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Exhibit 4.20
SECURITIES PURCHASE AGREEMENT
by and among
ILLINOIS SUPERCONDUCTOR CORPORATION
and
▇▇▇▇▇▇▇ ASSOCIATES, L.P.,
WESTGATE INTERNATIONAL, L.P.,
ALEXANDER FINANCE, LP
and
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
Dated as of March 31, 1999
______________________________
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SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 31,
1999, by and among ▇▇▇▇▇▇▇ Associates, L.P., a limited partnership organized
and existing under the laws of Delaware, Westgate International, L.P., a
limited partnership organized and existing under the laws of the Cayman
Islands, Alexander Finance, LP, a limited partnership organized and existing
under the laws of the State of Illinois , and State Farm Mutual Automobile
Insurance Company, an insurance company organized and existing under the laws
of the State of Illinois (each, a "Purchaser" and collectively, the
"Purchasers"), and Illinois Superconductor Corporation, a corporation organized
and existing under the laws of Delaware (the "Company").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desires to acquire from the Company, $3,300,000 principal amount of the
Company's 6% Senior Convertible Notes due May 15, 2002 (the "6% Notes"), in the
form of Exhibit A attached hereto, on the terms and conditions set forth
herein;
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Purchasers and the Company desire that the terms and provisions of
$5,500,000 principal amount of the Company's 2% Senior Convertible Notes due
May 15, 2002, which were issued on May 15, 1998 and which are held by the
Purchasers (the "2% Notes"), be amended, as set forth below; and
WHEREAS, subject to the terms and conditions set forth in this Agreement,
in connection with the transactions set forth above, the Purchasers and the
Company desire that the Purchasers: (i) acquire warrants, substantially in the
form of Exhibit B attached hereto ("6% Note Warrants") to purchase an aggregate
of 1,320,000 shares of the Company's Common Stock, par value $ .001 per share
(the "Common Stock"), at an exercise price of $1.4625 per share; and (ii) amend
the terms of certain existing warrants issued to the Purchasers to purchase
2,200,000 shares of Common Stock at $3.75 per share and expiring on May 15,
2001 (the "2% Note Warrants"), as set forth below.
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS; AMENDMENT
1.1 Purchase and Sale. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Purchasers, and the Purchasers
shall purchase from the Company, (i) $3,300,000 in aggregate principal amount
of 6% Notes, in the respective amounts set forth opposite each Purchaser's name
on the Schedule of Purchasers attached hereto, and (ii) 6% Note Warrants to
purchase an aggregate of 1,320,000 shares of Common Stock, at an exercise price
of $1.4625 per share, subject to adjustment as therein provided, at any time
during the period beginning on the Closing Date (as hereinafter defined) and
ending on the third
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anniversary of the Closing Date, in the respective amounts set forth opposite
each Purchaser's name on the Schedule of Purchasers.
For purposes of this Agreement, "Conversion Ratio", "Trading Day,
"Business Day" and "Per Share Market Value" shall have the meanings set forth
in the 6% Notes.
1.2 Amendment of 2% Notes and 2% Note Warrants.
(a) Subject to the terms and conditions set forth herein, the terms and
provisions of $5,500,000 principal amount of 2% Notes held by the Purchasers
shall be amended as set forth in the Amendment, in the form of Exhibit C
attached hereto (the "Amendment to Note Agreement"), to the Securities Purchase
Agreement, dated as of May 15, 1998, by and among the Company, the Purchasers,
Spring Point Partners, L.P. and Spring Point Offshore Fund (the "2% Note
Agreement"). The 2% Notes amended pursuant to the terms of the Amendment to
Note Agreement shall hereinafter be referred to as the "Amended 2% Notes."
(b) Subject to the terms and provisions herein, the terms and provisions
of 2% Note Warrants to purchase 2,200,000 shares of Common Stock shall be
amended, as set forth in the Amendment to Note Agreement. The 2% Note Warrants
amended pursuant to the terms of the Amendment to Note Agreement shall
hereinafter be referred to as the "Amended 2% Note Warrants."
1.3 Purchase Price and Amendment Amount. The purchase price of the 6%
Notes and 6% Note Warrants purchased herein and the amounts of 2% Notes and 2%
Note Warrants to be amended shall be set forth opposite each Purchaser's name
on the Schedule of Purchasers.
1.4 The Closing.
(a) Time and Place. The closing of the purchase and sale of the 6% Notes
and the 6% Note Warrants and the amendment of the 2% Notes and the 2% Note
Warrants (the "Closing") shall take place at the offices of Kleinberg, Kaplan,
▇▇▇▇▇ & ▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ on March 31, 1999, or
such later date as the parties shall agree, but not prior to the date that the
conditions set forth in Section 4 have been satisfied or waived by the
appropriate party. The date of the Closing is hereinafter referred to as the
"Closing Date." At the Closing, the Company shall sell and issue to the
Purchasers, and the Purchasers shall purchase, 6% Notes and 6% Note Warrants
for an aggregate purchase price of $3,300,000 and the Company shall also amend
the amount of 2% Notes and 2% Note Warrants with respect to each Purchaser, all
as set forth in the Schedule of Purchasers.
(b) Closing Deliveries. At the Closing, (i) the Company shall deliver to
each Purchaser, in such denominations as are requested by such Purchaser, (A)
(1) 6% Notes in the principal amount which such Purchaser is then buying (as
indicated opposite such Purchaser's name on the Schedule of Purchasers) and (2)
Amended 2% Notes in the principal amount indicated opposite such Purchaser's
name on the Schedule of Purchasers) and (B) (1) 6% Note Warrants to purchase
such number of shares of Common Stock as indicated opposite such
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Purchaser's name on the Schedule of Purchasers and (2) Amended 2% Note Warrants
to purchase such number of shares of Common Stock as indicated opposite such
Purchaser's name on the Schedule of Purchasers, each registered in the name of
such Purchaser, and (C) all other documents, instruments and writings required
to have been delivered at or prior to the Closing by the Company pursuant to
this Agreement, including the Amendment to Note Agreement and the Registration
Rights Agreement by and between the Company and the Purchasers, substantially
in the form of Exhibit D attached hereto (the "Registration Rights Agreement"),
and (ii) each Purchaser shall deliver to the Company (A) that portion of
$3,300,000 which represents the purchase price for the 6% Notes and 6% Note
Warrants to be issued and sold to such Purchaser (as indicated opposite such
Purchaser's name on the Schedule of Purchasers), in United States dollars in
immediately available funds by wire transfer to an account designated in
writing by the Company and (B) those 2% Notes and 2% Note Warrants to be
amended (as indicated opposite such Purchaser's name on the Schedule of
Purchasers), and (C) all documents, instruments and writings required to have
been delivered at or prior to the Closing by such Purchaser pursuant to this
Agreement, including the Amendment to Note Agreement and the Registration
Rights Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to each
Purchaser:
(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
The Company has no subsidiaries. The Company is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of any of the
Transaction Documents (as defined below) in any material respect, (y) have a
material adverse effect on the results of operations, assets, prospects, or
financial condition of the Company or (z) adversely impair in any material
respect the Company's ability to perform fully on a timely basis its
obligations under the Transaction Documents (a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated hereby and by the 6% Notes, the 6% Note Warrants, the Amendment to
Note Agreement, the Registration Rights Agreement, the Amended 2% Notes and the
Amended 2% Note Warrant, and otherwise to carry out its obligations hereunder
and thereunder. This Agreement, the 6% Notes, the Amendment to Note Agreement,
the Registration Rights Agreement, the 6% Note Warrants, the Amended 2% Notes
and the Amended 2% Note Warrants are collectively referred to as the
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"Transaction Documents." The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all requisite corporate
action on the part of the Company. At the Closing, each of the Transaction
Documents will be duly executed and delivered by the Company and when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application. The Company
is not in violation of any of the provisions of its Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), or By-Laws (the
"By-Laws"). Attached as Exhibit 2.1(b) are copies of the Company's Certificate
of Incorporation and By-laws.
(c) Capitalization. The authorized, issued and outstanding capital stock
of the Company is set forth in Schedule 2.1(c). No shares of Common Stock are
entitled to preemptive or similar rights, nor is any holder of the Common Stock
entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in Schedule 2.1(c), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the issuance of the 6% Notes
and the 6% Note Warrants and the amendment of the 2% Notes and 2% Note Warrants
hereunder, securities, rights or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. To the knowledge of the Company, except as specifically
disclosed in the SEC Documents (as defined below) or Schedule 2.1(c), no Person
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock currently issued
and outstanding.
(d) Underlying Shares. As of the date hereof, the Company has a
sufficient number of shares of Common Stock authorized and duly reserved for
issuance upon conversion of the 6% Notes and the 2% Amended Notes
(collectively, the "Transaction Notes"). As of the date hereof, the Company
has a sufficient number of shares of Common Stock authorized and duly reserved
for exercise of the 6% Note Warrants and the Amended 2% Warrants (collectively,
the "Transaction Warrants") except for a shortfall of 1,320,000 shares of
Common Stock underlying the 6% Note Warrants (the "Shortfall"). The Shortfall
can be reduced to zero shares of Common Stock upon consent of the holders of
warrants to purchase shares of Common Stock at exercise prices in excess of
$1.4625 on the date hereof to waive the Company's representation and obligation
to reserve shares of Common Stock issuable upon exercise thereof; provided,
however, that with respect to any such waiver, the shares of Common Stock
thereby released may only be authorized and reserved for issuance upon exercise
of Transaction Warrants held by the holder granting the waiver. Upon obtaining
stockholder approval to amend its Certificate of Incorporation pursuant to
Section 3.13 below, the Company will have, and at all times thereafter
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while the Transaction Notes and Transaction Warrants are outstanding will
maintain, an adequate reserve of duly authorized shares of Common Stock to
enable it to perform its obligations under this Agreement, and with respect to
the Transaction Notes and Transaction Warrants issued and outstanding at the
Closing Date and in no circumstances shall such reserved and available shares
of Common Stock be less than the sum of (i) the number of shares of Common
Stock which would be issuable upon conversion of the Transaction Notes issued
pursuant to the terms hereof (the "Underlying Shares"), and (ii) the number of
shares of Common Stock which would be issuable upon exercise in full of the
Transaction Warrants (the "Warrant Shares"). When issued in accordance with
the terms hereof and the Transaction Notes, the Underlying Shares will be duly
authorized, validly issued, fully paid and nonassessable. When issued upon
exercise of the Transaction Warrants in accordance with the terms thereof, the
Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) subject to obtaining
the approval referred to in Section 3.13 below, conflict with or violate any
provision of its Certificate of Incorporation or By-laws or (ii) subject to
obtaining the consents referred to in Section 2.1(f) below, conflict with,
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including Federal and state securities laws and regulations), or by
which any material property or asset of the Company is bound or affected,
except in the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as could
not, individually or in the aggregate, have or result in a Material Adverse
Effect. The business of the Company is not being conducted in violation of any
law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in Schedule
2.1(f), the Company is not required to obtain any consent, waiver,
authorization or order of, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other person
in connection with the execution, delivery and performance by the Company of
the Transaction Documents, except for (i) the filing of the registration
statement(s) contemplated by the Registration Rights Agreement (the "Underlying
Shares Registration Statement(s)") with the Securities and Exchange Commission
(the "Commission"), which shall be filed in the time periods set forth in the
Registration Rights Agreement, (ii) the application(s) for the listing of the
Underlying Shares and the Warrant Shares with the Nasdaq National Market, which
shall be filed in accordance with Section 3.7 hereof (and with any other
national securities exchange or market on which the Common Stock is then
listed), (iii) any filings, notices or registrations under applicable state
securities laws, and (iv) in all other cases, where the failure to obtain such
consent, waiver, authorization or order, or to give or make such notice or
filing, would not materially impair or delay the ability of the Company to
effect the Closing and to
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deliver to the Purchasers the Transaction Notes (and, upon conversion of the
Transaction Notes thereunder, the Underlying Shares) or the Transaction
Warrants (and, upon exercise of the Transaction Warrants, the Warrant Shares)
in the manner contemplated hereby and by the Registration Rights Agreement free
and clear of all liens and encumbrances of any nature whatsoever (the approvals
referred to in clauses (i) through (iii) above, together with the consents,
waivers, authorizations, orders, notices and filings referred to in Schedule
2.1(f), are hereinafter referred to as the "Required Approvals"). The Company
has no reason to believe that it will be unable to obtain the Required
Approvals.
(g) Litigation; Proceedings. Except as specifically disclosed in the
Disclosure Materials (as defined below) or set forth in Schedule 2.1(g), there
is no action, suit, notice of violation, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the
Company or any of its properties before or by any court, governmental or
administrative agency or regulatory authority (Federal, state, county, local or
foreign) which (i) adversely affects the legality, validity or enforceability
of any of the Transaction Documents, (ii) could, individually or in the
aggregate, have a Material Adverse Effect or (iii) could, individually or in
the aggregate, materially impair the ability of the Company to perform fully on
a timely basis its obligations under the Transaction Documents.
(h) No Default or Violation. The Company (i) is not in default under or
in violation of any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is not in violation of any order of any court, arbitrator or
governmental body, and (iii) is not in violation of any statute, rule or
regulation of any governmental authority, except as could not, in any such case
(individually or in the aggregate), (x) adversely affect the legality, validity
or enforceability of any of the Transaction Documents, (y) have a Material
Adverse Effect or (z) adversely impair the Company's ability or obligation to
perform fully on a timely basis its obligations under any of the Transaction
Documents.
(i) Schedules. The information contained in the Schedules to this
Agreement furnished by or on behalf of the Company is true and correct in all
material respects and does not omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(j) Private Offering. Assuming (without any independent investigation or
verification by or on behalf of the Company) the accuracy of the
representations and warranties of the Purchasers set forth in Section 2.2, the
offer and sale of the 6% Notes, the 6% Note Warrants, the Underlying Shares and
the Warrant Shares and the amendment of the 2% Notes and the 2% Note Warrants
are exempt from registration under Section 5 of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any person acting on
its behalf has taken or will take any action which might subject the offering,
issuance or sale of such 6% Notes, the 6% Note Warrants, the Underlying Shares
or the Warrant Shares to the registration requirements of Section 5 of the
Securities Act.
(k) SEC Documents. The Company has filed all reports required to be filed
by it under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the three
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years preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Documents" and, together with the
Schedules to this Agreement furnished by or on behalf of the Company, the
Company's Registration Statement on Form S-3 (File No. 333-56601) declared
effective by the Commission on August 13, 1998, and any press releases, copies
of which are attached as Exhibit 2.1(k), issued by the Company subsequent to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, the "Disclosure Materials") on a timely basis, or has received a valid
extension of such time of filing. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved, except as may be otherwise indicated in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's last filed Annual Report on Form 10-K, there has been no event,
occurrence or development that has had a Material Adverse Effect which is not
specifically disclosed in any of the Disclosure Materials.
(l) Seniority. No obligations of the Company are senior to the 6% Notes
in right of payment, whether upon liquidation, dissolution or otherwise.
Except for the indebtedness described in Schedule 2.1(s), no obligations of the
Company are pari passu with the 6% Notes in right of payment, whether upon
liquidation or otherwise.
(m) [Intentionally Left Blank]
(n) Certain Fees. No fees or commissions will be payable by the Company to
any broker, financial advisor, finder, investment banker, or bank with respect
to the transactions contemplated by this Agreement, except for such fees to be
paid to the firm retained by the Company to render the fairness opinion with
respect to the transactions contemplated hereby, which will not exceed $80,000.
(o) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the 6% Notes,
the 6% Note Warrants, the Underlying Shares or the Warrant Shares or the
amendment to 2% Notes and 2% Note Warrants other than the Disclosure Materials
and other filings by the Company pursuant to the Exchange Act prior to the date
hereof, or (ii) solicited any offer to buy or sell the Transaction Notes, the
Transaction Warrants, the Underlying Shares or the Warrant Shares by means of
any form of general solicitation or advertising.
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(p) Form S-3 Eligibility. The Company is, and at the Closing Date will
be, eligible to register securities of selling stockholders for resale with the
Commission under Form S-3 promulgated under the Securities Act.
(q) Intellectual Property. Except as disclosed in its filings pursuant to
the Exchange Act or Securities Act, the Company (i) is aware of no patents or
trademarks ("Intellectual Property") to which the Company does not possess
rights or licenses to use, which are necessary to conduct its business as now
conducted; (ii) has no knowledge or reason to believe of infringement by the
Company of the Intellectual Property rights of others and is unaware of any
proceeding involving such infringement being brought or threatened against the
Company; (iii) has no knowledge of the material infringement of its
Intellectual Property by third parties; and (iv) has no reason to believe that
any of its Intellectual Property is unenforceable.
(r) Stockholder Rights Plan. The issuance of the 6% Notes and the 6% Note
Warrants directly from the Company to the Purchasers and the amendment of the
2% Notes and the 2% Note Warrants pursuant to the terms hereunder do not, and
the issuance of the Underlying Shares and the Warrant Shares directly from the
Company to the Purchasers, will not (together with other shares of Common Stock
deemed to be beneficially owned by such Purchasers pursuant to the Company's
issuance of convertible preferred stock and warrants under that certain
Convertible Preferred Stock Purchase Agreement dated October 29, 1997 and the
Company's issuance of senior convertible notes and warrants (including the
2% Notes and 2% Note Warrants) pursuant to the Securities Purchase Agreement,
dated May 15, 1998) in and of itself cause a Purchaser to become an Acquiring
Person as such term is defined in the Rights Agreement, dated as of February 9,
1996, by and between the Company and LaSalle National Trust, N.A., as Rights
Agent, or any amendment thereof or successor thereto.
(s) Outstanding Indebtedness. The outstanding indebtedness of the Company
as of March 25, 1999 is set forth in Schedule 2.1(s). Since March 25, 1999,
the Company has not incurred any further indebtedness, other than trade debt in
the ordinary course of business.
2.2 Representations and Warranties of the Purchaser. Each Purchaser
severally hereby represents and warrants to the Company as to itself as
follows:
(a) Organization; Authority. Such Purchaser is a limited partnership,
corporation or other entity, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with the
requisite legal power and authority to enter into and to consummate the
transactions contemplated hereby and by the Registration Rights Agreement and
otherwise to carry out its obligations hereunder and thereunder. The purchase
by the Purchaser of the 6% Notes and 6% Note Warrants and the amendment of the
2% Notes and 2% Note Warrants hereunder has been duly authorized by all
necessary action on the part of such Purchaser. Each of this Agreement, the
Amendment to Note Agreement and the Registration Rights Agreement has been duly
executed and delivered by such Purchaser or on its behalf and constitutes the
valid and legally binding obligation of such Purchaser, enforceable against the
Purchaser in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer,
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reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights generally and to general principles of
equity.
(b) Investment Intent. Such Purchaser is acquiring the 6% Notes, the 6%
Note Warrants, the Underlying Shares and the Warrant Shares for its own account
for investment purposes and without a present intention to distribute or resell
such 6% Notes, 6% Note Warrants, Underlying Shares or Warrant Shares or any
part thereof or interest therein; without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such 6% Notes, Underlying Shares, 6% Note Warrants or Warrant
Shares pursuant to an effective registration statement under the Securities Act
under an exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was offered the 6% Notes
and the 6% Note Warrants, it was, and at the date hereof, it is, and at the
Closing Date and each exercise date under the 6% Note Warrants it will be, an
"accredited investor" as defined in Rule 501 under the Securities Act.
(d) Experience of Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the 6% Notes, the 6% Warrants, the
Underlying Shares and the Warrant Shares, and has so evaluated the merits and
risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. Such Purchaser is
able to bear the economic risk of an investment in the 6% Notes and the 6%
Warrants, the Underlying Shares and the Warrant Shares, and, at the present
time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and
conditions of the offering of the 6% Notes and the 6% Note Warrants, and the
merits and risks of investing in the 6% Notes and the 6% Warrants; (ii) access
to information about the Company and the Company's financial condition, results
of operations, business, properties, management and prospects sufficient to
enable it to evaluate its investment; and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information contained in the Disclosure Materials.
(g) Prohibited Transactions. The 6% Notes and the 6% Note Warrants being
purchased by such Purchaser are not being acquired, directly or indirectly,
with the assets of any "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended.
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(h) Reliance. Such Purchaser understands and acknowledges that (i) the 6%
Notes and the 6% Note Warrants are being offered and sold to such Purchaser
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under Section
4(2) of the Securities Act or Regulation D promulgated thereunder and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
(i) Title. Such Purchaser is the legal and beneficial owner of the 2%
Notes and 2% Note Warrants being amended pursuant to this Agreement and the
Amendment to Note Agreement, free and clear of all liens, claims and
encumbrances.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If a Purchaser should decide to dispose of 6% Notes or any portion of
the 6% Note Warrants (and upon conversion or exercise thereof, as the case may
be, any of the Underlying Shares or Warrant Shares) held by it, the Purchaser
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from the registration requirements of the Securities
Act. In connection with any transfer of any 6% Notes, any portion of the 6%
Note Warrants or any Underlying Shares or Warrant Shares other than pursuant to
an effective registration statement or to the Company, the Company may require
the transferor thereof to provide to the Company a written opinion of counsel
experienced in the area of United States securities laws selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred securities under the Securities Act.
(b) Each Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on its 6% Notes, 6% Note Warrants,
Underlying Shares and Warrant Shares:
[NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [CONVERTIBLE] [EXERCISABLE]] [THE SECURITIES REPRESENTED HEREBY] HAVE [NOT]
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,
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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.
[FOR 6% NOTES ONLY] THE SECURITIES REPRESENTED BY THIS NOTE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 3.1 OF A SECURITIES
PURCHASE AGREEMENT, DATED AS OF MARCH 31, 1999, 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.
The Underlying Shares issuable upon conversion of the 6% Notes and the
Warrant Shares issuable upon exercise of the 6% Note Warrants, as the case may
be, shall not contain the legend set forth above if the conversion of such 6%
Notes or exercise of the Warrants, as the case may be, occurs at any time while
the Underlying Shares Registration Statement is effective under the Securities
Act or in the event there is not an effective Underlying Shares Registration
Statement at such time, if in a written opinion of counsel reasonably
acceptable to the Company and experienced in the area of United States
securities laws, such counsel determines that such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company agrees that it will provide each Purchaser, upon request, with a
certificate or certificates representing Underlying Shares and Warrant Shares,
free from such legend at such time as such legend is no longer required
hereunder. Each Purchaser agrees that, in connection with any transfer of
Underlying Shares or Warrant Shares by it pursuant to an effective registration
statement under the Securities Act, it will comply with the prospectus delivery
requirements of the Securities Act provided copies of a current prospectus
relating to such effective registration statement are or have been supplied to
such Purchaser. The Company makes no representation, warranty or agreement as
to the availability of any exemption from registration under the Securities Act
with respect to any resale of 6% Notes, 6% Note Warrants, Underlying Shares or
Warrant Shares.
3.2 Stop Transfer Instruction. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as a Purchaser owns 6% Notes,
Underlying Shares, 6% Note Warrants or Warrant Shares, the Company covenants to
timely file (or obtain extensions in respect thereof) all reports required to
be filed by the Company after the date hereof pursuant to Section 13(a) or
15(d) of the Exchange Act and to promptly furnish the Purchaser with true and
complete copies of all such filings. If the Company or a successor to the
Company is not at the time required to file reports pursuant to such sections,
the Company will prepare and furnish to each Purchaser annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that
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would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act in the time period that such filings would have
been required to have been made under the Exchange Act. The Company shall use
its best efforts to at all times comply with Rule 144(c) promulgated under the
Securities Act.
3.4 Copies and Use of Disclosure Materials. The Company shall furnish
each Purchaser, without charge, as many copies of the Disclosure Materials, as
amended or supplemented, as such Purchaser may reasonably request. The Company
consents to the use of the SEC Documents, as amended and supplemented, by each
Purchaser in connection with resales of the Underlying Shares or the Warrant
Shares.
3.5 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares and the Warrant Shares under
the securities or Blue Sky laws of all states and the District of Columbia and
shall continue such qualification at all times through the third anniversary of
the Closing Date; provided, however, that the Company shall not be required in
connection therewith to qualify as a foreign corporation where they are not now
so qualified or to take any action that would subject the Company to general
service of process in any such jurisdiction where it is not then so subject.
3.6 Integration. The Company shall not and shall use its best efforts to
ensure that no Affiliate (as defined in Rule 405 under the Securities Act) of
the Company shall sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as such term is defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the 6%
Notes, the 6% Note Warrants, the Underlying Shares or the Warrant Shares in a
manner that would (i) require the registration under the Securities Act of the
sale of the 6% Notes, the 6% Note Warrants, the Underlying Shares or the
Warrant Shares to the Purchaser or (ii) would violate any rule of a securities
exchange or market upon which the Common Stock is listed, which limits the
amount of capital stock that may be issued without stockholder approval.
3.7 Listing of Underlying Shares and Warrant Shares. The Company shall
(a) not later than the fifth Business Day following the Closing Date prepare
and file with the Nasdaq National Market (as well as any other national
securities exchange or market on which the Common Stock is then listed) an
additional shares listing application covering and listing (i) such number of
shares of Common Stock as are issuable upon conversion of the 6% Notes,
together with any additional shares of Common Stock issuable upon the
conversion of the Amended 2% Notes which are not covered by the prior listing
application filed by the Company with Nasdaq National Market for shares of
Common Stock issuable upon conversion of the 2% Notes; and (ii) the Warrant
Shares underlying the 6% Note Warrants, (b) take all steps necessary to cause
such shares to be approved for listing on the Nasdaq National Market (as well
as on any other national securities exchange or market on which the Common
Stock is then listed) as soon as possible thereafter and in no event later than
ten (10) Business Days after the Closing Date, and (c) provide to the
Purchasers evidence of such listing. The Company shall use its best efforts to
maintain the listing of the Common Stock on the Nasdaq National Market. If the
Common Stock is de-listed from the Nasdaq National Market, the Company shall
use its best efforts to have the Common Stock listed (and to maintain such
listing) on the Nasdaq Small Cap Market or the American Stock
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Exchange or the New York Stock Exchange. If the Common Stock is subsequently
de-listed, from, or never listed on, the Nasdaq Small Cap Market or the
American Stock Exchange or New York Stock Exchange, then the Company shall use
its best efforts to have the Common Stock listed (and to maintain such listing)
on the Nasdaq OTC Bulletin Board.
3.8 Conversion Procedures. Exhibit E attached hereto sets forth the form
of legal opinion, if necessary, that shall be rendered to the Company's
transfer agent as may be reasonably necessary to enable each Purchaser to
exercise its right of conversion in a timely and expeditious manner.
3.9 Redemption Restrictions. As of the date hereof, except as disclosed
on Schedule 3.9, the Company is not a party to any agreement which prohibits
the redemption or payment of the Transaction Notes, Transaction Warrants,
Underlying Shares or Warrant Shares otherwise required or permitted under the
Transaction Notes or the Registration Rights Agreement. The Company shall not
enter into any agreement which restricts its ability to redeem the Transaction
Notes, the Transaction Warrants, the Underlying Shares or the Warrant Shares,
without the prior written consent of the Purchasers.
3.10 Notice of Breaches. Each of the Company and the Purchasers shall
give prompt written notice to the other of any breach of any representation,
warranty or other agreement contained in this Agreement, the Amendment to Note
Agreement or in the Registration Rights Agreement, as well as any events or
occurrences arising after the date hereof and prior to the Closing Date to
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained herein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section 3.10 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein, the Amendment to
Note Agreement or in the Registration Rights Agreement.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchasers of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated hereby, by the Amendment to Note Agreement and by
the Registration Rights Agreement violates or would violate any written
agreement or understanding between such lender and the Company, and the Company
shall promptly furnish by facsimile to the Purchasers a copy of any written
statement in support of or relating to such claim or notice.
3.11 Conversion Obligations of the Company. Subject to Section 3(i) of
the Transaction Notes and Section 3(e) of the Transaction Warrants, the Company
covenants to convert the Transaction Notes and to deliver Underlying Shares in
accordance with the terms and conditions and time period set forth in the
Transaction Notes, and to deliver Warrant Shares in accordance with the terms
and conditions and time period set forth in the Transaction Warrants. Subject
to Section 3(i) of the Transaction Notes and Section 3(e) of the Transaction
Warrants, this is an independent covenant which is not subject to any offset or
other defense for any reason based upon any claim that the Company may have
against a Purchaser.
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3.12 Board Seats.
The Purchasers shall have, with respect to designation of directors to the
Company's Board of Directors, the rights set forth in Section 1 of the
Amendment to Note Agreement.
3.13 Increase of Authorized Capital. The Company shall use its best
efforts to obtain stockholder approval, on or before June 9, 1999, of an
amendment to the Certificate of Incorporation increasing the number of
authorized shares of Common Stock such that the Company shall have a sufficient
number of shares of Common Stock to reserve for issuance upon exercise of all
Transaction Warrants. In the event that such amendment has not been effected
by June 11, 1999, the Company shall immediately send notices of such failure to
amend to all holders of Transaction Notes, and unless the Company shall have
received by the earlier of 5 Trading Days of the date of such notice or June
17, 1999, a written objection from the holders of at least 75% in principal
amount of the outstanding Transaction Notes, it shall repurchase from the
holders of Transaction Notes, on the 10th Trading Day following such failure to
amend, on a pro-rata basis, such principal amount of Transaction Notes as are
convertible into the number of shares of Common Stock representing the
shortfall in the Company's authorized capital with respect to the number of
shares of Common Stock issuable upon exercise of the Transaction Warrants. The
purchase price of such redemption shall be equal to the greater of: (i) the
aggregate principal amount of Transaction Notes to be redeemed plus any accrued
and unpaid interest thereon and (ii) the product of the average Per Share
Market Value for the 5 Trading Days preceding such holder's redemption notice
and the Conversion Ratio. In addition to the foregoing, in the event that the
Company fails to effect the foregoing amendment to the Certificate of
Incorporation, any Purchaser may, at its option, decrease the shortfall of
authorized shares (and therefore decrease the principal amount of Transaction
Notes to be repurchased by the Company pursuant to this Section 3.13) by
waiving its rights to have shares of Common Stock reserved to cover the
exercise of other warrants held by such Purchaser to purchase shares of Common
Stock and instead designate that such shares be reserved for issuance upon
exercise of Transaction Warrants held by such Purchaser.
3.14 Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. In the event that at any time while the Transaction Notes are
outstanding the trading in the shares of the Common Stock is suspended on
(other than as a result of the suspension of trading in securities on such
market generally or temporary suspensions pending the release of material
information) or delisted from the Nasdaq National Market (unless such delisting
shall be due to failure to comply with the maintenance criteria set forth in
NASD Rule 4450 (or any successor rule) with respect to: (i) minimum bid price
or (ii) net tangible assets or unless the Common Stock is listed for trading on
The Nasdaq Small CapMarket, the New York Stock Exchange or the American Stock
Exchange within three Trading Days), for more than three (3) consecutive
Trading Days or five (5) Trading Days in the aggregate, at each Purchaser's
option exercisable by written notice to the Company and tender of such
Purchaser's Transaction Notes, the Company shall redeem, within seven (7) days
of receipt of such written notice, all Transaction Notes owned by such
Purchaser at an aggregate purchase price equal to (A) the outstanding aggregate
principal amount and all accrued but unpaid interest thereon and (B) interest
on such amount accruing from the 7th day after the Company's receipt of such
notice and the Transaction Notes to be redeemed until
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paid at the rate of 15% per annum; provided, however, that at any time prior to
the redemption of all or any portion of such Purchaser's Transaction Notes,
such Purchaser, by written notice to the Company delivered prior to such
redemption, may elect to invalidate ab initio the redemption of any or all of
such Purchaser's unredeemed Transaction Notes and the Company shall, within
three (3) Trading Days of receipt of such notice, return to the Purchaser the
Transaction Notes for which the redemption has been rescinded as provided
herein.
3.15 Certain Negative Covenants of the Company. The Company covenants
that from the date hereof and for so long as at least $450,000 in principal
amount of the Transaction Notes (or any amendment thereto or instrument issued
in exchange therefor) remain outstanding, it will not, without the prior
written approval of holders of at least 75% in principal amount of the then
outstanding Transaction Notes:
(a) Directly or indirectly create, incur, assume, guarantee, or otherwise
become or remain directly or indirectly liable with respect to, any
indebtedness of any kind, other than (i) indebtedness under the 6% Notes and
the 2% Notes, (ii) indebtedness pursuant to a working capital line of credit,
in an amount not to exceed $1,000,000; or (iii) indebtedness to trade creditors
in the ordinary course of business.
(b) Directly or indirectly create, incur, assume or permit to exist any
lien, pledge, charge or encumbrance on or with respect to any of its property
or assets (including any document or instrument in respect of goods or accounts
receivable) whether now owned or held or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens.
As used herein, "Permitted Liens" means (i) liens on the Company's inventory
and accounts receivable to secure a working capital line of credit, in an
amount not to exceed $1,000,000; (ii) liens imposed by mandatory provisions of
law such as materialmen's, mechanic's or warehousemen's; (iii) liens for taxes,
assessments and governmental charges or levies imposed upon the Company or any
subsidiaries or their income, profits or property, if the same are not yet due
and payable or if the same are contested in good faith and as to which adequate
reserves have been provided; (iv) pledges or deposits made to secure payment of
worker's compensation insurance, unemployment insurance, pensions or social
security programs or to secure the performance of letters of credits, bids,
tenders, public or statutory obligations, surety, performance bonds and other
similar obligations; and (v) encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property, provided that
such do not impair the use of such property for the uses intended and none of
which is violated by existing or proposed structures or land use.
(c) Directly or indirectly, issue any note, capital stock, option,
warrant, right or other instrument which is convertible into, exchangeable for,
or confers the right to subscribe for or purchase, shares of Common Stock where
the price at which such conversion, exchange, subscription or purchase is to
occur cannot be determined at the time such instrument is issued because it is
based, in whole or in part, on the future market trading prices of the Common
Stock.
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3.16 Dividends and Distributions on Junior Securities. So long as any
Transaction Notes shall remain outstanding, the Company shall not redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities (as
defined in the 6% Notes), nor shall the Company directly or indirectly pay or
declare any dividend or make any distribution (other than a dividend or
distribution described in Section 3(c)(ii) of the 6% Notes or a dividend paid
in shares of equity securities) with respect to Junior Securities.
3.17 Future Financings. The holders of Transaction Notes and Transaction
Warrants shall have the benefit of the provisions of Section 2 of the Amendment
to Note Agreement.
3.18 Certain Additional Negative Covenants. The holders of Transaction
Notes shall have the benefit of certain additional negative covenants set for
in Section 3 of the Amendment to Note Agreement.
3.19 Certain Affirmative Covenants of the Company. The Company covenants
that from the date hereof and for so long as any portion of the Transaction
Notes (or any amendment thereto or instrument issued in exchange therefor)
shall remain outstanding, it will (and will cause any subsidiaries to) observe
or perform the following:
(a) Corporate Existence. It will maintain its corporate existence in good
standing and remain qualified to do business as a foreign corporation in each
jurisdiction in which the nature of its activities or the character of the
properties it owns or leases makes such qualification necessary.
(b) Continuation of Business. It will continue to conduct its business in
compliance with all applicable rules and regulations of applicable governmental
authorities, except for such non-compliance which would not have a Material
Adverse Effect.
3.20 Future Rights Plans. None of the acquisitions of 6% Notes or 6% Note
Warrants or the amendment of 2% Notes or 2% Note Warrants nor the deemed
beneficial ownership of shares of Common Stock issuable upon, or the
acquisition of such shares pursuant to, the conversion of Transaction Notes or
the exercise of Transaction Warrants will in any event under any circumstances
in and of itself trigger the poison pill provisions of any stockholders' rights
or similar agreements, or plan having a similar effect, to which the Company is
a party.
3.21 Access to Management. The Company shall, for so long as at least
$450,000 in principal amount of Transaction Notes shall remain outstanding,
upon reasonable notice, make available to holders of the Transaction Notes,
members of the Company's senior management and/or the Company's auditors to
discuss issues relating to the Company's business and financial matters,
provided that as a condition to such access, such holders and the Company shall
have entered into a confidentiality agreement in the Form of Exhibit F hereto.
3.22 Operating Income.
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(a) Not later than July 15, 2000, the Chief Financial Officer ( or if
there is no Chief Financial Officer, the Principal Accounting Officer) of the
Company shall deliver a certificate to all holders of Transaction Notes
indicating whether or not such officer has a good faith reasonable belief that
the Company's Operating Income (as defined below) for the fiscal quarter ended
June 30, 2000 is zero or greater. Such certificate shall include the officer's
calculation of Operating Income. Failure of such officer of the Company to
deliver such a certificate by July 15, 2000 indicating a good faith reasonable
belief that the Company's Operating Income for the quarter ended June 30, 2000
will be zero or greater shall constitute an immediate Event of Default under
the Transaction Notes.
(b) Not later than July 31, 2000, Ernst & Young LLP, the Company's
independent auditors, or such other firm as has been retained by the Company's
Board of Directors to audit the Company's financial statements filed with the
Commission (the "Independent Auditors"), shall deliver a letter to all holders
of Transaction Notes indicating whether or not the Independent Auditors can
confirm that, after a review (but not an audit) of the Company's financial
statements for the fiscal quarter ended June 30, 2000, in accordance with
generally accepted auditing standards, (i) the Company's Operating Income for
such quarter was zero or greater and (ii) the Company's calculation of
Operating Income is correct. Failure of the Independent Auditors to deliver
such a letter by July 31, 2000 confirming Operating Income for the Company of
zero or greater for the quarter ended June 30, 2000 shall constitute an
immediate Event of Default under the Transaction Notes.
(c) As used herein, "Operating Income" shall mean (a) operating income as
reported in the Company's quarterly financial statements for the quarter ended
June 30, 2000, prepared in accordance with generally accepted accounting
principles applied on a basis consistent with historic practice, but (b)
adjusted to disregard any depreciation of physical plant and equipment and
amortization of intellectual property, and (c) adjusted to disregard each
non-recurring item, and each credit or other adjustment relating to prior
periods , in either case to the extent that such item, credit or other
adjustment had the effect of increasing operating income as so reported.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to the Obligation of the Company to Issue the 6%
Notes and 6% Note Warrants and to Amend 2% Notes and 2% Note Warrants. The
obligation of the Company to issue the 6% Notes and the 6% Note Warrants
hereunder to each Purchaser and to amend certain 2% Notes and 2% Note Warrants
of such Purchaser is subject to the satisfaction, or waiver by the Company, at
or before the Closing Date, of each of the following conditions:
(i) Accuracy of such Purchaser's Representations and Warranties. The
representations and warranties of such Purchaser shall be true and correct in
all
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material respects as of the date when made and as of the Closing Date, as
though made on and as of such date (except for representations and warranties
that speak as of a specific date);
(ii) Performance by such Purchaser. Such Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or
complied with by the Purchaser at or prior to the Closing;
(iii) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement, the Amendment to Note Agreement or the Registration Rights
Agreement; and
(iv) Required Approvals. All Required Approvals shall have been obtained.
4.2 Conditions Precedent to the Obligation of Each Purchaser to Acquire
the 6% Notes and the 6% Note Warrants and to have 2% Notes and 2% Note Warrants
amended. The obligation of such Purchaser hereunder to acquire and pay for the
6% Notes and the 6% Note Warrants and to have certain of its 2% Notes and 2%
Note Warrants amended is subject to the satisfaction or waiver by such
Purchaser, at or before the Closing Date, of each of the following conditions:
(i) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company set forth herein and in the
Registration Rights Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date, as though made on
and as of such date (except for representations and warranties that speak as of
a specific date);
(ii) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Amendment to Note Agreement
to be performed, satisfied or complied with by the Company at or prior to the
Closing;
(iii) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement, the Amendment to Note Agreement, the Transaction Notes, the
Transaction Warrants or the Registration Rights Agreement;
(iv) Adverse Changes. Since the date hereof, no event which had or could
reasonably be expected to have a Material Adverse Effect, and no material
adverse change in the financial condition or prospects of the Company, shall
have occurred which is not disclosed in the Disclosure Materials;
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(v) No Suspensions of Trading in Common Stock. The trading in the Common
Stock shall not have been suspended by the Commission or on the Nasdaq National
Market (except for any suspension of trading of not more than one Trading Day
solely to permit dissemination of material information regarding the Company
and other than a suspension of trading on the Nasdaq National Market if the
Common Stock is listed for trading, and not suspended, on The Nasdaq SmallCap
Market within one business day after such suspension);
(vi) Listing of Common Stock. The Common Stock shall have at all times
between the date hereof and the Closing Date been, and on the Closing Date be,
listed for trading on the Nasdaq National Market, The Nasdaq SmallCap Market,
the New York Stock Exchange or the American Stock Exchange;
(vii) Legal Opinion. The Company shall have delivered to such Purchaser
the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, counsel to the Company, in substantially
the form of Exhibit G attached hereto;
(viii) Required Approvals. All Required Approvals (other than those
referred to in clauses (i) through (iii) of Section 2.1(f) and stockholder
approval referenced in Schedule 2.1(f)) shall have been obtained;
(ix) [intentionally omitted]
(x) Delivery of Transaction Notes. The Company shall have delivered to
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis in escrow, pending the Closing Date, the 6% Notes being
acquired by such Purchaser hereunder and the Amended 2% Notes being issued to
Purchaser hereunder, registered in the name of such Purchaser and in the
denominations requested by such Purchaser;
(xi) Registration Rights Agreement. The Company shall have executed and
delivered the Registration Rights Agreement;
(xii) Amendment to Note Agreement. The Company shall have executed and
delivered the Amendment to Note Agreement;
(x) Transaction Warrants. The Company shall have executed and delivered
the 6% Note Warrants being acquired by such Purchaser hereunder, and the
Amended 2% Warrants of such Purchaser being issued to Purchaser hereunder,
registered in the name of such Purchaser in accordance with the terms of the
Agreement;
(xi) Company Certificates. Such Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (i) that attached thereto is a true,
correct and complete copy of (A) the Certificate of Incorporation, (B) the
Company's By-laws, and (C) resolutions duly adopted by the Board of Directors
of the Company authorizing the execution, delivery and (where appropriate)
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filing of the Transaction Documents and the issuance and sale of the 6% Notes,
the 6% Note Warrants, the Underlying Shares and the Warrant Shares and the
amendment of the 2% Notes and 2% Note Warrants and (ii) the incumbency of the
officers executing the Transactions Documents; and
(xv) Change of Control. No Change of Control shall have occurred between
the date hereof and the Closing Date. "Change of Control" means the occurrence
of any of (i) an acquisition after the date hereof by an individual, legal
entity or "group" within the meaning of Section 13(d) of 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 of all or substantially all of the assets of the Company
in one or a series of related transactions or (iv) the execution by the Company
of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
(xvi) Registration of Shares Underlying Amended 2% Notes and 2% Amended
Note Warrants. (a) The legal opinion referred to in paragraph (vii) shall
include an opinion that, with the exception of additional shares of Common
Stock issuable due to the decrease in the conversion price of the Amended 2%
Notes from the 2% Notes, the shares of Common Stock issuable upon conversion of
the Amended 2% Notes and upon exercise of the Amended 2% Warrants are: (i)
duly registered pursuant to the Company's Registration Statement on Form S-3
(Reg 333-56601) declared effective by the Commission on August 13, 1998 (the
"2% Note Share Registration Statement"); (ii) may be resold pursuant to the
prospectus included therein, as amended and supplemented (the "2% Note Share
Prospectus") and (iii) are duly listed, subject to issuance, on the Nasdaq
National Market.
(b) The Company shall have taken such step as may be required, including,
without limitation, amending the 2% Note Share Registration Statement, the 2%
Note Share Prospectus, or filing a prospectus supplement thereto, in order for
Company's counsel to issue the opinion referred to in Section (xvi)(a) above.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Except as provided in the Registration Rights
Agreement, the Company shall pay (i) upon submission of an itemized statement,
the reasonable fees and expenses of one legal counsel for the Purchasers, and
(ii) the expenses incurred by the Company incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. Each
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Purchaser shall be responsible for its own tax liability that may arise as a
result of the investment hereunder or the transactions contemplated by this
Agreement.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto and the other Transaction Documents contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
5.3 Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been
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 the first Business Day following such receipt if received on
a Business Day after 5:00 p.m. (Central Time); or (iii) upon receipt, when
deposited with a nationally recognized overnight express courier service, fully
prepaid, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company: Illinois Superconductor Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to a Purchaser: ▇▇▇▇▇▇▇ Associates, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Westgate International, L.P.
c/o Stonington Management Corp.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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Alexander Finance, LP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
State Farm Mutual Automobile
Insurance Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Common Stocks, E-9
Fax:(▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Kleinberg, Kaplan, ▇▇▇▇▇ & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address or facsimile number as may be designated in writing
hereafter, in the same manner, by such person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchasers representing at least 75% of the then
outstanding principal amount of the Transaction Notes; or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor any Purchaser may assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other, except
that, in connection with a transfer, in whole or in part, of the Transaction
Notes or the Transaction Warrants as provided therein, a Purchaser may assign
its rights hereunder to any such transferee of the Transaction Notes or the
Transaction Warrants. The assignment by a party of this Agreement or any
rights hereunder shall not affect the obligations of such party under this
Agreement.
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5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
5.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements and covenants contained in Article III and
this Article V shall survive the delivery and conversion of the Transaction
Notes pursuant to this Agreement and the representations and warranties of the
Company and the Purchasers contained in Article II shall survive until a date
that is two years after the Closing Date.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the executing party with the same force and effect as if
such facsimile signature page were an original thereof.
5.11 Publicity. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither the Company nor the
Purchasers shall issue any such press release or otherwise make any such public
statement without the prior consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement.
5.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
5.13 Like Treatment of Purchasers. Neither the Company nor any of its
Affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemptions or
exchange of the Transaction Notes, or otherwise, to any holder of Transaction
Notes, for or as an inducement to, or in connection with the solicitation of,
any consent, waiver or amendment of any terms or provisions of the Transaction
Notes or this Agreement, the Amendment to Note Agreement or the Registration
Rights Agreement or the Transaction Warrants, unless such consideration is
required to be paid to all holders of Transaction Notes bound by such consent,
waiver or amendment whether or not such holders so consent, waive or agree to
amend and whether or not such holders tender their Transaction Notes for
redemption or exchange. The Company shall not, directly or indirectly, redeem
any
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Transaction Notes unless such offer of redemption is made pro rata to all
holders on identical terms.
5.14 Obligation of Purchasers Several, not Joint. The obligations of the
Purchasers under this Agreement, or under any other Transaction Document are
several and not joint.
5.15 Payment of Expenses. The Company agrees to pay all costs and
expenses, including reasonable attorneys' fees and expenses, which may be
incurred by the Purchasers in successfully enforcing this Agreement or any
other Transaction Document.
5.16 Indemnification. The Company hereby agrees to indemnify, defend and
hold harmless each Purchaser and such Purchaser's partners, directors,
officers, employees or agents ("Indemnified Parties"), from and against any and
all losses, claims, damages, liabilities and costs, including reasonable legal
fees (collectively "Losses"), as incurred, involving a third-party claim and
arising out of or relating to the acquisition by such Purchaser of the 6% Notes
and 6% Note Warrants issued and sold to it by the Company pursuant to this
Agreement or arising out of the amendment of such Purchaser's 2% Notes and 2%
Warrants pursuant to this Agreement; provided, that any Indemnified Party shall
reimburse the Company for any amount paid pursuant to this Section 5.16 to the
extent a final judgment by a court or body of proper jurisdiction, which has
been fully appealed, determines that such Indemnified Party was at fault in
connection with the claim or action pursuant to which such Losses were
incurred. In connection with the foregoing, the Company may elect to assume
the defense of a claim made against an Indemnified Party, provided that if the
Company does not notify an Indemnified Party that it is assuming such defense
within ten (10) days of receipt from Indemnified Party of the notice of Loss,
it shall reimburse such Indemnified Party for its reasonable legal fees and
expenses, as incurred, on a monthly basis.
5.17 Rescission Right.
(a) Notwithstanding anything to the contrary contained herein or in any
other Transaction Document, whenever a Purchaser, pursuant to the provisions of
this Agreement or any other Transaction Document, exercises its right to have
its Transaction Notes repurchased or redeemed by the Company, whether pursuant
to a put right, acceleration or otherwise, and such repurchase or redemption is
not effected in full within the time period provided in the relevant provision,
then, except where such right is otherwise provided in such provision, such
Purchaser shall have the right to, by written notice, rescind the redemption or
repurchase of any portion of such Purchaser's Transaction Notes which have not
been repurchased or redeemed in a timely manner, and the Company shall, within
three (3) Trading Days of receipt of such notice, return to such Purchaser the
Transaction Notes for which redemption or repurchase has been rescinded as
provided herein.
(b) Notwithstanding anything to contrary contained herein or in any other
Transaction Document, whenever a Purchaser exercises its right, pursuant to the
provisions of this Agreement or any other Transaction Document, to (i) convert
Transaction Notes into Common Stock or other securities or consideration; or
(ii) exercise the Transaction Warrants for
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Common Stock or other securities or consideration, and the delivery of the
Common Stock, securities or other consideration issuable upon such conversion
or exercise has not been effected within the time period provided in the
relevant provision, then, except were such right is otherwise provided in such
provision, such Purchaser still have the right to, upon written notice, rescind
such conversion or exercise, as the case may be, and the Company shall, within
three (3) Trading Days of receipt of such notice, return to Purchaser, any
conversion notices, Transaction Notes, exercise notices or consideration
tendered in connection with such conversion or exercise.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized persons as of the date first
indicated above.
Company:
ILLINOIS SUPERCONDUCTOR CORPORATION
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
By:_______________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
Purchasers:
▇▇▇▇▇▇▇ ASSOCIATES, L.P.
/s/ Authorized Signatory
By:_______________________________________
Name:
Title:
WESTGATE INTERNATIONAL, L.P.
By: Martley International, L.P.
As Attorney-in-fact
/s/ Authorized Signatory
By:________________________________________
Name:
Title:
ALEXANDER FINANCE, LP
/s/ Authorized Signatory
By:________________________________________
Name:
Title:
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY
/s/ Authorized Signatory
By:_________________________________________
Name:
Title:
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SCHEDULE OF PURCHASERS
Purchaser's Name Purchase Price Principal Amount Number of Warrants Principal Amount Amount of 2% Note
of 6% Notes 6% Note of 2% Notes Warrants
Purchased Warrants Purchased to be Amended to be Amended
▇▇▇▇▇▇▇ Associates .$833,334 $833,334 333,334 $1,388,889 555,556
Westgate $833,333 $833,333 333,333 $1,388,889 555,555
Alexander $1,333,333 $1,333,333 533,333 $2,222,222 888,889
State Farm $300,000 $300,000 120,000 $500,000 200,000
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SCHEDULE 2.1(C)
CAPITALIZATION
The authorized, issued and outstanding capital stock of the Company
consists of the following:
Preferred Stock, $.001 par value, 100,000 shares authorized, no shares
issued and outstanding:
Series A Preferred Stock, 10,000 shares authorized, no shares
issued and outstanding
Series B Convertible Preferred Stock, 600 shares authorized, no
shares issued and outstanding
Series C Convertible Preferred Stock, 600 shares authorized, no
shares issued and outstanding
Series G Convertible Preferred Stock, 700 shares authorized, no
shares issued and outstanding
Common Stock, $.001 par value, 30,000,000 shares authorized, 12,557,344
shares of which were issued and outstanding as of March 25, 1999.
As of March 25, 1999, the Company also has outstanding warrants (including
the 2% Note Warrants) to purchase 4,678,686 shares of Common Stock and options
to purchase 1,208,665 shares of Common Stock. The Company also has 496,335
additional shares of Common Stock reserved for issuance upon the exercise of
options which may be granted under the Company's Amended and Restated 1993
Stock Option Plan as amended. The Company has reserved for issuance upon
conversion of the 2% Notes, 6,900,000 shares of Common Stock. Holders of the
2% Notes have the right to covert such Notes (plus accrued interest payable in
shares in Common Stock) into shares of Common Stock at a conversion price equal
to $1.50 per share, subject to adjustment. As of March 25, 1999, $10,350,000
in aggregate principal amount of the 2% Notes, plus accrued interest, remain
outstanding and subject to conversion.
The Company has a stockholders rights plan (the "Rights Plan") pursuant to
which a Series A Right is associated and trades with each share of Common Stock
outstanding. Each Series A Right will entitle its holder, under certain
circumstances described in the Rights Plan, to purchase one one-thousandth of a
share of the Company's Series A Junior Participating Preferred Stock, $.001 par
value per share, for $200 (subject to adjustment) or receive shares of Common
Stock having a market value of two times the exercise of the Series A Right and
one Series B Right.
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The Company is obligated to issue a warrant to Southbrook Investments,
Ltd. exercisable for 31,250 shares of Common Stock, which warrant has not yet
been issued.
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SCHEDULE 2.1(F)
REQUIRED CONSENTS
1. The approval of the Company's stockholders referred to in Section 3.13 of
the Agreement to increase the number of shares of Common Stock authorized for
issuance.
2. The consent of the holders of the 2% Notes evidenced by their execution and
delivery of the Amendment to Note Agreement.
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SCHEDULE 2.1(G)
LITIGATION
See Part II "Item 1. Legal Proceedings" in the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 1998.
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SCHEDULE 2.1(S)
OUTSTANDING INDEBTEDNESS
The outstanding indebtedness of the Company as of March 25, 1999 consisted
of the following:
nstallment Loan Note from NBD Bank, secured by certain engineering test
equipment: Account Number ▇▇▇▇▇▇▇, $5,120.79 in principal outstanding as of
March 25, 1999, interest rate = 8.5% annually, monthly installment payments of
$2,915.61, due through May 1999
$10,350,000 in aggregate principal amount of Senior Convertible Notes due
May 15, 2002, plus accrued interest.
Equipment Lease Installment Agreement from Hewlett - Packard Company, 36
monthly installment payments of $891.85, commencing February 1999, secured by
certain engineering test equipment.
Trade debt incurred in the ordinary course of business, which equaled
$1,149,343 as of March 25, 1999.
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