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EXHIBIT 10-A
Xxxxxxx Associates, L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Westgate International, L.P.
c/o Stonington Management Corporation
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Alexander Finance, L.P.
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
November 5, 1999
Illinois Superconductor Corporation
000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxx, Xxxxxxxx 00000
RE: ADDITIONAL INVESTMENT
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement, dated
as of March 31, 1999, by and among you (the "Company"), the undersigned, and
State Farm Mutual Automobile Insurance Company ("State Farm") (the "6% Note
Agreement") and the Notes and Warrants issued thereunder, (the "6% Notes" and
"6% Warrants," respectively) and the Registration Rights Agreement, dated as of
March 31, 1999, by and among the Company, the undersigned and State Farm (the
"Registration Rights Agreement").
1. Additional Investment.
(a) The undersigned, concurrently with the execution and delivery of this
Agreement, hereby purchase from the Company: (i) new notes in the aggregate
principal amount of $1,000,000, maturing on January 2, 2001 ("New Notes")
and bearing interest thereon at the annual rate of 10%, payable in kind in
the manner provided in the 6% Notes and (ii) new warrants to purchase until
the fifth anniversary of the date hereof, 400,000 shares of the Company's
common stock par value $.01 per share ("Common Stock") at an exercise price
of $0.25 per share, subject to adjustment as set forth therein (the "New
Warrants"). The New Notes shall be convertible into shares of Common Stock
at the conversion price of $0.25, subject to adjustment as set forth
therein. The amount of New Notes and New Warrants purchased by each of the
undersigned, and the Purchase Price payable concurrently with each purchase,
is set forth on Schedule I hereto.
(b) Except as set forth herein, the New Notes and New Warrants shall contain
the same terms as the 6% Notes and 6% Warrants, respectively, as modified by
this Agreement. The New Notes and New
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Warrants are deemed to be outstanding on the date hereof for all purposes.
At the request of any of the undersigned, but subject to any prior issuance,
transfer, conversion, redemption or exercise by the holders of New Notes and
New Warrants, the Company promptly shall issue to such person in physical
form the New Notes and New Warrants purchased by such person, which shall be
dated as of the date hereof. At the request of any of the undersigned, the
Company promptly shall issue to such person in physical form the Notes and
Warrants, in each case as defined below (other than the New Notes and New
Warrants) held by such person, at the time of such request, reflecting the
amendments set forth in this Agreement, but only upon delivery for
cancellation to the Company of such Notes and Warrants (or in lieu thereof
an affidavit from such person of lost note or warrant containing an
agreement reasonably satisfactory to the Company indemnifying the Company
from any loss incurred by it in connection with such lost Notes or
Warrants).
(c) Notwithstanding anything herein or in the 6% Note Agreement, the 2% Note
Agreement (as defined below), New Notes, 6% Notes, Amended 2% Notes (as
defined in the 6% Note Agreement) or the 2% Notes (as defined below) to the
contrary, the Company shall be entitled to pay pay-in-kind interest rather
than cash interest on such notes through the one year anniversary of the
date hereof and thereafter to the extent permitted by the applicable
documents. In addition, the Company and the undersigned agree that the
market quotation system on which Common Stock is currently quoted shall be
deemed "an exchange or quotation system" for purposes of clause (iii) in
Section 3(a)(ii) of each of the New Notes, 6% Notes, Amended 2% Notes and 2%
Notes.
2. Security. The Company's obligation to the undersigned under the New Notes,
the 6% Notes, the Amended 2% Notes (as defined in the 6% Note Agreement) and
the 2% Notes issued pursuant to the securities purchase agreement dated as
of May 15, 1998, by and among the Company, the undersigned, State Farm,
Spring Point Partners, LP and Spring Point Offshore Fund (the "2% Note
Agreement") and not amended pursuant to the 6% Note Agreement (the "2%
Notes") and any notes issued pursuant to the option in Section 7 hereof
shall be secured by a first lien on all the assets of the Company (except in
the case of accounts receivable and inventory, for which a lien junior to
the secured party under the Factoring Agreement, dated as of October 6, 1999
by and between the Company and Franklin Capital Corporation, will be issued)
pursuant to the terms of a Security Agreement, dated as of the date hereof
(the "Security Agreement"), by and among the Company and the undersigned.
3. Adjustment to Conversion and Exercise Prices. In consideration of the
purchase price paid by the undersigned pursuant to Section 1(a) (which the
Company and the undersigned agree shall be the sole consideration), (i) the
conversion prices of all of the existing 6% Notes, Amended 2% Notes and 2%
Notes held by the undersigned are hereby reset to $0.25, subject to further
adjustment as set forth therein and (ii) the exercise prices of the 6% Note
Warrants, Amended 2% Note Warrants and 2% Note Warrants (as such terms are
defined in the 6% Note Agreement) (the "Note Warrants") held by the
undersigned are hereby reset to $0.25, subject to further adjustment as set
forth therein and (iii) the exercise price of any warrants to purchase
Common Stock issued to the undersigned on October 29, 1997 and expiring on
October 29, 2001 (the "Series G Warrants" and together with the Note
Warrants and the New Warrants, the "Warrants") is hereby reset to $0.25,
subject to further adjustment as forth therein.
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4. Board Designations.
(a) Not later than one business day following the closing of the sale and
issuance of the New Notes and New Warrants and the amendment of the 6%
Notes, Amended 2% Notes, 2% Notes and Note Warrants, pursuant to the terms
of the Agreement, the Company shall reconstitute its Board of Directors such
that Xxxxxx Xxxxxxx will leave the Board and Xxxx Xxxxxxx, Xxxxxx Xxxxxxx
and Xxxxxx Xxxxxxx will be added to the Board; provided that if at the time
of reconstitution of the Board, there have been additional departures from
the Board, if necessary to avoid the obligation to file disclosure documents
under Rule 14f-1 under the Exchange Act (as defined below) with respect to
the undersigned's designees, the undersigned will appropriately make
deletions from its list of designees.
(b) Thereafter, for so long as any of the undersigned shall hold any
outstanding New Notes, 6% Notes, Amended 2% Notes or 2% Notes, notes issued
pursuant to Section 7 hereof (the "Notes"), if (i) one of the aforementioned
persons designated to be added to the Company's Board of Directors resigns,
dies or becomes incapacitated, and the Company does not within one week fill
such vacancy with a person selected or approved by the holders of a majority
in principal amount of Notes held by the undersigned; or (ii) at any time
the holders of a majority in principal amount of Notes held by the
undersigned indicate to the Company their selections to be members of the
Company's Board of Directors (which selections may constitute up to
two-thirds of the Board) and the Company shall fail to take such actions
(whether by designating the undersigned's selections to vacancies (created
through resignations, removals or if necessary by increasing the size of the
Board), designating the undersigned's selections as the Company's candidates
at the Company's annual meeting, or otherwise) as shall be necessary to
place the undersigned's selections on the Board within one week of request;
or (iii) the stockholders of the Company shall not have voted in favor of
the selections of the undersigned at the next meeting of stockholders at
which directors are elected, then a "Business Combination" for purposes of
the Notes shall immediately be deemed to have occurred and the undersigned
shall have the rights to redeem their Notes pursuant to the terms contained
therein in such event. The foregoing clause (ii) is not intended to permit
the holders of Notes to designate the size of the Company's Board of
Directors, but rather to determine the composition of up to two thirds of
the Board. The obligations of the Company under this Section 4(b) are
subject to the deferral set forth below, to permit compliance with Rule
14f-1 promulgated under the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"). Where Rule 14f-1 applies, the Company shall file the
required information with the Securities and Exchange Commission (and send
such information to stockholders of record) within one week of the request
by the undersigned to add a person(s) to the Board and the provision of
required information by the undersigned with respect to such person(s);
provided that such required information shall be filed with the Securities
and Exchange Commission within four weeks of the request by the undersigned
if such request for additions to the Board is made between December 20, 1999
and January 31, 2000. In addition, the undersigned's selection of a person
to be a member of the Board of Directors is subject to the Board's right to
refuse to appoint a person who the Board deems, in its reasonable judgment
to be not acceptable and so informs the undersigned within one week of being
notified by undersigned of its desire that such person be appointed;
provided that it is agreed that certain current employees of Xxxxxxx
Associates, L.P., the names and biographical information of whom have been
supplied to the Board, are acceptable to the Board. The undersigned hereby
agree, solely with respect to this
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provision, to waive the restriction on increasing the size of the Board of
Directors referenced to in Section 3.12 the 6% Note Agreement and
corresponding provisions relating to the 2% Notes and Amended 2% Notes.
5. Registration of Additional Securities. The Company hereby agrees that for
purposes of the Registration Rights Agreement the shares of Common Stock
issuable upon conversion of the New Notes and exercise of the New Warrants
and the additional shares of Common Stock issuable due to the resetting of
conversion and exercise prices pursuant to Section 3 above, shall be deemed
"Registrable Securities"; provided that the Company shall not be obligated
thereunder to file a new registration statement, seek listing of the new
shares of Common Stock or seek "blue sky" qualifications thereof, until the
first year anniversary of this Agreement. Thereafter, the time frames and
schedules for remedies set forth in the Registration Right Agreement shall
apply. Notwithstanding the foregoing, and without limiting any existing
rights under applicable registration rights agreements, the Company agrees
to keep effective and, where necessary, amend or supplement, any existing
registration statement covering Registrable Securities issued or issuable
upon (i) conversion of the Notes of (ii) exercise of the Warrants.
6. Payment of Legal Fees. Concurrently with the execution of this Agreement,
the Company is tendering to the undersigned (which amount is being deducted
from the proceeds of the sale of New Notes and New Warrants hereunder) the
sum of $52,263.27, constituting the outstanding legal fees and disbursements
incurred by the undersigned in connection with (i) the 6% Note Agreement and
the transaction contemplated thereunder and (ii) any other matters (other
than matters under this Agreement) under which the Company is bound to
reimburse the legal fees and expenses of the undersigned. The Company agrees
to reimburse the undersigned within 2 business days of presentation of an
invoice for all legal fees and disbursements incurred by the undersigned in
connection with the negotiation, preparation and execution of this
Agreement, the Security Agreement and the transactions contemplated
hereunder and thereunder.
7. Option to Make Additional Investments. The undersigned each shall have the
right on a pro rata basis, or as otherwise agreed to by the undersigned, at
its option, at any time prior to the date nine months after the date hereof,
to make additional investments in the Company, up to the undersigned's
pro-rata share of an additional aggregate amount of $5 million, on the terms
set forth in this Agreement, provided that such terms shall be subject to
adjustment after the date hereof pursuant to any adjustment provisions
contained in the New Notes and New Warrants. The pro-rata share shall be
determined by dividing the undersigned's purchase price hereunder, as set
forth on Schedule I, by $1 million. Without limiting the generality of the
foregoing, any additional notes and warrants issued in connection with this
option shall have the maturity and expiration dates set forth in this
Agreement, and shall have the conversion and exercise prices then applicable
to the New Notes and New Warrants and upon their issuance, such notes and
warrants shall become "Notes" and "Warrants" for purposes of this Agreement.
8. Representation and Warranties of the Company. The Company hereby restates to
the undersigned, as of the date hereof, the representations and warranties
set forth in Section 2.1 of the 6% Note Agreement, except as set forth on
Schedule II hereto. For purposes of the foregoing restatement of
representations, references to the term "Transaction Documents" shall refer
to this Agreement, the Security Agreement, the New Notes and the New
Warrants. The provision of
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Section 2.1(j), 2.1(o) and 2.1(r) shall refer to the issuance of the New
Notes and New Warrants and the amendment of the Notes and Warrants held by
the undersigned. The date in Section 2.1(s) shall be deemed to refer to
October 31, 1999. Also set forth on Schedule II is all of the Company's
Intellectual Property (as defined in the 6% Note Agreement).
9. Representation and Warranties of the Undersigned.
(a) With respect to their purchase of the New Notes and New Warrants and
this Agreement, the undersigned each make the representations set forth in
2.2(a) through (h) as of the date hereof and acknowledge that the provisions
of Section 3.1 apply to the New Notes and New Warrants.
(b) Xxxxxxx Associates, LP hereby represents that it is the holder of at
least 25.2% of the 6% Notes, at least 23.4% of the Amended 2% Notes and at
least 22.9% of the notes issued under the 2% Note Agreement ("Original 2%
Notes); Westgate International, LP hereby represents that it is the holder
of at least 25.2% of the 6% Notes, at least 23.4% of the Amended 2% Notes
and at least 22.9% of the Original 2% Notes; and Alexander Finance, LP
hereby represents that it is the holder of at least 40.40% of the 6% Notes,
at least 40.4% of the Amended 2% Notes and at least 38.65% of the Original
2% Notes.
10. Legal Opinion. Concurrently with the execution and delivery of this
Agreement, the Company is causing its outside counsel to deliver a legal
opinion, to the undersigned, regarding the authorization, validity and
enforceability of this Agreement, the New Notes, New Warrants and Security
Agreement and the validity of the lien granted pursuant to the Security
Agreement.
11. Additional Limitations on Conversion and Exercise. The limitations on
conversion of the Notes and exercise of the Warrants set forth on Schedule
III shall hereafter apply to the Notes and Warrants held by the undersigned.
These provisions supersede any prior provisions pertaining to the Notes and
Warrants with respect to the percentage ownership of the holders thereof.
12. Amendment to Charter. At the Company's next annual meeting of stockholders
which meeting shall be held prior to June 30, 2000, the Company shall amend
its Certificate of Incorporation (the "Charter Amendment") so as to
authorize the additional shares of Common Stock issuable upon conversion of
the Notes and exercise of the Warrants as a result of this Agreement and any
further financings effected pursuant to Section 7 hereof. If, until the
earlier of the filing of the Charter Amendment or June 30, 2000, the Company
is unable to honor conversion notices with respect to Notes of the
undersigned because the Company lacks sufficient authorized capital, but
provided that the Company has reserved all shares of Common Stock available
for such purpose on the date hereof for issuance upon conversion of the
Notes and exercise of the Warrants, then the undersigned shall not have the
right to redeem their Notes on account of such failure, except that such
exception shall not apply in the case of: (i) any right to redeem Notes for
any other reason, including, without limitation, a "Business Combination"
(as defined in the Notes); or (ii) a tender offer, whether by the Company or
a third party, for 5% or more of the outstanding Common Stock. In the event
that the Company shall fail to comply with the foregoing covenant to file
the Charter Amendment, then the undersigned shall have the right to have
their Notes redeemed in the manner provided in the Notes where a conversion
notice has not been honored in a timely fashion. Notwithstanding anything to
the contrary contained herein or in the Notes and Warrants, unless
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and until the foregoing Charter Amendment is effected, and except with
respect to determining the redemption rights referred to above, the Notes
and Warrants shall not represent a right in the aggregate to acquire
(including with respect to in-kind interest payments) more than the number
of shares of Common Stock equal to the number of shares of Common Stock
currently authorized by the Company's Certificate of Incorporation reduced
by the sum of the number of shares and options issued and outstanding on the
date hereof and the number of shares that the holders of Notes and Warrants
already have the right to acquire. Until the Charter Amendment is filed, the
shares of Common Stock not issued and outstanding and not reserved for the
benefit of persons other than the undersigned shall be allocated among the
undersigned on a pro-rata basis in connection with the conversion of Notes
and the exercise of Warrants.
13. Events of Default. With respect to the Notes, the following shall be added
to the "Events of Default" thereof: (a) failure by the Company for ten (10)
days after notice to it to comply with any provisions of this Agreement or
the Security Agreement; (b) a breach of any representations and warranties
made by the Company in this Agreement or the Security Agreement. Without
limiting the generality of Section 1(b) hereof, any Event of Default under
the Notes other than the New Notes shall be an Event of Default under the
New Notes.
14. Miscellaneous.
(a) In case of any conflict between the terms of this Agreement and the
terms of any other document governing the Notes or the Warrants, the terms
of this Agreement shall govern.
(b) As modified herein, the documents relating to the Notes and Warrants
remain in full force and effect.
(c) Except where inapplicable or superseded, the terms of Article V of the
6% Note Agreement (Miscellaneous) shall apply mutatis mutandis to this
Agreement.
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Please indicate your acceptance and agreement of the terms contained herein
by countersigning this Agreement and returning a signed copy to the undersigned.
Sincerely,
XXXXXXX ASSOCIATES, L.P.
By:
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WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
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ALEXANDER FINANCE, L.P.
By:
----------------------------------
AGREED TO AND ACCEPTED
ILLINOIS SUPERCONDUCTOR CORPORATION
By:
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SCHEDULE I
CREDIT AGAINST PRINCIPAL AMOUNT OF AMOUNT OF
PURCHASER PURCHASE PRICE PURCHASE PRICE NEW NOTES PURCHASED NEW WARRANTS PURCHASED
--------- -------------- -------------- ------------------- ----------------------
Xxxxxxx Associates, L.P. $277,778 $ 26,131.64 $277,778 111,111
Westgate International, L.P. $277,778 $ 26,131.63 $277,778 111,111
Alexander Finance, LP $444,444 $444,444 177,778
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SCHEDULE III
LIMITATION ON CONVERSION AND EXERCISE.
(i) Notwithstanding anything to the contrary herein, the Holder may not
use its ability to exercise this [NOTE] [WARRANT] if such exercise would result
in the total number of shares of Common Stock deemed beneficially owned by the
Holder (other than by virtue of the ownership of [THIS WARRANT] [THIS NOTE] or
ownership of other securities that have limitations on a holder's right to
convert or exercise similar to those limitations set forth herein), together
with all shares of Common Stock deemed beneficially owned by the Holder's
Affiliates (as defined in applicable purchase agreement) that would be
aggregated for purposes of determining a group under Section 13(d) of the
Exchange Act, exceeding 9.99% of the total issued and outstanding shares of the
Common Stock (the "Restricted Ownership Percentage"); provided that (w) the
Holder shall have the right, at any time and from time to time, to reduce the
Restricted Ownership Percentage applicable to it immediately upon written notice
to the Company, (x) the Holder shall have the right to increase its Restricted
Ownership Percentage and otherwise waive in whole or in part the restrictions of
this provision upon 61 days' prior notice to the Company and immediately upon
written notice to the Company in the event of an occurrence or notice of an
intended or pending Business Combination (as defined in the [APPLICABLE NOTE])
or the delivery by the Company of a notice of a redemption of the [APPLICABLE
NOTE] and, (y) unless such right is waived by the Holder, the Holder can make
subsequent adjustments pursuant to (w) or (x) any number of times (which
adjustments shall each be effective upon 61 days' prior written notice or
immediately in the event of a reduction in the Restricted Ownership Percentage
or in the event of a Business Combination or redemption). The delivery of an
exercise notice by the Holder shall be deemed a representation by the Holder
that it is in compliance with this paragraph.
(ii) Each time (a "Covenant Time") the Holder delivers an [EXERCISE
NOTICE] [CONVERSION NOTICE] pursuant to this [WARRANT] [NOTE] to acquire shares
of Common Stock (the "Triggering Shares"), the Holder will be deemed to covenant
on its own behalf and on behalf of such Holder's Affiliates that it will not,
during the balance of the day on which such [EXERCISE NOTICE] [CONVERSION
NOTICE] is delivered, and during the 61-day period beginning immediately after
that day, acquire additional shares of Common Stock pursuant to
rights-to-acquire existing at that Covenant Time, if the aggregate amount of
such additional shares so acquired (without reducing that amount by any
dispositions) would exceed (i) the Restricted Ownership Percentage of the number
of shares of Common Stock outstanding at that Covenant Time (including the
Triggering Shares) minus (ii) the number of shares of Common Stock actually
owned by the Holder and the Holder's Affiliates at that Covenant Time
(regardless of how or when acquired, and including the Triggering Shares). At
each Covenant Time, the Holder shall be deemed to waive any right it would
otherwise have to acquire shares of Common Stock to the extent that such
acquisition would violate any covenant given by the Holder under this paragraph.
The covenant to be given pursuant to this paragraph will be given at every
Covenant Time and shall be calculated based upon the circumstances then in
effect. The making of a covenant at one Covenant Time shall not terminate or
modify any prior covenants. The Holder may therefore from time to time be
subject to multiple such covenants, each one having been made at a different
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Covenant Time, and some possibly being more restrictive than others. The Holder
at any time must comply with all such covenants then in effect. Notwithstanding
the foregoing, this paragraph (ii) may be waived by Holder upon 61 days' prior
written notice to the Company.
(iii) The foregoing provisions shall only apply during those periods
when the Holder shall not have the status of a "director" or "director by
deputization" of the Company for purposes of Section 16 under the Exchange Act.
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