockholders will
experience dilution of their ownership interests. If we use cash or debt
financing, our financial liquidity will be reduced.
International Operations
We are 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 our products
in these markets. Results of these discussions include the Lockheed Martin
Transaction and the opening of a Japanese office. We believe 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, we
will be subject to risks related to fluctuations in the exchange rate between
the U.S. dollar and foreign currencies in countries in which we do business. In
addition, we 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 we may be less able to
protect our intellectual property from misappropriation and infringement in
these foreign markets.
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USE OF PROCEEDS
Except as otherwise described in the applicable prospectus supplement,
the net proceeds from the sale of the Offered Securities will be added to our
general funds and used for general corporate purposes, which may include, but
are not limited to, capital contributions to our subsidiaries to support such
subsidiaries' continuing operations.
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 January 4, 2001 there were
107,719,307 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. 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.
PREFERRED STOCK
The applicable prospectus supplement will describe the specific terms
of any preferred stock for which this prospectus is being delivered. 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 incorporated by reference in this prospectus for a
description of our stockholder rights agreement and the series A preferred
stock.
WARRANTS
We may issue warrants to purchase our common stock or preferred stock
(the "Underlying Warrant Securities"), and we may issue such warrants
independently or together with shares of our common stock or preferred stock,
and such warrants may be attached to or separate from such shares of
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common stock or preferred stock. We will issue each series of warrants under a
separate warrant agreement (each, a "Warrant Agreement") to be entered into
between us and a warrant agent ("Warrant Agent"). The Warrant Agent will act
solely as our agent in connection with the warrants of such series and will not
assume any obligation or relationship of agency for or with holders or
beneficial owners of warrants. The applicable prospectus supplement will
describe the specific terms of any warrants for which we are delivering pursuant
to this prospectus, including the aggregate number of such warrants, the issue
price or prices of the warrants, the designation and terms of the Underlying
Warrant Securities, the exercise date and expiration date for such warrants and
any other terms of such warrants, including terms, procedures and limitations
relating to the exchange and exercise of such warrants.
PLAN OF DISTRIBUTION
We may sell any of the Offered Securities in any one or more of the
following ways from time to time: (i) through agents; (ii) to or through
underwriters; (iii) through dealers; or (iv) directly to purchasers. The
prospectus supplement with respect to any Offered Securities will set forth the
terms of the offering of such Offered Securities, including the name or names of
any underwriters, dealers or agents; the purchase price of the Offered
Securities and the proceeds to us from such offering; and any underwriting
discounts and commissions or agency fees and other items constituting
underwriters' or agents' compensation, which will not, in any case, exceed 8%;
and any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers and any securities exchange on which such
Offered Securities may be listed.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of such sale, at prices related
to such prevailing market prices or at negotiated prices.
Offers to purchase Offered Securities may be solicited by agents
designated by us from time to time. Any such agent involved in the offer or sale
of the Offered Securities will be named, and any commissions payable by us to
such agent will be described, in the applicable prospectus supplement. Unless
otherwise indicated in such prospectus supplement, any such agent will be acting
on a reasonable best efforts basis for the period of its appointment. Any such
agent may be deemed to be an underwriter, as that term is defined in the
Securities Act, of the Offered Securities so offered and sold.
If Offered Securities are sold by means of an underwritten offering, we
will execute an underwriting agreement with an underwriter or underwriters at
the time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters, and the
terms of the transaction, including commissions, discounts and any other
compensation of the underwriters and dealers, if any, will be set forth in the
applicable prospectus supplement. If underwriters are used in the sale of the
Offered Securities in respect of which this prospectus is delivered, the Offered
Securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined by
the underwriter at the time of sale. Offered Securities may be offered to the
public either through underwriting syndicates represented by managing
underwriters or directly by the managing underwriters. If any underwriter or
underwriters are used in the sale of the Offered Securities, unless otherwise
indicated in the prospectus supplement, the underwriting agreement will provide
that the obligations of the underwriters are subject to certain conditions
precedent and that the underwriters with respect to a sale of Offered Securities
will be obligated to purchase all such Offered Securities of a series if any are
purchased.
If a dealer is used in the sales of the Offered Securities in respect
of which this prospectus is delivered, we will sell such Offered Securities to
the dealer as principal. The dealer may then resell such Offered Securities to
the public at varying prices to be determined by such dealer at the time of
resale. Any such dealer may be deemed to be an underwriter, as such term is
defined in the Securities Act, of the Offered Securities so offered and sold.
The name of the dealer and the terms of the transaction will be set forth in the
prospectus supplement relating thereto.
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Offers to purchase Offered Securities may be solicited directly by us
and the sale thereof may be made by us directly to institutional investors or
others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the prospectus supplement relating thereto.
Agents, underwriters and dealers may be entitled under relevant
agreements to indemnification or contribution by us against certain liabilities,
including liabilities under the Securities Act.
Agents, underwriters and dealers may be customers of, engage in
transactions with or perform services for us and our subsidiaries in the
ordinary course of business.
If so indicated in the applicable prospectus supplement, we may
authorize agents, underwriters or dealers to solicit offers by certain types of
institutions to purchase Offered Securities from us at the public offering
prices set forth in the applicable prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date or
dates in the future. A commission indicated in the applicable prospectus
supplement will be paid to underwriters, dealers and agents soliciting purchases
of Offered Securities pursuant to any such delayed delivery contracts accepted
by us.
We have also engaged Ladenburg Thalman & Co. Inc. as a non-exclusive
placement agent for some or all of the Offered Securities on a best-efforts
basis. If we place any of the Offered Securities through Ladenburg, we have
agreed to pay Ladenburg a commission of 4% and to issue Ladenburg three-year
warrants equal to 1% coverage of the value of the Offered Securities sold
through Ladenburg. We have also paid Ladenburg a non-accountable expense
allowance of $35,000, and have agreed to indemnify Ladenburg against certain
liabilities under the Securities Act. Ladenburg has advised us that it will not
purchase any of the Offered Securities for its own account or for any account
over which it exercises investment discretion.
LEGAL MATTERS
Sonnenschein Nath & Rosenthal will deliver an opinion to us about the
validity of the issuance of the Offered Securities.
EXPERTS
Ernst & Young LLP, independent auditors, have audited 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
our company's ability to continue as a going concern as described in Note 3 to
the financial statements), which is incorporated by reference in this
prospectus. Our 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.
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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 the Offered Securities 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.
APPROXIMATE
AMOUNT
-----------
Securities and Exchange Commission registration fee $12,500
Accountants' fees and expenses 5,000
Legal fees and expenses 20,000
Miscellaneous expenses 1,231
-------
Total $38,731
=======
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.
We have obtained a directors' and officers' liability insurance policy
which entitles us to be reimbursed for certain indemnity payments we are
required or permitted to make to our directors and officers.
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EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
4.1 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 on
August 13, 1998, Registration No. 333-56601.
4.2 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.
4.3 Certificate of Amendment of Certificate of Incorporation of the
Company, incorporated by reference to Exhibit 3.3 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.
4.4 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.
4.5 Certificate of Amendment of Certificate of Incorporation of the
Company filed July 18, 2000, incorporated by reference to the
Company's registration statement on Form S-8, filed with the SEC on
August 7, 2000.
4.6 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.
5.1 Opinion of Sonnenschein Nath & Rosenthal, outside counsel to the
Company, as to the legality of the securities being registered
(including consent).*
23.1 Consent of Ernst & Young LLP, independent accountants.
23.2 Consent of Sonnenschein Nath & Rosenthal, included in Exhibit 5.1
hereto.*
24.1 Powers of Attorney.
-----------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
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(b) to supplement the prospectus and, after the expiration of the
offering period, to set forth the results of the subscription
offer;
(c) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 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 registrant
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 registrant
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 of 1933
and will be governed by the final adjudication of such issue;
(d) for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of
the time it was declared effective; and
(e) for the purpose of determining any liability under the
Securities Act of 1933, each 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.
19
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mt. Prospect, State of Illinois on the 12th day of
January, 2001.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ George M. Calhoun
----------------------------------------
Name: George M. Calhoun
Title: Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned does
hereby make, constitute and appoint George M. Calhoun his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
this registration statement of the Company on Form S-3 (including all
pre-effective and post-effective amendments thereto and all registration
statements filed pursuant to Rule 426(b) which incorporate this registration
statement by reference), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, giving and
granting unto said attorney-in-fact and agents full power and authority to do
and perform each and every act and thing whatsoever necessary or appropriate to
be done in and about the premises, as fully to all intents as he or she might or
could do if personally present at the doing thereof, with full power of
substitution and resubstitution, hereby ratifying and confirming all that his or
her said attorney-in-fact and agents or substitutes may or shall lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ George M. Calhoun Chairman and Chief Executive Officer January 12, 2001
---------------------------- (Principal Executive Officer and Director)
George M. Calhoun
/s/ Charles F. Willes Chief Financial Officer January 12, 2001
---------------------------- (Principal Financial and Accounting Officer)
Charles F. Willes
/s/ Mark D. Brodsky Director January 12, 2001
----------------------------
Mark D. Brodsky
/s/ Howard S. Hoffmann Director January 12, 2001
----------------------------
Howard S. Hoffmann
Director
----------------------------
Thomas L. Powers
/s/ Richard N. Herring Director January 12, 2001
----------------------------
Richard N. Herring
/s/ Daniel T. Spoor Director January 12, 2001
----------------------------
Daniel T. Spoor
</TABLE>
20
<PAGE> 24
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------- -------------------------------------
23.1 Consent of Ernst & Young LLP.
21
