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EXHIBIT 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE, IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS NOTE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND CONVERSION SET FORTH IN SECTIONS 3.1 AND 3.15 OF A SECURITIES
PURCHASE AGREEMENT, DATED AS OF MAY 15, 1998, BETWEEN ILLINOIS SUPERCONDUCTOR
CORPORATION (THE "COMPANY") AND THE PURCHASERS LISTED THEREIN, INCLUDING THE
ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY.
SENIOR CONVERTIBLE NOTE
Mt. Prospect, Illinois Note No.:___
May 15, 1998 $______
FOR VALUE RECEIVED, ILLINOIS SUPERCONDUCTOR CORPORATION, a Delaware
corporation (the "Company"), hereby promises to pay to the order of
__________________________ or its registered assigns ("Holder") the principal
amount of ____________________________ ($______), together with all accrued but
unpaid interest thereon, on May 15, 2002 (the "Maturity Date") to the extent
such principal amount and interest has not been converted into the Company's
Common Stock, $.001 par value per share (the "Common Stock"), in accordance with
the terms hereof, and to pay interest on the unpaid principal balance hereof at
the rate of 2% per annum from May 15, 1998 (the "Issuance Date") until the same
becomes due and payable on the Maturity Date, or such earlier date upon
acceleration or by conversion or redemption in accordance with the terms hereof.
Interest on this Note shall commence accruing on the Issuance Date and shall be
computed on the basis of a 360-day year, 30-day months and actual days elapsed
and shall be payable at the time of conversion of the principal to which such
interest relates in accordance with Section 3 hereof. Notwithstanding anything
contained herein, this Note shall bear interest, from and after the occurrence
and during the continuance of a default pursuant to Section 5(a), at the rate
equal to the lower of fifteen percent (15%) per annum or the highest rate
permitted by law. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs, then to unpaid
interest and fees and any remaining amount to principal.
All payments of principal and interest on this Note (to the extent such
principal and/or interest is not converted into Common Stock in accordance with
the terms hereof) shall be made
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in lawful money of the United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to time designate by
written notice in accordance with the provisions of this Note or by Company
check. Whenever any amount expressed to be due by the terms of this Note is due
on any day which is not a Business Day (as defined below), the same shall
instead be due on the next succeeding day which is a Business Day. For purposes
of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which commercial banks in the City of New York are authorized or
required by law or executive order to remain closed. Each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
the Securities Purchase Agreement, dated May 15, 1998, pursuant to which this
Note was originally issued (the "Purchase Agreement"). This Note and the other
senior convertible notes issued by the Company on the Issuance Date pursuant to
the Purchase Agreement are collectively referred to in this Note as the "Notes."
The following terms and conditions shall apply to this Note:
Section 1. Voting Rights. The rights of holders of Notes to
elect or designate directors to the Company's Board of Directors is limited to
the provisions of Section 3.12 of the Purchase Agreement. So long as any
principal amount of Notes is outstanding, the Company shall not, without the
affirmative vote of the holders of at least 75% of the principal amount of the
Notes then outstanding, authorize or create any class of debt securities or
capital stock ranking as to dividends, interest or distribution of assets upon a
Liquidation payment at maturity, if applicable, (as defined in Section 2 hereof)
senior to, prior to or pari passu with the Notes.
Section 2. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Notes shall be entitled to receive in cash out of the assets of
the Company, whether such assets are capital or surplus, an amount equal to the
outstanding principal thereon plus all accrued but unpaid interest thereon
before any distribution or payment shall be made to the holders of any Junior
Securities (as defined in Section 6 hereof), and if the assets of the Company
shall be insufficient to pay in full the amounts due to the holders of the Notes
and holders of other classes or series of debt securities of the Company that
rank pari passu with the Notes as to distributions of assets, then the entire
assets to be distributed to the holders of Notes and the holders of such debt
securities ranking pari passu shall be distributed among the holders of Notes
and the holders of such debt securities ranking pari passu ratably in accordance
with the respective amounts that would be payable on the Notes and such debt
securities if all amounts payable thereon were paid in full. A sale, conveyance
or disposition (either singly or in the aggregate) of all or substantially all
of the assets of the Company or the effectuation by the Company or a third party
of a transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of, or a consolidation or merger of the
Company with or into any other company or companies shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 3 hereof.
The Company shall mail written notice of any such Liquidation, not less than 45
days prior to the payment date stated therein, to each record holder of Notes.
Section 3. Conversion. The Holder shall have the right, at the
Holder's option, to convert this Note into shares of Common Stock on the
following terms and conditions:
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(a)(i) Up to one-half (1/2) of the initial principal amount of
this Note shall be convertible into shares of Common Stock (subject to reduction
pursuant to Section 3.15 of the Purchase Agreement) at the Conversion Ratio (as
defined in Section 6 hereof) at the option of the Holder in whole or in part at
any time after ninety (90) days following the Issuance Date. Any part of the
outstanding and unpaid principal of this Note shall be convertible into shares
of Common Stock (subject to reduction pursuant to Section 3.15 of the Purchase
Agreement) at the Conversion Ratio at the option of the Holder in whole or in
part at any time after the 180th day following the Issuance Date up to and
including the day that all of the principal of this Note and interest accrued
thereon are paid in full. Each conversion by the Holder shall be for at least
$10,000 in principal, or such lesser amount of principal as shall remain unpaid
and outstanding at the time of conversion. The accrued interest on any principal
amount of this Note converted into Common Stock shall be simultaneously
converted into Common Stock in accordance with Section 3(a)(ii) below, unless
the Company elects to pay such interest in cash. The Holder shall effect
conversions by surrendering to the Company a fully executed notice of conversion
in the form of conversion notice attached hereto as Exhibit A (the "Conversion
Notice"), which may be transmitted by facsimile, and this Note. Each Conversion
Notice shall specify the outstanding principal amount of this Note to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Conversion Notice is received by the Company
hereunder (the "Conversion Date"); provided, however, that if this Note is not
received by the Company (other than by facsimile) within two (2) Trading Days of
the date specified in the Conversion Notice as the date on which such conversion
is to be effected, then the Conversion Date shall be the date on which this Note
is received by the Company (other than by facsimile). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date that the
Conversion Notice is deemed delivered pursuant to Section 3(h) hereof; provided,
however, that if this Note is not received (other than by facsimile) by the
Company within two (2) Trading Days of such date, then the Conversion Date shall
be the date on which this Note is received by the Company (other than by
facsimile). Subject to Section 3(b) hereof and Section 3.15 of the Purchase
Agreement, each Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the outstanding principal amount of this
Note tendered by the Holder with the Conversion Notice, or if a conversion
hereunder cannot be effected in full for any reason, the Company shall promptly
deliver to the Holder (in the manner and within the time set forth in Section
3(b) hereof) a Note for such principal amount as has not been converted.
(ii) Interest. The Company shall have the right to elect to
pay accrued interest in cash, in lieu of conversion into Common Stock in
accordance with this Section 3, by providing thirty (30) days' prior notice to
the Holder. Following such notice, all payments of interest on this Note shall
be made in cash, until such time as the Company provides thirty (30) days' prior
notice to the Holder of its election to pay interest on this Note in Common
Stock. If the Company elects to pay accrued interest in cash, such cash shall be
paid simultaneously with the delivery to the Holder of the certificates
representing the Common Stock issuable upon conversion in accordance with
Section 3(b) below. If the Company elects to pay accrued interest in Common
Stock, certificates representing such Common Stock shall be issued
simultaneously with the delivery to the Holder of the certificates representing
the Common Stock issuable upon conversion of principal in accordance with
Section 3(b) below; provided that in determining the number of shares of Common
Stock to be issued as accrued interest, such Common Stock shall be valued at the
Per Share Market Value (as defined in Section 6 below)
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for the twenty (20) consecutive Trading Days (as defined in Section 6 below)
preceding the Conversion Date.
Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of interest (and must
deliver cash in respect thereof) on the Notes if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to issue such interest to be paid in shares of Common Stock;
(ii) such shares are not registered for resale pursuant to
an effective registration statement and covered by a current related prospectus,
the use of which has not been suspended, that names the recipient of such
dividend as a selling stockholder thereunder and may not be sold without
restrictions pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to the Company's transfer agent,
in the form and substance reasonably acceptable to the holder;
(iii) such shares are not listed on the Nasdaq National
Market, The Nasdaq SmallCap Market, the New York Stock Exchange, the American
Stock Exchange or any other exchange or quotation system on which the Common
Stock is then listed for trading.
(b) Not later than three (3) Trading Days after the Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of this
Note, including as accrued interest, if the Company elects to pay such interest
in Common Stock, and (ii) a Note representing the remaining principal amount of
this Note not converted, if any, and (iii) a check drawn on the account of the
Company or a wire transfer of immediately available funds, payable to the Holder
in an amount equal to any accrued interest, if the Company elects or is required
to pay such interest in cash; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of this Note until this Note is either delivered for conversion
(other than by facsimile) to the Company, or the Holder notifies the Company
that such Note has been lost, stolen or destroyed and provides a bond (or other
adequate security reasonably acceptable to the Company) reasonably satisfactory
to the Company to indemnify the Company from any loss incurred by it in
connection therewith. The Company shall, upon request of the Holder, use its
best efforts to deliver any certificate or certificates required to be delivered
by the Company under this Section 3(b) electronically through The Depository
Trust Corporation or another established clearing corporation performing similar
functions. If in the case of any Conversion Notice, such certificate or
certificates, including for purposes hereof, any shares of Common Stock to be
issued on the Conversion Date on account of accrued interest hereunder, are not
delivered to or as directed by the Holder by the third Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return this Note tendered for conversion. If the Company fails
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to deliver to the Holder such certificate or certificates pursuant to this
Section 3(b), including for purposes hereof, any shares of Common Stock to be
issued on the Conversion Date on account of accrued interest hereunder, prior to
the fifth Trading Day after the Conversion Date, the Company shall pay to the
Holder, in cash, an amount equal to the actual damages which the Holder can
prove it has suffered as a direct result of the Company's failure to deliver to
the Holder such certificate or certificates prior to the fifth Trading Day after
the Conversion Date. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section prior to the 20th day after
the Conversion Date, the Company shall (i) deliver notice of such failure to all
holders of the Notes and (ii) at the option of any holder of the Notes, and upon
such holder's written notice to the Company, redeem all or a portion of the
outstanding principal amount of the Notes held by such holder, as requested by
such holder. The aggregate redemption price shall be equal to the greater of (i)
the outstanding principal amount being redeemed plus any unpaid interest thereon
and (ii) the product of (x) the average of the Per Share Market Value for the
five (5) Trading Days preceding the Conversion Date and (y) the Conversion
Ratio. If a holder has requested that the Company redeem such holder's Notes
pursuant to this Section 3(b) and the Company fails for any reason to pay the
redemption price above within seven (7) days after such notice is deemed
delivered pursuant to Section 3(b), the Company will pay interest on the
redemption price at a rate of 15% per annum, in cash to such holder, accruing
from such seventh day until the redemption price and any accrued interest
thereon is paid in full; provided, however, if any portion of the redemption
price under this Section 3(b) shall not be paid by the Company within seven (7)
days of such notice of redemption being delivered, the applicable holder by
written notice given to the Company within 30 days of such 7th day, may elect to
invalidate ab initio such redemption and the Company shall, within three (3)
Trading Days of receipt of such notice, return to such holder that portion of
this Note for which the redemption price has not been paid.
(c) (i) The conversion price ("Conversion Price") applicable
to conversions of the principal of this Note into Common Stock hereunder shall
be $1.50, subject to adjustment as provided herein. Notwithstanding the
foregoing, if (a) the registration statement contemplated by the Registration
Rights Agreement (as defined in Section 6 below), which among other things,
requires the Company to register the resale of the shares of Common Stock
issuable upon conversion of the Notes (the "Underlying Shares Registration
Statement") is not filed on or prior to the 30th day after the Issuance Date, or
(b) the Company fails to file with the Commission a request for acceleration in
accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Shares Registration Statement will not be "reviewed" or is advised
that such Registration Statement is not subject to further review or comment, or
(c) if the Underlying Shares Registration Statement is not declared effective by
the Commission on or prior to the 90th day after the Issuance Date, or (d) if
such Underlying Shares Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities (as such term is defined in the Registration Rights
Agreement) at any time prior to the expiration of the "Effectiveness Period" (as
such term as defined in the Registration Rights Agreement), without being
succeeded within ten (10) Business Days by a subsequent Underlying Shares
Registration Statement filed with and declared effective by the Commission, or
(e) if trading in the Common Stock shall be suspended for any reason for more
than three (3) consecutive Trading Days or five (5) Trading Days in the
aggregate or if the Common Stock shall be delisted from the
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Nasdaq National Market (unless the Common Stock is listed for trading on The
Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange within three (3) Trading Days), or (f) if the conversion rights of the
Holder are suspended for any reason, or (g) the Company postpones or suspends
the filing or effectiveness of any Registration Statement in excess of 20
consecutive days or 60 days in the aggregate during any twelve month period, or
(h) a holder of Registrable Securities must discontinue disposition of its
Registrable Securities pursuant to the fourth paragraph of Section 3(o) of the
Registration Rights Agreement, or (i) if during the Effectiveness Period (as
defined in the Registration Rights Agreement), the Registrable Securities shall
not be qualified for resale under the state securities laws of those states in
the United States which shall have been reasonably requested by the holders of
the Notes (any such occurrence being referred to as an "Event," and for purposes
of clauses (a), (c), (f),(h) and (i) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period is exceeded,
or for purposes of clause (d) the date which such 10 Business Day-period is
exceeded, or for purposes of clause (e) the date on which such three Trading Day
period is exceeded, or for purposes of clause (g) the date on which such 20
consecutive day or 60 aggregate day period is exceeded, being referred to as an
"Event Date"), the Conversion Price for all of the Notes shall be decreased by
2.5% for each monthly anniversary of an Event Date until the earlier to occur of
the second month anniversary after the Event Date and such time as the
applicable Event is cured (e.g. if an Event has not been cured on the first
month anniversary of its Event Date, the Conversion Price for all of the Notes
shall be reduced to $1.4625; if the Event has not been cured on the second month
anniversary of its Event Date, the Conversion Price for all of the Notes in
effect on a Conversion Date shall be further reduced to $1.425). Commencing the
second month anniversary after the Event Date, at the option of any holder of
the Notes, to be exercised by written notice, for each applicable monthly period
either (a) the Company shall pay to such holder 2.5% of the outstanding
principal of such holder's Notes or (b) the Conversion Price for such Notes
shall be decreased by 2.5% for each such additional month (to be effective in
full on the monthly anniversary of an applicable Event Date) as liquidated
damages, and not as a penalty, on the first day of each monthly anniversary of
the Event Date, in either case until such time as the applicable Event is cured.
Any decreased Conversion Price in effect pursuant to this Section 3(c)(i) shall
continue notwithstanding the fact that the Event causing such decrease has been
subsequently cured. If an Event is not cured by the third month anniversary of
an Event Date (or the second week anniversary of an Event Date for the purpose
of clause (f)), then each holder of Notes shall have the option by written
notice to require the Company to redeem such holder's Notes, in whole or in
part, at an aggregate redemption price equal to the greater of (i) the
outstanding principal amount being redeemed plus any unpaid interest thereon and
(ii) the product of (x) the average of the Per Share Market Value for the five
(5) Trading Days immediately preceding such holder's redemption notice and (y)
the Conversion Ratio. If the Holder has requested that the Company redeem this
Note pursuant to this Section 3.1(c)(i) and the Company fails for any reason to
pay the redemption price within seven (7) days after the notice of redemption is
deemed delivered pursuant to Section 3(h), the Company will pay interest on such
redemption price in cash at a rate of 15% per annum to the applicable holder,
accruing from the date the notice of redemption is deemed delivered until the
redemption price plus any accrued interest thereon is paid in full; provided,
however, if any portion of the redemption price under this Section 3.1(c)(i)
shall not be paid by the Company within seven (7) days of such notice of
redemption being delivered, such holder by written notice given to the Company
within 30 days of such 7th day, may elect to invalidate ab initio such
redemption and the Company shall, within
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three (3) Trading Days of receipt of such notice, return to such holder the
portion of this Note for which the redemption price has not been paid. The
provisions of this Section 3(c)(i) are not exclusive and shall in no way limit
the Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any principal
amount of this Note is outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities payable
in shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
a larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
3(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while any principal
amount of this Note is outstanding, shall distribute to all holders of Common
Stock evidences of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in Section 3(c)(ii)
above), then in each such case the Conversion Price shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Company's Board of
Directors in good faith; provided, however, that if the holders of a majority of
the outstanding principal of the Notes dispute such amount, such holders may
select a nationally recognized or major regional investment banking firm or firm
of independent certified public accountants of recognized standing (an
"Appraiser") paid for by the holders of the outstanding principal of the Notes
then outstanding, in which case the fair market value shall be equal to the
average of the determinations by the Company's Board of Directors and such
Appraiser. In either case the adjustments shall be described in a statement
provided to the holders of the Notes of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
(iv) All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(v) Whenever the Conversion Price is adjusted pursuant to
Section 3(c)(ii) or (iii) above, the Company shall promptly mail to each holder
of the Notes, a notice
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setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(vi) In case of (i) an acquisition after the date hereof
by an individual, legal entity or "group" within the meaning of Section 13(d)
under the Exchange Act of voting securities of the Company pursuant to which,
after giving effect to such acquisition, such individual, legal entity or group
will beneficially own in excess of 50% of the issued and outstanding voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's Board of Directors which is not approved by those
individuals who are members of the Company's Board of Directors on the date
thereof in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, consolidation or sale, transfer or
disposition of all or substantially all of the assets of the Company in one or a
series of transactions or (iv) the execution by the Company of an agreement to
which the Company is a party or which it is bound providing for an event set
forth in (i), (ii) or (iii) above, pursuant to which the Common Stock is
converted into other securities, cash or property (each, a "Business
Combination"), the Holder shall have the right thereafter to, at its option, (A)
convert this Note, in whole or in part, only into the shares of stock and other
securities, cash and/or property receivable upon or deemed to be held by holders
of Common Stock following such Business Combination, and the Holder shall be
entitled upon such event to receive such amount of securities, cash or property
as the shares of the Common Stock of the Company into which this Note could have
been converted immediately prior to such Business Combination would have been
entitled, subject to such further applicable adjustments set forth in this
Section 3 or (B) require the Company to redeem this Note, in whole or in part,
at a redemption price equal to the greater of (i) the outstanding principal
amount being redeemed plus any unpaid interest thereon and (ii) the product of
(x) the average of the Per Share Market Value for the five (5) Trading Days
immediately preceding the Purchaser's election to have its Notes redeemed and
(y) the Conversion Ratio. If any portion of the applicable redemption price
under this Section 3.1(c)(vi) shall not be paid by the Company within seven (7)
days after the date due, interest shall accrue thereon at the rate of 15% per
annum until the redemption price plus all such interest is paid in full (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of such redemption price remains unpaid for more than seven (7)
days after the date due, the Holder of this Note being subject to such
redemption may elect, by written notice to the Company given within 30 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 3 of the portion of
this Note for which such redemption price, plus accrued liquidated damages
thereof, has not been paid in full (the "Unpaid Redemption Notes") or (ii)
invalidate ab initio such redemption, notwithstanding anything herein contained
to the contrary. If the Holder elects option (i) above, the Company shall within
three (3) Trading Days of its receipt of such election deliver to the holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption Notes
subject to the Holder's conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than three (3) Trading Days
from receipt of the Holder's notice of such election, return to the Holder all
of the Unpaid Redemption Notes. The terms of any such Business Combination shall
include such terms so as to continue to give to the Holders the right to receive
the amount of securities, cash and/or property upon any conversion or redemption
following such Business Combination to which a holder of the number of shares of
Common Stock deliverable upon such conversion would have been entitled
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in such Business Combination. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
(vii) If:
A. the Company shall declare a dividend (or
any other distribution) on its Common
Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the granting
to all holders of the Common Stock rights
or warrants to subscribe for or purchase
any shares of capital stock of any class
or of any rights; or
D. the approval of any stockholders of the
Company shall be required in connection
with any reclassification of the Common
Stock of the Company, any consolidation or
merger to which the Company is a party,
any sale or transfer of all or
substantially all of the assets of the
Company, of any compulsory share of
exchange whereby the Common Stock is
converted into other securities, cash or
property; or
E. the Company shall authorize the voluntary
or involuntary dissolution, liquidation or
winding up of the affairs of the Company.
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Note, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the books of the Company, at
least 30 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided, however, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. During the period covered by
such notice, subject to Section 3.15 of the Purchase Agreement, the Holder shall
be entitled to convert this Note, in whole or in part, notwithstanding Section
3(a)(i) above.
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(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of this Note (including payment of
interest thereon in Common Stock), free from preemptive rights or any other
actual contingent purchase rights of persons other than the holders of the
Notes, not less than such number of shares of Common Stock as shall (subject to
any additional requirements of the Company as to reservation of such shares set
forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 3(c) above) upon the conversion of this
Note (including payment of interest thereon in Common Stock) hereunder. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid, nonassessable
and freely tradeable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of this Note shall be made without charge to the Holder for any
documentary stamp or similar taxes that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(g) After all principal and accrued interest at any time owed
on this Note has been paid in full or converted into Common Stock, this Note
shall automatically be deemed be canceled.
(h) Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by facsimile,
or by a nationally recognized overnight courier service to the attention of the
Chief Financial Officer of the Company at the facsimile telephone number or
address of the principal place of business of the Company as set forth in the
Purchase Agreement. Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or by a nationally recognized overnight courier
service addressed to the Holder at the facsimile telephone number or address of
the Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder shall be
deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by
facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Central Time), or on the first Business Day following such receipt if received
on a Business Day after 5:00 p.m. (Central Time) or (iii) the Business Day
following the date of depositing with a nationally recognized overnight courier
service.
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(i) Notwithstanding anything herein to the contrary, in the
event that within 180 days of the Issuance Date the Company or a third party
announces the occurrence of, or the intent to engage in:
(i) A transaction which will result in a Change in Control
(as defined in the Purchase Agreement);
(ii) A "going private" transaction under Rule 13e-3
promulgated pursuant to the Exchange Act;
(iii) A tender offer by the Company under Rule 13e-4
promulgated pursuant to the Exchange Act;
(iv) That the Company (A) is or has become insolvent; (B)
admits in writing its inability to pay its debts generally as
they mature; (C) makes an assignment for the benefit of
creditors or commence proceedings for its dissolution; (D)
applies for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial part of its
property or business;
(v) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any
Bankruptcy Law (as defined herein) or any law for the relief
of debt shall be instituted by or against the Company (except
for such proceedings that the Company in good faith believes
are without basis, actively contests and is successful in
having dismissed with prejudice within 30 days) or the Company
shall by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in
any such proceedings; or
(vi) Any material acquisition or disposition of assets, or
any merger or consolidation with any other company or entity,
if such transaction would be required by the rules and
regulations of the Exchange Act to be reported by the Company
on a Current Report on Form 8-K,
then upon such announcement, subject to Section 3.15 of the Purchase Agreement,
the full principal amount of this Note may be converted into shares of Common
Stock in accordance with the terms hereof.
Section 4. Redemption. (a) The Company shall have the right,
exercisable at any time upon thirty (30) days' notice to the holders of the
Notes given at any time on or after the second anniversary of the Issuance Date
to redeem all or any portion of the Notes which have not previously been
converted or redeemed, at a redemption price equal to the outstanding principal
(plus accrued interest thereon), provided the Per Share Market Value for the
Common Stock has been at least $4.50 per share for each of the twenty (20)
consecutive Trading Days preceding the date on which the Company delivers a
redemption notice pursuant to this Section 4(a). The entire redemption price
plus all interest accrued thereon shall be paid in cash. Holders of the Notes
may convert the Notes, including those subject to a redemption notice
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given under this Section 4(a), during the period from the date of such
redemption notice through the date on which the redemption price for such Notes
is paid by the Company and the Company shall honor all properly tendered
Conversion Notices during such period. Any redemption notice under this Section
4(a) shall indicate the principal amount of Notes to be redeemed and the date
(subject to the terms hereof) on which such redemption is to occur. The holders
of the Notes to be redeemed shall tender by overnight mail, the Notes subject to
such redemption on the date prior to the redemption date. If the Company intends
to redeem less than all of the then outstanding Notes, it shall do so on a pro
rata basis among such holders in accordance with this Section 4(a). If any
portion of the applicable redemption price under this Section shall not be paid
by the Company within seven (7) days after the date due, interest shall accrue
thereon at the rate of 15% per annum until the redemption price plus all such
interest is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). In addition, if any portion of such redemption price remains
unpaid for more than seven (7) days after the date due, the holder of this Note
subject to such redemption may elect, by written notice to the Company given
within 30 days after the date due, to either (i) demand conversion of the Unpaid
Redemption Notes in accordance with the formula and the time frame therefor set
forth in Section 3 or (ii) invalidate ab initio such redemption, notwithstanding
anything herein contained to the contrary. If the Holder elects option (i)
above, the Company shall within three (3) Trading Days of its receipt of such
election deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Redemption Notes subject to such holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of the Holder's notice
of such election, return to the Holder all of the Unpaid Redemption Notes.
Failure by the Company to redeem this Note on a timely basis after notifying the
holders of its intent to redeem the Notes pursuant to this Section 4(a) shall
result in the Company being prohibited from exercising such right pursuant to
this Section 4(a) again.
(b) Notwithstanding anything to the contrary herein, the
Company shall be prohibited from exercising its right to redeem the Notes
pursuant to Section 4(a) if at the time of such redemption and for the 30 days
preceding the Company's notice of such redemption and at all times between the
date of such notice and the redemption (i) an Underlying Shares Registration
Statement is not effective, (ii) the Common Stock is not listed on the Nasdaq
National Market, The Nasdaq SmallCap Market, the New York Stock Exchange or the
American Stock Exchange or trading on such market or exchange is suspended or
(iii) the use of a Prospectus (as defined in the Registration Rights Agreement)
is suspended.
Section 5. Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) default
in payment of the principal amount or interest thereon of any of the Notes on or
after the date such payment is due (to the extent such principal and/or amount
has not been converted into Common Stock in accordance with the terms hereof or
thereof, as applicable); (ii) failure by the Company for ten (10) days after
notice to it to comply with any other material provision of any of the Notes,
the Purchase Agreement, the Registration Rights Agreement (other than an Event)
or the common stock purchase warrants of the Company issued to the Holder
pursuant to the Purchase Agreement; (iii) a material breach by the Company of
its representations or warranties in the
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Purchase Agreement or Registration Rights Agreement; (iv) any default under or
acceleration prior to maturity of any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or for money borrowed the
repayment of which is guaranteed by the Company, whether such indebtedness or
guarantee now exists or shall be created hereafter, provided that the Company's
obligation with respect to any such borrowed or accelerated amount exceeds, in
the aggregate, $500,000; (v) if the Company pursuant to or within the meaning of
any Bankruptcy Law; (A) commences a voluntary case; (B) consents to the entry of
an order for relief against it in an involuntary case; (C) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors; or
(E) admits in writing that it is generally unable to pay its debts as the same
become due; or (vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (1) is for relief against the Company in an
involuntary case; (2) appoints a Custodian of the Company or for all or
substantially all of its property; or (3) orders the liquidation of the Company
or any subsidiary, and the order or decree remains unstayed and in effect for
ninety (90) days. The Term "Bankruptcy Law" means Title 11, U.S. Code, or any
similar Federal or State Law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
(b) Remedies. If an Event of Default occurs and is continuing
with respect to any of the Notes, the Holder may declare all of the then
outstanding principal amount of this Note and all other Notes held by the
Holder, including any interest due thereon, to be due and payable immediately,
except that in the case of an Event of Default arising from events described in
clauses (v) and (vi) of Section 5(a), this Note shall become due and payable
without further action or notice. The remedies under this Note shall be
cumulative.
Section 6. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is the principal amount of this Note (and any accrued interest
thereon) to be converted in such conversion, and of which the denominator is the
Conversion Price at such time.
"Junior Securities" means the Company's capital stock and all
other equity securities and all debt securities of the Company which are junior
in rights and liquidation preference to the Notes.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange or quotation system on which the Common
Stock is then listed or if there is no such price on such date, then the closing
bid price on such exchange or quotation system on the date nearest preceding
such date, or (b) if the Common Stock is not listed then on the Nasdaq National
Market or any stock exchange or quotation system, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by The Nasdaq
Stock Market, Inc. or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar
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organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the holder, or (d) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith and paid for by the holders of a majority
in principal amount of the Notes; provided, however, that the Company, after
receipt of the determination by such appraiser, shall have the right to select
an additional Appraiser (which may be the firm of independent accountants that
regularly reviews the Company's financial statements), in which case, the fair
market value shall be equal to the average of the determinations by each such
Appraiser.
"Person" means a corporation, an association, a partnership, a
limited liability company, an organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of May 15, 1998, between the Company and the original
holders of the Notes.
"Trading Day" means a day on which the Common Stock is traded
on The Nasdaq National Market, Inc. or other stock exchange or market on which
the Common Stock has been listed.
"Underlying Shares" means the number of shares of Common Stock
into which the Notes are convertible in accordance with the terms hereof and the
Purchase Agreement.
Section 7. General
(a) Payment of Expenses. The Company agrees to pay all
reasonable debts and expenses, including attorneys' fees and expenses, which may
be incurred by the Holder in successfully enforcing this Note and/or collecting
any amount due under this Note.
(b) Savings Clause. In case any provision of this Note is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in
any way be affected or impaired thereby. In no event shall the amount of
interest paid hereunder exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is collected in
excess of the applicable maximum rate, the excess collected shall be applied to
reduce the principal debt. If the interest actually collected hereunder is still
in excess of the applicable maximum rate, the interest rate shall be reduced so
as not to exceed the maximum allowable under law.
(c) Amendment. Neither this Note nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the Company and Holder.
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(d) Assignment, Etc. The Holder may assign or transfer this
Note to any transferee; provided, however, that if such transferee is not
already a holder of the Notes or an Affiliate of any holder of the Notes then
such transferee shall not have the ability to participate in the nomination of
directors pursuant to Section 3.12 of the Purchase Agreement. This Note shall be
binding upon the Company and its successors and shall inure to the benefit of
the Holder and its successors and assigns.
(e) No Waiver. No failure on the part of the Holder to
exercise, and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by the
Holder of any right, remedy or power hereunder preclude any other or future
exercise of any other right, remedy or power. Each and every right, remedy or
power hereby granted to the Holder or allowed it by law or other agreement shall
be cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
(f) Governing Law; Jurisdiction.
(i) THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE
APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
(ii) The Company irrevocable submits to the exclusive
jurisdiction of any State or Federal Court sitting in the State of New York over
any suit, action, or proceeding arising out of or relating to this agreement.
The Company irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posed as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Holder's right to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgement in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(iii) The Company hereto knowingly and voluntarily waives
any and all rights it may have to a trial by jury with respect to any litigation
based on, or arising out of, under, or in connection with, this Note.
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IN WITNESS WHEREOF, the Company has caused this Note to be
signed by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, its President and Chief Executive Officer, on the day
and in the year first above written.
ILLINOIS SUPERCONDUCTOR CORPORATION
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
17
EXHIBIT A
FORM OF NOTICE OF CONVERSION
(To be Executed by the Holder
in order to Convert a Note)
The undersigned hereby elects to convert the aggregate principal amount
indicated below of Note No. ___, into shares of Common Stock, par value $.001
per share (the "Common Stock"), of Illinois Superconductor Corporation (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
The undersigned hereby represents that the number of shares of Common Stock
issuable pursuant to this Notice of Conversion does not violate or breach the
restrictions on conversions contained in Section 3.15 of the Securities Purchase
Agreement dated as of May 15, 1998 by and between the Company and the purchasers
listed therein, including the original holder of the note be converted herewith.
Conversion calculations: --------------------------------------------------
Date to Effect Conversion
Note No.:
-----------------------------------------
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Aggregate Principal Amount of Note Being Converted
--------------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------------
Applicable Conversion Price
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Signature
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Name
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Address