Common Stock Purchase Agreement





Exhibit 10.1


COMMON STOCK PURCHASE AGREEMENT


            This COMMON STOCK PURCHASE AGREEMENT (this “Agreement”) is dated as of
March 21, 2001 by and between Illinois Superconductor Corporation, a Delaware
corporation (the “Company”), and Paul Revere Capital Partners, Ltd., a British
Virgin Islands corporation (the “Purchaser”).


            WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to
$20,000,000 of Common Stock and the Warrant; and


            NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:


ARTICLE 1


PURCHASE AND SALE OF COMMON STOCK


            Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company shall sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of, $20,000,000 of the Common Stock and the Warrant, subject to the
terms and conditions herein.


            Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchaser agrees to purchase that number of the Shares
to be issued in connection with each Draw Down. The delivery of executed
documents under this Agreement and the other agreements referred to herein and
the payment of the fees set forth in Article I of the Escrow Agreement,
attached as Exhibit B hereto, (the “Initial Closing”) shall take place at the
offices of Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York
10177 (i) within five (5) days from the date hereof, or (ii) such other time
and place or on such date as the Purchaser and the Company may agree upon (the
“Initial Closing Date”). Each party shall deliver all documents, instruments
and writings required to be delivered by such party pursuant to this Agreement
at or prior to the Initial Closing.



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ARTICLE 2


REPRESENTATIONS AND WARRANTIES


            Section 2.1. Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser,
except as disclosed in SEC Documents:



	 		 	            (a)  Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate
authority to own, lease and operate its properties and assets and to
carry on its business as now being conducted. The Company does not own
more than fifty percent (50%) of or control any other business entity
except as set forth in the SEC Documents. The Company is duly qualified
to do business and is in good standing as a foreign corporation in every
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which
the failure so to qualify would not have a Material Adverse Effect.
	 
	 		 	            (b)  Authorization, Enforcement. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under the Transaction Documents and to issue the Draw Down
Shares pursuant to their respective terms, (ii) the execution and
delivery of the Transaction Documents by the Company and the consummation
by it of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, other than approval of each Draw Down by the Board of Directors
or a pricing committee thereof, and (iii) the Transaction Documents have
been duly executed and delivered by the Company and at the Initial
Closing shall constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of,
creditors’ rights and remedies or by other equitable principles of
general application. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
issuance of the Draw Down Shares.
	 
	 		 	            (c)  Capitalization. The authorized capital stock of the Company
consists of 250,000,000 shares of Common Stock of which 107,719,307
shares are issued and outstanding and 300,000 shares of preferred stock,
none of which are issued and outstanding. All of the outstanding shares
of the Company’s Common Stock have been duly and validly authorized and
are fully paid and non-assessable. Except as set forth in this Agreement
or on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company. Furthermore, except as
set forth in this Agreement or on Schedule 2.1(c), there are no



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	 	 	 	contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the capital
stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except as set forth on Schedule
2.1(c), the Company is not a party to any agreement granting registration
rights to any person with respect to any of its equity or debt
securities. Except as set forth on Schedule 2.1(c), the Company is not a
party to, and it has no knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of the Company.
Except as set forth on Schedule 2.1(c) hereto, the offer and sale of all
capital stock, convertible securities, rights, warrants, or options of
the Company issued prior to the date hereof complied with all applicable
federal and state securities laws, and no stockholder has a right of
rescission or damages with respect thereto which would have a Material
Adverse Effect on the Company’s financial condition or operating results.
The Company has made available to the Purchaser true and correct copies
of the Company’s articles or certificate of incorporation as in effect on
the date hereof (the “Charter”), and the Company’s bylaws as in effect on
the date hereof (the “Bylaws”). The Company has not received any notice
from the Principal Market questioning or threatening the continued
inclusion of the Common Stock on such market.
	 
	 		 	            (d)  [INTENTIONALLY DELETED]
	 
	 		 	            (e)  No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not and will not, (i) violate any
provision of the Company’s Charter or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party, (iii) create or
impose a lien, charge or encumbrance on any property of the Company under
any agreement or any commitment to which the Company is a party or by
which the Company is bound or by which any of its respective properties
or assets are bound, or (iv) result in a violation of any federal, state,
local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries are bound or
affected, except, in all cases, for such conflicts, defaults,
termination, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse
Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or
in the aggregate do not and will not have a Material Adverse Effect. The
Company is not required under any federal law, rule or regulation of the
United States, or any law, rule or regulation of a state or locality
thereof to obtain any consent, authorization or order of, or make any
filing or registration with, any court or United States governmental
agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, or issue and sell the Shares in
accordance with the terms hereof (other than any filings which may be
required to be made by the Company with the SEC, the Principal Market or
U.S. state securities





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	 		 	administrators subsequent to the date hereof); provided that, for purpose
of the representation made in this sentence, the Company is assuming and
relying upon the accuracy of the relevant representations and agreements
of the Purchaser herein.
	 
	 		 	            (f)  SEC
Documents, Financial Statements.





	 		 	                  (i)  The Company meets the requirements for use of Form S-3
under the Securities Act in connection with the offering pursuant
to the Registration Statement. The Registration Statement has
remained in effect since it was originally declared effective by
the SEC on January 26, 2001. The Registration Statement covers,
among other securities, the registration under the Securities Act
of the offering and sale of the Shares to the Purchaser and will be
amended to cover the Plan of Distribution of the Purchaser, and
upon such amendment, the Registration Statement and the sale of the
Shares hereunder will meet the requirements set forth in Rules
415(a)(1)(x) and (a)(4).
	 
	 		 	                  (ii)  The Company has not distributed and, prior to each
Settlement Date, shall not have distributed, any offering material
in connection with the offering and sale of the Shares other than
the Registration Statement, the Prospectus or other materials, if
any, permitted by the Securities Act.
	 
	 		 	                  (iii)  The Common Stock of the Company is registered pursuant
to Section 12(b) or Section 12(g) of the Exchange Act, and, except
as disclosed on Schedule 2.1(f) hereto, the Company has timely
filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant
to Section 13(a) or 15(d) of the Exchange Act at least since
December 31, 1998. The Company has not provided to the Purchaser
any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but
which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their
respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act or the
Securities Act, as applicable, and the rules and regulations of the
SEC promulgated thereunder applicable to such documents, and, as of
their respective filing dates, none of the SEC Documents contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of
the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable
rules and regulations with respect thereto. Such financial
statements have been prepared by management in accordance with GAAP
applied on a consistent basis during the periods involved (except
(i) as may be otherwise indicated in such financial statements or
the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly



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	 		 	present in all material respects the financial position of the
Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit adjustments). Ernst & Young LLP has audited the annual
financial statements and reviewed the quarterly financial
statements for all periods up to and including September 30, 2000,
and are independent public accountants as required by Regulation
S-X of the Securities Act. Grant Thornton LLP was engaged by the
Company on December 7, 2000 to audit the annual financial
statements for the year ended December 31, 2000 and review the
quarterly financial statements for periods thereafter, and are
independent public accountants as required by Regulation S-X of the
Securities Act.





	 		 	            (g)  Subsidiaries. The SEC Documents or Schedule 2.1(g) hereto sets
forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of the Company’s
ownership of the outstanding stock or other interests of such subsidiary.
For the purposes of this Agreement, “subsidiary” shall mean any
corporation or other entity of which at least a majority of the
securities or other ownership interests having ordinary voting power
(absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of
the issued and outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding
upon any subsidiary for the purchase or acquisition of any shares of
capital stock of any subsidiary or any other securities convertible into,
exchangeable for or evidencing the rights to subscribe for any shares of
such capital stock. Neither the Company nor any subsidiary is subject to
any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of the capital stock of any subsidiary or
any convertible securities, rights, warrants or options of the type
described in the preceding sentence. Neither the Company nor any
subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of
any subsidiary.
	 
	 		 	            (h)  No Material Adverse Effect. Since the date of the financial
statement contained in the Company’s most recently filed Form 10-Q or
Form 10-K, whichever is most current, no Material Adverse Effect has
occurred or exists with respect to the Company, except as disclosed on
Schedule 2.1(h) hereto.
	 
	 		 	            (i)  No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i) hereto, neither the Company nor any of its subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or
otherwise) that would be required to be disclosed on a balance sheet of
the Company or any subsidiary (including the notes thereto) in conformity
with GAAP which are not disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company’s or its subsidiaries’
respective businesses since such



5









	 	 	 	date and which, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company or its subsidiaries.
	 
	 		 	            (j)  No Undisclosed Events or Circumstances. Since the date of the
financial statement contained in the Company’s most recently filed Form
10-Q or Form 10-K, whichever is most current, except as disclosed in
Schedule 2.1(j), no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, prospects,
operations or financial condition, that, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or
disclosed in the SEC Documents.
	 
	 		 	            (k)  Indebtedness. The SEC Documents or Schedule 2.1(k) hereto sets
forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company
or any subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” shall mean (A) any liabilities for borrowed money or
amounts owed in excess of $500,000 (other than trade accounts payable
incurred in the ordinary course of business), (B) all guaranties,
endorsements and contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the
Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (C) the
present value of any lease payments in excess of $500,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any subsidiary is in default with respect to any
Indebtedness.
	 
	 		 	            (l)  Title to Assets. Each of the Company and the subsidiaries has
good and marketable title to all of its real and personal property
reflected in the SEC Documents, free of any mortgages, pledges, charges,
liens, security interests or other encumbrances, except for those
indicated on Schedule 2.1(1) hereto or such that do not cause a Material
Adverse Effect. All said leases of the Company and each of its
subsidiaries are valid and subsisting and in full force and effect.
	 
	 		 	            (m)  Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened
against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action
taken or to be taken pursuant hereto or thereto. Except as set forth on
Schedule 2.1(m) hereto, there is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened,
against or involving the Company, any subsidiary or any of their
respective properties or assets which individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of
any court, arbitrator or governmental or regulatory body against the
Company or any subsidiary.



6









	 		 	            (n)  Necessary Authorizations. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of their respective businesses as now being conducted by them
under applicable law, including but not limited to, any environmental
laws, unless the failure to possess such franchises, permits, licenses,
consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
	 
	 		 	            (o)  Taxes. The Company and each subsidiary has filed all Tax
Returns which it is required to file under applicable laws; all such Tax
Returns are true and accurate and have been prepared in compliance with
all applicable laws; the Company has paid all Taxes due and owing by it
or any subsidiary (whether or not such Taxes are required to be shown on
a Tax Return) and has withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid
or owing to any employee, stockholder, creditor or other third parties;
and since December 31, 1999, the charges, accruals and reserves for Taxes
with respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are adequate to cover any
Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
	 
	 	 	 	             No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. Except as set
forth on Schedule 3(o) hereto, there are no foreign, federal, state or
local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority; and no written notice
indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or
local taxing authority. There are no material unresolved questions or
claims concerning the Company’s Tax liability. The Company (A) has not
executed or entered into a closing agreement pursuant to § 7121 of the
Internal Revenue Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; and (B) has not agreed to or is
required to make any adjustments pursuant to § 481 (a) of the Internal
Revenue Code or any similar provision of state, local or foreign law by
reason of a change in accounting method initiated by the Company or any
of its subsidiaries or has any knowledge that the IRS has proposed any
such adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes
in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of § 897(c)(2) of the Internal Revenue
Code during a period of five (5) years from the date hereof.
	 
	 	 	 	             The Company has not made an election under § 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. § 1.1502-6
(or comparable provisions



7









	 	 	 	of state, local or foreign law), (B) as a transferee or successor, (C) by
contract or indemnity or (D) otherwise. The Company is not a party to
any tax sharing agreement with any person other than a subsidiary of the
Company. The Company has not made any payments, is not obligated to make
payments nor is it a party to an agreement that could obligate it to make
any payments that would not be deductible under § 280G of the Internal
Revenue Code.
	 
	 	 	 	             For purposes of this Section 2.1(o):
	 
	 	 	 	             “Internal Revenue Code” means the Internal Revenue Code of 1986, as
amended.
	 
	 	 	 	             “IRS” means the United States Internal Revenue Service.
	 
	 	 	 	             “Tax” or “Taxes” means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
	 
	 	 	 	             “Tax Return” means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
	 
	 		 	            (p)  Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no
brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
	 
	 		 	            (q)  Disclosure. Neither this Agreement or the Schedules hereto nor
any other documents, certificates or instruments furnished to the
Purchaser by or on behalf of the Company or any subsidiary in connection
with the transactions contemplated by this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary
in order to make the statements made herein or therein, in the light of
the circumstances under which they were made herein or therein, not
misleading.
	 
	 		 	            (r)  Operation of Business. Except as set forth on Schedule 2.1(r)
hereto, the Company and each of the subsidiaries has sufficient right,
title or interest in the patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations (collectively, “Intellectual
Property”) necessary for the conduct of its business as now conducted.
To the best of the Company’s knowledge, the conduct of the business of
the Company and each of the subsidiaries as presently conducted does not
violate, conflict with or infringe the Intellectual Property rights of
any third party.



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	 		 	            (s)  Insurance. Except as disclosed on Schedule 2.1(s) hereto, the
Company carries or will have the benefit of insurance in such amounts and
covering such risks as is adequate for the conduct of its business and
the value of its properties and as is customary for companies engaging in
similar businesses and similar industries.
	 
	 		 	            (t)  Books and Records. The records and documents of the Company and
its subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the subsidiaries,
the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary.
	 
	 		 	            (u)  Material Agreements. Except as set forth on Schedule 2.1(u)
hereto, neither the Company nor any subsidiary is a party to any written
or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the SEC
as an exhibit to a registration statement on Form S-1 or other applicable
form (collectively, “Material Agreements”) if the Company or any
subsidiary were registering securities under the Securities Act. Except
as set forth on Schedule 2.1(u), the Company and each of its subsidiaries
has in all material respects performed all the obligations required to be
performed by them to date under the foregoing agreements, have received
no notice of default and are not in default under any Material Agreement
now in effect, the result of which could cause a Material Adverse Effect.
No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company’s Common
Stock.
	 
	 		 	            (v)  Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereto, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions exceeding $100,000 between (A) the Company, any subsidiary
or any of their respective customers or suppliers on the one hand, and
(B) on the other hand, any officer, employee, consultant or director of
the Company, or any of its subsidiaries, or any person owning 5% or more
of the capital stock of the Company or any subsidiary or any member of
the immediate family of such officer, employee, consultant, director or
stockholder or any corporation or other entity controlled by such
officer, employee, consultant, director or stockholder, or a member of
the immediate family of such officer, employee, consultant, director or
stockholder.
	 
	 		 	            (w)  Accuracy of Registration Statement. The Registration Statement
and the Prospectus do not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading in light
of the circumstances under which they were made; provided, however, the
Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement or the Prospectus
in reliance upon and in conformity with the information furnished in
writing to the Company by the Purchaser specifically for inclusion in the
Registration Statement.



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	 		 	            (x)  Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its
employees, except as set forth on Schedule 2.1(x) hereto. Except as set
forth on Schedule 2.1(x) hereto, neither the Company nor any subsidiary
is in breach of any employment contract, agreement regarding proprietary
information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to
be employed or engaged by the Company or such subsidiary. Since the date
of the financial statement in the Company’s most recently filed Form
10-K, no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate,
could have a Material Adverse Effect, has terminated or, to the knowledge
of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
	 
	 		 	            (y)  Absence of Certain Developments. Except as provided in SEC
Documents or on Schedule 2.1(y) hereto, since the date of the financial
statement contained in the Company’s most recently filed Form 10-Q or
Form 10-K, whichever is most current, neither the Company nor any
subsidiary has:





	 		 	                  (i)  issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
	 
	 		 	                  (ii)  borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and
volume of the Company’s or such subsidiary’s business;
	 
	 		 	                  (iii)  discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business;
	 
	 		 	                  (iv)  declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or
purchased or redeemed, or made any agreements so to purchase or
redeem, any shares of its capital stock;
	 
	 		 	                  (v)  sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of
business;
	 
	 		 	                  (vi)  sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other
intangible assets or intellectual property rights, or disclosed any
proprietary confidential information to any person except in each
case, to customers in the ordinary course of business or to the
Purchaser or its representatives;



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	 		 	                  (vii)  suffered any material losses (except for anticipated
losses consistent with prior quarters) or waived any rights of
material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of prospective
business;
	 
	 		 	                  (viii)  made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
	 
	 		 	                  (ix)  made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
	 
	 		 	                  (x)  entered into any other material transaction, whether or
not in the ordinary course of business;
	 
	 		 	                  (xi)  suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
	 
	 		 	                  (xii)  experienced any material problems with labor or
management in connection with the terms and conditions of their
employment; or
	 
	 		 	                  (xiii)  effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
subsidiaries.





	 		 	            (z)  Governmental Approvals. Except as set forth in the SEC
Documents or on Schedule 2.1(z) hereto, and except for the filing of any
notice prior or subsequent to any Settlement Date that may be required
under applicable federal or state securities laws (which if required,
shall be filed on a timely basis), including the filing of a registration
statement or post-effective amendment or prospectus supplement pursuant
to this Agreement, no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with,
the delivery of the Shares, or for the performance by the Company of its
obligations under this Agreement.



            Section 2.2. Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:



	 		 	            (a)  Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing
under the laws of the British Virgin Islands.
	 
	 		 	            (b)  Authorization and Power. The Purchaser has the requisite
corporate power and corporate authority to enter into and perform the
Transaction Documents and to purchase the Shares being, and to be sold to
it hereunder. The execution, delivery and performance of the Transaction
Documents by Purchaser and the



11









	 	 	 	consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action.
	 
	 		 	            (c)  No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in
a violation of the Purchaser’s charter documents or bylaws or (ii)
conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument to which the Purchaser is a party, or
result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to the
Purchaser or its properties (except for such conflicts, defaults and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect on Purchaser). The Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement
or to purchase the Shares in accordance with the terms hereof.
	 
	 		 	            (d)  Information. The Purchaser and its advisors, if any, have
access to the SEC Documents. The Purchaser has sought such accounting,
legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Shares. The
Purchaser understands that it (and not the Company) shall be responsible
for its own tax liabilities that may arise as a result of this investment
or the transactions contemplated by this Agreement.



ARTICLE 3


COVENANTS


            The Company covenants with the Purchaser, which covenants are for the
benefit of the Purchaser, that during the term of this Agreement:


            Section 3.1. The Shares. As of the date of each Draw Down, the Company
will have authorized and reserved, free of preemptive rights and other similar
contractual rights of stockholders, a sufficient number of its authorized but
unissued shares of its Common Stock to cover the Shares to be issued in
connection with such Draw Down. The Shares to be issued under this Agreement,
when paid for and issued in accordance with the terms hereof, shall be validly
issued and outstanding, fully paid and non-assessable, and the Purchaser shall
be entitled to all rights accorded to a holder of Common Stock. Anything in
this Agreement to the contrary notwithstanding, the Company may not make a Draw
Down to the extent that, after such purchase by the Purchaser, the sum of the
number of shares of Common Stock beneficially owned by the Purchaser and its
affiliates would result in beneficial ownership by the Purchaser and its
affiliates of more than 9.9% of the then outstanding shares of Common Stock.
For purposes of the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act.

12








            Section 3.2. Securities Compliance. If applicable, the Company shall
notify the Principal Market, in accordance with its rules and regulations, of
the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares to the
Purchaser or subsequent holders.


            Section 3.3. Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related
to any registration statement filed pursuant to this Agreement, and will not
take any action or file any document (whether or not permitted by the
Securities Act or the Exchange Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, until 30 days
after the final Settlement Date for the Shares. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
Principal Market and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide the Purchaser with copies of any correspondence to or from
such Principal Market which questions or threatens delisting of the Common
Stock, within three (3) Trading Days of the Company’s receipt thereof, until
the Purchaser has disposed of all of the Shares. The Company will arrange, if
necessary, for the qualification of the Common Stock for sale under the laws of
such jurisdictions as the Purchaser may designate, will maintain such
qualifications in effect so long as required for the distribution of the Common
Stock and will pay any fees required by NASD Regulation, Inc., if any, in
connection with its review of the offering, provided that, in no event shall
the Company be obligated to qualify to do business in any jurisdiction where it
is not now so qualified or to take any action that would subject it to (a)
service of process in suits, in any jurisdiction where it is not now so subject
or (b) subject it to taxation in any such jurisdiction.


            Section 3.4. Escrow Arrangement. The Company and the Purchaser shall
enter into an escrow arrangement with Epstein Becker & Green, P.C. (the “Escrow
Agent”) in the form of Exhibit A hereto respecting delivery of the documents
set forth therein to be delivered at the Initial Closing or at each Settlement
and payment against delivery of the Shares.


            Section 3.5. Registration Statement. The Company shall cause the
Registration Statement to remain effective from the date hereof until 30
calendar days after the final Settlement Date and, as of each date a Draw Down
Notice is deemed delivered, shall have and shall reserve a dollar amount of
shares of Common Stock and Warrants equal to or in excess of the number of
Shares issuable pursuant to such Draw Down Notice or Warrants based on the
Threshold Price, or, if the Company has not specified a Threshold Price in such
notice, 50% of the VWAP on the Trading Day prior to such notice date. Prior to
the termination of this Agreement, the Company will not file any amendment to
the Registration Statement unless the Company has furnished the Purchaser a
copy for its review prior to filing and will not file any such proposed
amendment or supplement to which Purchaser reasonably objects. The Company
will cause the Registration Statement, properly completed, and any supplement
thereto to be filed with the SEC pursuant to the applicable paragraph of Rule
424(b) within the time period prescribed and in accordance with Rules 415,
424(b) and 430A and will provide evidence

13








satisfactory to Purchaser of such timely filing. On the Trading Day
immediately prior to the commencement of each Settlement Period, the Company
shall provide the Purchaser with copies of the Pricing Supplement relating to
such Settlement Period. Such Pricing Supplement shall contain information
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A, together with all other such required
information, including, without limitation, Purchaser’s plan of distribution of
the Shares, and, except to the extent the Purchaser shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to the
Purchaser on or prior to the commencement of the Settlement Period.
Notwithstanding anything herein to the contrary, if during any Draw Down
Pricing Period the Company reasonably believes an event may occur which would
require the suspension of the Registration Statement or sales of the Shares
thereunder, the Company shall immediately notify the Purchaser of its good
faith belief that such a suspension shall occur and such Draw Down Pricing
Period shall terminate and the parties shall settle as to any Trading Days on
which shares were purchased during such shortened Draw Down Pricing Period
prior to such suspension within three (3) Trading Days of such notice.


            Section 3.6. Accuracy of Registration Statement. On each Settlement Date,
the Registration Statement and the Prospectus shall not contain any untrue
statement of a material fact or omit to state any material fact to be required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on
such Settlement Date or date of filing of the Pricing Supplement, the
Registration Statement and the Prospectus will not include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, the Company makes no representations
or warranties as to the information contained in or omitted from the
Registration Statement and the Prospectus in reliance upon and in conformity
with the information furnished in writing to the Company by the Purchaser
specifically for inclusion in the Registration Statement and the Prospectus.


            Section 3.7. Other Agreements. The Company shall not enter into any
agreement the terms of which such agreement would restrict or impair the
ability of the Company to perform its obligations under this Agreement.


            Section 3.8. Notice of Certain Events Affecting Registration. The Company
will immediately notify the Purchaser upon the occurrence of any of the
following events in respect of the Registration Statement or related Prospectus
in respect of the Shares: (i) receipt of any request for additional information
from the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement the response to which
would require any amendments or supplements to the Registration Statement or
related Prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material

14








respect or that requires the making of any changes in the Registration
Statement, related Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of the related Prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company’s reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Purchaser any such supplement or amendment to the related Prospectus.


            Section 3.9. Compliance with Law. Neither the Company nor any of its
affiliates (as that term is defined in Rule 405 under the Securities Act) has
taken, nor will any of them take, directly or indirectly, any action designed
to cause or that would result in, or which constitutes or that might reasonably
be expected to constitute, the stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Common Stock.


            Section 3.10. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries as described in the
Prospectus.


            Section 3.11. Limitation on Future Financing. During the term of this
Agreement, the Company agrees that is shall not enter into any other stand-by
equity based credit facility.


            The Purchaser covenants with the Company as follows:


            Section 3.12. Compliance With Law. The Purchaser’s trading and
distribution activities with respect to the Shares will be in compliance with
all applicable state and federal securities laws, rules and regulations and the
rules and regulations of the NASD and the Principal Market. Neither the
Purchaser nor any of its affiliates (as that term is defined in Rule 405) has
taken, nor will any of them take, directly or indirectly, any action designed
to cause or that would result in, or which constitutes or that might reasonably
be expected to constitute, the stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Common Stock.


            Section 3.13. No Short Sales. The Purchaser and its affiliates shall not
engage in short sales of the Company’s Common Stock (as defined in applicable
SEC and the Principal Market rules) during the term of this Agreement and shall
not otherwise hedge its position through the use of option, swaps or other
derivative to create a net short position of the Company’s Common Stock.


            Section 3.14. Selling Restriction. The Purchaser has the right to sell
shares of the Company’s Common Stock during the term of this Agreement. The
Purchaser covenants that prior to and during the term of this Agreement,
neither the Purchaser nor any of its affiliates nor any entity managed by the
Purchaser will ever sell shares of Common Stock of the Company other than what
the Purchaser has accumulated to purchase under the terms of this Agreement or

15








in accounts directly or indirectly managed by the Purchaser or any affiliate of
the Purchaser or any entity managed by the Purchaser.


ARTICLE 4


CONDITIONS TO THE INITIAL CLOSING AND SETTLEMENT


            Section 4.1. Conditions Precedent to the Obligation of the Company to
Proceed with the Initial Closing and to Sell the Shares. The obligation
hereunder of the Company to proceed with the Initial Closing and to issue and
sell the Shares to the Purchaser from time to time is subject to the
satisfaction or waiver of each of the conditions set forth below. These
conditions are for the Company’s sole benefit and may be waived by the Company
at any time in its sole discretion.



	 		 	            (a)  Accuracy of the Purchaser’s Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made, as of the Initial
Closing, as though made at that time (except for representations and
warranties that speak as of a particular date), and as of the Settlement
Date as though made at that time, except for representations and
warranties that speak as of a particular date.
	 
	 		 	            (b)  Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Purchaser as of the
Initial Closing and at or prior to the Settlement Date.
	 
	 		 	            (c)  No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have
been threatened, against the Purchaser or the Company or any subsidiary,
or any of the officers, directors or affiliates of the Purchaser or the
Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
	 
	 		 	            (d)  No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
	 
	 		 	            (e)  Amendment of Registration Statement. The Registration Statement
shall be been amended to describe the Purchaser’s Plan of Distribution,
and such amendment shall have been declared effective by the SEC.



16








            Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Proceed with the Initial Closing and to Purchase the Shares. The obligation
hereunder of the Purchaser to perform its obligations under this Agreement, to
proceed with the Initial Closing and to purchase the Shares is subject to the
satisfaction or waiver of each of the conditions set forth below. These
conditions are for the Purchaser’s sole benefit and may be waived by the
Purchaser at any time in its sole discretion.



	 		 	            (a)  Accuracy of the Company’s Representations and Warranties. Each
of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made as of the
Initial Closing, as though made at that time (except for representations
and warranties that speak as of a particular date), and as of the
Settlement Date as though made at that time (except for representations
and warranties that speak as of a particular date).
	 
	 		 	            (b)  Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Company as of the Initial Closing and at or prior to
the Settlement Date.
	 
	 		 	            (c)  No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
	 
	 		 	            (d)  No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have
been threatened, against the Purchaser or the Company or any subsidiary,
or any of the officers, directors or affiliates of the Purchaser or the
Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
	 
	 		 	            (e)  Opinion of Counsel. At or prior to (i) the first Settlement
Date, and (ii) any subsequent Settlement Date (if reasonably requested by
the Purchaser due to a specific subsequent event identified to the
Company by the Purchaser), the Purchaser shall have received the opinion
of counsel to the Company in form and substance acceptable to Ladenburg
Thalmann & Co. Inc., which shall also be addressed to the Purchaser,
dated the date of the Initial Closing or the Settlement.
	 
	 		 	            (f)  Effective Registration Statement. The Registration Statement,
as amended to provide the Plan of Distribution of the Purchaser,
registering the Shares and Warrants shall be effective.
	 
	 		 	            (g)  No Suspension. Trading in the Company’s Common Stock shall not
have been suspended by the SEC or the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be



17









	 	 	 	terminated prior to the next Settlement Date), and, at any time
subsequent to the execution of this Agreement and prior to the
commencement of any Settlement Period, trading in securities generally as
reported on the Principal Market shall not have been suspended or
limited, or minimum prices shall not have been established on securities
whose trades are reported on the Principal Market unless the general
suspension or limitation shall have been terminated prior to the Initial
Closing or commencement of the Settlement Period.
	 
	 		 	            (h)  Material Adverse Effect. No Material Adverse shall have
occurred, unless such Material Adverse Effect is publicly disclosed at
least ten (10) Trading Days prior to the Initial Closing or Trading Day
the Draw Down Notice is deemed delivered as applicable and the average
VWAP or trading volume of the Common Stock on the Principal Market since
such disclosure has not decreased by more than 20%.
	 
	 		 	            (i)  Comfort Letter of Accountants. The Purchaser shall have received
from the Company’s auditors, a copy of the letter, addressed to Ladenburg
Thalmann & Co. Inc. and the Board of Directors of the Company (i)
confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01
of Regulation S-X of the Commission, and (ii) stating, as of the date of
the first Settlement (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five
days prior to the first Settlement Date), the conclusions and findings of
such firm with respect to the financial information and other matters
ordinarily covered by accountants’ “comfort letters” to underwriters in
connection with registered public offerings.
	 
	 		 	            (j)  Officers’ Certificate. The Company shall furnish to the
Purchaser as of the date hereof, at the Initial closing and shall have
furnished to Purchaser on the date the Draw Down Notice is delivered, a
certificate, dated such date, of its Chairman of the Board, its President
or a Vice President and its Chief Financial Officer or Treasurer (the
“Officers’ Certificate”) stating that:





	 		 	                  (i)  The representations and warranties of the Company in this
Agreement are true and correct in all material respects as if made
at and of such date; provided, however, that in all cases any
qualifications as to materiality shall be considered in the
aggregate; the Company has in all material respects complied with
all its agreements contained herein; and the Company will in all
respects satisfy the conditions to the Initial Closing or
Settlement on its part to be complied with or satisfied at such
date; and
	 
	 		 	                  (ii)  They have carefully examined the Registration
Statement and the Prospectus and, in their opinion as of such date,
the Registration Statement and Prospectus did not include any
untrue statement of a material fact and did not omit to state a
material fact required to be stated therein or necessary



18









	 		 	to make the statements therein not misleading, and no event has
occurred which should have been set forth in a supplement or
amendment to the Registration Statement or the Prospectus which was
not included in such a supplement or amendment.





	 		 	            (k)  Warrants. On each Settlement Date, the Company shall issue to
the Purchaser a registered warrant to purchase up to a number of shares
of Common Stock equal to the 0.5% of the number of Draw Down Shares
purchased on such Settlement Date. The Warrant shall be in the form of
the warrant issued Ladenburg Thalmann & Co. Inc. pursuant to that certain
letter agreement, dated December 12, 2000, between the Company and
Ladenburg Thalmann & Co. Inc. and on the Settlement Date.



ARTICLE 5


DRAW DOWN TERMS


            Section 5.1. Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:



	 		 	            (a)  The Company, may, in its sole discretion, issue and exercise up
to eighteen (18) draw downs (a “Draw Down”) during the Commitment Period,
which Draw Downs the Purchaser shall be obligated to accept.
	 
	 		 	            (b)  Only one Draw Down shall be allowed in each Draw Down Pricing
Period. The number of shares of Common Stock purchased by the Purchaser
with respect to each Draw Down shall be determined as set forth in
Section 5.1(e) herein and settled on:





	 		 	                  (i)  as to the 1st through the 11th Trading Days after a
Draw Down Pricing Period commences, on or before the 13th
Trading Day after a Draw Down Pricing Period commences; and
	 
	 		 	                  (ii)  as to the 12th through the 22nd Trading Days after
a Draw Down Pricing Period commences, on or before the 24th
Trading Day after a Draw Down Pricing Period (such settlement
periods and such settlement dates in subsection (i) and this
subsection (ii) each referred to as a “Settlement Period” and
a “Settlement Date”, respectively).





	 		 	            (c)  In connection with each Draw Down Pricing Period, the Company
may set the Threshold Price in the Draw Down Notice.
	 
	 		 	            (d)  The minimum Investment Amount for any Draw Down shall be
$100,000 and the maximum Investment Amount as to each Draw Down shall be
the lesser of (i) $4,000,000, and (ii) 20% of the average of the VWAPs
for the Common



19









	 	 	 	Stock for the twenty-two (22) Trading Day period immediately prior to the
applicable Commencement Date (defined below) multiplied by the total
trading volume in respect of the Common Stock for such period.
	 
	 		 	            (e)  The number of Shares of Common Stock to be issued on each
Settlement Date shall be a number of shares equal to the sum of the
quotients (for each trading day within the Settlement Period) of (x)
1/22nd of the Investment Amount, and (y) the Purchase Price on each
Trading Day within the Settlement Period, subject to the following
adjustments:





	 		 	                  (i)  if the VWAP on a given Trading Day is less than the
Threshold Price, then the Investment Amount will be reduced by
1/22nd and that day shall be withdrawn from the Settlement Period;
and
	 
	 		 	                  (ii)  if trading of the Common Stock on the Principal Market
is suspended for more than three (3) hours, in the aggregate, on
any Trading Day during the Settlement Period or if the Trading Day
is shortened because of a public holiday or the Registration
Statement or trading thereunder is suspended for more than three
(3) hours in the aggregate in accordance with Section 3.5, the
Investment Amount shall be reduced by 1/22nd and that day shall be
withdrawn from the applicable Settlement Period.





	 		 	            (f)  The Company must inform the Purchaser by delivering a draw down
notice, in the form of Exhibit B hereto (the “Draw Down Notice”), via
facsimile transmission in accordance with Section 8.4 as to the amount of
the Draw Down (the “Investment Amount”) the Company wishes to exercise,
before the first day of the Draw Down Pricing Period (the “Commencement
Date”). If the Commencement Date is to be the date of the Draw Down
Notice, the Draw Down Notice must be delivered to and receipt confirmed
by the Purchaser at least one hour before trading commences on such date.
At no time shall the Purchaser be required to purchase more than the
maximum Investment Amount for a given Draw Down Pricing Period so that if
the Company chooses not to exercise the maximum Investment Amount in a
given Draw Down Pricing Period the Purchaser is not obligated to and
shall not purchase more than the scheduled maximum Investment Amount in a
subsequent Draw Down Pricing Period.
	 
	 		 	            (g)  On each Settlement Date, the Shares purchased by the Purchaser
shall be delivered to The Depository Trust Company (“DTC”) on the
Purchaser’s behalf. Upon the Company electronically delivering whole
shares of Common Stock to the Purchaser or its designees via DTC through
its Deposit Withdrawal Agent Commission (“DWAC”) system by 1:00 p.m. ET,
the Purchaser shall wire transfer immediately available funds to the
Company’s designated account on such day, less any fees as set forth in
the Escrow Agreement, which fees shall be wired as directed in the Escrow
Agreement. Upon the Company electronically delivering whole shares of
Common Stock to the Purchaser or its designees DTC account via DWAC after
1:00 p.m. ET, the Purchaser shall wire transfer next day available funds
to the Company’s designated



20









	 	 	 	account on such day, less any fees as set forth in the Escrow Agreement,
which fees shall be wired as directed in the Escrow Agreement. In the
event that either party elects to use the Escrow Agent, the Shares shall
be credited by the Company to the DTC account designated by the Purchaser
via DWAC upon receipt by the Escrow Agent of payment for the Draw Down
Shares into the Escrow Agent’s master escrow account, all as further set
forth in the Escrow Agreement. The Escrow Agent shall be directed to pay
the purchase price to the Company, net of one thousand dollars ($1,000)
per Settlement as escrow expenses to the Escrow Agent and any additional
fees as set forth in the Escrow Agreement. Time shall be of the essence,
and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligations of the Company and the
Purchaser hereunder.



ARTICLE 6


TERMINATION


            Section 6.1. Term. The term of this Agreement shall be the earlier of (i)
24 months from the date hereof or as otherwise set forth in Section 6.2, and
(ii) the date that an aggregate of the shares of Common Stock valued, as of the
respective Closing Dates, at $20,000,000 which were registered under the
Registration Statement have been issued and sold to the Purchaser hereunder.


            Section 6.2. Other Termination.



	 		 	            (a)  This Agreement shall terminate upon one (1) Trading Day’s notice
if (i) an event resulting in a Material Adverse Effect has occurred and
the average VWAP or trading volume of the Common Stock decreases by more
than 50% during the 30 calendar days after such Material Adverse Effect
is disclosed, (ii) the Common Stock is de-listed from the OTC Bulletin
Board, unless such de-listing is in connection with the Company’s
subsequent listing of the Common Stock on the Nasdaq National Market,
Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, or (iii) the Company files for protection from creditors under
any applicable law.
	 
	 		 	            (b)  The Company may terminate this Agreement (i) upon one (1)
Trading Day’s notice if the Purchaser shall fail to fund more than one
properly noticed Draw Down within five (5) Trading Days of the end of the
applicable Settlement Period.



            Section 6.3. Effect of Termination. Section 6.4. In the event of
termination by the Company or the Purchaser, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement shall be terminated without further action by either party. If this
Agreement is terminated as provided in Section 6.1 or 6.2 herein, this
Agreement shall become void and of no further force and effect upon the
conclusion of the current Draw Down Pricing Period, except for Sections 8.1,
8.2 and 8.9, and Article 7 herein. Nothing in this Section 6.3 shall be deemed
to release the Company and the Purchaser from any liability for any

21








breach under this Agreement, or to impair the rights of the Company or the
Purchaser to compel specific performance by the other party of its obligations
under this Agreement.


ARTICLE 7


INDEMNIFICATION


            General Indemnity.



	 		 	            (a)  The Company agrees to indemnify and hold harmless the Purchaser
(and its directors, officers, fund managers, affiliates, agents,
successors and assigns and each person, if any, who controls the
purchaser within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Purchaser as a result of any inaccuracy in
or breach of the representations, warranties or covenants made by the
Company herein or based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained, or incorporated by reference, in
the Registration Statement, the Prospectus or supplements thereto, or
(ii) the omission or alleged omission to state in the Registration
Statement, the Prospectus or supplements thereto, or any document
incorporated by reference therein, any material fact required to be
stated herein or necessary to make the statements therein not misleading;
provided, however, that the Company shall not be liable to the Purchaser
for any losses, liabilities, deficiencies, costs, damages and expenses to
the extent that it arises out of or is based upon information provided by
the Purchaser for use in connection with the Registration Statement.
	 
	 		 	            (b)  The Purchaser agrees to indemnify and hold harmless the Company
and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable
attorneys’ fees, charges and disbursements) incurred by the Company as
result of any inaccuracy in or breach of the representations, warranties
or covenants made by the Purchaser or based upon any untrue statement or
alleged untrue statement of a material fact provided by the Purchaser for
inclusion in the Registration Statement or the Prospectus.
Notwithstanding anything to the contrary herein, the Purchaser shall be
liable under this Section 7.1(b) for only that amount as does not exceed
the net proceeds to such Purchaser as a result of the sale of Shares
pursuant to the Registration Statement.



            Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an “Indemnified Party”) will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification

22








is sought hereunder, the indemnifying party shall be entitled to participate in
and, unless in the reasonable judgment of counsel to the Indemnified Party a
conflict of interest between it and the indemnifying party may exist with
respect of such action, proceeding or claim, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. In the event that
the indemnifying party advises an Indemnified Party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the Indemnified Party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event,
unless and until the indemnifying party elects in writing to assume and does so
assume the defense of any such claim, proceeding or action, the Indemnified
Party’s costs (including reasonable attorneys’ fees, charges and disbursements)
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The Indemnified Party shall cooperate fully with the indemnifying
party in connection with any settlement negotiations or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party, which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the Indemnified Party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any
settlement of any action, claim or proceeding effected without its prior
written consent. Notwithstanding anything in this Article 7 to the contrary,
the indemnifying party shall not, without the Indemnified Party’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the Indemnified Party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such claim. The indemnification required by this
Article 7 shall be made by periodic payments of the amount thereof during the
course of investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred, within ten (10) Trading Days of written
notice thereof to the indemnifying party so long as the Indemnified Party
irrevocably agrees to refund such moneys if it is ultimately determined by a
court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or simi
lar rights of the Indemnified Party
against the indemnifying party or others, and (b) any liabilities to which the
indemnifying party may be subject.


ARTICLE 8


MISCELLANEOUS


            Section 8.1. Fees and Expenses. The Company agrees to pay (i) the costs
incident to the authorization, issuance, sale and delivery of the Common Stock
and any taxes payable in that connection; (ii) the costs incident to the
preparation, printing and filing under the

23








Securities Act of the Registration Statement and any amendments and exhibits
thereto; (iii) the costs of distributing the Registration Statement and any
post-effective amendments thereof (including, in each case, exhibits and
filings incorporated by reference), the Prospectus or any document incorporated
by reference therein, all as provided in this Agreement; (iv) at the Initial
Closing, a non-accountable expense allowance of $25,000 for the Purchaser’s
legal and administrative costs and expenses and any other additional fees as
set forth in the Escrow Agreement; (v) any filing fees incident to securing any
required review by NASD Regulation, Inc. of the terms of sale of the Common
Stock; (vi) any applicable listing or other fees; (vii) the fees and expenses
of qualifying the Common Stock under the securities laws of the several
jurisdictions and of preparing, printing and distributing a blue sky
memorandum; and (viii) all other costs and expenses incident to the performance
of the obligations of the Company under this Agreement. Except as provided in
this Section 8.1, the Purchaser shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on the
Common Stock which they may sell and the expenses of advertising any offering
of the Common Stock made by the Purchaser.


            Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.


            Section 8.3. Entire Agreement; Amendment. The Transaction Documents
contain the entire understanding of the parties with respect to the matters
covered hereby and, except as specifically set forth herein, neither the
Company nor the Purchaser makes any representations, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may
be waived or amended other than by a written instrument signed by the party
against whom enforcement of any such amendment or waiver is sought.


            Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:



	 	 	 
	If to the Company:		
451 Kingston Court

Mount Prospect, Illinios 60036

Attn: Charles F. Willes

Tel: (847) 391-9400

Fax: (847) 391-5015



24








	 	 	 
	
	
	
	

	With copies to:

notice):		
Pepper Hamilton LLP

Suite 400

1235 Westlakes Drive

Berwyn, PA 19312-2401

Telephone: (610) 640-7800

Facsimile: (610) 640-7835

Attn: Michael P. Gallagher
	
	
	
	

	

		

	
	
	
	

	If to Purchaser:		
c/o Beacon Capital Management

Harbour House, 2nd Floor

Waterfront Drive

Attn: David Sims

Fax: (284) 494-4090
	
	
	
	

	

		

	
	
	
	

	with copies to:

(which shall not constitute

notice)		
Epstein Becker & Green P.C.

250 Park Avenue

New York, NY 10177-1211

Tel: (212) 351-3771

Fax: (212) 661-0989

Attn: Robert F. Charron



            Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith.


            Section 8.5. Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.


            Section 8.6. Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.


            Section 8.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser
to be affected by the amendment.


            Section 8.8. No Third Party Beneficiaries.This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

25








            Section 8.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. The Company and the
Purchaser agree to submit themselves to the in personam jurisdiction of the
state and federal courts situated within the Southern District of the State of
New York with regard to any controversy arising out of or relating to this
Agreement.


            Section 8.10. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. Execution may be made by
delivery by facsimile.


            Section 8.11. Publicity. Neither the Company nor the Purchaser shall
issue any press release or otherwise make any public statement or announcement
with respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement unless in strict compliance with Rule 134 of the
Securities Act, or as otherwise required by the Securities Act or Exchange Act.


            Section 8.12. Severability. The provisions of this Agreement are severable
and, in the event that any court or officials of any regulatory agency of
competent jurisdiction shall determine that any one or more of the provisions
or part of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of
a provision of this Agreement and this Agreement shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or part of
such provision, had never been contained herein, so that such provisions would
be valid, legal and enforceable to the maximum extent possible, so long as such
construction does not materially adversely effect the economic rights of either
party hereto.


            Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the
Company and the Purchaser shall execute and deliver such instruments, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.


ARTICLE 9


DEFINITIONS


            Section 9.1. Certain Definitions.



	 		 	            (a)  “Commitment Amount” shall have the meaning assigned to such term
in Section 1.1 hereof.





26









	 		 	            (b)  “Commitment Period” shall mean the period of 24 consecutive
months commencing immediately after the date hereof.
	 
	 		 	            (c)  “Common Stock” shall mean the Company’s common stock, $0.001 par
value per share.
	 
	 		 	            (d)  “Draw Down” shall have the meaning assigned to such term in
Section 5.1(a) hereof.
	 
	 		 	            (e)  “Draw Down Notice” shall have the meaning assigned to such term
in Section 5.1(f) hereof.
	 
	 		 	            (f)  “Draw Down Pricing Period” shall mean a period of twenty-two
(22) consecutive Trading Days beginning on the date specified in the Draw
Down Notice or such other period mutually agreed to at the time of such
Draw Down Notice by the Purchaser; provided, however, the Draw Down
Pricing Period shall not begin before the day on which receipt of such
notice is confirmed by the Purchaser unless otherwise agreed to at the
time of such Draw Down Notice by the Purchaser.
	 
	 		 	            (g)  “Exchange Act” shall mean the Securities and Exchange Act of
1934, as amended.
	 
	 		 	            (h)  “GAAP” shall mean the United States Generally Accepted
Accounting Principles as those conventions, rules and procedures are
determined by the Financial Accounting Standards Board and its
predecessor agencies.
	 
	 		 	            (i)  “Initial Closing” shall have the meaning assigned to such term
in Section 1.2 hereof.
	 
	 		 	            (j)  “Investment Amount” shall have the meaning assigned to such term
in Section 5.1(f) hereof.
	 
	 		 	            (k)  “Material Adverse Effect” shall mean any adverse effect on the
business, operations, properties or financial condition of the Company
that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the
ability of the Company to perform any of its material obligations under
this Agreement or to perform any of its obligations under any other
material agreement.
	 
	 		 	            (l)  “Pricing Supplement” shall mean the supplement to the
Registration Statement which sets forth, with respect to a Settlement,
the number of Shares purchased, the anticipated Settlement Date, and any
other information mutually agreed to be included by the Company and the
Purchaser.
	 
	 		 	            (m)  “Principal Market” shall mean initially the OTC Bulletin Board
and thereafter shall include the American Stock Exchange, Nasdaq National
Market,




27









	 		 	Nasdaq SmallCap Market or the New York Stock Exchange if the Company
becomes listed and trades on such market or exchange after the date
hereof.
	 
	 		 	            (n)  “Prospectus” shall mean the base prospectus contained in the
Registration Statement and each prospectus supplement (including any
Pricing Supplement) relating to the Common Stock to be purchased pursuant
to this Agreement filed pursuant to Rule 424(b).
	 
	 		 	            (o)  “Purchase Price” shall mean, with respect to Draw Down Shares
purchased during each applicable Settlement Period, 94% of the VWAP on
the date in question (the “Purchase Price Discount”).
	 
	 		 	            (p)  “Registration Statement” shall mean the registration statement
under the Securities Act, filed with the Securities and Exchange
Commission, File No. 333-53646 registering for sale pursuant to Rule 415
certain securities of the Company, including the filings with the
Commission pursuant to the Exchange Act incorporated therein, as amended
to provide the plan of distribution of the Purchaser as of each
Settlement Date and shall include the Prospectus and any subsequent
amendments or supplements thereto.
	 
	 		 	            (q)  “SEC Documents” shall mean the Registration Statement, the
documents incorporated by reference therein and all of the documents
filed or furnished by the Company to the Securities and Exchange
Commission (the “SEC”) pursuant to the Exchange Act. Such documents
shall include, but not be limited to, proxy statement, Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, including all exhibits thereto.
	 
	 		 	            (r)  “Securities Act” shall mean the Securities Act of 1933, as
amended.
	 
	 		 	            (s)  “Settlement” shall mean the delivery of the Draw Down Shares
into the Purchaser’s DTC account in exchange for payment therefor.
	 
	 		 	            (t)  “Settlement Date” shall have the meaning assigned to such term
in Section 5.1(b).
	 
	 		 	            (u)  “Settlement Period” shall have the meaning assigned to such term
in Section 5.1(b).
	 
	 		 	            (v)  “Shares” shall mean, collectively, the shares of Common Stock of
the Company being subscribed for hereunder (also referred to herein as
the “Draw Down Shares”) and the shares of Common Stock issuable upon
exercise of the Warrants (the “Warrant Shares”).
	 
	 		 	            (w)  “Threshold Price” shall mean the price per Share designated by
the Company as the lowest VWAP during any Draw Down Pricing Period at
which the




28









	 		 	Company will sell its Common Stock in accordance with this Agreement (not
taking into account the Purchase Price Discount on such Trading Day).
	 
	 		 	            (x)  “Trading Day” shall mean any day on which the Principal Market
is open for business.
	 
	 		 	            (y)  “Transaction Documents” shall mean this Agreement and the Escrow
Agreement.
	 
	 		 	            (z)  “VWAP” shall mean the daily volume weighted average price of the
Company’s Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to
4:02 p.m. Eastern Time) using the VAP function on the date in question.




                              (aa) “Warrants” shall mean the warrants issued to the
Purchaser pursuant
to Section 4.2(k).


                              IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of this 21st day of March,
2001.



	 
	ILLINOIS SUPERCONDUCTOR CORPORATION
	 
	By:  /s/ Charles F. Willes

     Charles F. Willes, Chief Financial Officer
	 
	PAUL REVERE CAPITAL PARTNERS, LTD
	 
	By:  /s/ David Sims

     David Sims, Authorized Signatory




29