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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ILLINOIS SUPERCONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3688459
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
----------------------
DR. GEORGE CALHOUN
CHIEF EXECUTIVE OFFICER
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT
MT. PROSPECT, ILLINOIS 60056
(847) 391-9400
(Address, including zip code, and telephone number, including area code,
of registrant's agent for service and principal executive offices)
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With Copies to:
ANDREW L. WEIL, ESQ.
SONNENSCHEIN NATH & ROSENTHAL
8000 SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 876-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
Proposed
maximum
Title of each class of aggregate Amount of
securities to be registered offering price registration fee
--------------------------- -------------- ----------------
Rights to Purchase common stock.......... N/A (4)
Common stock, par value $0.001 per
share (1) (2)............................ $20,000,000 (3) $5,000
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(1) Includes associated rights to purchase Series A junior participating
preferred stock.
(2) Pursuant to Rule 416(a), includes any additional securities that may be
issued in connection with any stock split, stock dividend, or similar
transaction.
(3) Estimated pursuant to Rule 457(o).
(4) Pursuant to Rule 457(g), no separate registration fee is required for the
rights since they are being registered in the same registration statement
as the common stock underlying the rights.
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities, or accept any offer to buy these securities, until
the registration statement we have filed with the Securities and Exchange
Commission becomes effective and we deliver this prospectus to you in final
form.
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Subject to Completion, dated January 5, 2001
PRELIMINARY PROSPECTUS
ILLINOIS SUPERCONDUCTOR CORPORATION
RIGHTS OFFERING
OF ____ SHARES OF COMMON STOCK
AT $__ PER SHARE
- If you held our common stock on ____ , 2001, Illinois Superconductor
Corporation has granted you rights to purchase additional shares of common
stock. You have been granted ___ rights for every share of common stock you
held on that date. Each whole right entitles you to purchase one share of
common stock for a subscription price of $ _ per share. This is your "basic
subscription privilege."
- If you fully exercise your rights and other stockholders do not fully
exercise their rights, you may be able to purchase additional shares at a
subscription price of $__ per share. This is your "oversubscription
privilege."
- We will not issue fractional rights or fractional shares. If the number of
shares of common stock you held on the record date would result in your
receipt of fractional rights, the number of rights issued to you is being
rounded down to the nearest whole right. As a result, our stockholders of
record that held fewer than __ shares as of ____ , 2001 may not be
receiving rights.
- Our common stock is traded on the over-the-counter bulletin board under the
symbol "ISCO.OB." On January 4, 2001, the closing price for the common
stock was $2.19 per share.
- The rights are exercisable beginning on the date of this prospectus and
expire on ____ , 2001, at 5 p.m., New York City time (the "expiration
date"). We have the option of extending the expiration date.
- The rights are non-transferable.
- We are conducting this offering to raise needed capital for our company.
Without this capital, we may not be able to fund our operations at their
current level past March 2001.
- We will use all net cash proceeds from this offering for general corporate
purposes.
AN INVESTMENT IN THE SHARES OFFERED HEREBY ENTAILS A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE __ FOR INFORMATION THAT YOU SHOULD CONSIDER
BEFORE DECIDING WHETHER TO EXERCISE YOUR SUBSCRIPTION RIGHTS.
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Proceeds to
Price us before expenses
----- ------------------
Per Share............................. $ _ $ _
Total................................. $ _ $ _
(1) Basic subscription price. The oversubscription price is $___ per share.
(2) Assumes basic subscription privilege is exercised in full. The actual
proceeds will depend on the extent to which the basic subscription privilege
and the oversubscription privilege are exercised.
Subscription Agent: LaSalle National Bank
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense. This rights offering is not being made, nor will we accept
subscriptions for shares of common stock from any person in any jurisdiction in
which this rights offering or the acceptance thereof would not be in compliance
with the securities or "Blue Sky" laws of such jurisdiction.
The date of this Prospectus is ____ , 2001.
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TABLE OF CONTENTS
Page
----
WHERE YOU CAN FIND MORE INFORMATION..................................... i
PROSPECTUS SUMMARY...................................................... 1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.................... 10
RISK FACTORS............................................................ 11
THE RIGHTS OFFERING..................................................... 21
USE OF PROCEEDS......................................................... 27
DETERMINATION OF SUBSCRIPTION PRICE..................................... 27
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY......................... 28
DESCRIPTION OF SECURITIES............................................... 29
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES................... 30
PLAN OF DISTRIBUTION.................................................... 31
LEGAL MATTERS........................................................... 31
EXPERTS................................................................. 31
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. These filings are
available to the public from commercial document retrieval services and from the
SEC's web site at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington,
D.C. 20549, and in New York, New York and Chicago, Illinois. Please call the SEC
at 1(800)SEC-0330 for further information on the public reference rooms and copy
charges.
The SEC allows us to "incorporate by reference" the information we file
with it. This permits us to disclose important information to you by referencing
these filed documents. We incorporate by reference in this prospectus the
following documents which have been filed with the SEC (File No. 0-22302):
- Our Annual Report on Form 10-K for the fiscal year ended December
31, 1999, filed with the SEC on March 22, 2000;
- Our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, filed with the SEC on May 12, 2000;
- Our Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000, filed with the SEC on August 11, 2000;
- Our Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2000, filed with the SEC on November 14, 2000.
- Our Current Report on Form 8-K concerning the investment of $4
million into our company by Elliott Associates, L.P., Elliott
International, L.P. (formerly known as Westgate International,
L.P.) and Alexander Finance, L.P., filed with the SEC on March 28,
2000;
- Our Current Report on Form 8-K concerning our earnings report for
the quarter ended March 31, 2000, filed with the SEC on May 15,
2000;
- Our Current Report on Form 8-K concerning the announcement of our
agreement to acquire Spectral Solutions, Inc. for 3.5 million
shares of our common stock, filed with the SEC on May 19, 2000;
- Our Current Report on Form 8-K concerning the adjournment of our
annual meeting until July 18, 2000 and the Extension Letter
received from Elliott Associates, L.P., Elliott International,
L.P. (formerly known as Westgate International, L.P.,) and
Alexander Finance, L.P. regarding their agreement to refrain from
exercising redemption rights in connection with their convertible
notes, filed with the SEC on July 7, 2000;
- Our Current Report on Form 8-K concerning stockholder approval
obtained at our annual meeting of all proposals contained in our
proxy material, filed with the SEC on July 18, 2000;
- Our Current Report on Form 8-K concerning our opening of an office
in Japan, filed with the SEC on August 7, 2000;
- Our Current Report on Form 8-K concerning the announcement of our
acquisition of Spectral Solutions, Inc. and the appointment of Dr.
Richard Herring, CEO of Spectral Solutions, Inc. prior to the
merger, to our Board of Directors, filed with the SEC on August
10, 2000;
- Our Current Report on Form 8-K concerning our earnings report for
the quarter ended June 30, 2000, filed with the SEC on August 14,
2000;
- Our Current Report on Form 8-K concerning our acquisition of
Spectral Solutions, Inc., filed with the SEC on August 23, 2000,
and our amended Current Report on Form 8-K/A setting forth the
financial statements for such acquisition filed with the SEC on
October 20, 2000;
- Our Current Report on Form 8-K concerning our receipt of an
initial order for the deployment of HTS filter systems by
Telefonica, a telecommunications operating company in Spain, filed
with the SEC on September 22, 2000;
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- Our Current Report on Form 8-K reporting on an additional $5
million investment in our company by Elliott Associates, L.P. and
an affiliated investment firm, filed with the SEC on October 26,
2000.
- Our Current Report on Form 8-K announcing that we had entered into
an agreement to acquire Lockheed Martin Canada's Adaptive Notch
Filtering ("ANF") business unit, filed with the SEC on November 2,
2000.
- Our Current Report on Form 8-K reporting on our change in
certifying accountants, filed with the SEC on December 13, 2000.
- Our Current Report on Form 8-K reporting on the acquisition of
Lockheed Martin Canada Inc.'s Adaptive Notch Filtering business
unit and the appointment of Daniel Spoor, President and CEO of
Lockheed Martin Canada Inc., to our Board of Directors, filed with
the SEC on December 27, 2000.
- Our Current Report on Form 8-K concerning our acquisition of the
Adaptive Notch Filtering business unit of Lockheed Martin Canada
Inc., and reporting on the conversion of senior convertible notes
by certain of our principal stockholders, filed with the SEC on
January 4, 2001.
- Our definitive Proxy Statement filed with the SEC on April 7, 2000
and our additional definitive proxy materials filed with the SEC
on June 9, 2000.
- The description of our common stock contained in our Registration
Statement on Form 8-A, as amended, and any other amendments or
reports for the purpose of updating that description.
We incorporate by reference all documents filed pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this prospectus and prior to the termination of this offering.
We will provide promptly without charge to you, upon written or oral
request, a copy of any document incorporated by reference in this prospectus,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Requests should be directed as
follows:
Illinois Superconductor Corporation
451 Kingston Court
Mt. Prospect, Illinois 60056
(847) 391-9400
You should request any such information at least five days in advance
of the date on which you expect to make your decision with respect to this
offer. In any event, you must request such information prior to ____ , 2001.
You should rely only on the information contained in this prospectus
and the information to which we have referred you. We have not authorized anyone
else to provide you with information different. If anyone provides you with
different or inconsistent information, you should not rely on it. You should not
assume that the information in this prospectus is accurate as of any date other
than the date on the front page of this prospectus. Also, you should not assume
that there has been no change in our affairs since the date of this prospectus.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information contained or
incorporated by reference in this prospectus. See "Where You Can Find More
Information" on page i.
QUESTIONS AND ANSWERS ABOUT THIS RIGHTS OFFERING
Q. What is a right?
A. Rights give our stockholders the right to purchase additional shares of our
common stock for $ _ per share. On January 4, 2001, the closing price for
our common stock on the over-the-counter bulletin board was $2.19 per
share.
You are receiving ___ rights for each share of common stock that you owned
as of the close of business on the record date for this offering. Each
right entitles you to purchase shares under a basic subscription privilege
and an oversubscription privilege, as we explain below. The record date for
this rights offering is January __, 2001.
Q. Why is the Company offering the rights?
A. We are conducting this offering to raise needed capital for our company.
Without this capital, we may not be able to fund our operations at their
current level past March 2001. We chose this rights offering over other
financing alternatives to provide stockholders with the opportunity to
avoid dilution by participating in the issue of the shares of common stock
on a pro rata basis. If this rights offering is fully subscribed, we would
receive $20,000,000 (before fees and expenses of this offering), and we
expect that our capital requirements will be met for approximately 2 years.
Our principal stockholders, holding in the aggregate approximately 65% of
the outstanding shares of our common stock, have indicated their support of
this rights offering, subject to their agreement with the pricing of the
offering. If these principal stockholders exercise their basic subscription
privilege in full, we expect to receive at least $__ in this offering.
We will use the net proceeds of this offering for general corporate
purposes.
Q. What is the basic subscription privilege?
A. By exercising your rights, you may purchase one share of common stock for
every whole right issued to you, at the subscription price of $ _ per
share. For example, if you owned 100 shares of common stock on the record
date, you have the right to purchase __ shares of common stock for $ _ per
share. This is your "basic subscription privilege."
Q. What is the oversubscription privilege?
A. The oversubscription privilege entitles you to subscribe to additional
shares of our common stock at the price of $__ per share, subject to the
following conditions:
- You must exercise the oversubscription privilege at the same time you
exercise your basic subscription privilege;
- You must exercise your basic subscription privilege in full;
- In exercising your oversubscription privilege, you pay the full
subscription price for all of the shares you are electing to purchase; and
- Other stockholders receiving rights do not elect to purchase all of the
shares offered under their basic subscription privilege.
If oversubscription requests exceed shares available, we will allocate the
available shares pro rata among our stockholders that oversubscribed based
on the number of shares each subscriber for additional shares has purchased
under the basic subscription privilege.
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Q. Will I receive fractional rights or shares?
A. We are not issuing fractional rights or shares. If the number of shares of
common stock you held on the record date would result in your receipt of
fractional rights, the number of rights issued to you is being rounded down
to the nearest whole right. As a result, our stockholders of record that
held fewer than ___ shares of common stock as of the record date may not be
receiving rights.
Q. Has the Board of Directors made a recommendation regarding this offering?
A. Our Board of Directors makes no recommendation to you about whether you
should exercise any rights.
Q. How soon must stockholders act?
A. The rights may be exercised beginning on the date of this prospectus and
expire on _____ , 2001, at 5:00 p.m., New York City time. The subscription
agent must actually receive all required documents and payments before that
date and time. Although we have the option of extending the expiration
date, we currently do not intend to do so.
Q. May I transfer my rights?
A. No. The rights may be exercised only by the person to whom they are
issued.
Q. Am I required to subscribe in this rights offering?
A. No. You are not required to exercise any rights, purchase any shares, or
otherwise take any action in response to this rights offering.
Q. What will happen if I do not exercise my rights?
A. If you do not exercise any rights, the number of shares you own will not
change, but your percentage ownership of our company will decline following
this rights offering if any other stockholders exercise their rights.
Q. May I change or cancel my exercise of rights after I send in the required
forms?
A. No. All exercises of rights are irrevocable.
Q. Will my money be returned if this rights offering is cancelled?
A. We may cancel or terminate this rights offering at any time prior to the
expiration date. If we terminate or cancel this offering, we will return
your subscription price, but without any payment of interest.
Q. What should I do if I want to participate in this rights offering, but my
shares are held in the name of my broker, dealer or other nominee?
A. If you hold your shares of our common stock through a broker, dealer or
other nominee (for example, through a custodian bank), then your broker,
dealer or other nominee is the record holder of the shares you own. This
record holder must exercise the rights on your behalf for shares you wish
to purchase. Therefore, you will need to have your record holder act for
you.
If you wish to participate in this rights offering and purchase shares,
please promptly contact the record holder of your common stock. To indicate
your decision with respect to your rights, you should complete and return
to your
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record holder the form entitled "Beneficial Owner Election Form." You
should have received this form from your record holder with the other
rights offering materials. If you did not receive this form, please contact
Mackenzie Partners, our information agent, at (800) _______ (toll free).
Q. What fees or charges apply if I purchase shares?
A. We are not charging any fee or sales commission to issue rights to you or
to issue shares to you if you exercise rights. If you exercise rights
through a record holder of your shares, you are responsible for paying any
fees that person may charge.
Q. How do I exercise my rights?
A. As a record holder of our common stock on the record date, you are
receiving this prospectus, a subscription warrant evidencing your
subscription rights and instructions on how to purchase shares. If you wish
to participate in this rights offering, then before your rights expire, you
must:
(a) deliver a properly completed subscription warrant; and
(b) deliver the subscription price by wire transfer of immediately
available funds, certified or cashier's check drawn on a U.S. bank,
or personal check that clears before expiration of the rights.
If you are exercising your oversubscription privilege, the subscription
price for the oversubscription shares you wish to purchase must be paid
with your basic subscription amount. We will return the subscription price
for any part of your oversubscription that we are unable to honor after the
end of the offering period, without interest.
Q. What if I am unable to deliver my subscription warrant by the expiration
time of this offering?
A. There is an alternate procedure called "Notice of Guaranteed Delivery,"
which allows an extra three days to deliver the subscription warrant if
full payment is received before the expiration date and a securities broker
or qualified financial institution signs the "Notice of Guaranteed
Delivery" form to guaranty that your properly completed subscription
warrant will be timely delivered.
Q. To whom should I send forms and payment?
A. You should send your subscription documents and payment by mail or courier
service to:
By Hand: By First Class Mail: By Overnight Courier:
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For instructions on how your subscription payment should be sent to LaSalle
National Bank, see "The Rights Offering--Required Forms of Payment of
Subscription Price" on page __ . Securities brokers and other qualified
financial institutions can use an alternate procedure called "Notice of
Guaranteed Delivery." See "The Rights Offering--Special Procedure under
`Notice of Guaranteed Delivery' Form" on page __ .
Q. What should I do if I have other questions?
A. If you have questions, need additional copies of offering documents or
otherwise need assistance, please contact Mackenzie Partners at (800)
_________.
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To ask other questions or to receive copies of our recent SEC filings, you
can also contact us by mail or telephone, or refer to the other sources
described under "Where You Can Find More Information" on page i of this
prospectus.
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OUR COMPANY
We were founded in 1989 by ARCH Development Corporation, an affiliate
of the University of Chicago, to commercialize superconductor technologies
initially developed by Argonne National Laboratory. Superconductor materials,
when cooled below a critical temperature, are able to transmit an electric
current with either no or minimal loss of energy.
We use our patented and proprietary high temperature superconductor
("HTS") materials, radio frequency ("RF") filter designs and cryogenic
technologies to develop, manufacture and market high performance products
designed to enhance the quality, capacity, coverage and flexibility of cellular
and other wireless telecommunications services.
In August 2000, we acquired Spectral Solutions, Inc. ("Spectral
Solutions") for our common stock valued at approximately $14.3 million. Spectral
Solutions develops cyrogenic superconducting radio frequency front-end systems
for the wireless communications industry. In December 2000, we acquired Lockheed
Martin Canada's Adaptive Notch Filtering business unit, in exchange for
2,500,000 shares of our common stock. The ANF business unit has developed a
technology to monitor and suppress sources of narrow-band interference that can
reduce quality and capacity of CDMA-based wireless systems.
We were incorporated in Illinois on October 18, 1989 and reincorporated
in Delaware on September 24, 1993. Our principal executive offices are located
at 451 Kingston Court, Mt. Prospect, Illinois 60056 and our telephone number is
(847) 391-9400.
RECENT DEVELOPMENTS
Conversion of Senior Convertible Notes
On December 29, 2000, holders of our senior convertible notes converted
$14,354,778 principal amount of such notes plus accrued interest into 63,283,309
shares of common stock.
Change in Certifying Accountants
On December 7, 2000, we advised Ernst & Young LLP that we intended to
retain a different firm of independent auditors for the audit of our financial
statements for the fiscal year ending December 31, 2000. We have engaged Grant
Thornton LLP as our new independent principal accountant to audit our
consolidated financial statements. This engagement was effective as of December
7, 2000.
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SUMMARY OF THE TERMS OF THIS RIGHTS OFFERING
Further details concerning this part of the summary are set forth under
"The Rights Offering" beginning on page __ . Only holders of record of common
stock at the close of business on the record date may exercise rights.
Securities Offered...................... We are offering ___ shares of common
stock to be issued upon exercise of
the rights.
Record Date............................. _____ , 2001. Only our stockholders
of record as of the close of
business on the record date will
receive rights to subscribe for
shares of common stock. Close of
business means 5:00 p.m., New York
City time.
Exercise Period......................... The rights may be exercised
beginning on the date of this
prospectus and expire on _____ ,
2001 at 5:00 p.m. (New York City
time). Rights not exercised by the
expiration date will be null and
void. We have the option of
extending the expiration date for
any reason.
Basic Subscription
Privilege............................... You are receiving ___ rights for
every share of common stock owned as
of the record date. Each whole right
entitles you to purchase one share
of common stock for the subscription
price.
We are not issuing any fractional
rights or fractional shares. If the
number of shares of common stock you
held of record on the record date
would result in your receipt of
fractional rights, the number of
rights issued to you is being
rounded down to the nearest whole
right. So, for example, if you were
the record holder of 100 shares of
common stock on the record date, you
are receiving rights to subscribe to
__ shares of common stock instead of
__ shares. Record owners of fewer
than __ shares of common stock on
the record date may not receive
rights.
You may not purchase fractional
shares. You may, however, subscribe
for any whole number of shares by
exercising less than all of your
rights.
Subscription Price...................... For the basic subscription
privilege, $ _ per share, payable in
cash. For the oversubscription
privilege, $ _, also payable in
cash. All payments must be cleared
on or before the expiration date.
Oversubscription
Privilege............................... If you fully exercise your basic
subscription privilege, you may also
purchase additional shares of common
stock that are not purchased by
other stockholders. If there are not
enough shares available to fill all
subscriptions for additional shares,
the available shares will be
allocated pro rata based on the
number of shares each subscriber for
additional shares has purchased
under the basic subscription
privilege.
Use of Proceeds......................... We will use the net proceeds of this
offering for general corporate
purposes.
No Transferability of Rights............ The rights may be exercised only by
the persons to whom they are
granted.
No Board Recommendation................. Our Board of Directors does not make
any recommendation to
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stockholders regarding the exercise
of rights in this offering.
No Revocation........................... If you exercise any rights, you are
not allowed to revoke or change your
exercise or request a refund of
monies paid.
Certain United States Federal Income
Tax Consequences........................ For United States federal income tax
purposes, we believe that a
stockholder will not recognize
taxable income upon the receipt or
exercise of rights. See "Certain
Federal Income Tax Consequences"
beginning on page __ . Each
stockholder should consult the
holder's own tax adviser concerning
the tax consequences of this
offering under the holder's own tax
situation. This prospectus does not
summarize tax consequences arising
under state tax laws, non-U.S. tax
laws, or any tax laws relating to
special tax circumstances or
particular types of taxpayers.
Extension, Withdrawal and
Amendment............................... We have the option of extending this
rights offering and the offering
period, although we presently do not
intend to do so. We also reserve the
right to withdraw, terminate or
amend this rights offering at any
time for any reason. If this
offering is withdrawn or terminated,
or any submitted subscriptions no
longer comply with the amended terms
of this offering, we will return all
funds received from such
subscriptions, without interest.
Procedure for Exercising Rights......... To exercise rights, you must
complete the subscription warrant
and deliver it to the subscription
agent, LaSalle National Bank, with
full payment for all the rights you
elect to exercise. LaSalle National
Bank must receive the proper forms
and payments on or before the
expiration date.
You may deliver your subscription
documents and payments by mail or
commercial courier. If regular mail
is used for this purpose, we
recommend using insured, registered
mail. You may use an alternative
"Notice of Guaranteed Delivery"
procedure if you are unable to
deliver the subscription warrant
before the expiration date, subject
to the requirements of this
procedure described under "The
Rights Offering--Special Procedure
under `Notice of Guaranteed
Delivery' Form" on page __ .
Shares of common stock Outstanding As of
the Date of this Prospectus............. _____________ shares of common stock
Shares of common stock Outstanding Upon
Completion of Rights Offering........... ________________ shares of common
stock, if this rights offering is
fully subscribed.
RISK FACTORS
Exercising your rights and purchasing our common stock involves a high
degree of risk. Stockholders who exercise rights risk investment loss on new
money invested. We cannot assure you that the subscription price will remain
below any trading price for our common stock or that its trading price will not
decline to below the subscription price during or after this rights offering.
For more information regarding some of the risks inherent in this rights
offering, please see "Risk Factors" beginning on page ___.
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SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data set forth below for the nine
months ended September 30, 2000 and 1999, and the related balance sheet data as
of September 30, 2000, are derived from the unaudited consolidated financial
statements and notes contained in our quarterly report on Form 10-Q filed
November 14, 2000, which are incorporated herein by reference and, in the
opinion of our management, include all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation. The summary
historical financial data set forth below for each of the years in the five-year
period ended December 31, 1999 are derived from our consolidated financial
statements and notes for the relevant periods, which were audited by Ernst &
Young LLP, independent accountants.
Nine Months Ended
September 30, Year Ended December 31,
------------ ----------------------
2000 1999 1999 1998 1997 1996
STATEMENT OF OPERATIONS
DATA:
Net sales.................................. 209,163 1,955,792 $2,408,604 $3,242,930 $1,038,134 $209,822
Costs and expenses:
Cost of revenues..................... 1,465,814 4,091,392 5,923,173 7,047,347 4,401,077 49,534
Research and development............. 1,979,656 1,364,168 1,757,214 2,934,784 4,132,019 6,422,921
Selling and marketing................ 760,852 1,210,844 1,581,545 1,847,680 1,918,044 1,834,640
General and administrative........... 4,480,444 2,130,452 2,617,809 3,370,058 2,772,274 3,290,810
Operating loss............................. (8,477,603) (6,841,064) (9,471,137) (11,956,939) (12,185,280) (11,388,083)
Other income (expense):
Interest income....................... 125,446 118,967 98,194 354,738 254,781 503,911
Interest expense...................... (3,118,047) (609,391) (12,634,745) (10,247,919) (17,969) (29,602)
Other income, net..................... 1,876 -- 36,623 -- -- --
----------- ----------- ------------ ------------ ------------ -------------
(2,990,725) (490,424) (12,499,928) (9,893,181) 236,812 474,309
=========== =========== ============ ============ ============ =============
Loss before extraordinary item............. (11,468,328) (7,331,488) (21,971,065) (21,850,120) (11,948,468) (10,913,774)
Extraordinary item-debt
extinguishment........................ (28,297) (73,000) (745,197) -- -- --
----------- ----------- ------------ ------------ ------------ -------------
Net Loss................................... (11,496,625) (7,404,488) (22,716,262) (21,850,120) (11,948,468) (10,913,774)
Preferred Stock dividends.................. (61,834) (143,302) --
----------- ----------- ------------ ------------ ------------ -------------
Net loss plus Preferred Stock
dividends............................. (11,496,625) (7,404,488) $(22,716,262) $(21,911,954) $(12,091,770) $(10,913,774)
=========== =========== ============ ============ ============ =============
Basic and diluted loss per common.......... (0.37) (0.58) $(1.71) $(1.93) $(2.34) $(2.41)
share before extraordinary item
Extraordinary item-debt extinguishment..... -- (0.01) (0.06) -- -- --
----------- ----------- ------------ ------------ ------------ -------------
Basic and diluted loss per common
share................................. (0.37) (0.59) $ (1.77) $(1.93) $(2.34) $(2.41)
=========== =========== ============ ============ ============ =============
Weighted average number of
shares of common stock
outstanding................................ 31,140,954 12,651,819 12,841,497 11,345,540 5,156,663 4,536,034
=========== =========== ============ ============ ============ =============
1995
STATEMENT OF OPERATIONS
DATA:
Net sales.................................. $ 27,830
Costs and expenses:
Cost of revenues..................... 19,286
Research and development............. 4,554,946
Selling and marketing................ 469,600
General and administrative........... 2,763,615
Operating loss............................. (7,779,617)
Other income (expense):
Interest income....................... 487,543
Interest expense...................... (39,600)
Other income, net..................... --
-----------
447,943
-----------
Loss before extraordinary item............. (7,331,647)
Extraordinary item-debt
extinguishment........................ --
-----------
Net Loss................................... (7,331,647)
Preferred Stock dividends.................. --
-----------
Net loss plus Preferred Stock
dividends............................. $(7,331,674)
===========
Basic and diluted loss per common
share before extraordinary item ...... $ (2.01)
Extraordinary item-debt extinguishment..... --
-----------
Basic and diluted loss per common
share................................. $(2.01)
===========
Weighted average number of
shares of common stock
outstanding................................ 3,641,196
===========
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BALANCE SHEET DATA
As of December 31,
----------------------
As of
September 30,
2000 1999 1998 1997 1996 1995
---------- ---- ---- ---- ---- ----
Cash and cash equivalents $ 1,046,326 $ 723,711 $ 2,152,595 $ 2,766,886 $ 5,188,047 $ 953,093
Working capital 2,088,731 831,724 4,190,548 4,668,982 5,207,923 5,458,474
Total assets 19,599,182 6,039,159 10,028,088 11,534,309 13,388,496 11,105,766
Long-term debt/capital lease
obligations, less current
portion 8,675,861 13,650,885 9,432,026 13,541 91,618 509,079
Stockholders' equity (net
capital deficiency) 5,683,485 (9,291,712) (772,968) 10,046,569 11,520,128 9,185,379
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Because we want to provide you with meaningful and useful information,
this prospectus contains, and incorporates by reference, certain forward-looking
statements that reflect our current expectations regarding our future results of
operations, performance and achievements. We have tried, wherever possible, to
identify these forward-looking statements by using words such as "anticipates,"
"believes," "estimates," "expects," "plans," "intends" and similar expressions.
These statements reflect our current beliefs and are based on information
currently available to us. Accordingly, these statements are subject to certain
risks, uncertainties and contingencies, including the factors set forth under
the caption "Risk Factors," which could cause our actual results, performance or
achievements for 2001 and beyond to differ materially from those expressed in,
or implied by, any of these statements. You should not place undue reliance on
any forward-looking statements. Except as otherwise required by federal
securities laws, we undertake no obligation to release publicly the results of
any revisions to any such forward-looking statements that may be made to reflect
events or circumstances after the date of this prospectus or to reflect the
occurrence of unanticipated events.
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RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus and in the documents incorporated by reference
herein before deciding to purchase shares in this rights offering. Our shares
are subject to significant investment risks. Many factors, including the risks
described below and other risks we have not recognized, could cause our
operating results to differ from our expectations and plans.
RISKS RELATED TO THE OPERATIONS AND FINANCING OF OUR COMPANY GENERALLY
Limited Operating History; History of Losses; and Uncertainty of Financial
Results
We were founded in October 1989 and through 1996 were engaged
principally in research and development, product testing, manufacturing,
marketing and sales activities. We have incurred net losses since our inception.
As of September 30, 2000, our accumulated deficit was approximately $94,373,000.
We have only recently begun to generate revenues from the sale of our RF filter
products. Prior to the commencement of these sales, the majority of our revenues
were derived from R&D contracts, primarily from the U.S. government. We do not
expect revenues to increase dramatically until we ship a significantly larger
amount of our RF products. Accordingly, we expect to continue to experience net
losses, and we cannot be certain if or when we will become profitable. Spectral
Solutions and the Adaptive Notch Filtering business unit of Lockheed Martin
Canada, both of which we recently acquired, have similar operating histories and
financial uncertainties.
We have only a limited operating history upon which an evaluation of us
and our prospects can be based. We must therefore be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stages of product commercialization.
Future Capital Needs
Although we have raised over $10 million in equity capital during the
past year, we anticipate that we will need additional cash to continue our
operations at their current level past March 2001. If this rights offering is
fully subscribed, we would receive $20,000,000 (before fees and expenses of this
offering), which should be sufficient to fund our operations at their current
level for approximately two years. However, our planned expansion in sales of
our RF filter product lines may require the commitment of substantial additional
funding, beyond our current funding level, to continue product redesign,
expansion of manufacturing capabilities and development of a sales and marketing
effort to sell our RF front-end products.
The actual amount of our future funding requirements will depend on
many factors, including: the amount and timing of future revenues, the level of
product marketing and sales efforts to support our commercialization plans, the
magnitude of our research and product development programs, our ability to
improve product margins, the cost of additional plant and equipment for
manufacturing and the costs involved in protecting our patents or other
intellectual property.
Consequences of Inability to Obtain Adequate Future Funding
If we are unable to obtain adequate funds when needed in the future, we
would be required to substantially delay, scale-back or eliminate the
manufacturing, marketing or sales of one or more of our products or research and
development programs, or may be required to obtain funds through arrangements
with collaborative partners or others that may require us to relinquish rights
to certain of our technologies, or potential products that we would not
otherwise relinquish. In particular, if we do not secure adequate additional
financing, we believe that we may not be able to continue as a going concern.
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Qualified Audit Opinion
Ernst & Young's report on our financial statements for the years ended
December 31, 1998 and December 31, 1999 contained an explanatory paragraph which
stated that our history of operating losses and our need to obtain additional
financing raised substantial doubt about our ability to continue as a going
concern. Since the most recent opinion, we have raised in excess of $10 million
in external funding. However, the qualification of the audit opinion has raised
the concerns of our suppliers and potential customers and has therefore had an
adverse effect on our business.
Limited Experience in Manufacturing, Marketing and Sales
For us to be financially successful, we must manufacture our products
in substantial quantities, at acceptable costs and on a timely basis. Although
to date we have produced limited quantities of our products for commercial
installations and for use in development and customer field trial programs,
production of large quantities of our products at competitive costs presents a
number of technological and engineering challenges for us. We may be unable to
manufacture such products in sufficient volume. We have limited experience in
manufacturing, and substantial costs and expenses may be incurred in connection
with attempts to manufacture larger quantities of our products. We may be unable
to make the transition to large scale commercial production successfully.
Our marketing and sales experience to date is very limited. We will be
required to further develop our marketing and sales force in order to
effectively demonstrate the advantages of our products over more traditional
products, as well as competitive superconductive products. We may also elect to
enter into agreements or relationships with third parties regarding the
commercialization or marketing of our products. If we enter into such agreements
or relationships, we will be substantially dependent upon the efforts of others
in deriving commercial benefits from our products. We may be unable to establish
adequate sales and distribution capabilities, may be unable to enter into
marketing agreements or relationships with third parties on financially
acceptable terms, and any third parties with whom we enter into such
arrangements may not be successful in marketing our products.
Management of Growth
Our growth to date has caused, and will continue to cause, a
significant strain on our management, operational, financial and other
resources. Our ability to manage growth effectively will require us to implement
and improve our operational, financial, manufacturing and management information
systems and expand, train, manage and motivate our employees. These demands may
require the addition of new management personnel and the development of
additional expertise by management. Any increase in resources devoted to product
development and marketing and sales efforts could have an adverse effect on our
financial performance in the next several fiscal quarters. If we were to receive
substantial orders, we may have to expand our current facilities, which could
cause an additional strain on our management personnel and development
resources. The failure of our management team to effectively manage growth could
have a material adverse effect on our business, operating results and financial
condition.
RISKS RELATED TO OUR COMMON STOCK AND CHARTER PROVISIONS
Delisting of Common Stock
Our common stock was de-listed from trading on the Nasdaq National
Market in June 1999 due to our inability to meet the net tangible assets
requirement for continued listing. Our common stock is now traded in the
over-the-counter market and quoted on the over-the-counter bulletin board. This
may not provide the same liquidity for the trading of securities as the Nasdaq
National Market. We intend to apply for relisting on the Nasdaq Stock Market
when we are reasonably confident that our application would be approved.
Volatility of Common Stock Price
The market price of our common stock, like that of many other
high-technology companies, has fluctuated significantly and is likely to
continue to fluctuate in the future. Since January 1, 1999 and through December
31, 2000,
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the closing price of our common stock has ranged from a low of $0.3438 per share
to a high of $39.00 per share. Announcements by us or others regarding the
receipt of customer orders, quarterly variations in operating results,
acquisitions or divestitures, additional equity or debt financings, results of
customer field trials, scientific discoveries, technological innovations,
litigation, product developments, patent or proprietary rights, government
regulation and general market conditions may have a significant impact on the
market price of our common stock. In addition, fluctuations in the price of our
common stock could affect our ability to have our common stock accepted for
listing on a securities market or exchange.
Substantial Number of Shares Eligible for Future Sale; Dilution
As of December 31, 2000, we had (i) outstanding warrants to purchase
95,533 shares of common stock at a weighted average exercise price of $10.20 per
share (the number of shares underlying these warrants will increase based on our
issuance of stock under this rights offering, pursuant to the anti-dilution
provisions of the warrant agreements) and (ii) outstanding options to purchase
5,315,096 shares of common stock at a weighted average exercise price of $3.02
per share (3,774,078 of which have not yet vested) issued to employees,
directors and consultants pursuant to our 1993 Stock Option Plan, the merger
agreement with Spectral Solutions, and individual agreements with our management
and directors. In order to attract and retain key personnel, we may issue
additional securities, including stock options, in connection with our employee
benefit plans, or may lower the price of existing stock options.
In December 2000, holders of our senior convertible notes converted
$14,354,778 principal amount of such notes plus accrued interest into 63,283,309
shares of common stock. We may in the future issue additional equity or rights
to purchase equity, either alone, in connection with acquisition transactions or
in connection with debt financings, at prices below the then-current market
price of the common stock.
The exercise of options and warrants for common stock and the issuance
of additional shares of common stock and/or rights to purchase common stock at
prices below market value will be dilutive to existing stockholders and may have
an adverse on the market value of the common stock.
Concentration of Our Stock Ownership
Our officers, directors and principal stockholders (holding greater
than 5% of outstanding shares) together control approximately 66% of our
outstanding voting power. This percentage may change as a result of this
offering. Consequently, these stockholders, if they act together, would be able
to exert significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. In addition, this concentration of ownership may delay or prevent
a change of control of our company, even when a change may be in the best
interests of our stockholders. The interests of these stockholders may not
always coincide with our interests as a company or the interests of other
stockholders. Accordingly, these stockholders could cause us to enter into
transactions or agreements that we would not otherwise consider.
Anti-Takeover Provisions
We have certain arrangements which may be deemed to have a potential
"anti-takeover" effect in that such provisions may delay, defer or prevent a
change of control of our company. In February 1996, our Board of Directors
adopted a stockholders rights plan. In addition, our Certificate of
Incorporation and By-Laws provide that (i) stockholder action may be taken only
at stockholders meetings; (ii) the Board of Directors has authority to issue
series of our preferred stock with such voting rights and other powers as the
Board of Directors may determine; (iii) prior specified notice must be given by
a stockholder making nominations to the Board of Directors or raising business
matters at stockholders meetings; and (iv) the Board of Directors is divided
into three classes, each serving for staggered three-year terms. The effect of
the rights plan and the anti-takeover provisions in our charter documents may be
to deter business combination transactions not approved by our Board of
Directors, including acquisitions that may offer a premium over market price to
some or all of our stockholders.
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TECHNOLOGY AND MARKET RISKS
Uncertain Market Acceptance of Superconducting Telecommunications Products
Our radio frequency ("RF") filter products, which are based on our high
temperature superconductor ("HTS") technology, have not been sold in very large
quantities and a sufficient market may not develop for our products. Our
customers establish demanding specifications for performance and reliability.
Our RF filter products may not continue to meet product performance and
reliability criteria set by wireless communication service providers. We may be
unable to manufacture adequate quantities of any products it develops at
commercially acceptable costs or on a timely basis, or our current or future
products may not achieve market acceptance. We have experienced, and may
continue to experience, quarterly fluctuations in our results of operations as
we attempt to gain market acceptance of our RF filter products while being
subject to the lengthy testing process of customers. Failure to successfully
develop, manufacture and commercialize products on a timely and cost-effective
basis will have a material adverse effect on our business, operating results and
financial condition.
Rapid Technological Change; Possible Pursuit of Other Market Opportunities
The field of superconductivity is characterized by rapidly advancing
technology. Our success will depend in large part upon our ability to keep pace
with advancing superconducting technology, high performance RF filter design and
efficient, low cost cryogenic technologies. Rapid changes have occurred, and are
likely to continue to occur, in the development of superconducting materials and
processes. Our development efforts may be rendered obsolete by the adoption of
alternative solutions to current wireless operator problems or by technological
advances made by others. In addition, other materials or processes, including
other superconducting materials or fabrication processes, may prove more
advantageous for the commercialization of high performance wireless products
than the materials and processes selected by us.
Focus on Wireless Telecommunications Market; Current and Future Competitive
Technologies
Our principal target market for our superconductor-based products is
wireless telecommunications. The devotion of substantial resources to the
wireless telecommunications market makes us vulnerable to adverse changes in
this market. Adverse developments in the wireless telecommunications market,
which could come from a variety of sources, including future competition, new
technologies or regulatory decisions, could affect the competitive position of
wireless systems. Any adverse developments in the wireless telecommunications
market during the foreseeable future would have a material adverse effect on our
business, operating results and financial condition.
BUSINESS RISKS
Dependence on a Limited Number of Customers
To date, our marketing and sales efforts have focused on major cellular
service providers in retrofit applications and, to a lesser extent, on PCS
operators. During 1999, sales to three of our customers accounted for over 65%
of our company's total revenues for 1999. Sales to these customers accounted for
over 80% of our total revenues in the first nine months of 2000. We expect that
if our RF filter products achieve market acceptance, a limited number of
wireless service providers and Original Equipment Manufacturers ("OEMs") will
account for a substantial portion our revenue during any period. Sales of many
of our company's RF filter products depend in significant part upon the decision
of prospective customers and current customers to adopt and expand their use of
our products. Wireless service providers, wireless equipment OEMs and our other
customers are significantly larger than, and are able to exert a high degree of
influence over, us. Customers' orders are affected by a variety of factors such
as new product introductions, regulatory approvals, end user demand for wireless
services, customer budgeting cycles, inventory levels, customer integration
requirements, competitive conditions and general economic conditions. The
failure to attract new customers would have a material adverse effect on our
business, operating results and financial condition.
Lengthy Sales Cycles
Prior to selling our products to our customers, we must generally
undergo lengthy approval and purchase processes. Technical and business
evaluation by potential customers can take up to a year or more for products
based
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on new technologies such as HTS. The length of the approval process is
affected by a number of factors, including, among others, the complexity of the
product involved, priorities of the customers, budgets and regulatory issues
affecting customers. We may not obtain the necessary approvals or ensuing sales
of such products may not occur. The length of our customers' approval process or
delays could have a material adverse effect on our business, operating results
and financial condition.
Dependence on Limited Sources of Supply
Certain parts and components used in our RF filter products, including
substrates, vacuum components, and cryogenic coolers, are only available from a
limited number of sources. Our reliance on these limited source suppliers
exposes us to certain risks and uncertainties, including the possibility of a
shortage or discontinuation of certain key components and reduced control over
delivery schedules, manufacturing capabilities, quality and costs. Any reduced
availability of such parts or components when required could materially impair
the our ability to manufacture and deliver our products on a timely basis and
result in the cancellation of orders, which could have a material adverse effect
on our business, operating results and financial condition. In addition, the
purchase of certain key components involves long lead times and, in the event of
unanticipated increases in demand for our products, we may be unable to
manufacture products in quantities sufficient to meet our customers' demand in
any particular period. We have no guaranteed supply arrangements with our
limited source suppliers, do not maintain an extensive inventory of parts or
components, and customarily purchase parts and components pursuant to purchase
orders placed from time to time in the ordinary course of business.
To satisfy customer requirements, we may be required to stock certain
long lead time parts in anticipation of future orders. The failure of such
orders to materialize as forecasted could limit resources available for other
important purposes or accelerate our requirement for additional funds. In
addition, such excess inventory could become obsolete, which would adversely
affect our financial performance. Business disruption, production shortfalls or
financial difficulties of a limited source supplier could materially and
adversely affect us by increasing product costs or reducing or eliminating the
availability of such parts or components. In such events, our inability to
develop alternative sources of supply quickly and on a cost-effective basis
could materially impair our ability to manufacture and deliver our products on a
timely basis and could have a material adverse effect on our business, operating
results and financial condition.
Dependence on Key Personnel
Our success will depend in large part upon our ability to attract and
retain highly qualified management, engineering, manufacturing, marketing, sales
and R&D personnel. Due to the specialized nature of our business, it may be
difficult to locate and hire qualified personnel. The loss of services of one of
our executive officers or other key personnel, or the failure to attract and
retain other executive officers or key personnel, could have a material adverse
effect on our business, operating results and financial condition.
Product Liability
To date, our products have been installed in over 300 cell sites with a
wide geographic dispersion. Although our products have not experienced any
significant reliability problems to date, our products may develop reliability
problems in the future. Repeated or widespread quality problems could result in
significant warranty expenses and/or the loss of customer confidence. The
occurrence of such quality problems could have a material adverse effect on our
business, operating results and financial condition.
Competition
The wireless telecommunications equipment market is very competitive.
Our products compete directly with products which embody existing and future
competing commercial technologies. Many of these companies have substantially
greater financial resources, larger R&D staffs and greater manufacturing and
marketing capabilities than we do. Other emerging wireless technologies,
including "smart antennas" and tower mounted amplifiers, may also provide
protection from RF interference and offer enhanced range to wireless
communication service providers at lower prices and/or superior performance, and
may therefore compete with our products. High performance RF filters
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23
may not become a preferred technology to address the needs of wireless
communication service providers. Failure of our products to improve performance
sufficiently, reliably, or at an acceptable price or to achieve commercial
acceptance or otherwise compete with conventional and new technologies will have
a material adverse effect on the our business, operating results and financial
condition.
Although the market for superconductive electronics currently is small
and in the early stages of development, we believe it will become intensely
competitive, especially if products with significant market potential are
successfully developed. In addition, if the superconducting industry develops,
additional competitors with significantly greater resources are likely to enter
the field. In order to compete successfully, we must continue to develop and
maintain technologically advanced products, reduce production costs, attract and
retain highly qualified personnel, obtain additional patent or other protection
for our technology and products and manufacture and market our products, either
alone or with third parties. We may be unable to achieve these objectives.
Failure to achieve these objectives would have a material adverse effect on our
business, operating results and financial condition.
In the past, we have had some success in increasing sales through
pricing strategies pursuant to which we reduced the prices for all of our
products. Such growth, however, was not consistently sustained. Similarly, we
may not be able to continue to reduce product costs sufficiently to achieve and
maintain acceptable profit margins.
LEGAL MATTERS
Intellectual Property and Patents
Our success will depend in part on our ability to obtain patent
protection for our products and processes, to preserve our trade secrets and to
operate without infringing upon the patent or other proprietary rights of others
and without breaching or otherwise losing rights in the technology licenses upon
which any of our products are based. As of December 31, 2000, we had been issued
35 U.S. and 4 foreign patents, had filed and were actively pursuing
applications for 13 other U.S. and 23 other foreign patents, and were the
licensee of 7 U.S. patents and patent applications held by others. We acquired
additional patents, through assignment of a license from the Canadian
government, in connection with our purchase of the Adaptive Notch Filtering
business unit of Lockheed Martin Canada. One of our patents is jointly owned
with Lucent Technologies, Inc. We believe that, since the discovery of HTS
materials in 1986, a large number of patent applications have been filed
worldwide, and many patents have been granted in the U.S. relating to HTS
materials. The claims in those patents often appear to overlap and there are
interference proceedings pending in the United States Patent and Trademark
Office (not currently involving our company) regarding rights to inventions
claimed in some of the HTS materials patent applications. We also believe there
are a large number of patents and patent applications covering RF filter
products and other products and technologies that we are pursuing. Accordingly,
the patent positions of companies using HTS materials technologies and RF
technologies, including our company, are uncertain and involve complex legal and
factual questions. The patent applications filed by us or by our licensors may
not result in issued patents or the scope and breadth of any claims allowed in
any patents issued to us or our licensors may not exclude competitors or provide
competitive advantages to us. In addition, patents issued to us, our
subsidiaries or our licensors may not be held valid if subsequently challenged
or others may claim rights in the patents and other proprietary technologies
owned or licensed by us. Others may have developed or may in the future develop
similar products or technologies without violating any of our proprietary
rights. Furthermore, our loss of any license to technology that we now have or
acquire in the future may have a material adverse effect on our business,
operating results and financial condition.
Some of the patents and patent applications owned or licensed by us are
subject to non-exclusive, royalty-free licenses held by various U.S.
governmental units. These licenses permit these U.S. government units to select
vendors other than us to produce products for the U.S. Government, which would
otherwise infringe our patent rights that are subject to the royalty-free
licenses. In addition, the U.S. Government has the right to require us to grant
licenses (including exclusive licenses) under such patents and patent
applications or other inventions to third parties in certain instances.
Patent applications in the U.S. are currently maintained in secrecy
until patents are issued. In foreign countries, this secrecy is maintained for a
period of time after filing. Accordingly, publication of discoveries in the
16
24
scientific literature or of patents themselves or laying open of patent
applications in foreign countries tends to lag behind actual discoveries and
filing of related patent applications. Due to this factor and the large number
of patents and patent applications related to HTS materials, RF technologies and
other products and technologies that we are pursuing, comprehensive patent
searches and analyses associated with HTS materials, RF technologies and other
products and technologies that we are pursuing are often impractical or not
cost-effective. As a result, our patent and literature searches cannot fully
evaluate the patentability of the claims in our patent applications or whether
materials or processes used by us for our planned products infringe or will
infringe upon existing technologies described in U.S. patents or may infringe
upon claims in patent applications made available in the future. Because of the
volume of patents issued and patent applications filed relating to HTS
materials, RF technologies and other products and technologies that we are
pursuing, we believe there is a significant risk that current and potential
competitors and other third-parties have filed or will file patent applications
for, or have obtained or will obtain, patents or other proprietary rights
relating to materials, products or processes used or proposed to be used by us.
In any such case, to avoid infringement, we would have to either license such
technologies or design around any such patents. We may be unable to obtain
licenses to such technologies or, if obtainable, such licenses may not be
available on terms acceptable to us or we may be unable to successfully design
around these third-party patents.
Participation in litigation or patent office proceedings in the U.S. or
other countries, which could result in substantial cost to and diversion of
effort by our company, may be necessary to enforce patents issued or licensed to
us, to defend our company against infringement claims made by others or to
determine the ownership, scope or validity of the proprietary rights of our
company and others. The parties to such litigation may be larger, better
capitalized than us and better able to support the cost of litigation. An
adverse outcome in any such proceedings could subject us to significant
liabilities to third parties, require us to seek licenses from third parties
and/or require us to cease using certain technologies, any of which could have a
material adverse effect on our business, operating results and financial
condition.
We believe that a number of patent applications, including applications
filed by International Business Machines Corporation, Lucent Technologies, Inc.,
and other potential competitors of our company are pending that may cover the
useful compositions and uses of certain HTS materials including yttrium barium
copper oxide ("YBCO"), the principal HTS material used by us in our present and
currently proposed products. Therefore, there is a substantial risk that one or
more third parties may be granted patents covering YBCO and other HTS materials
and their uses, in which case we could not use these materials without an
appropriate license. As with other patents, we have no assurance that we will be
able to obtain licenses to any such patents for YBCO or other HTS materials or
their uses or that such licenses would be available on commercially reasonable
terms. Any of these problems would have a material adverse effect on our
business, operating results and financial condition.
Government Regulations
Although we believe that our wireless telecommunications products
themselves would not be subject to licensing by, or approval requirements of,
the FCC, the operation of base stations is subject to FCC licensing and the
radio equipment into which our products would be incorporated is subject to FCC
approval. Base stations and the equipment marketed for use therein must meet
specified technical standards. Our ability to sell our wireless
telecommunications products is dependent on the ability of wireless base station
equipment manufacturers and wireless base station operators to obtain and retain
the necessary FCC approvals and licenses. In order for them to be acceptable to
base station equipment manufacturers and to base station operators, the
characteristics, quality and reliability of our base station products must
enable them to meet FCC technical standards. We may be subject to similar
regulations of the Canadian federal and provincial governments. Any failure to
meet such standards or delays by base station equipment manufacturers and
wireless base station operators in obtaining the necessary approvals or licenses
could have a material adverse effect on our business, operating results and
financial condition. In addition, HTS RF filters are on the U.S. Department of
Commerce's export regulation list. Therefore, exportation of such RF filters to
certain countries may be restricted or subject to export licenses.
We are subject to governmental labor, safety and discrimination laws
and regulations with substantial penalties for violations. In addition,
employees and others may bring suit against us for perceived violations of such
laws and regulations. Defense against such complaints could result in
significant legal costs for us. Although we
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endeavor to comply with all applicable laws and regulations, we may be the
subject of complaints in the future, which could have a material adverse effect
on our business, operating results and financial condition.
Environmental Liability
We use certain hazardous materials in our research, development and
manufacturing operations. As a result, we are subject to stringent federal,
state and local regulations governing the storage, use and disposal of such
materials. It is possible that current or future laws and regulations could
require us to make substantial expenditures for preventive or remedial action,
reduction of chemical exposure, or waste treatment or disposal. We believe we
are in material compliance with all environmental regulations and to date we
have not had to incur significant expenditures for preventive or remedial action
with respect to the use of hazardous materials. However, our operations,
business or assets could be materially and adversely affected by the
interpretation and enforcement of current or future environmental laws and
regulations. In addition, although we believe that our safety procedures for
handling and disposing of such materials comply with the standards prescribed by
state and federal regulations, there is the risk of accidental contamination or
injury from these materials. In the event of an accident, we could be held
liable for any damages that result. Furthermore, the use and disposal of
hazardous materials involves the risk that we could incur substantial
expenditures for such preventive or remedial actions. The liability in the event
of an accident or the costs of such actions could exceed the our resources or
otherwise have a material adverse effect on our business, results of operations
and financial condition. We carry property and workman's compensation insurances
in full force and effect through nationally known carriers which include
pollution cleanup or removal and medical claims for industrial incidents.
Litigation
We are party to several pending litigation matters, as
described in our quarterly report on Form 10-Q for the third quarter 2000. If
decided adversely, such litigation could have a material adverse effect on our
business, results of operations and financial condition.
As further described in our filings with the SEC, we are also
a nominal defendant in a lawsuit brought under Section 16(b) of the Securities
Exchange Act of 1934, which seeks to recover for our benefit alleged
"short-swing" profits realized by certain stockholders. The stockholder
defendants have denied all liability and are vigorously defending this lawsuit.
However, to the extent stockholders do not participate in this rights offering
and their interests in our company are therefore diluted, their economic
interest in any recovery for our benefit in this lawsuit would be
correspondingly reduced.
RISKS RELATED TO ACQUISITIONS AND BUSINESS EXPANSION
Risks Associated with Lockheed Martin Canada Transaction
We acquired the Adaptive Notch Filtering business unit of Lockheed
Martin Canada in December 2000. There are certain risks associated with this
transaction, including the risk that we will not be able to successfully
integrate the Adaptive Notch Filtering business into our existing business.
Risks Associated with Spectral Solutions Transaction
We acquired Spectral Solutions in August 2000. There are certain risks
associated with this transaction, including the risk that we will not be able to
successfully integrate the Spectral Solutions business. Spectral Solutions
develops and manufactures primarily "thin-film" HTS RF applications for the
wireless communications industry. We have concentrated our manufacturing and
marketing efforts to date on "thick-film" applications, and there can be no
assurance that we will successfully integrate thin-film technology into our
product offerings. There is also no assurance that we will be able to achieve
the synergies we believe should result from the acquisition of Spectral
Solutions.
Risks of future acquisitions
In the future, we may pursue acquisitions to obtain products, services
and technologies that we believe will complement or enhance our current product
or services offerings. At present, we have no agreements or other
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arrangements with respect to any acquisition. An acquisition may not produce the
revenue, earnings or business synergies that we anticipated and may cause us to
assume significant unforeseen liabilities, and an acquired product, service or
technology might not perform as we expected. If we pursue any acquisition, our
management could spend a significant amount of time and effort in identifying
and completing the acquisition and may be distracted from the operations of our
business. If we complete an acquisition, we would probably have to devote a
significant amount of management resources to integrating the acquired business
with our existing business, and that integration may not be successful.
To pay for an acquisition, we might use equity securities or cash,
including proceeds of this offering. Alternatively, we might borrow money from a
bank or other lender. If we use equity securities, our stockholders will
experience dilution of their ownership interests. If we use cash or debt
financing, our financial liquidity will be reduced.
International Operations
We are in discussions with several companies in non-U.S. markets, in
particular in Japan and other parts of Asia, to form joint ventures or other
marketing and consulting arrangements in order to increase sales of our products
in these markets. Results of these discussions include the Lockheed Martin
Transaction and the opening of a Japanese office. We believe that non-U.S.
markets could provide a substantial source of revenue in the future. However,
there are certain risks applicable to doing business in foreign markets that are
not applicable to companies doing business solely in the U.S. For example, we
will be subject to risks related to fluctuations in the exchange rate between
the U.S. dollar and foreign currencies in countries in which we do business. In
addition, we will be subject to the additional laws and regulations of these
foreign jurisdictions, some of which laws and regulations might be substantially
more restrictive than similar U.S. ones. Foreign jurisdictions may also provide
less patent protection than is available in the U.S., and we may be less able to
protect our intellectual property from misappropriation and infringement in
these foreign markets.
Risk Factors Related to this Rights Offering
There are risks related to this offering that could result in
substantial losses for investors who exercise their rights. These risks include:
Stock Market Risks
- Decline in Our Stock Price. The subscription price in this rights
offering may represent a discount to the market price of our
common stock on the date it is determined. The trading price of
our common stock may decline to below the subscription price. We
cannot assure you that the subscription price will remain below
any trading price for our common stock or that the trading price
of our common stock will not decline to below the subscription
price during or after this rights offering.
- Future Market Price of Our Stock. Future prices of our stock may
be affected positively or negatively by our future revenues and
earnings, changes in estimates by analysts and our ability to meet
such estimates, speculation in the trade or business press about
our company, and overall conditions affecting our businesses,
economic trends and the securities markets.
Procedural Risks
- No Revocation. You are not allowed to revoke or change your
exercise of rights after you send in your subscription forms and
payment. If we cancel this rights offering, we are obligated only
to refund payments actually received, without interest.
- Need to Act Promptly and Follow Subscription Instructions.
Stockholders who desire to purchase shares in this rights
offering must act promptly to ensure that all required forms and
payments are actually received by
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the subscription agent, LaSalle National Bank, prior to the
expiration date. If you fail to complete and sign the required
subscription forms, send an incorrect payment amount, or
otherwise fail to follow the subscription procedures that apply
to your desired transaction, LaSalle National Bank may, depending
on the circumstances, reject your subscription or accept it to
the extent of the payment received. Neither we nor LaSalle
National Bank undertakes to contact you concerning, or attempt to
correct, an incomplete or incorrect subscription form or payment.
We have the sole discretion to determine whether a subscription
exercise properly follows the subscription procedures.
- Risk of Personal Checks. Any personal check used to pay for shares
must clear prior to the expiration date, and the clearing process
may require five or more business days.
If you do not exercise your rights, your relative ownership interest in the
Company will be diluted
If you choose not to exercise your subscription rights in full, your
relative ownership interest in our company will be diluted. In addition, because
the subscription price represents a discount from the prevailing market price of
our common stock, stockholders who choose not to exercise their subscription
rights could experience dilution of their economic interest in our company.
Participation in the Offering of Our Major Stockholders
Our principal stockholders, who hold approximately 65% of our outstanding
stock, have indicated that they are supportive of this rights offering, subject
to their agreement with the pricing. However, these stockholders are under no
legal obligation to participate in this offering, and they could determine not
to participate or to participate by exercising their basic subscription
privilege only in part. If these stockholders do not participate or if they
participate only partially, we will not raise the funds that we expect from
this offering, and the funds that we raise may be insufficient to satisfy the
cash needs that we have identified in this prospectus.
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THE RIGHTS OFFERING
THE RIGHTS
As soon as practicable after the date of this prospectus, we are
distributing, at no charge, to holders of our common stock as of 5:00 p.m. (New
York City time) on the record date of ____ , 2001, ___ subscription rights for
every share of common stock owned at that time to purchase additional shares of
common stock. Each whole right entitles you to purchase one share of our common
stock for the subscription price. On January 4, 2001, the last reported sales
price for our common stock on the over-the-counter market was $2.19 per share.
We will not issue fractional rights. If the number of shares of common
stock you held on the record date would have resulted in your receipt of
fractional rights, the number of rights issued to you will be rounded down to
the nearest whole right. As a result, our stockholders that hold of record fewer
than ____ shares as of _________, 2001 may not be receiving rights.
SUBSCRIPTION PRICE
The subscription price for the basic subscription privilege is $ __ per
share, and the subscription price for the oversubscription privilege is $ __ per
share, payable in cash. All payments must be cleared on or before the expiration
date.
BASIC AND OVERSUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. You are entitled to purchase one share
of common stock at the subscription price for every whole right exercised.
Oversubscription Privilege. If you exercise your basic subscription
privilege in full, you may also subscribe for additional shares that other
stockholders have not purchased under their basic subscription privilege. If
there are not enough shares available to fill all such subscriptions for
additional shares, the available shares will be allocated pro rata based on the
number of shares each subscriber for additional shares has purchased under the
basic subscription privilege. We will not allocate to you more than the number
of shares you have actually subscribed and paid for.
You are not entitled to exercise the oversubscription privilege unless
you elect to fully exercise your basic subscription privilege. For this purpose,
you would only count the shares you own in your own name, and not other shares
that might, for example, be jointly held with a spouse, held as a custodian for
someone else, or held in an individual retirement account.
You can elect to exercise the oversubscription privilege only at the
same time you exercise your basic subscription privilege in full.
In exercising the oversubscription privilege, you must pay the full
subscription price for all the shares you are electing to purchase. If we do not
allocate to you all of the shares you have subscribed for under the
oversubscription privilege, we will refund by mail to you any payment you have
made for shares which are not available to issue to you, as soon as practicable
after completion of this rights offering. Interest will not be payable on
amounts refunded.
Banks, brokers and other nominees who exercise the oversubscription
privilege on behalf of beneficial owners of shares must report certain
information to LaSalle National Bank and us and record certain other information
received from each beneficial owner exercising rights. Generally, banks, brokers
and other nominees must report (1) the number of shares held on the record date
on behalf of each beneficial owner, (2) the number of rights as to which the
basic subscription privilege has been exercised on behalf of each beneficial
owner, (3) that each beneficial owner's basic subscription privilege held in the
same capacity has been exercised in full, and (4) the number of shares
subscribed for under the oversubscription privilege by each beneficial owner.
If you complete the portion of the subscription warrant to exercise the
oversubscription privilege, you will be representing and certifying that you
have fully exercised your basic subscription privilege as described above. You
must exercise your oversubscription privilege at the same time you exercise your
basic subscription privilege.
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REASON FOR THIS RIGHTS OFFERING
We are conducting this offering after exploring various alternatives
for raising funds to meet our capitalization needs. We have concluded that other
alternatives would likely not be successful in raising the desired funds on a
timely enough basis. Additionally, we chose to do this rights offering over
other financing alternatives in order to provide our stockholders with an
opportunity to participate in the issue of shares of common stock on a pro rata
basis. We will use the net proceeds of this offering for general corporate
purposes.
NO BOARD INVESTMENT RECOMMENDATION TO STOCKHOLDERS
Our Board of Directors does not make any recommendation to you about
whether you should exercise any rights. In making the decision to exercise or
not exercise your rights, you must consider your own best interests.
If you choose not to exercise your subscription rights in full, your
relative ownership interest of our company will be diluted. If you exercise
rights, you risk investment loss on new money invested. The trading price of our
common stock may decline below the subscription price. We cannot assure you that
the subscription price will remain below any trading price for our common stock
or that its trading price will not decline to below the subscription price
during or after this rights offering. For a summary of some of the risks a new
investment would entail, see "Risk Factors" beginning on page __ .
EXPIRATION TIME AND DATE
The rights may be exercised beginning as of the date of this prospectus
expire on ____, 2001, at 5:00 p.m., New York City time. We have the option of
extending the expiration date for any reason, although presently we do not
intend to do so. Rights not exercised by the expiration date will be null and
void.
In order to exercise rights in a timely manner, you must assure that
LaSalle National Bank actually receives, prior to expiration of the rights, the
properly executed and completed subscription warrant (or "Form of Notice of
Guaranteed Delivery"), together with full payment for all shares you wish to
purchase.
NO REVOCATION
You are not allowed to revoke or change your exercise of rights after
you send in your subscription forms and payment.
TRANSFERABILITY OF RIGHTS
The rights are not transferable and may be exercised only by the
persons to whom they are issued.
EXTENSION, WITHDRAWAL AND AMENDMENT
We have the option of extending the period for exercising your rights,
although we presently do not intend to do so.
We also reserve the right to withdraw or terminate this rights offering
at any time for any reason. In the event that this offering is withdrawn or
terminated, all funds received from subscriptions by rights holders will be
returned. Interest will not be payable on any returned funds.
We reserve the right to amend the terms of this rights offering. If we
make an amendment that we consider significant, we will (1) mail notice of the
amendment to all stockholders of record as of the record date, (2) extend the
expiration date by at least ten days and (3) offer all subscribers no less than
ten days to revoke any subscription already submitted. The extension of the
expiration date will not, in and of itself, be treated as a significant
amendment for these purposes.
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EXERCISE ONLY BY RECORD HOLDERS
We are sending a subscription warrant to each record holder along with
this prospectus and related instructions to evidence the rights. In order to
exercise rights, you must fill out and sign the subscription warrant and timely
deliver it with full payment for the shares to be purchased. Only the holders of
record of our common stock as of the close of business as of the record date may
exercise rights. You are a record holder for this purpose only if your name is
registered as a stockholder with our transfer agent, LaSalle National Bank, as
of the record date.
A depository bank, trust company or securities broker or dealer which
is a record holder for more than one beneficial owner of shares may divide or
consolidate subscription warrants to represent shares held as of the record date
by their beneficial owners, upon proper showing to LaSalle National Bank.
If you own shares held in a brokerage, bank or other custodial or
nominee account, in order to exercise your rights you must promptly send the
proper instruction form to the person holding your shares. Your broker, dealer,
depository or custodian bank or other person holding your shares is the record
holder of your shares and will have to act on your behalf in order for you to
exercise your rights. We have asked your broker, dealer or other nominee holders
of our stock to contact the beneficial owners to obtain instructions concerning
rights the beneficial owners it represents are entitled to exercise.
FOREIGN AND UNKNOWN ADDRESSES
We are not mailing subscription warrants to stockholders whose
addresses are outside the United States or who have an APO or FPO address. In
those cases, the subscription warrants will be held by LaSalle National Bank for
those stockholders. To exercise their rights, these stockholders must notify
LaSalle National Bank prior to 11:00 a.m., New York City time, on the third
business day prior to the expiration date.
RIGHT TO BLOCK EXERCISE DUE TO REGULATORY ISSUES
We reserve the right to refuse the exercise of rights by any holder of
rights who would, in our opinion, be required to obtain prior clearance or
approval from any state, federal or foreign regulatory authorities for the
exercise of rights or ownership of additional shares if, at the expiration date,
this clearance or approval has not been obtained. We are not undertaking to pay
any expenses incurred in seeking such clearance or approval.
We are not offering or selling, or soliciting any purchase of, shares
in any state or other jurisdiction in which this rights offering is not
permitted. We reserve the right to delay the commencement of this rights
offering in certain states or other jurisdictions if necessary to comply with
local laws. However, we may elect not to offer rights to residents of any state
or other jurisdiction whose law would require a change in this rights offering
in order to carry out this rights offering in such state or jurisdiction.
PROCEDURES TO EXERCISE RIGHTS
Please do not send subscription warrants or related forms to us. Please
send the properly completed and executed form of subscription warrant with full
payment to LaSalle National Bank, the subscription agent for this rights
offering.
You should read carefully the subscription warrant and related
instructions and forms which accompany this prospectus. You should call
Mackenzie Partners, the information agent for this rights offering, at the
address and telephone number listed below under the caption "The Rights
Offering--Questions and Assistance Concerning the Rights" promptly with any
questions you may have.
You may exercise your rights by delivering to LaSalle National Bank at
the address specified below and in the instructions accompanying this
prospectus, on or prior to the expiration date:
- Properly completed and executed subscription warrant(s) which
evidence your rights. See "The Rights Offering--Delivery of
Subscription Warrant" below for instructions on where to send
these.
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- Payment in full of the subscription price for each share of our
common stock you wish to purchase under the basic subscription
privilege and the oversubscription privilege. See "The Rights
Offering--Required Forms of Payment of Subscription Price" below
for payment instructions.
REQUIRED FORMS OF PAYMENT OF SUBSCRIPTION PRICE
The subscription price for the basic subscription privilege is $ ___
per share subscribed for, and the subscription price for the oversubscription
privilege is $ ___ per share, payable in cash. All payments must be CLEARED on
or before the expiration date.
If you exercise any rights, you must deliver to LaSalle National Bank
full payment in the form of:
- a personal check, certified or cashier's check or bank draft
drawn upon a U.S. bank, or a U.S. postal money order, payable to
"LaSalle National Bank, as Subscription Agent"; or
- a wire transfer of immediately available funds to the account
maintained by the LaSalle National Bank for this rights offering.
If you desire to make payment by wire transfer, you must contact
LaSalle National Bank, at __________ to receive a Wire
Authorization Form.
In order for you to timely exercise your rights, LaSalle National Bank
must actually receive the subscription price before the expiration date.
Funds paid by uncertified personal check may take at least five
business days to clear. Accordingly, if you pay the subscription price by means
of uncertified personal check, you should make payment sufficiently in advance
of the expiration date to ensure that your check actually clears and the payment
is received before such date. We are not responsible for any delay in payment by
you and suggest that you consider payment by means of certified or cashier's
check, money order or wire transfer of funds.
DELIVERY OF SUBSCRIPTION WARRANT AND OTHER DOCUMENTS
All subscription warrants, payments of the subscription price, nominee
holder certifications, notices of guaranteed delivery and DTC participant
oversubscription exercise forms, to the extent applicable to your exercise of
rights, must be delivered to LaSalle National Bank as follows:
By Hand: By First Class Mail: By Overnight
---------- ---------- ----------
---------- ---------- ----------
Eligible institutions may deliver "Notice of Guaranteed Delivery" forms
by facsimile transmission. LaSalle National Bank's facsimile number is
__________ . You should confirm receipt of all facsimiles by calling
______________ .
SPECIAL PROCEDURE UNDER "NOTICE OF GUARANTEED DELIVERY" FORM
If you wish to exercise rights but cannot ensure that LaSalle National
Bank will actually receive the executed subscription warrant before the
expiration date, you may alternatively exercise rights by causing all of the
following to occur within the time prescribed:
- Full payment must be received by LaSalle National Bank prior to
the expiration date for all of the shares of our common stock you
desire to purchase pursuant to the basic subscription privilege
and the oversubscription privilege.
- A properly executed "Notice of Guaranteed Delivery" substantially
in the form distributed by us with your subscription warrant and
accompanied by a Medallion Guaranty must be received by LaSalle
National Bank at or prior to the expiration date.
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- The "Notice of Guaranteed Delivery" form must be executed by
both you and one of the following: (1) a member firm of a
registered national securities exchange, (2) a member of the
National Association of Securities Dealers, Inc. (NASD), (3) a
commercial bank or trust company having an office or
correspondent in the United States, or (4) other eligible
guarantor institution qualified under a guarantee program
acceptable to LaSalle National Bank. The co-signing institution
must provide a Medallion Guaranty on the Notice of Guaranteed
Delivery guaranteeing that the subscription warrant will be
delivered to LaSalle National Bank within three business days
after the date of the form. Your Notice of Guaranteed Delivery
form must also provide other relevant details concerning the
intended exercise of your rights.
- The properly completed subscription warrant(s) with any required
signature guarantee must be received by LaSalle National Bank
within three business days following the date of the related
Notice of Guaranteed Delivery.
- If you are a nominee holder of rights, the "Nominee Holder
Certification" must also accompany the Notice of Guaranteed
Delivery.
A Notice of Guaranteed Delivery may be delivered to LaSalle National
Bank in the same manner as subscription warrants at the addresses set forth
above under the caption "The Rights Offering--Delivery of Subscription Warrant"
or by telegram or facsimile transmission.
Additional copies of the form of Notice of Guaranteed Delivery are
available upon request from Mackenzie Partners, whose address and telephone
number are set forth below under the caption "Questions and Assistance
Concerning the Rights."
INCOMPLETE FORMS; INSUFFICIENT PAYMENT
If you do not indicate on your subscription warrant the number of
rights being exercised, or do not forward sufficient payment for the number of
rights that you indicate are being exercised, then we will accept the
subscription forms and payment only for the maximum number of rights that may be
exercised based on the actual payment delivered. We will make this determination
as follows: (1) you will be deemed to have exercised your basic subscription
privilege to the full extent of the payment received, and (2) if any funds
remain, you will be deemed to have exercised your oversubscription privilege to
the extent of the remaining funds. We will return any payment not applied to the
purchase of shares under this rights offering as soon as practicable by mail.
Interest will not be payable on amounts refunded.
PROHIBITION ON FRACTIONAL SHARES
Each whole right entitles you to purchase one share of common stock at
the subscription price per share. We will accept any inadvertent subscription
indicating a purchase of fractional shares by rounding down to the nearest whole
share and, as soon as practicable, refunding without interest any payment
received for a fractional share.
INSTRUCTIONS TO NOMINEE HOLDERS
If you are a broker, trustee or depository for securities or other
nominee holder for beneficial owners of our common stock, we are requesting that
you contact such beneficial owners as soon as possible to obtain instructions
and related certifications concerning their rights. Our request to you is
further explained in the suggested form of letter of instructions from nominee
holders to beneficial owners accompanying this prospectus.
To the extent so instructed, nominee holders should complete
appropriate subscription warrants on behalf of beneficial owners and, in the
case of any exercise of the oversubscription privilege, the related form of
"Nominee Holder Certification," and submit them on a timely basis to LaSalle
National Bank with the proper payment.
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RISK OF LOSS ON DELIVERY OF SUBSCRIPTION WARRANT FORMS AND PAYMENTS
Each holder of rights bears all risk of the method of delivery to
LaSalle National Bank of subscription warrants and payments of the subscription
price.
If subscription warrants and payments are sent by mail, you are urged
to send these by registered mail, properly insured, with return receipt
requested, and to allow a sufficient number of days to ensure delivery to
LaSalle National Bank and clearance of payment prior to the expiration date.
Because uncertified personal checks may take at least five business
days to clear, you are strongly urged to pay, or arrange for payment, by means
of certified or cashier's check, money order or wire transfer of funds.
PROCEDURES FOR DTC PARTICIPANTS
If you are a DTC participant, we expect that your exercise of your
basic subscription privilege (but not your oversubscription privilege) may be
made through the facilities of The Depository Trust Company (commonly known as
DTC). If your rights are exercised as part of the basic subscription privilege
through DTC, we refer to them as "DTC Exercised Rights." If you hold DTC
Exercised Rights, you may exercise your oversubscription privilege by properly
executing and delivering to LaSalle National Bank, at or prior to the time the
rights expire, a DTC participant oversubscription exercise form and a nominee
holder certification and making payment of the appropriate subscription price
for the number of shares of common stock for which your oversubscription
privilege is to be exercised. Please call Mackenzie Partners at (800) 322-2885
(toll free) to obtain copies of the DTC oversubscription privilege form and the
nominee holder certification.
HOW PROCEDURAL AND OTHER QUESTIONS ARE RESOLVED
We are entitled to resolve all questions concerning the timeliness,
validity, form and eligibility of any exercise of rights. Our determination of
such questions will be final and binding. We, in our sole discretion, may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as we may determine, or reject the purported exercise of any
right because of any defect or irregularity.
Subscription warrants will not be considered received or accepted until
all irregularities have been waived or cured within such time as we determine in
our sole discretion. Neither we nor LaSalle National Bank have any duty to give
notification of any defect or irregularity in connection with the submission of
subscription warrants or any other required document. Neither we nor LaSalle
National Bank will incur any liability for failure to give such notification.
We reserve the right to reject any exercise of rights if the exercise
does not comply with the terms of this rights offering or is not in proper form
or if the exercise of rights would be unlawful or materially burdensome.
ISSUANCE OF STOCK CERTIFICATES
Stock certificates for shares purchased in this rights offering will be
issued as soon as practicable after the expiration date. LaSalle National Bank
will deliver subscription payments to us only after consummation of this rights
offering and the issuance of stock certificates to our stockholders that
exercised rights. Unless you instruct otherwise in your subscription warrant
form, shares purchased by the exercise of rights will be registered in the name
of the person exercising the rights.
QUESTIONS AND ASSISTANCE CONCERNING THE RIGHTS
You should direct any questions, requests for assistance concerning the
rights or requests for additional copies of this prospectus, forms of
instructions or the Notice of Guaranteed Delivery to:
Mackenzie Partners, Inc.
--------------------
--------------------
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USE OF PROCEEDS
We estimate that the net proceeds of this offering will be
approximately $________. We will use these proceeds for general corporate
purposes.
DETERMINATION OF SUBSCRIPTION PRICE
Our board of directors determined the offering price of the basic
subscription privilege and the oversubscription privilege after considering
a variety of factors, including:
- our need for capital in the near term;
- the likely cost of capital available from alternative sources, assuming
that such capital could be raised on a timely basis;
- the price at which our principal stockholders would be willing to
participate in the rights offering;
- the fact that all of our stockholders would have the opportunity to
participate in this offering on a pro-rata basis;
- historic and current trading prices for our common stock;
- recent prices at which we have issued our common stock; and
- general economic, business and market conditions.
The prices may be set at a discount to the actual trading price of our
common stock as of the date the price is set. This discount will be offered as
an incentive for our current stockholders to participate in this offering. The
offering prices do not necessarily bear any relationship to the book value of
our assets, past operations, cash flow, earnings, financial condition or any
other established criteria for value and should not be considered an indication
of our underlying value. In setting the offering prices our board did not seek
or obtain any valuation opinion from outside investment bankers or financial
advisors.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded on the over-the-counter bulletin board under
the symbol "ISCO.OB." On January 4, 2001, there were 309 record holders of the
common stock and the closing price of our common stock on the over-the-counter
market was $2.19. The following table sets forth the high and low closing prices
of our common stock on the over-the-counter market for the periods indicated.
High Low
---- ---
Year Ended December 31, 1998
First Quarter............................... $ 3.313 $ 0.875
Second Quarter.............................. $ 3.250 $ 1.250
Third Quarter............................... $ 1.938 $ 1.000
Fourth Quarter.............................. $ 1.656 $ 0.844
Year Ended December 31, 1999
First Quarter............................... $ 1.531 $ 0.938
Second Quarter.............................. $ 1.219 $ 0.531
Third Quarter............................... $ 1.063 $ 0.531
Fourth Quarter.............................. $ 1.969 $ 0.350
Year Ended December 31, 2000
First Quarter............................... $29.375 $ 1.219
Second Quarter.............................. $ 7.750 $ 2.813
Third Quarter............................... $ 4.938 $ 2.781
Fourth Quarter.............................. $ 3.813 $ 0.812
We have never paid cash dividends on our common stock and we do not
expect to pay any dividends on our common stock in the foreseeable future. We
intend to retain earnings for use in the operation and expansion of our
business.
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DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock consists of 250,000,000 shares of common
stock and 300,000 shares of preferred stock. As of January 1, 2001, there were
107,719,307 shares of our common stock and no shares of our preferred stock
outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders.
Subject to the rights of holders of any outstanding shares of our
preferred stock, the holders of outstanding shares of our common stock will be
entitled to the dividends and other distributions as may be declared from time
to time by our Board of Directors from legally available funds. Holders of our
common stock do not have preemptive, subscription, redemption or conversion
rights. Subject to the rights of holders of any shares of our outstanding
preferred stock, upon our liquidation, dissolution or winding up and after
payment of all prior claims, the holders of shares of our common stock
outstanding at that time will be entitled to receive pro rata all of our assets.
All shares of our common stock currently outstanding are, and all shares of our
common stock offered in this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Our Board of Directors, without further stockholder approval, may issue
our preferred stock in one or more series from time to time and fix or alter the
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions of the shares of each series. The rights,
preferences, limitations and restrictions of different series of our preferred
stock may differ with respect to dividend rates, amounts payable on liquidation,
voting rights, conversion rights, redemption provisions, sinking fund provisions
and other matters. Our Board of Directors may authorize the issuance of our
preferred stock which ranks senior to our common stock for the payment of
dividends and the distribution of assets on liquidation. In addition, our Board
of Directors can fix limitations and restrictions, if any, upon the payment of
dividends on our common stock to be effective while any shares of our preferred
stock are outstanding. Our Board of Directors, without stockholder approval, can
also issue our preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of common stock. Our issuance
of our preferred stock may delay, defer or prevent a change in our control. We
have no present intention to issue shares of our preferred stock.
We have designated 10,000 shares of our preferred stock as series A
junior participating preferred stock in connection with our stockholder rights
agreement. As of the date of this prospectus, we have not issued any shares of
our series A preferred stock. Please read "Item 5. Market for Registrant's
Common Equity and Related Stockholder Matters -- Rights Plan" in our Annual
Report on Form 10-K incorporated by reference, to this prospectus for a
description of our stockholder rights agreement and the series A preferred
stock.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income
tax consequences of this offering to the holders of our common stock upon the
distribution of rights and to the holders of the rights upon their exercise.
This summary is based on provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed Treasury regulations promulgated
thereunder and administrative and judicial interpretations thereof, all as of
the date hereof and all of which are subject to change, possibly on a
retroactive basis.
This summary is limited to our stockholders who have held our common
stock, and will hold the rights and any shares acquired upon the exercise of
rights, as "capital assets" within the meaning of section 1221 of the Code. This
summary does not address all of the tax consequences that may be relevant to
particular holders in light of their personal circumstances, or to holders who
are subject to special rules (such as banks and other financial institutions,
broker-dealers, real estate investment trusts, regulated investment companies,
insurance companies, tax-exempt organizations and non-U.S. individuals or
entities). In addition, this summary does not include any description of the tax
laws of any state, local or non-U.S. government that may be applicable to a
particular holder.
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM OF THIS
OFFERING, AS WELL AS THE TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
- DISTRIBUTION OF RIGHTS. A holder of our common stock will not
recognize taxable income upon distribution of the rights.
- LAPSE OF THE RIGHTS. A holder of the rights that allows the rights
to lapse will not recognize any gain or loss upon such lapse, and
no adjustment will be made to the basis of the common stock with
respect to which the rights are distributed.
- STOCKHOLDER TAX BASIS OF THE RIGHTS. Except as provided in the
following sentence, the tax basis of the rights received by a
holder of our common stock will be zero. If, however, either: (i)
the fair market value of the rights on the date the rights are
distributed is 15% or more of the fair market value (on the date
of distribution) of the shares of common stock with respect to
which the rights are distributed or (ii) the holder properly
elects, in the holder's U.S. federal income tax return for the
taxable year in which the holder receives the rights, to allocate
part of the tax basis of such common stock to the rights, then,
upon the exercise of the rights, the holder's tax basis in such
common stock will be allocated between such common stock and the
rights in proportion to the fair market values of each on the
date of distribution.
- EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF THE COMMON
STOCK. Holders of the rights will not recognize any gain or loss
upon the exercise of the rights. The tax basis of the shares of
our common stock acquired through the exercise of the rights will
be equal to the sum of the subscription price for the rights and
the holder's tax basis in the rights, if any. The holding period
for the shares acquired through the exercise of the rights will
begin on the date that the rights are exercised.
- SALE OF COMMON STOCK. The sale of common stock acquired through
the exercise of the rights will result in the recognition of
capital gain or loss to the holder in an amount equal to the
difference between the amount realized and the holder's tax basis
in the common stock sold. The gain or loss will be long-term
capital gain or loss if the common stock is held for more than one
year.
- INFORMATION REPORTING AND BACKUP WITHHOLDING. Information
reporting may apply to a holder that is not a corporation (or
other exempt recipient) to any dividend payments on common stock
received upon the exercise of the rights and to payments on the
proceeds of a sale of the common stock. A 31% backup withholding
tax may apply to these payments unless the holder provides a
correct taxpayer identification number and otherwise complies with
the backup withholding requirements.
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PLAN OF DISTRIBUTION
We are offering shares of our common stock directly to you pursuant to
this rights offering. We have not employed any brokers, dealers or underwriters
in connection with the solicitation or exercise of subscription privileges in
this rights offering and no commissions, fees or discounts will be paid in
connection with it. Certain of our officers and other employees may solicit
responses from you, but such officers and other employees will not receive any
commissions or compensation for such services other than their normal employment
compensation.
We will pay the fees and expenses of LaSalle National Bank, as
subscription agent, and Mackenzie Partners, as information agent, and also have
agreed to indemnify the subscription agent and the information agent from any
liability they may incur in connection with this rights offering.
On or about _____ , 2001, we will distribute the rights and copies of
this prospectus to the holder of record of our common stock on the record date.
If you wish to exercise your rights and subscribe for shares of our common
stock, you should follow the procedures described under "The Rights
Offering--Procedures to Exercise Rights." The subscription rights are
non-transferable.
Shares of our common stock received through the exercise of
subscription rights will be traded on the over-the-counter market under the
symbol "ISCO.OB" as our currently outstanding shares of common stock now trade.
LEGAL MATTERS
Sonnenschein Nath & Rosenthal will deliver an opinion to us about the
validity of the issuance of our shares of common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited (i) our financial
statements and schedule included in our Annual Report on Form 10-K for the year
ended December 31, 1999, as set forth in their report (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
our company's ability to continue as a going concern as described in Note 3 to
the financial statements), which is incorporated by reference in this
prospectus. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities offered hereby.
SEC Registration Fee................................................... $5,000
Subscription Agent Fee.................................................
Information Agent Fee..................................................
Printing and Engraving Costs...........................................
Legal Fees and Expenses................................................
Accounting Fees and Expenses...........................................
Miscellaneous..........................................................
Total............................................................... $
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of our Certificate of Incorporation provides that we shall
indemnify our directors to the full extent permitted by the General Corporation
Law of the State of Delaware and may indemnify our officers and employees to
such extent, except that we shall not be obligated to indemnify any such person
(1) with respect to proceedings, claims or actions initiated or brought
voluntarily by any such person and not by way of defense, or (2) for any amounts
paid in settlement of an action indemnified against by us without our prior
written consent. We have entered into indemnity agreements with each of our
directors and officers. These agreements may require us, among other things, to
indemnify such directors and officers against certain liabilities that may arise
by reason of their status or service as directors or officers, as the case may
be, to advance expenses to them as they are incurred, provided that they
undertake to repay the amount advanced if it is ultimately determined by a court
that they are not entitled to indemnification and to obtain directors' and
officers' liability insurance if available on reasonable terms.
In addition, Article 8 of our Certificate of Incorporation provides
that a director of ours shall not be personally liable to us or our stockholders
for monetary damages for breach of his or her fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to us
or our stockholders, (2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (3) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds or (iv) for any transaction from which the director
derives an improper personal benefit.
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware which provides for indemnification of directors and officers
in certain circumstances.
We have obtained a directors' and officers' liability insurance policy
which entitles us to be reimbursed for certain indemnity payments we are
required or permitted to make to our directors and officers.
40
Item 16. List of Exhibits
4.1 Form of Subscription Warrant to Subscribe for Shares of the Company's
common stock.*
4.2 Certificate of Incorporation of the Company, incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-3/A, filed
with the Securities and Exchange Commission on August 13, 1998,
Registration No. 333-56601.
4.3 By-Laws of the Company, incorporated by reference to Exhibit 3.2 to
Amendment No. 3 to the Company's Registration Statement on Form S-1,
filed with the SEC on October 26, 1993, Registration No. 33-67756.
4.4 Certificate of Amendment of Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.3 to Amendment No. 3 to the
Company's Registration Statement on Form S-1, filed with the SEC on
October 26, 1993, Registration No. 33-67756.
4.5 Certificate of Amendment of Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3/A, filed with the SEC on July 1, 1999, Registration
No. 333-77337.
4.6 Certificate of Amendment of Certificate of Incorporation of the Company
filed July 18, 2000, incorporated by reference to the Company's
registration statement on Form S-8, filed with the SEC on August 7, 2000.
4.7 Rights Agreement dated as of February 9, 1996 between the Company and
LaSalle National Trust, N.A., incorporated by reference to the Exhibit to
the Company's Registration Statement on Form 8-A, filed with the SEC on
February 12, 1996.
5.1 Opinion of Sonnenschein Nath & Rosenthal, outside counsel to the Company,
as to the legality of the securities being registered (including consent).*
23.1 Consent of Ernst & Young LLP, independent accountants.*
23.2 Consent of Sonnenschein Nath & Rosenthal, included in Exhibit 5.1 hereto.*
24.1 Powers of Attorney.
99.1 Form of Subscription Agent Agreement between the Company and LaSalle
National Bank.*
99.2 Form of Information Agent Agreement between the Company and Mackenzie
Partners, Inc.*
99.3 Form of Instructions as to Use of Subscription Warrant.*
99.4 Form of Notice of Guaranteed Delivery.*
99.5 Form of Letter to Stockholders of Record.*
99.6 Form of Letter from Brokers or Other Nominees to Beneficial Owners of
common stock.*
99.7 Form of Instructions by Beneficial Owners to Brokers or Other Nominees.*
99.8 Form of Letter to Dealers and Other Nominees.*
-----------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof;
(b) to supplement the prospectus and, after the expiration of
the offering period, to set forth the results of the
subscription offer;
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41
(c) insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue;
(d) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form
of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective; and
(e) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mt. Prospect, State of Illinois on the 5th day of
January, 2001.
ILLINOIS SUPERCONDUCTOR CORPORATION
By: /s/ GEORGE M. CALHOUN
---------------------
Name: George M. Calhoun
Title: Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned does
hereby make, constitute and appoint George M. Calhoun his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
this registration statement of the Company on Form S-3 (including all
pre-effective and post-effective amendments thereto and all registration
statements filed pursuant to Rule 426(b) which incorporate this registration
statement by reference), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, giving and
granting unto said attorney-in-fact and agents full power and authority to do
and perform each and every act and thing whatsoever necessary or appropriate to
be done in and about the premises, as fully to all intents as he or she might or
could do if personally present at the doing thereof, with full power of
substitution and resubstitution, hereby ratifying and confirming all that his or
her said attorney-in-fact and agents or substitutes may or shall lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below.
SIGNATURE TITLE DATE
--------- ----- ---
/s/ GEORGE M. CALHOUN Chairman and Chief Executive Officer January 5, 2001
---------------------- (Principal Executive Officer and Director)
George M. Calhoun
/s/ CHARLES F. WILLES Chief Financial Officer January 5, 2001
---------------------- (Principal Financial and Accounting Officer)
Charles F. Willes
/s/ MARK D. BRODSKY Director January 5, 2001
----------------------
Mark D. Brodsky
/s/ HOWARD S. HOFFMANN Director January 5, 2001
----------------------
Howard S. Hoffmann
/s/ SAMUEL A. PERLMAN Director January 5, 2001
----------------------
Samuel A. Perlman
/s/ THOMAS L. POWERS Director January 5, 2001
----------------------
Thomas L. Powers
/s/ RICHARD N. HERRING Director January 5, 2001
----------------------
Richard N. Herring
/s/ DANIEL T. SPOOR Director January 5, 2001
----------------------
Daniel T. Spoor
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