<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ----- EXCHANGE ACT OF 1934 FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO ______
COMMISSION FILE NUMBER #0-11915
CONDUCTUS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0162388
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
969 W. Maude Ave., Sunnyvale, California 94086
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 523-9950
- - -------------------------------------------------------------------------------
(Registrant's Telephone Number, including area code)
Not Applicable
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common shares outstanding at November 10, 1998: 7,126,349
----------
Total pages: 17
Index to Exhibits to be found on page 17
<PAGE>
CONDUCTUS, INC.
Index
<TABLE>
<S> <C>
PART I : FINANCIAL INFORMATION...........................................................3
ITEM 1 : FINANCIAL STATEMENTS...................................................3
CONDENSED BALANCE SHEETS AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997............3
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997...................................................4
CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997.................................................................5
NOTES TO CONDENSED FINANCIAL STATEMENTS.........................................6
ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................9
ITEM 3 : QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............14
PART II : OTHER INFORMATION.............................................................15
ITEM 1 : LEGAL PROCEEDINGS....................................................15
ITEM 2 : CHANGES IN SECURITIES................................................15
ITEM 3 : DEFAULTS UPON SENIOR SECURITIES......................................15
ITEM 4 : SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................15
ITEM 5 : OTHER INFORMATION....................................................15
ITEM 6 : EXHIBITS AND REPORTS ON FORM 8-K.....................................15
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
CONDUCTUS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,506,566 $2,111,560
Restricted cash - 500,000
Short-term investments - 556,633
Accounts receivable, net 1,315,444 2,055,255
Inventories, net 872,619 610,367
Prepaid and other assets 108,270 139,479
------- -------
Total current assets 6,802,899 5,973,294
--------- ---------
Property, plant and equipment, net 2,221,859 2,700,594
Other assets 82,266 87,762
------ ------
Total assets $9,107,024 $8,761,650
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $822,178 $1,539,590
Other accrued liabilities 865,194 1,063,721
Current portion of long-term debt 978,625 1,547,507
------- ---------
Total current liabilities 2,665,997 4,150,818
Long-term debt, net of current portion 1,559,626 309,681
--------- -------
Total liabilities 4,225,623 4,460,499
--------- ---------
Stockholders' equity:
Preferred Stock 6,374,511 0
Common stock 728 702
Additional paid-in capital 41,476,772 41,070,636
Accumulated deficit (42,970,610) (36,770,187)
------------ ------------
Total stockholders' equity 4,881,401 4,301,151
--------- ---------
Total liabilities and stockholders' equity $9,107,024 $8,761,650
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
3
<PAGE>
CONDUCTUS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -------------------------------
1998 1997 1998 1997
------- ------- ------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Contract $ 1,078,270 $ 1,723,182 $ 2,808,395 $ 5,834,080
Product 186,312 148,560 623,675 1,662,605
------- ------- ------- ---------
Total revenues 1,264,582 1,871,742 3,432,070 7,496,685
OPERATING EXPENSES:
Cost of product 528,562 400,386 1,994,417 1,899,203
Research and development 1,266,399 2,021,099 4,468,949 7,679,545
Selling, general & administrative 812,565 1,026,167 2,777,036 3,172,178
Gain on product line disposals - (93,135) - (93,135)
Writedown of property, plant, & equipment - - - 100,000
- -------
Total operating expenses 2,607,526 3,354,517 9,240,402 12,757,791
--------- --------- --------- ----------
Loss from operations (1,342,944) (1,482,775) (5,808,332) (5,261,106)
Interest income 13,671 50,828 56,445 226,981
Other income (expense) - (37,835) - (63,228)
Interest expense (304,035) (20,728) (448,535) (145,787)
--------- -------- --------- ---------
Net loss $ (1,633,308) $ (1,490,510) $ (6,200,423) $ (5,243,140)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net loss per basic and diluted common
share
$ (0.23) $ (0.22) $ (0.88) $ (0.77)
-------- -------- -------- --------
-------- -------- -------- --------
Shares used in computing per share
amounts
7,117,000 6,901,000 7,077,000 6,853,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
4
<PAGE>
CONDUCTUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,200,423) $ (5,243,140)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 684,570 601,298
Provision for excess and obsolete inventory 96,176 -
Compensation associated with warrant grants 146,575 -
Changes in:
Accounts receivable 739,811 1,713,686
Inventories (358,428) 679,594
Prepaid and other assets 36,705 123,729
Accounts payable and other accrued liabilities (915,939) (424,386)
--------- ---------
Net cash used in operating activities (5,770,953) (2,549,219)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments 556,633 20,625,154
Purchases of short-term investments - (17,455,532)
Acquisition of property and equipment (205,835) (652,910)
Net book value of assets sold - 168,734
------- ---------
Net cash provided by investing activities 350,798 2,685,446
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings 4,450,000 410,133
Net proceeds from issuance of preferred stock 6,374,511 -
Net proceeds from issuance of common stock 225,052 290,521
Principal payments on long-term debt (3,734,402) (879,895)
----------- ---------
Net cash provided by (used in) financing activities 7,315,161 (179,241)
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,895,006 (43,014)
Cash and cash equivalents at beginning of period 2,611,560 1,119,991
--------- ---------
Cash and cash equivalents at end of period $4,506,566 $1,076,977
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
5
<PAGE>
CONDUCTUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL INFORMATION:
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. The unaudited financial statements as of
September 30, 1998 and for the three and nine months ended September 30,
1998 and 1997 include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial information set forth herein. The results of operations for the
interim periods are not necessarily indicative of the results to be
expected for an entire year. The December 31, 1997 balance sheet was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
CASH, CASH EQUIVALENTS, AND INVESTMENTS:
At September 30, 1998, all of Conductus, Inc.'s (the "Company" or
"Conductus") highly liquid investments had original maturities of less than
ninety days, and accordingly are considered cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. Appropriate consideration is given to
obsolescence, excessive levels and other factors in evaluating net
realizable value.
BASIC AND DILUTED LOSS PER SHARE:
In accordance with the disclosure requirements of Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share", a
reconciliation of the numerator and denominator of the basic and diluted
EPS is provided as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Three months ended September 30, Nine months ended September 30,
-----------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator - basic and diluted EPS:
-----------------------------------------------------------------------------------------------------------------
Net loss $ (1,633,308) $ (1,490,510) $ (6,200,423) $ (5,243,140)
-----------------------------------------------------------------------------------------------------------------
Denominator - basic and diluted EPS:
-----------------------------------------------------------------------------------------------------------------
Common Stock outstanding 7,117,000 6,901,000 7,077,000 6,853,000
-----------------------------------------------------------------------------------------------------------------
Basic loss per share $(0.23) $(0.22) $(0.88) $(0.77)
------- ------- ------- -------
------- ------- ------- -------
-----------------------------------------------------------------------------------------------------------------
Diluted loss per share $(0.23) $(0.22) $(0.88) $(0.77)
------- ------- ------- -------
------- ------- ------- -------
-----------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
In the above computations, common equivalent shares are excluded from the
basic and diluted loss per share as their effect is anti-dilutive. Common
equivalent shares including options, warrants and convertible preferred
stock that could potentially dilute basic earnings per share in the
future and that were not included in the computations of diluted loss
per share because of anti-dilution were approximately 552,725 and
225,852 for the three months ended September 30, 1998 and 1997
respectively, and approximately 344,670 and 330,029 for the nine months
ended September 30, 1998 and 1997 respectively.
RECLASSIFICATIONS:
Certain amounts in the prior periods statements of operations have
been reclassified to conform to the September 30, 1998 presentation.
These reclassifications had no effect on previously reported results of
operations.
RECENT PRONOUNCEMENTS:
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," effective
January 1, 1998. This statement requires the disclosure of comprehensive
income and its components in a full set of general-purpose financial
statements. Comprehensive income is defined as net income plus revenues,
expenses, gains and losses that, under generally accepted accounting
principles, are excluded from net loss. The component of comprehensive
loss, which is excluded from net loss, is not significant and therefore, no
separate statement of comprehensive income has been presented.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131"), which
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise" ("SFAS 14"). SFAS 131
changes current practice under SFAS 14 by establishing a new framework on
which to base segment reporting and also requires interim reporting of
segment information. This statement is effective for fiscal years beginning
after December 15, 1997. The statement's interim reporting disclosures are
not required until the first quarter immediately subsequent to the fiscal
year in which SFAS 131 is effective.
2. ACCOUNTS RECEIVABLE :
Accounts receivable, net, consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
U. S. government contracts:
Unbilled $ 358,925 $ 1,146,283
Billed 991,565 793,382
Commercial 257,589 363,822
Reserves (292,635) (248,232)
--------- ---------
$1,315,444 $2,055,255
---------- ----------
---------- ----------
</TABLE>
3. INVENTORIES:
Inventories, net, consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials and purchased parts $ 441,459 $ 293,336
Work in process 315,940 366,550
7
<PAGE>
Finished goods 526,741 231,326
Reserves (411,521) (280,845)
--------- ---------
$ 872,619 $ 610,367
--------- ---------
--------- ---------
</TABLE>
4. LONG TERM DEBT:
At September 30, 1998, the Company's credit facilities consisted of a
note payable from a leasing company, two bank equipment term loans, a bank
line of credit, and a lease line of credit for new equipment purchases.
On April 23, 1998, the Company entered into a bridge loan credit
facility agreement with its bank. The facility provided for borrowings of
up to $2,000,000, with interest at the bank's prime rate plus 2%. The
amounts owed were paid in full on September 15, 1998, and this facility is
no longer available.
The note payable from a leasing company is collateralized by the
Company's property, plant and equipment. The effective interest rate is
13.98% and there are certain reporting and financial covenants which the
Company is required to satisfy. At September 30, 1998 the Company was in
compliance with these covenants, the balance outstanding was $ 2, 241,624,
and there were no further amounts available on this facility.
The two equipment term loans bear interest at the bank's prime rate
plus 2%, with principal and interest payments paid monthly. These term
loans mature on the later of maturity dates set forth in each of the
original term loan agreements or the date of completion of an equity
financing transaction; provided, however, that if the Company chooses to
collateralize the term loans with restricted cash deposits, then the
maturity dates for the term loans shall remain as December 31, 1998 and
December 31, 1999. At September 30, 1998, there was approximately $418,723
outstanding under these loans, and no further amounts were available.
The bank line of credit agreement provides for borrowings of up to the
lesser of $2,000,000 or 80% of eligible receivables. Borrowings under this
facility bear interest at the bank's prime rate plus 2.0% and will be
collateralized by accounts receivable, equipment and other assets of the
Company. At September 30, 1998, there were no amounts outstanding under
this facility.
The lease line of credit for new equipment purchases provides for
borrowings of up to $1,000,000, is collateralized by equipment purchases
under the line, and has an effective interest rate of 14.04%. The Company
also granted to the leasing company warrants to purchase up to 15,060
shares of the Company's stock at a price equal to $3.32. The fair value of
such warrants is approximately $35,000 and will be amortized over the three
year term of the lease payments. This line of credit expires on September
30, 1999.
All the credit facilities contain reporting and financial covenants.
In the event of default on any of these covenants, no further amounts would
be advanced to the Company under any facility, the entire amounts
outstanding could become due and payable immediately upon default, and
those assets that are collateral could be seized, unless such default is
waived by the lender.
5. SERIES B PREFERRED STOCK:
On September 11, 1998, and September 22, 1998, the Company sold and
issued an aggregate of 2,461,227 shares of its Series B Preferred Stock
at a price per share of $2.70 and issued warrants to purchase 492,242
shares of Common Stock at an exercise price of $2.70 per share in a
private placement of its equity securities. The offering was not
underwritten and raised net proceeds of $6,375,000. Certain affiliates
of the Company and other institutional and accredited individual
investors purchased shares of Series B Preferred Stock and warrants in
such offering, which sales were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to Rule 506 of Regulation D under the Act.
The shares of Series B Preferred Stock are convertible on a 1-to-1
basis into Common Stock subject to anti-dilution protections. In
addition, the shares of Series B Preferred Stock have a cumulative stock
dividend of 6% and certain liquidation preferences over the shares of
Common Stock as set forth in the Certificate of Designation of Series B
Preferred Stock.
8
<PAGE>
ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. Conductus Inc.'s (the "Company" or
"Conductus") actual result's may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such
a difference include, but are not limited to, those discussed in "Risk
Factors" in Part 1 of the Company's Annual Report on Form 10-K/A as of and
for the year ended December 31, 1997. The following discussion should be
read in conjunction with the financial statements and notes thereto
appearing elsewhere in this report on Form 10-Q.
OVERVIEW
Conductus develops, manufactures and markets electronic components and
systems based on superconductors for applications in the worldwide
telecommunications markets. As of September 30, 1998, Conductus had
accumulated losses of approximately $42,971,000 and expects to incur
significant additional losses during 1998 and 1999. Conductus, alone or
with collaborative partners, must successfully develop, manufacture,
introduce and market its potential products in order to achieve
profitability. Conductus does not expect to recognize meaningful product
sales until it successfully develops and commercializes superconductive
components, systems and subsystems that address significant market needs.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997
The Company's total revenues decreased to $1,265,000 for the third
quarter of 1998, a 32% decrease from $1,872,000 for the same period in
1997. For the nine months ended September 30, 1998, the Company's total
revenues decreased to $3,432,000, a 54% decrease from $7,497,000 for the
same period in 1997. Total revenue consists primarily of contract revenue
and, to a lesser extent, product sales. Revenues under U.S. government
research and development contracts were $1,078,000 for the third quarter of
1998, a decrease of 37% from $1,723,000 in the same period in the prior
year. For the nine months ended September 30, 1998, revenues under U.S.
government research and development contracts were $2,808,000, a decrease
of 52% from $5,834,000 in the same period in the prior year. The
decreases in total revenues and contract revenues reflect the focus of
the Company's business on products for the wireless communications
market, following the disposal of the Instrument and System division and
the NMR product line in the third quarter of 1997, and an overall lower
level of federal Research and Development funding in the Company's
technology area. At September 30, 1998, Conductus had a backlog of
approximately $421,000 under existing U.S. government contracts, most of
which is to be performed in the next 12 months, and approximately
$7,000,000 in awards from U. S. government agencies for which such
agencies had not yet entered into research contracts with the Company.
Due to the expiration of several older contracts, the Company
anticipates that contract revenues for the fourth quarter of 1998 may be
less than contract revenues in the third quarter of 1998, although there
can be no assurance as to the level of contract revenue in any future
period. The recognition of revenue and receipt of payment pursuant to
these contracts and awards are subject to numerous risks.
Product revenues increased to $186,000 in the third quarter of 1998, a
25% increase from $149,000 of product sales in same period in the prior
year. For the nine months ended September 30, 1998, product revenues
decreased to $623,000, a 63% decrease from $1,663,000 of product sales in
same period in the prior year. The increase in product revenues from the
third quarter of 1997 was due to a higher volume of wireless products,
offset by lower volumes of magnetic sensing products. The decrease in
product revenues for the nine month period resulted primarily from
decreased shipments of products from the
9
<PAGE>
Instrument and Systems division and the NMR product line, which the
Company disposed of during the third quarter of 1997, and lower volumes
of other magnetic sensing products, offset somewhat by increased volume
of government and commercial wireless communication products, as shown
in the table below:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
Three months ended: Nine months ended:
- - ---------------------------------------------------------------------------------------------------------------------
September September 30, Change September 30, September Change
30, 1998 1997 1998 30, 1997
(A) - (B) (C) - (D)
(A) (B) (C) (D)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wireless communication products $176,000 $-0- $176,000 $403,000 $-0- $403,000
- - ---------------------------------------------------------------------------------------------------------------------
San Diego division products -0- -0- -0- -0- 596,000 (596,000)
- - ---------------------------------------------------------------------------------------------------------------------
Other magnetic sensing products 10,000 149,000 (139,000) 220,000 1,067,000 (847,000)
------ ------- --------- ------- --------- ---------
- - ---------------------------------------------------------------------------------------------------------------------
Total product sales $186,000 $149,000 $37,000 $623,000 $1,663,000 $(1,040,000)
-------- -------- ------- -------- ---------- ------------
-------- -------- ------- -------- ---------- ------------
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Cost of product sales increased to $529,000 for the third quarter
of 1998, a 32% increase from $400,000 over the same period in 1997,
primarily due to higher production unit costs on wireless products. For
the nine months ended September 30, 1998, cost of product sales
increased to $1,994,000, a 5% increase from $1,899,000 over the same
period in 1997. This increase was due to higher unit production costs on
wireless. Gross margins decreased to -184% in the third quarter of 1998
from -170% in the same period in 1997, reflecting increased wireless
unit production costs and the change in product mix from higher margin
magnetic sensing products to lower margin wireless products. For the
nine months ended September 30, 1998, gross margins decreased to -220%
from -14% in the same period in 1997, primarily due to the higher
wireless unit production costs and decreased shipments of higher margin
magnetic sensing products. Margins will improve only if unit volumes
increase significantly, leading to lower per unit costs for purchased
materials and overhead. Costs of contract revenues are included in
research and development expenses.
Research and development expenses decreased to $1,266,000 in the third
quarter of 1998, a 37% decrease from $2,021,000 for the same period in
1997. For the nine months ended September 30, 1998, research and
development expenses decreased to $4,469,000, a 42% decrease from
$7,680,000 for the same period in 1997. Both decreases are primarily
attributable to lower levels of expenditures for government contracts,
decreased headcount and expenditures related to the Instruments and Systems
division and NMR product lines, partially offset by increases in
expenditures for telecommunications product development. The Company
expects to continue to incur significant research and development
expenses as it seeks to develop and market additional products.
10
<PAGE>
Selling, general and administrative expenses decreased to $ 813,000
for the third quarter of 1998, a 21% decrease from the same period in 1997
and decreased to $2,777,000 for the nine months ended September 30, 1998, a
12% decrease from the same period in 1997. This decrease reflects the
disposal of the Instrument and System division, largely offset by higher
spending in Sales and Marketing for wireless communications products. As
the Company begins to market commercial products, the Company anticipates
that there will be additional sales and marketing costs above those
incurred in 1997.
Total headcount decreased to 66 at September 30, 1998 from 91 at
September 30, 1997, reflecting reductions in personnel in the Instrument
and Systems division and the NMR product line and the lower level of
government contract research work and resulting reduced headcount. The
headcount reductions are the result of the Company's continuing focus on
telecommunications market opportunities, as well as the need to conserve
cash and control expenses in line with anticipated revenue levels.
The Company's total operating expenses were $2,608,000 for the third
quarter of 1998, a 22% decrease from $3,354,000 for the same period in
1997 and $9,240,000 for the nine months ended September 30, 1998, a 28%
decrease from $12,758,000 for the same period in 1997 for the reasons
described above.
Net interest and other expense increased to $290,000 for the third
quarter of 1998, from $8000 for the same period in 1997. The increase in
net interest and other expense in the third quarter of 1998 reflected
lower cash balances throughout much of the quarter, higher debt levels,
and the fair value of the debt-related warrants granted. For the nine
month period ended September 30, 1998, net interest and other expense
increased substantially over the same period in 1997, again primarily
due to lower cash balances and higher debt levels. The Company has not
paid federal income taxes since inception due to its cumulative
operating losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
through $13,251,000 in net proceeds from its initial public offering of
Common Stock in August 1993, $9,892,000 in net proceeds from its follow-on
public offering of Common Stock in June 1996, $21,020,000 raised in private
placement financings (including net proceeds of $6,375,000 raised in
September 1998), $43,080,000 from U.S. government contracts, $2,660,000
in aggregate borrowings under various lease and bank loan arrangements,
and $3,743,000 in interest income. As of September 30, 1998, the
Company's aggregate cash and cash equivalents totaled $4,507,000.
During the third quarter of 1998, the Company raised a net amount of
$6,375,000 in Series B Preferred Stock at $2.70 per share convertible on a
1-1 basis into Common Stock. The Company also issued warrants to purchase
492,242 shares of Common Stock at $2.70 per share. In addition, the Company
has negotiated an equipment lease line in the amount of $1,000,000
available for future equipment purchases, received $500,000 that was a
deposit released from a prior financing transaction, and has available a
bank line of credit which provides for borrowings of up to the lessor of
$2,000,000 or 80% of eligible receivables. See Note 4 for a further
description of the financing arrangements put in place during the third
quarter.
Net cash used in operations was $5,771,000 for the first nine months
of 1998 compared to $2,549,000 for the same period in 1997. The increase in
net cash used in operating activities in the first nine months of 1998 was
primarily due to the larger net loss for the period, an increase in
inventories and a decrease in accounts payable and other accrued
liabilities, offset partially by the decrease in accounts receivable
(though somewhat less than the decrease in accounts receivable for the
first nine months of 1997), and
11
<PAGE>
depreciation and amortization (which was approximately at the same level
as the first nine months of 1997). The accounts receivable decrease was
due to lower levels of revenue, offset somewhat by slower than anticipated
collections on certain receivables. The increase in inventories was
primarily in raw material and finished goods for wireless commercial
products. The decrease in accounts payable and other accrued liabilities
was primarily due to an acceleration of payments during the third quarter
of 1998 after the Company had delayed payments during the first and second
quarters of 1998 as the Company attempted to conserve cash while it
continued to negotiate various financings.
The Company anticipates that it will incur significant additional net
losses during the balance of 1998. The Company anticipates that its
accounts receivable and inventories may increase during 1998 as a result of
increased working capital requirements to support telecommunications
products. As a result, the Company anticipates the use of additional cash
in operating activities during the balance of 1998.
Net cash provided by investing activities was $351,000 for the first
nine months of 1998 compared to net cash provided by investing activities
of $2,685,000 for the first nine months of 1997. In 1998, net cash was
provided by net reductions in short-term investments, offset to some extent
by purchases of property and equipment. In 1997, net cash was also
primarily provided by net reductions in short term investments offset
somewhat by purchases of property and equipment. The Company anticipates
that its purchases of property and equipment for the remainder of 1998 may
be somewhat lower than 1997 levels. The Company has negotiated a leasing
facility to finance further purchases of property and equipment, during the
remainder of 1998.
Net cash provided by financing activities was $7,315,000 for the first
nine months of 1998 compared to net cash used in financing activities of
$179,000 in the first nine months of the prior year. Net cash provided by
financing activities in the first nine months of 1998 was primarily
proceeds from borrowings and the proceeds from the sale of preferred and
common stock as follows:
<TABLE>
<S> <C>
Note Payable $ 4,450,000
Issuance of Preferred Stock 6,375,000
Issuance of Common Stock 225,000
-----------
Total proceeds from financings and borrowings $11,050,000
-----------
-----------
</TABLE>
The net cash provided by proceeds from borrowings, preferred stock and
issuance of common stock was offset somewhat by principal payments on debt.
In the first nine months of 1997, net cash used in financing activities was
primarily principal payments on debt.
Conductus anticipates that its existing available cash, other sources
of liquidity and anticipated revenue, primarily from government contracts
and wireless products, should be adequate to fund the Company's operations
for at least the next nine months. There can be no assurance, however,
that changes in the Company's plans or other events affecting the Company
will not result in the expenditure of such resources before such time. The
Company continues to explore additional equity financing alternatives.
There can be no assurance that additional equity funding will be available
on acceptable terms or at all.
All of the Company's credit arrangements contain reporting and
financial covenants which the Company is required to satisfy. There can be
no assurance that the Company will satisfy all such covenants in the
future. There can be no assurance that if the Company defaults on any of
the covenants, waiver of such default could be obtained from the lender. In
the event of default on any of these covenants, no further amounts would be
advanced to the Company under any facility, the entire amounts outstanding
could become
12
<PAGE>
due and payable immediately upon default, and those assets that are
collateral could be seized, unless such default is waived by the lender.
The Company to date has received limited revenues from product sales.
The development of the Company's potential products will require a
commitment of substantial funds to conduct further research and development
and testing of its potential products, to establish commercial-scale
manufacturing and to market any resulting product. The actual amount of the
Company's future capital requirements will depend on many factors that
affects its business.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Many
computer systems and applications experience problems handling dates beyond
the year 1999, and will need to be modified before the Year 2000 in order
to remain functional. Any of the Company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900
rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company is currently expending resources to review its products,
services and internal use software to identify those products, services and
systems that are not Year 2000 compliant. The costs related to the Year
2000 issue are expensed as incurred, and represent a reallocation of
existing resources. The project comprises four phases: (1)
identification of risks, (2) assessment of those risks, (3) development of
remediation and contingency plan, and (4) implementation and testing. The
Company's Year 2000 project is currently in the assessment phase, and the
Company believes that its greatest risks are associated with its
information systems and systems embedded in its operations and
infrastructure.
The Company presently believes that the conversion of its internal
systems will mitigate the Year 2000 Issue related to information
systems. Based upon a recent assessment of the Company's sales,
manufacturing and finance systems, the Company determined that it will
be required to replace these computer systems as they do not properly
utilize dates beyond December 31, 1999. The Company is in the early
phases of the conversion process, however if the conversion is not
completed in a timely manner, the Year 2000 Issue could have a material
adverse impact on the operations of the Company. The Company is
proceeding with the assessment of risk relating to its remaining
internal systems, and determining whether it has exposure to
contingencies related to the Year 2000 Issue for the products it has
sold.
The Company estimates that the costs of the software and its
implementation will not have a material financial impact on the Company.
The Company is unable to estimate the remaining financial impact, if any,
of the Year 2000 Issue until it completes the assessment of the potential
impact of the Year 2000 Issue on its remaining internal systems, on third
parties such as its suppliers and customers, on products it has sold, and
on other factors that may come to the Company's attention.
The Company has begun formal communications with its significant
suppliers and large customers to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their own Year
2000 Issue. There can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have material adverse effect on the
Company.
13
<PAGE>
As the Year 2000 project continues, the Company may discover
additional Year 2000 problems, may not be able to develop, implement, or
test remediation or contingency plans, or may find that the costs of these
activities exceed current expectations and become material. The Companies
expectations as to the extent and timeliness of modifications required in
order to achieve Year 2000 compliance is a forward-looking statement
subject to risks and uncertainties.
ITEM 3 : QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -- NOT
APPLICABLE.
14
<PAGE>
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS - NOT APPLICABLE.
ITEM 2: CHANGES IN SECURITIES
On September 11, 1998, and September 22, 1998, the Company sold and issued an
aggregate of 2,461,227 shares of its Series B Preferred Stock at a price per
share of $2.70 and issued warrants to purchase 492,242 shares of Common Stock
at an exercise price of $2.70 per share in a private placement of its equity
securities. The offering was not underwritten and raised net proceeds of
$6,375,000. Certain affiliates of the Company and other institutional and
accredited individual investors purchased shares of Series B Preferred Stock
and warrants in such offering, which sales were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), pursuant
to Rule 506 of Regulation D under the Act.
The shares of Series B Preferred Stock are convertible on a 1-to-1 basis into
Common Stock subject to anti-dilution protections. In addition, the shares of
Series B Preferred Stock have a cumulative stock dividend of 6% and certain
liquidation preferences over the shares of Common Stock as set forth in the
Certificate of Designation of Series B Preferred Stock.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NOT APPLICABLE
ITEM 5: OTHER INFORMATION
On May 18, 1998 the Company was notified by the Nasdaq Stock Market
("Nasdaq") of Nasdaq's determination that the Company was not in compliance
with the tangible net assets requirement for continued listing of its common
stock on the Nasdaq National Market. The Company attended a Nasdaq hearing to
discuss these compliance issues. The Company has subsequently been notified
that its stock would be removed from the Nasdaq National Market and traded on
the Nasdaq SmallCap Market. Since November 10, 1998, the Company's common
stock has been traded on the Nasdaq SmallCap Market under its current trading
symbol , "CDTS". The Company has until November 18, 1998 to submit a listing
application to the Nasdaq Stock Market which must be approved for the Company
to continue listing on the Nasdaq SmallCap Market.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS - SEE BELOW.
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on September 29, 1998 describing the
sale by the Company of shares of its Series B Preferred Stock to certain
investors of the Company.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONDUCTUS, INC.
Registrant
Dated: November 16, 1998 /S/ Ainslie Mayberry
-----------------------
Ainslie Mayberry
Chief Financial Officer
and Duly Authorized Officer
/S/ Charles E. Shalvoy
-----------------------
Charles E. Shalvoy
President and Chief Executive Officer
and Duly Authorized Officer
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
- - --------
<C> <S>
3.01 Certificate of Designation of Series B Preferred Stock.
10.01 Master Loan and Security Agreement between the Company and Transamerica
Business Credit Corporation dated June 26, 1998.
10.02 Stock Subscription Warrant Agreement between the Company and
Transamerica Business Credit Corporation dated June 26, 1998.
10.03 Master Lease Agreement between the Company and Leasing Technologies
International, Inc. dated June 15, 1998.
10.04 Engagement Letter between the Company and Sutro and Co. Inc. dated
March 24, 1998.
10.05 Amendment to Engagement Letter between the Company and Sutro and Co.
Inc. dated September 2, 1998.
10.06 Engagement Letter between the Company and Davenport and Co. dated
September 02, 1998.
10.07 Form of Series B Preferred Stock and Warrant Purchase Agreement dated
September 11, 1998 and September 22, 1998 between the Company and
Series B Investors.
10.08 Form of Warrant to Purchase Common Stock between the Company and
Series B Investors.
27.01 Financial Data Schedule.
99.01 Text of Press Release dated November 10, 1998.
</TABLE>
17
<PAGE>
CERTIFICATE OF DESIGNATION
of
SERIES B PREFERRED STOCK
of
CONDUCTUS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Conductus, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on May 29, 1998:
WHEREAS, the Amended and Restated Certificate of Incorporation of
the Corporation authorizes the Preferred Stock (the "Preferred Stock") of the
Corporation to be issued in series and authorizes its board of directors
(the "Board") to determine the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and to fix the number of shares and designation of any such
series; and
WHEREAS, the Board has designated an initial series of Preferred
Stock designated as Series A Junior Participating Preferred Stock (the
"Series A Preferred");
RESOLVED, that a series of Preferred Stock shall be designated
Series B Preferred Stock (the "Series B Preferred");
RESOLVED FURTHER, that the number of shares constituting Series B
Preferred shall be Four Million Five Hundred Thousand (4,500,000) shares; and
RESOLVED FURTHER, that the Board hereby fixes and determines the
rights, preferences, privileges and restrictions relating to the Series B
Preferred as follows:
1. DIVIDEND RIGHTS OF SERIES B PREFERRED. Subject to the rights
of additional series of Preferred Stock that may be designated by the Board
from time to time, including the rights of Series A Preferred, the holders of
shares of Series B Preferred shall be entitled to receive dividends, at the
rate of $0.162 per share of Series B Preferred (as such dollar amount shall
be appropriately adjusted for stock dividends, stock combinations,
recapitalization or the like, the "Quarterly Accrual Amount") on each March
31, June 30, September 30 and December 31 (each, a "Quarterly Accrual Date")
after the date on which such share of Series B Preferred
<PAGE>
was issued (the "Original Issue Date" for such share), provided that the
amount of dividends on the first Quarterly Accrual Date after the Original
Issue Date shall equal the Quarterly Accrual Amount multiplied by a fraction
(A) the numerator of which shall equal the number of days from and including
the Original Issue Date for such share to and including such first Quarterly
Accrual Date, and (B) the denominator of which is Ninety (90). Such
dividends shall be cumulative and shall accrue, whether or not earned or
declared. Any accumulation of dividends on the Series B Preferred shall not
bear interest. Cumulative dividends with respect to a share of Series B
Preferred which are accrued, shall be paid (A) in shares of Common Stock of
the Corporation ("Common Stock"), upon conversion of such share of Series B
Preferred into Common Stock pursuant to Section 3 below, or (B) if such share
of Series B Preferred is not so converted, upon the liquidation, dissolution
or winding up of the Corporation as provided in Section 2(a).
Any dividend or distribution which is declared by the Corporation and
payable with assets of the Corporation other than cash shall be governed by
the provisions of Subsection 2(d) below.
2. LIQUIDATION PREFERENCE.
(a) Subject to the rights of additional series of Preferred Stock
that may be designated by the Board from time to time, in the event of any
liquidation, dissolution or winding up of the Corporation, either voluntarily
or involuntarily, the holders of the Series B Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
the Corporation to the holders of Common Stock, an amount per share equal to
$2.70 (the "Original Series B Purchase Price") plus any accrued but unpaid
dividends for each share of Series B Preferred then held by them, such
amounts being adjusted to reflect stock dividends, stock splits,
combinations, recapitalizations or the like after the Original Series B Issue
Date. After payment to the holders of the Series B Preferred of the amounts
set forth in this Section 2, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
among the holders of the Common Stock in proportion to the shares of Common
Stock then held by them. If, upon the occurrence of such event, the assets
thus distributed among the holders of the Series B Preferred shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among the holders of
the Series B Preferred in proportion to the number of shares of Series B
Preferred then held by them.
(b) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of the Corporation shall, unless holders of a
majority of the then outstanding shares of Series B Preferred elect
otherwise, be deemed to be occasioned by, or to include, (A) the acquisition
of the Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization,
merger or consolidation but, excluding any merger effected exclusively for
the purpose of changing the domicile of the Corporation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of
the Corporation; or (B) a sale of all or substantially all of the assets of
the Corporation.
2
<PAGE>
(ii) In any of such event, if the consideration received by
the Corporation is other than cash, its value will be deemed its fair market
value. Any securities to be delivered to the holders of the Series B
Preferred or Common Stock, as the case may be, shall be valued as follows:
(1) If traded on a securities exchange or through
the Nasdaq National Market, the value shall be deemed to be the
average of the closing prices of the securities on such exchange
over the thirty-day period ending three (3) days prior to the
closing;
(2) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty-day period ending three
(3) days prior to the closing; and
(3) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the
Corporation and the holders of at least a majority of the then
outstanding shares of Series B Preferred.
(iii) In the event the requirements of this Subsection 2(b)
are not complied with, the Corporation shall forthwith either:
(1) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(2) cancel such transaction, in which event the
respective rights, preferences and privileges of the holders of the
Series B Preferred shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date
of the first notice referred to in Subsection 2(b)(iv) below.
(iv) The Corporation shall give each holder of record of
Series B Preferred written notice of such impending transaction not later
than twenty (20) days prior to the stockholders' meeting called to approve
such transaction, or twenty (20) days prior to the closing of such
transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and the Corporation shall thereafter
give such holders prompt notice of any material changes. The transaction
shall in no event take place sooner than twenty (20) days after the
Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened
upon the Corporation's receipt of written consent of the holders of at least
a majority of the then outstanding shares of Series B Preferred entitled to
such notice rights or similar notice rights.
3
<PAGE>
3. CONVERSION. The holders of the Series B Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series B Preferred shall be
convertible, at the option of the holder thereof, at any time after the date
six (6) months following the Original Issue Date of such share, at the office
of the Corporation or any transfer agent for such stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by
dividing the Original Series B Purchase Price plus any accrued but unpaid
dividends by the Conversion Price (as defined below) applicable to such
share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The initial "Conversion Price"
per share for shares of Series B Preferred shall be the Original Series B
Purchase Price; provided, however, that the Conversion Price for the Series B
Preferred shall be subject to adjustment as set forth in subsection 3(d).
(b) AUTOMATIC CONVERSION. Each share of Series B Preferred shall
be automatically converted into shares of Common Stock at the Conversion
Price in effect at the time upon the date specified by written consent or
agreement of the holders of two-thirds of the then outstanding shares of
Series B Preferred.
(c) MECHANICS OF CONVERSION.
(i) CONVERSION PURSUANT TO SECTION 3(a). Before any holder
of Series B Preferred shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series B Preferred, and shall give written notice to the
Corporation at such office that he/she elects to convert the same, and shall
state therein the name or names which he/she wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to each
holder of Series B Preferred, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he/she shall
be entitled. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series B Preferred to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(ii) CONVERSION PURSUANT TO SECTION 3(b). If shares of
Series B Preferred are automatically converted, written notice shall be
delivered to the holder of such shares of Series B Preferred at the address
last shown on the records of the Corporation for such holder or given by such
holder to the Corporation for the purpose of notice or, if no such address
appears or is given, at the place where the principal executive office of the
Corporation is located, notifying such holder of the conversion to be
effected, specifying the date on which such conversion is expected to occur,
the number of shares of Series B Preferred to be converted and calling upon
such holder to surrender to Corporation, in the manner and at the place
designated, the certificate or certificates therefor. Upon such conversion
of the shares of Series B
4
<PAGE>
Preferred, holders shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
the Series B Preferred, and shall state therein the name or names which
he/she wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to each holder of Series B Preferred, or to his
nominee or nominees, a certificate or certificates for the number of shares
of Common Stock to which he/she shall be entitled. Any conversion of Series B
Preferred pursuant to Section 3(b) shall be deemed to have been made
immediately prior to the closing of the issuance and sale of shares as
described in Section 3(b).
(iii) FRACTIONAL SHARES. No fractional shares shall be
issued upon conversion of the Series B Preferred. In lieu of Corporation
issuing any fractional shares to holders upon the conversion of the Series B
Preferred, Corporation shall pay to such holders an amount equal to the
product obtained by multiplying the Conversion Price by the fraction of a
share not issued pursuant to the previous sentence.
(d) ADJUSTMENT OF CONVERSION RATE. The number of shares of Common
Stock into which the Series B Preferred may be converted shall be subject to
adjustment from time to time as follows:
(i) (A) If the Corporation shall issue, after the date upon
which any shares of Series B Preferred were first issued (the "Purchase
Date") and prior to the date three years following the Purchase Date, any
Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such series in
effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for such series in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price equal to the price paid per share for such Additional
Stock.
(B) No adjustment of the Conversion Price for the Series B
Preferred shall be made in an amount less than one cent per share, provided
that any adjustments that are not required to be made by reason of this
sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made
at the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for
in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price
pursuant to this subsection 3(d)(i) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect immediately prior to
such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be
5
<PAGE>
deemed to be the fair value thereof as determined by the Board irrespective
of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe
for such convertible or exchangeable securities, the following provisions
shall apply for all purposes of this subsection 3(d)(i) and subsection
3(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without
limitation, the passage of time, but without taking
into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a
consideration equal to the consideration (determined in
the manner provided in subsections 3(d)(i)(C) and
(d)(i)(D)), if any, received by the Corporation upon
the issuance of such options or rights plus the minimum
exercise price provided in such options or rights for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of, or in exchange
(assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without
limitation, the passage of time, but without taking
into account potential antidilution adjustments) for,
any such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights
were issued and for a consideration equal to the
consideration, if any, received by the Corporation for
any such securities and related options or rights
(excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such
securities or the exercise of any related options or
rights (the consideration in each case to be determined
in the manner provided in subsections 3(d)(i)(C) and
(d)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration
payable to the Corporation upon exercise of such
options or rights or upon conversion of or in exchange
for such convertible or exchangeable securities,
including, but not
6
<PAGE>
limited to, a change resulting from the antidilution
provisions thereof (unless such options or rights or
convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator
for purposes of determining the number of shares of
Common Stock outstanding for purposes of subsection
3(d)(i)(A)), the Conversion Price of the Series B
Preferred, to the extent in any way affected by or
computed using such options, rights or securities,
shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual
issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange
or the expiration of any options or rights related to
such convertible or exchangeable securities, the
Conversion Price of the Series B Preferred, to the
extent in any way affected by or computed using such
options, rights or securities or options or rights
related to such securities (unless such options or
rights were merely deemed to be included in the
numerator and denominator for purposes of determining
the number of shares of Common Stock outstanding for
purposes of subsection 3(d)(i)(A)), shall be recomputed
to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon
the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the
exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to
subsections 3(d)(i)(E)(1) and (2) shall be
appropriately adjusted to reflect any change,
termination or expiration of the type described in
either subsection 3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by
the Corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction described
in subsection 3(d)(iii) hereof;
(B) Common Stock issued in a transaction or series of
transactions resulting in gross proceeds to the Company of no more than
$1,000,000;
7
<PAGE>
(C) Shares of Common Stock issuable or issued to employees,
consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of the Corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of the Corporation;
(D) The issuance of securities pursuant to the conversion
or exercise of convertible or exercisable securities, except as provided in
Section 3(d)(i)(E); or
(E) The issuance of securities in connection with a bona
fide business acquisition of or by the Corporation, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise.
(iii) ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the event
Corporation should at any time or from time to time after the date of
issuance hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable upon conversion of the Series B Preferred
shall be increased in proportion to such increase of outstanding shares.
(iv) ADJUSTMENTS FOR REVERSE STOCK SPLITS. If the number of
shares of Common Stock outstanding at any time after the date hereof is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable
on conversion hereof shall be decreased in proportion to such decrease in
outstanding shares.
(v) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 3 or Section 2) provision shall be made so that the
holders of the Series B Preferred shall thereafter be entitled to receive
upon conversion of the Series B Preferred the number of shares of stock or
other securities or property of the Corporation or otherwise, to which a
holder of Common Stock deliverable upon conversion would have been entitled
on such recapitalization. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 3 with respect to
the rights of the holders of the Series B Preferred after the
recapitalization to the end that the provisions of this Section 3 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series B Preferred) shall be applicable
after
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that event as nearly equivalent as may be practicable.
(e) NO IMPAIRMENT. Except for taking the actions contemplated by
Section 6 below upon obtaining the vote or consent set forth therein, the
Corporation will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but it will at all times
in good faith assist in the carrying out of all of the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series B Preferred
pursuant to this Section 3, the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof
and prepare and furnish to each holder of such Series B Preferred a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Series B Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series B Preferred.
(g) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of the record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Series B Preferred, at least twenty (20) days
prior to the date specified herein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or distribution.
(h) RESERVATION OF STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock solely for the purpose of effecting the conversion of the shares
of the Series B Preferred such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series B Preferred; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding shares of the Series B Preferred, the
Corporation will take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(i) NOTICES. Any notice required by the provisions of this Section
3 to be given to the holders of shares of Series B Preferred shall be deemed
given if deposited in the
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United States mail, postage prepaid, and addressed to each holder of record
at his or her address appearing on the books of the Corporation.
4. REDEMPTION. The Series B Preferred shall not be redeemable.
5. VOTING MATTERS. Except as otherwise required by law, each share of
Series B Preferred issued and outstanding shall have the number of votes
equal to the number of shares of Common Stock into which the Series B
Preferred is convertible pursuant to Section 3 hereof. The holder of each
share of Series B Preferred shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of the Corporation, and shall vote with
the holders of the Common Stock upon any matter submitted to a vote of
stockholders, except those matters required by law to be submitted to a class
vote.
6. COVENANT. In addition to any other rights provided by law, so long
as any Series B Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the
holders of not less than seventy-five percent (75%), or two-thirds following
the sale by the Company of shares of Series B Preferred having an aggregate
purchase price of at least $6,000,000, of the then outstanding shares of all
series of Preferred Stock voting together as a single class:
(a) alter or change the rights, preferences or privileges of the
shares of the Series B Preferred;
(b) increase or decrease the authorized number of shares of the
Series B Preferred; or
(c) authorize or create any new class of shares or additional
series of Preferred Stock having rights, preferences or privileges prior to
shares of the Series B Preferred,
if such Series B Preferred would be adversely affected by such
amendment in a manner different from other than outstanding shares of
Preferred Stock (it being understood that, without limiting the foregoing,
different shares of Preferred Stock shall not be affected differently because
of differences in the amounts of their respective issue prices, liquidation
preferences and redemption prices).
7. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of
the Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
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IN WITNESS WHEREOF, said Conductus, Inc. has caused this
Certificate of Designation to be signed by the undersigned this 11th day of
September, 1998.
CONDUCTUS, INC.
/s/ CHARLES E. SHALVOY
---------------------------------------
Charles E. Shalvoy, President
Attest:
By: /s/ BROOKS STOUGH
-------------------------------
Brooks Stough, Secretary
<PAGE>
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of June 26, 1998, is made by Conductus, Inc
(the "Borrower"), a Delaware corporation having its principal place of business
and chief executive office at 969 West Maude Avenue, Sunnyvale, California,
94086 in favor of Transamerica Business Credit Corporation, a Delaware
corporation (the "Lender"), having its principal office at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans to it
from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the Lender
to e xtend credit, the Borrower hereby agrees with the Lender as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings,
and shall be equally applicable to both the singular and plural forms of the
terms defined:
AGREEMENT shall mean this Master Loan and Security Agreement together with all
schedules and exhibits hereto, as amended, supplemented, or otherwise modified
from time to time.
APPLICABLE LAW shall mean the laws of the State of Illinois (or any other
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
BUSINESS DAY shall mean any day other than a Saturday, Sunday, or public holiday
or the equivalent for banks in New York City.
CODE shall have the meaning specified in Section 8(d).
COLLATERAL shall have the meaning specified in Section 2.
COLLATERAL ACCESS AGREEMENT shall mean any landlord waiver, mortgagee waiver,
bailee letter, or similar acknowledgement of any warehouseman or processor in
possession of any Collateral.
EFFECTIVE DATE shall mean the date on which all of the conditions specified in
Section 3.3 shall have been satisfied.
EVENT OF DEFAULT shall mean any event specified in Section 7.
FINANCIAL STATEMENTS shall have the meaning specified in Section 6.1.
GAAP shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time.
INTELLECTUAL PROPERTY SECURITY AGREEMENT shall mean an Intellectual Property
Security Agreement of even date herewith, in form and substance satisfactory to
Lender.
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LOANS shall mean the loans and financial accommodations made by the Lender to
the Borrower in accordance with the terms of this Agreement and the Notes.
LOAN DOCUMENTS shall mean, collectively, this Agreement, the Notes, the
Intellectual Property Security Agreement, and all other documents, agreements,
certificates, instruments, and opinions executed and delivered in connection
herewith and therewith, as the same may be modified, extended, restated, or
supplemented from time to time.
MATERIAL ADVERSE CHANGE shall mean, with respect to any Person, a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
MATERIAL ADVERSE EFFECT shall mean, with respect to any Person, a material
adverse effect on the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
NOTE shall mean each Promissory Note made by the Borrower in favor of the
Lender, as amended, supplemented, or otherwise modified from time to time.
OBLIGATIONS shall mean all indebtedness, obligations, and liabilities of the
Borrower under the Notes and under this Agreement, whether on account of
principal, interest, indemnities, fees (including, without limitation,
attorneys' fees, remarketing fees, origination fees, collection fees, and all
other professionals' fees), costs, expenses, taxes, or otherwise.
PERMITTED LIENS shall mean such of the following as to which no enforcement,
collection, execution, levy, or foreclosure proceeding shall have been
commenced: (a) liens for taxes, assessments, and other governmental charges or
levies or the claims or demands of landlords, carriers, warehousemen, mechanics,
laborers, materialmen, and other like Persons arising by operation of law in the
ordinary course of business for sums which are not yet due and payable, or liens
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP; (b) deposits or pledges to secure the payment of
worker's compensation, unemployment insurance, or other social security benefits
or obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business; (c) licenses, restrictions, or covenants for or on
the use of the Collateral which do not materially impair either the use of the
Collateral in the operation of the business of the Borrower or the value of the
Collateral; and (d) attachment or judgment liens that do not constitute an Event
of Default.
PERSON shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, entity, party,
or government (including any division, agency, or department thereof), and the
successors, heirs, and assigns of each.
SCHEDULE shall mean each Schedule in the form of Schedule A hereto delivered by
the Borrower to the Lender from time to time.
SOLVENT means, with respect to any Person, that as of the date as to which such
Person's solvency is measured:
(a) the fair saleable value of its assets is in excess of the total amount
of its liabilities (including contingent liabilities as valued in accordance
with GAAP) as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
TAXES shall have the meaning specified in Section 5.5.
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SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. Lender shall
have a first priority interest in fixed assets and a second priority interest in
other Collateral. The Borrower hereby assigns and grants to the Lender a
continuing general lien on, and security interest in, all the Borrower's right,
title, and interest in and to all of the following collateral (the "Collateral")
to secure the payment and performance of all the Obligations:
(a) All equipment in all of its forms, whether owned or leased
by the Borrower, wherever located, now or hereafter existing (including, without
limitation, all laboratory equipment, machinery, office equipment and supplies,
computers and related hardware, furnishings, fixtures, manufacturing implements,
trucks, trailers and motor vehicles and all equipment employed in the operation
of the business of the Borrower), and all parts thereof and all accessions and
attachments thereto and substitutions, repairs or improvements thereof;
(b) All inventory in all of its forms, wherever located, now or
hereafter existing;
(c) All accounts, contract rights, chattel paper, instruments,
general intangibles and other obligations of any kind, now or hereafter
existing, whether or not arising out of or in connection with the sale or lease
of goods or the rendering of services, and all rights now or hereafter existing
in and to all security agreements, leases, and other contracts securing or
otherwise relating to any such accounts, contract rights, chattel paper,
instruments, general intangibles or obligations;
(d) All other personal property in all of its forms, wherever
located and whether now owned or hereafter acquired; and
(e) All proceeds of any and all of the foregoing (including,
without limitation, proceeds which constitute property of the types described in
clauses (a), (b) and (c) of this Section 2 and, to the extent not otherwise
included, all payment under insurance (whether or not the Lender is a loss payee
thereof), and any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise in respect to any of the foregoing.
SECTION 3. THE CREDIT FACILITY.
SECTION 3.1. BORROWINGS. Each Loan shall be in an amount not
less than $50,000, and in no event shall the sum of the aggregate Loans made
exceed the amount of the Lender's written commitment to the Borrower in effect
from time to time. Notwithstanding anything herein to the contrary, the Lender
shall be obligated to make the initial Loan and each other Loan only after the
Lender, in its sole discretion, determines that the applicable conditions for
borrowing contained in Section 3.3 are satisfied. The timing and financial
scope of Lender's obligation to make Loans hereunder are limited as set forth in
a commitment letter executed by Lender and Borrower, dated as of April 22, 1998
and attached hereto as Exhibit A (the "Commitment Letter").
SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall not
directly or indirectly use any proceeds of the Loans, or cause, assist, suffer,
or permit the use of any proceeds of the Loans, for any purpose other than for
the general working capital needs of the Borrower.
SECTION 3.3. CONDITIONS TO LENDING.
(a) The obligation of the Lender to make the Loans is subject to the
Lender's receipt of the following, each dated the date of the initial Loan or as
of an earlier date acceptable to the Lender, in form and substance satisfactory
to the Lender and its counsel:
(i) completed requests for information (Form UCC-11) listing
all effective Uniform Commercial Code financing statements naming the
Borrower as debtor and all tax lien, judgment, and litigation searches
for the Borrower as the Lender shall deem necessary or desirable;
(ii) Uniform Commercial Code financing statements (Form UCC-1)
duly executed
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by the Borrower (naming the Lender as secured party and the Borrower
as debtor and in form acceptable for filing in all jurisdictions that
the Lender deems necessary or desirable to perfect the security
interests granted to it hereunder) and, if applicable, termination
statements or other releases duly filed in all jurisdictions that
the Lender deems necessary or desirable to perfect and protect the
priority of the security interests granted to it hereunder in the
Collateral;
(iii) a Note duly executed by the Borrower evidencing the
amount of such Loan;
(iv) a Collateral Access Agreement duly executed by the lessor
or mortgagee, as the case may be, of each premises where the
Collateral is located;
(v) certificates of insurance required under Section 5.4 of
this Agreement together with loss payee endorsements for all such
policies naming the Lender as lender loss payee and as an additional
insured;
(vi) a copy of the resolutions of the Board of Directors of
the Borrower (or a unanimous consent of directors in lieu thereof)
authorizing the execution, delivery, and performance of this
Agreement, the other Loan Documents, and the transactions contemplated
hereby and thereby, attached to which is a certificate of the
Secretary or an Assistant Secretary of the Borrower certifying
(A) that the copy of the resolutions is true, complete, and accurate,
that such resolutions have not been amended or modified since the date
of such certification and are in full force and effect and (B) the
incumbency, names, and true signatures of the officers of the Borrower
authorized to sign the Loan Documents to which it is a party;
(vii) an Intellectual Property Security Agreement duly executed
by the Borrower specifically identifying and granting to the Lender a
security interest in all of Borrower's intellectual property; and
(vii) such other agreements and instruments as the Lender deems
necessary in its sole and absolute discretion in connection with the
transactions contemplated hereby.
(b) There shall be no pending or, to the knowledge of the Borrower
after due inquiry, threatened litigation, proceeding, inquiry, or other action
(i) seeking an injunction or other restraining order, damages, or other relief
with respect to the transactions contemplated by this Agreement or the other
Loan Documents or thereby or (ii) which affects or could affect the business,
prospects, operations, assets, liabilities, or condition (financial or
otherwise) of the Borrower, except, in the case of clause (ii), where such
litigation, proceeding, inquiry, or other action could not be expected to have a
Material Adverse Effect in the judgment of the Lender.
(c) The Borrower shall have paid all fees and expenses required to be
paid by it to the Lender as of such date.
(d) The security interests in the Collateral granted in favor of the
Lender under this Agreement shall have been duly perfected and shall constitute
first or second priority liens, as applicable.
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS. The
Borrower (a) is duly organized, validly existing, and in good standing under the
laws of the State of its organization, (b) has the power and authority to own
its properties and assets and to transact the businesses in which it is
presently, or proposes to be, engaged, and (c) is duly qualified and authorized
to do business and is in good standing in every jurisdiction in which the
failure to be so qualified could have a Material Adverse Effect on (i) the
Borrower, (ii) the Borrower's ability to perform its obligations under the Loan
Documents, or (iii) the rights of the Lender hereunder.
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SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery, and
performance by the Borrower of each of the Loan Documents to which it is a party
are within the powers of the Borrower, do not contravene the organizational
documents, if any, of the Borrower, and do not (a) violate any law or
regulation, or any order or decree of any court or governmental authority,
(b) conflict with or result in a breach of, or constitute a default under, any
material indenture, mortgage, or deed of trust or any material lease, agreement,
or other instrument binding on the Borrower or any of its properties, or
(c) require the consent, authorization by, or approval of or notice to or filing
or registration with any governmental authority or other Person. This Agreement
is, and each of the other Loan Documents to which the Borrower is or will be a
party, when delivered hereunder or thereunder, will be, the legal, valid, and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, or similar laws affecting creditors' rights generally
and by general principles of equity.
SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent and
will be Solvent upon the completion of all transactions contemplated to occur
hereunder (including, without limitation, the Loan to be made on the Effective
Date); the security interests granted herein constitute and shall at all times
constitute the first and only liens on the Collateral other than Permitted
Liens; and the Borrower is, or will be at the time additional Collateral is
acquired by it, the owner of the Collateral with full right to pledge, sell,
consign, transfer, and create a security interest therein, free and clear of any
and all claims or liens in favor of any other Person other than Permitted Liens.
Section 4.4. NO JUDGMENTS, LITIGATION. No judgments are
outstanding against the Borrower nor is there now pending or, to the best of the
Borrower's knowledge after diligent inquiry, threatened any litigation,
contested claim, or governmental proceeding by or against the Borrower except
judgments and pending or threatened litigation, contested claims, and
governmental proceedings which would not, in the aggregate, have a Material
Adverse Effect on the Borrower.
SECTION 4.5. NO DEFAULTS. The Borrower is not in default or
has not received a notice of default under any material contract, lease, or
commitment to which it is a party or by which it is bound. The Borrower knows
of no dispute regarding any contract, lease, or commitment which could have a
Material Adverse Effect on the Borrower.
SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof, each
item of the Collateral is located at the place of business specified in the
applicable Schedule.
SECTION 4.7. NO EVENTS OF DEFAULT. No Event of Default has
occurred and is continuing nor has any event occurred which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default.
SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. Except as
permitted herein, none of the Collateral is subject to contractual obligations
that may restrict or inhibit the Lender's rights or abilities to sell or dispose
of the Collateral or any part thereof after the occurrence of an Event of
Default.
SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST.
This Agreement creates a valid and, upon completion of all required filings of
financing statements, perfected first priority and exclusive security interest
in the Collateral, securing the payment of all the Obligations.
SECTION 4.10. ACCURACY AND COMPLETENESS OF INFORMATION. All
data, reports, and information heretofore, contemporaneously, or hereafter
furnished by or on behalf of the Borrower in writing to the Lender or for
purposes of or in connection with this Agreement or any other Loan Document, or
any transaction contemplated hereby or thereby, are or will be true and accurate
in all material respects on the date as of which such data, reports, and
information are dated or certified and not incomplete by omitting to state any
material fact necessary to make such data, reports, and information not
misleading at such time. There are no facts now known to the Borrower which
individually or in the aggregate would reasonably be expected to have a Material
Adverse Effect and which have not been specified herein, in the Financial
Statements, or in any certificate, opinion, or other
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written statement previously furnished by the Borrower to the Lender.
SECTION 5. COVENANTS OF THE BORROWER.
SECTION 5.1. EXISTENCE, ETC. The Borrower shall: (a) retain
its existence and its current yearly accounting cycle, (b) maintain in full
force and effect all licenses, bonds, franchises, leases, trademarks, patents,
contracts, and other rights necessary to the profitable conduct of its business
unless the failure to do so could not reasonably be expected to have a Material
Adverse Effect on the Borrower, (c) continue in, and limit its operations to,
the same general lines of business as those presently conducted or proposed to
be conducted by it, and (d) comply with all applicable laws and regulations of
any federal, state, or local governmental authority, except for such laws and
regulations the violations of which would not, in the aggregate, have a Material
Adverse Effect on the Borrower.
SECTION 5.2. NOTICE TO THE LENDER. As soon as possible, and in
any event within five Business Days after the Borrower learns of the following,
the Borrower will give written notice to the Lender of (a) any proceeding
instituted or threatened to be instituted by or against the Borrower in any
federal, state, local, or foreign court or before any commission or other
regulatory body (federal, state, local, or foreign) involving a sum, together
with the sum involved in all other similar proceedings, in excess of $50,000 in
the aggregate, (b) any contract that is terminated or amended and which has had
or could reasonably be expected to have a Material Adverse Effect on the
Borrower, (c) the occurrence of any Material Adverse Change with respect to the
Borrower, and (d) the occurrence of any Event of Default or event or condition
which, with notice or lapse of time or both, would constitute an Event of
Default, together with a statement of the action which the Borrower has taken or
proposes to take with respect thereto.
SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The Borrower
will maintain books and records pertaining to the Collateral in such detail,
form, and scope as the Lender shall reasonably require in its commercially
reasonable judgment. The Borrower agrees that the Lender or its agents may
enter upon the Borrower's premises at any time and from time to time during
normal business hours, and at any time upon the occurrence and continuance of an
Event of Default, for the purpose of inspecting the Collateral and any and all
records pertaining thereto.
Section 5.4. INSURANCE. The Borrower will maintain insurance
on the Collateral under such policies of insurance, with such insurance
companies, in such amounts, and covering such risks as are at all times
satisfactory to the Lender. All such policies shall be made payable to the
Lender, in case of loss, under a standard non-contributory "lender" or "secured
party" clause and are to contain such other provisions as the Lender may
reasonably require to protect the Lender's interests in the Collateral and to
any payments to be made under such policies. Certificates of insurance policies
are to be delivered to the Lender, premium prepaid, with the loss payable
endorsement in the Lender's favor, and shall provide for not less than thirty
days' prior written notice to the Lender, of any alteration or cancellation of
coverage. If the Borrower fails to maintain such insurance, the Lender may
arrange for (at the Borrower's expense and without any responsibility on the
Lender's part for) obtaining the insurance. Unless the Lender shall otherwise
agree with the Borrower in writing, the Lender shall have the right, in the name
of the Lender or the Borrower, to file claims under any insurance policies, to
receive and give acquittance for any payments that may be payable thereunder,
and to execute any endorsements, receipts, releases, assignments, reassignments,
or other documents that may be necessary to effect the collection, compromise,
or settlement of any claims under any such insurance policies.
SECTION 5.5. TAXES. The Borrower will pay, when due, all
taxes, assessments, claims, and other charges ("Taxes") lawfully levied or
assessed against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by the
Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, or if any lien shall be claimed therefor, then,
without notice to the Borrower, but on the Borrower's behalf, the Lender may pay
such Taxes, and the amount thereof shall be included in the Obligations.
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SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES
ON COLLATERAL. The Borrower will defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein.
The Borrower will not permit any notice creating or otherwise relating to liens
on the Collateral or any portion thereof to exist or be on file in any public
office other than Permitted Liens. The Borrower shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license fees,
registration fees, assessments, charges, permit fees, and taxes (municipal,
state, and federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale, or use of the Collateral, other than taxes
on or measured by the Lender's income and fees, assessments, charges, and taxes
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.
SECTION 5.7. NO CHANGE OF LOCATION, STRUCTURE, OR IDENTITY.
The Borrower will not (a) change the location of its chief executive office or
establish any place of business other than those specified herein or (b) move or
permit the movement of any item of Collateral from the location specified in the
applicable Schedule, except that the Borrower may change its chief executive
office and keep Collateral at other locations within the United States provided
that the Borrower has delivered to the Lender (i) prior written notice thereof
and (ii) duly executed financing statements and other agreements and instruments
(all in form and substance satisfactory to the Lender) necessary or, in the
opinion of the Lender, desirable to perfect and maintain in favor of the Lender
a first or second priority security interest, as applicable, in the Collateral.
Notwithstanding anything to the contrary in the immediately preceding sentence,
the Borrower may keep any Collateral consisting of motor vehicles, notebook
computers, field testing equipment and mobile communications devices or rolling
stock at any location in the United States provided that the Lender's security
interest in any such Collateral is conspicuously marked on the certificate of
title thereof and the Borrower has complied with the provisions of Section 5.9.
SECTION 5.8. USE OF COLLATERAL; LICENSES; REPAIR. The
Collateral shall be operated by competent, qualified personnel in connection
with the Borrower's business purposes, for the purpose for which the Collateral
was designed and in accordance with applicable operating instructions, laws, and
government regulations, and the Borrower shall use every reasonable precaution
to prevent loss or damage to the Collateral from fire and other hazards. The
Borrower shall procure and maintain in effect all orders, licenses,
certificates, permits, approvals, and consents required by federal, state, or
local laws or by any governmental body, agency, or authority in connection with
the delivery, installation, use, and operation of the Collateral.
SECTION 5.9. FURTHER ASSURANCES. The Borrower will, promptly
upon request by the Lender, execute and deliver or use its best efforts to
obtain any document required by the Lender (including, without limitation,
warehouseman or processor disclaimers, mortgagee waivers, landlord disclaimers,
or subordination agreements with respect to the Obligations and the Collateral),
give any notices, execute and file any financing statements, mortgages, or other
documents (all in form and substance satisfactory to the Lender), mark any
chattel paper, deliver any chattel paper or instruments to the Lender, and take
any other actions that are necessary or, in the opinion of the Lender, desirable
to perfect or continue the perfection and the first priority of the Lender's
security interest in the Collateral, to protect the Collateral against the
rights, claims, or interests of any Persons, or to effect the purposes of this
Agreement. The Borrower hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Borrower where permitted
by law. A carbon, photographic, or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. To the extent
required under this Agreement, the Borrower will pay all costs incurred in
connection with any of the foregoing.
SECTION 5.10. NO DISPOSITION OF COLLATERAL. The Borrower will
not in any way hypothecate or create or permit to exist any lien, security
interest, charge, or encumbrance on or other interest in any of the Collateral,
except for the lien and security interest granted hereby and Permitted Liens
which are junior to the lien and security interest of the Lender, and the
Borrower will not sell, transfer, assign, pledge, collaterally assign, exchange,
or otherwise dispose of any of the Collateral. In the event the Collateral, or
any part thereof, is sold, transferred, assigned, exchanged, or otherwise
disposed of in violation of these provisions, the security interest of the
Lender shall continue in such Collateral or part thereof notwithstanding such
sale, transfer, assignment,
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exchange, or other disposition, and the Borrower will hold the proceeds thereof
in a separate account for the benefit of the Lender. Following such a sale, the
Borrower will transfer such proceeds to the Lender in kind.
SECTION 5.11. NO LIMITATION ON LENDER'S RIGHTS. Except for
contracts in the ordinary course of business (including government contracts,
technology licensing agreements and joint venture agreements), the Borrower will
not enter into any contractual obligations which may restrict or inhibit the
Lender's rights or ability to sell or otherwise dispose of the Collateral or any
part thereof.
SECTION 5.12. PROTECTION OF COLLATERAL. Upon notice to the
Borrower (provided that if an Event of Default has occurred and is continuing
the Lender need not give any notice), the Lender shall have the right at any
time to make any payments and do any other acts the Lender may deem necessary to
protect its security interests in the Collateral, including, without limitation,
the rights to satisfy, purchase, contest, or compromise any encumbrance, charge,
or lien which, in the reasonable judgment of the Lender, appears to be prior to
or superior to the security interests granted hereunder, and appear in, and
defend any action or proceeding purporting to affect its security interests in,
or the value of, any of the Collateral. The Borrower hereby agrees to reimburse
the Lender for all payments made and expenses incurred under this Agreement
including fees, expenses, and disbursements of attorneys and paralegals
(including the allocated costs of in-house counsel) acting for the Lender,
including any of the foregoing payments under, or acts taken to protect its
security interests in, any of the Collateral, which amounts shall be secured
under this Agreement, and agrees it shall be bound by any payment made or act
taken by the Lender hereunder absent the Lender's gross negligence or willful
misconduct. Notwithstanding the foregoing, the Lender shall have no obligation
to make any of the foregoing payments or perform any of the foregoing acts or to
participate in or perform any act relating to any litigation involving
Borrower's Intellectual Property Collateral (as defined in the Intellectual
Property Agreement).
SECTION 5.13. DELIVERY OF ITEMS. The Borrower will (a) promptly
(but in no event later than one Business Day) after its receipt thereof, deliver
to the Lender any documents or certificates of title issued with respect to any
property included in the Collateral, and any promissory notes, letters of credit
or instruments related to or otherwise in connection with any property included
in the Collateral, which in any such case come into the possession of the
Borrower, or shall cause the issuer thereof to deliver any of the same directly
to the Lender, in each case with any necessary endorsements in favor of the
Lender and (b) deliver to the Lender as soon as available copies of any and all
press releases and other similar communications issued by the Borrower.
SECTION 5.14. SOLVENCY. The Borrower shall be and remain
Solvent at all times.
SECTION 5.15. FUNDAMENTAL CHANGES. The Borrower shall not
(a) amend or modify its name, unless the Borrower delivers to the Lender thirty
days prior to any such proposed amendment or modification written notice of such
amendment or modification and within ten days before such amendment or
modification delivers executed Uniform Commercial Code financing statements (in
form and substance satisfactory to the Lender) or (b) merge or consolidate with
any other entity or make any material change in its capital structure, in each
case without the Lender's prior written consent which shall not be unreasonably
withheld, provided, however, that nothing herein shall prevent Borrower from
entering into such a transaction without Lender's consent if Borrower fully
discharges all of its Obligations hereunder at or before the closing of such
transaction.
SECTION 5.16. ADDITIONAL REQUIREMENTS. The Borrower shall take
all such further actions and execute all such further documents and instruments
as the Lender may reasonably request.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and satisfaction
in full of all Obligations, the Borrower shall deliver to the Lender the
following financial information:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as
available, but not later than 120 days after the end of each fiscal year of the
Borrower and its consolidated subsidiaries, the consolidated balance sheet,
income statement, and statements of cash flows and shareholders equity for the
Borrower and its consolidated subsidiaries (the "Financial Statements") for such
year, reported on by independent certified public accountants without an adverse
qualification; and
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SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but not later than 60 days after the end of each of the first three
fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects (subject to normal year-end audit adjustments).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within five Business Days
of when due any amount required to be paid by the Borrower under or in
connection with any Note and this Agreement;
(b) any representation or warranty made or deemed made by the
Borrower under or in connection with any Loan Document or any Financial
Statement shall prove to have been false or incorrect in any material respect
when made;
(c) the Borrower shall fail to perform or observe (i) any of
the terms, covenants or agreements contained in Sections 5.4, 5.7, 5.10, 5.14,
or 5.15 hereof or (ii) any other term, covenant, or agreement contained in any
Loan Document (other than the other Events of Default specified in this Section
7) and such failure remains unremedied for the earlier of fifteen Business Days
from (A) the date on which the Lender has given the Borrower written notice of
such failure and (B) the date on which the Borrower knew or should have known of
such failure;
(d) any provision of any Loan Document to which the Borrower
is a party shall for any reason cease to be valid and binding on the Borrower,
or the Borrower shall so state;
(e) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts as they
mature, admission in writing by the Borrower of its inability generally to pay
its debts as they mature, or calling of a meeting of the Borrower's creditors
for purposes of compromising any of the Borrower's debts;
(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof, or any action by the
Borrower is taken authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made by the
Borrower, whether voluntary or involuntary, the appointment of a trustee,
custodian, receiver, or similar official for the Borrower or for any substantial
property of the Borrower, or any action by the Borrower authorizing any such
proceeding;
(h) the Borrower shall default in (i) the payment of
principal or interest on any indebtedness in in an aggregate amount of at least
$250,000 (other than the Obligations) beyond the period of grace, if any,
provided in the instrument or agreement under which such indebtedness was
created; or (ii) the observance or performance of any other agreement or
condition relating to any such indebtedness or contained in any instrument or
agreement relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such indebtedness to cause, with the giving of
notice if required, such indebtedness to become due prior to its stated
maturity; or (iii) any loan or other agreement under which the Borrower has
received financing from Transamerica Corporation or any of its affiliates;
(i) any tax lien, other than a Permitted Lien, is filed of
record against the Borrower and is not bonded or discharged within five Business
Days;
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(j) any judgment which has had or could reasonably be
expected to have a Material Adverse Effect on the Borrower in an aggregate
amount of at least $250,000 and such judgment shall not be stayed, vacated,
bonded, or discharged within sixty days;
(k) any material covenant, agreement, or obligation, as
determined in the good faith business judgment of the Lender, made by the
Borrower and contained in or evidenced by any of the Loan Documents shall cease
to be enforceable, or shall be determined to be unenforceable, in accordance
with its terms; the Borrower shall deny or disaffirm the Obligations under any
of the Loan Documents or any liens granted in connection therewith; or any liens
granted on any of the Collateral in favor of the Lender shall be determined to
be void, voidable, or invalid, or shall not be given the priority contemplated
by this Agreement; or
(l) there is a change in more than 35% of the ownership of
any equity interests of the Borrower on the date hereof or more than 35% of such
interests become subject to any contractual, judicial, or statutory lien,
charge, security interest, or encumbrance.
SECTION 8. REMEDIES. If any Event of Default shall have occurred
and be continuing:
(a) The Lender may, without prejudice to any of its other
rights under any Loan Document or Applicable Law, declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 7(f) hereof, in which case all Obligations shall automatically
become immediately due and payable without necessity of any declaration) without
presentment, representation, demand of payment, or protest, which are hereby
expressly waived.
(b) The Lender may take possession of the Collateral and, for
that purpose may enter, with the aid and assistance of any person or persons,
any premises where the Collateral or any part hereof is, or may be placed, and
remove the same.
(c) The obligation of the Lender, if any, to make additional
Loans or financial accommodations of any kind to the Borrower shall immediately
terminate.
(d) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein (or in any Loan
Document) or otherwise available to it, all the rights and remedies of a secured
party under the applicable Uniform Commercial Code (the "Code") whether or not
the Code applies to the affected Collateral and also may (i) require the
Borrower to, and the Borrower hereby agrees that it will at its expense and upon
request of the Lender forthwith, assemble all or part of the Collateral as
directed by the Lender and make it available to the Lender at a place to be
designated by the Lender that is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Lender's
offices or elsewhere, for cash, on credit, or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(e) All cash proceeds received by the Lender in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part by
the Lender against, all or any part of the Obligations in such order as the
Lender shall elect. Any surplus of such cash or cash proceeds held by the
Lender and remaining after the full and final payment of all the Obligations
shall be paid over to the Borrower or to such other Person to which the Lender
may be required under applicable law, or directed by a court of competent
jurisdiction, to make payment of such surplus.
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SECTION 9. MISCELLANEOUS PROVISIONS.
SECTION 9.1. NOTICES. Except as otherwise provided herein, all
notices, approvals, consents, correspondence, or other communications required
or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to the Lender, then to Transamerica Technology Finance
Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department, and if to the Borrower, then to Conductus,
Inc., 969 West Maude Avenue, , Sunnyvale, California 94086, Attention: Chief
Financial Officer or such other address as shall be designated by the Borrower
or the Lender to the other party in accordance herewith. All such notices and
correspondence shall be effective when received.
SECTION 9.2. HEADINGS. The headings in this Agreement are for
purposes of reference only and shall not affect the meaning or construction of
any provision of this Agreement.
SECTION 9.3. ASSIGNMENTS. The Borrower shall not have the
right to assign any Note or this Agreement or any interest therein unless the
Lender shall have given the Borrower prior written consent and the Borrower and
its assignee shall have delivered assignment documentation in form and substance
satisfactory to the Lender in its sole discretion. The Lender may assign its
rights and delegate its obligations under any Note or this Agreement.
SECTION 9.4. AMENDMENTS, WAIVERS, AND CONSENTS. Any amendment
or waiver of any provision of this Agreement and any consent to any departure by
the Borrower from any provision of this Agreement shall be effective only by a
writing signed by the Lender and shall bind and benefit the Borrower and the
Lender and their respective successors and assigns, subject, in the case of the
Borrower, to the first sentence of Section 9.3.
SECTION 9.5. INTERPRETATION OF AGREEMENT. Time is of the
essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in a Note shall have the meaning set forth in the
applicable Code, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with any Note, or any term or
provision thereof, and is not dealt with herein with more specificity, this
Agreement shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Agreement shall not be relevant in determining the meaning of this
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
SECTION 9.6. CONTINUING SECURITY INTEREST. This Agreement
shall create a continuing security interest in the Collateral and shall
(i) remain in full force and effect until the indefeasible payment in full of
the Obligations, (ii) be binding upon the Borrower and its successors and
assigns and (iii) inure, together with the rights and remedies of the Lender
hereunder, to the benefit of the Lender and its successors, transferees, and
assigns.
Section 9.7. REINSTATEMENT. To the extent permitted by law,
this Agreement and the rights and powers granted to the Lender hereunder and
under the Loan Documents shall continue to be effective or be reinstated if at
any time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
SECTION 9.8. SURVIVAL OF PROVISIONS. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the full
and final payment and performance by the Borrower of the Obligations secured
hereby.
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SECTION 9.9. INDEMNIFICATION. The Borrower agrees to indemnify
and hold harmless the Lender and its directors, officers, agents, employees, and
counsel from and against any and all costs, expenses, claims, or liability
incurred by the Lender or such Person hereunder and under any other Loan
Document or in connection herewith or therewith, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of the Lender
or such Person.
SECTION 9.10. COUNTERPARTS; TELECOPIED SIGNATURES. This
Agreement may be executed in counterparts, each of which when so executed and
delivered shall be an original, but both of which shall together constitute one
and the same instrument. This Agreement and each of the other Loan Documents
and any notices given in connection herewith or therewith may be executed and
delivered by telecopier or other facsimile transmission all with the same force
and effect as if the same was a fully executed and delivered original manual
counterpart.
SECTION 9.11. SEVERABILITY. In case any provision in or
obligation under this Agreement or any Note or any other Loan Document shall be
invalid, illegal, or unenforceable in any jurisdiction, the validity, legality,
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 9.12. DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or
omission of the Lender to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by the Lender of any right or remedy shall
preclude any other or further exercise thereof, or preclude any other right or
remedy.
SECTION 9.13. ENTIRE AGREEMENT. The Borrower and the Lender
agree that this Agreement, the Schedule hereto, and the Commitment Letter are
the complete and exclusive statement and agreement between the parties with
respect to the subject matter hereof, superseding all proposals and prior
agreements, oral or written, and all other communications between the parties
with respect to the subject matter hereof. Should there exist any inconsistency
between the terms of the Commitment Letter and this Agreement, the terms of this
Agreement shall prevail.
SECTION 9.14. SETOFF. In addition to and not in limitation of
all rights of offset that the Lender may have under Applicable Law, and whether
or not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the payment
of the Obligations of the Borrower all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
SECTION 9.15. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.16. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
SECTION 9.17. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE
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AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH
ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION
OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT TO INTERPOSE
ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH
RESPECT TO RIGHTS AND REMEDIES.
IN WITNESS WHEREOF, the undersigned Borrower has caused this
Agreement to be duly executed and delivered by its proper and duly authorized
officer as of the date first set forth above.
CONDUCTUS, INC.
By: /s/ Charles E. Shalvoy
--------------------------------------------------
Name: Charles E. Shalvoy
Title: President & CEO
Federal Tax ID: 77-0162388
Accepted as of the
____ day of June, 1998
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Gary P. Moro
------------------------------------
Name: Gary P. Moro
Title: Vice President
Form16
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INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT is made and entered into
as of this 26th day of June, 1998 (this "Agreement"), between CONDUCTUS,
INC., a Delaware corporation (the "Debtor"), with and in favor of
TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation (the
"Secured Party").
WHEREAS, the Debtor is entering into a Master Loan and Security
Agreement dated as of even date herewith (as amended, supplemented or
otherwise modified from time to time, the "Master Agreement"; terms which
are capitalized herein and not otherwise defined shall have the meanings
given to them in the Master Agreement) with the Secured Party, pursuant to
which the Debtor is obligated to make certain payments to the Secured Party;
and
WHEREAS, in connection with the Master Agreement, the Debtor is
required to grant to the Secured Party a security interest in and lien on
substantially all of its assets; and
WHEREAS, it is a condition precedent to the effectiveness of the
Master Agreement that the Debtor shall have executed and delivered this
Agreement and granted a security interest in all of the Debtor's right, title
and interest in and to all of the Intellectual Property Collateral (as
hereinafter defined) in favor of the Secured Party, as contemplated hereby.
NOW, THEREFORE, in consideration of the premises hereof and to induce
the Secured Party to enter into the Master Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. SECURITY FOR OBLIGATIONS.
(a) SECURITY INTEREST IN PATENTS. To secure the full and prompt
payment and performance when due (whether at stated maturity, by acceleration
or otherwise) of all of the Obligations, the Debtor hereby grants and conveys
to the Secured Party a second and valid security interest in, with a power of
sale to the extent permitted by law, all of its right, title and interest in
the United States and throughout the world, in and to all of its now owned
and hereafter acquired United States and foreign patents and all patent and
design patent applications, and all issues, reissues, re-examinations,
continuations, continuations-in-part or divisions thereof, and all proceeds
thereof (hereinafter collectively referred to as the "Patents"). All
unexpired patents and all currently pending patent applications owned or
licensed (to the extent permitted by the applicable license) by the Debtor
are listed on Schedule A attached hereto and made a part hereof. Subject to
the provisions of Section 2(n), the Debtor hereby further grants, assigns and
conveys to the Secured Party a second and valid security interest, having
priority over all other security interests and with power of sale at any
time, in all of the right, title and interest of the Debtor in and to all
products, proceeds, income, royalties, damages and payments now or hereafter
due and payable under or in respect of all Patents and, subject to the
provisions of Section 2(n), in and to all rights during the term of this
Agreement to sue, collect and retain for the Secured Party's benefit damages
and payments for past or future infringements of the Patents.
(b) SECURITY INTEREST IN TRADEMARKS. To secure the payment and
performance of all of the Obligations, the Debtor hereby grants and conveys
to the Secured Party a first and valid security interest in, with a power of
sale to the extent permitted by applicable law, all of its right, title and
interest, in the United States and throughout the world, in and to all of its
now owned and hereafter acquired trademarks, service marks and trade names,
and all variants thereof (whether or not such name is the subject of a
registration or an application therefor), and all registrations and
applications to register the same, and all renewals thereof, and the goodwill
of the business relating thereto, and all proceeds thereof (hereinafter
collectively referred to as the "Trademarks"). All United States trademark
registrations and all currently pending trademark applications owned or
licensed (to the extent permitted by the applicable license) by the Debtor
and all foreign trademark registrations and all currently pending trademark
applications in which the Debtor has an interest, are listed on Schedule B
attached hereto and made a part hereof. Subject to the provisions of Section
2(n), the Debtor hereby further grants to the Secured Party a second and
valid security interest in all of its right, title and interest in and to (i)
all products, proceeds, income, royalties,
<PAGE>
damages and payments now and hereafter due and payable under or in respect of
all Trademarks, (ii) subject to the provisions of Section 2(n), all rights
during the term of this Agreement to sue, collect and retain for the Secured
Party's benefit damages and payments for past or future infringements of the
Trademarks and (iii) all rights under or interest in any trademark license
agreements or service mark license agreements with any other party, whether
the Debtor is a licensee or licensor under any such license agreement, and the
right to prepare for sale and sell any and all assets now or hereafter owned
by the Debtor and now or hereafter covered by such licenses.
(c) SECURITY INTEREST IN COPYRIGHTS. To secure the payment and
performance of all of the Obligations, the Debtor hereby grants to the
Secured Party a first and valid security interest in all of its right, title
and interest, in the United States and throughout the world, in and to all of
its now owned and hereafter acquired copyrights, and all registrations and
applications to register the same, all renewals thereof, any written
agreement, naming the Debtor as licensor or licensee, granting any right
under any copyright, any work which is or may be subject to copyright
protection pursuant to Title 17 of the U.S. Code, and all physical things
embodying such works (including, without limitation, copies thereof) created
or otherwise used in the business of the Debtor, and all proceeds thereof
(hereinafter collectively referred to as the "Copyrights"). All copyright
registrations and all currently pending copyright applications owned or
licensed (to the extent permitted by the applicable license) by the Debtor
are listed on Schedule C attached hereto and made a part hereof. Subject to
the provisions of Section 2(n), the Debtor hereby further grants to the
Secured Party a second and valid security interest in all of its right, title
and interest in and to all products, proceeds, income, royalties, damages and
payments now and hereafter due and payable under or in respect of all
Copyrights and, subject to the provisions of Section 2(n), in and to all
rights during the term of this Agreement to sue, collect and retain for the
Secured Party's benefit damages and payments for past or future infringements
of the Copyrights.
(d) SECURITY INTEREST IN PROPRIETARY INFORMATION. To secure the
payment and performance of all of the Obligations, the Debtor hereby grants
to the Secured Party a second and valid security interest in all of its
right, title and interest, in the United States and throughout the world, in
and to all of its now owned and hereafter acquired inventions, discoveries,
trade secrets, improvements, processes, methods, formulae, applications,
ideas, know-how, customer lists, corporate and other business records, license
rights, advertising materials, operating manuals, sales literature, drawings,
specifications, descriptions, name plates, catalogues, dealer contracts,
supplier contracts, distributor agreements, confidential information,
consulting agreements, engineering contracts, proprietary information, and
goodwill (and all other assets which uniquely reflect such goodwill), and to
all income, royalties, damages and payments now and hereafter due or payable
therefor or in respect thereof (collectively, the "Proprietary Information"
and, together with the Patents, the Trademarks and the Copyrights, the
"Intellectual Property Collateral").
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEBTOR.
(a) The Debtor is and will continue to be the owner of all of the
Intellectual Property Collateral, free from any adverse claim, security
interest, lien or encumbrance in favor of any Person except for the security
interest granted to the Secured Party and except for (i) the prior lien of
Silicon Valley Bank and (ii) Permitted Liens.
(b) None of the Intellectual Property Collateral is or shall
become subject to any Lien in favor of any Person other than the Secured
Party and except for any Permitted Liens, and the Debtor agrees that it shall
not license, transfer, convey or encumber any interest in or to the
Intellectual Property Collateral. Notwithstanding the foregoing, the Debtor
shall be permitted to license any of the Intellectual Property Collateral in
the ordinary course of business on commercially reasonable terms and
conditions. Any license of the Intellectual Property Collateral granted by
the Debtor (each, a "License") shall be in writing and shall reserve all
rights in the Debtor except those reasonably necessary in the ordinary course
of business to fulfill the permitted purposes herein. The Debtor shall cause
a copy of each License to be delivered to the Secured Party within thirty (30)
days of execution by all parties thereto.
(c) Except as disclosed in Schedule D hereto, the Debtor has made
no previous assignment, transfer or agreement materially in conflict herewith
or constituting a present or future assignment, transfer, or encumbrance of
any of the Intellectual Property Collateral.
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<PAGE>
(d) Except as disclosed in Schedule D hereto, there is no
financing statement or other document or instrument now signed or on file in
any public office granting a security interest in or otherwise encumbering
any part of the Intellectual Property Collateral, except those showing the
Secured Party as secured party. So long as any Obligations remain
outstanding, the Debtor will not execute, and there will not be on file in any
public office, any such financing statement or other document or instruments,
except financing statements filed or to be filed in favor of the Secured
Party or pursuant to a transaction permitted by the second sentence of
Section 2(b).
(e) Subject to any limitation stated therein or in connection
therewith, all information furnished to the Secured Party concerning the
Intellectual Property Collateral and proceeds thereof is and will be accurate
and correct in all material respects.
(f) Except as disclosed in Schedule D hereto, all Intellectual
Property Collateral consisting of applications for Patents and for
registrations of Trademarks and Copyrights has been duly and properly filed
and all Intellectual Property Collateral consisting of issued or granted
Patents and of registrations of Trademarks and Copyrights (including,
without limitation, any and all renewals, reissues, continuations or divisions
thereof, as the case may be) has been duly and properly maintained.
(g) Promptly, but not more frequently than quarterly, upon the
receipt of an official filing receipt indicating that a patent application or
an application for registration of a trademark has been received by the U.S.
Patent and Trademark Office or an application for registration of a copyright
has been received by the U.S. Copyright Office and upon the issuance of any
patent or of any trademark or copyright registration, the Debtor agrees to
notify the Secured Party in writing, which notice shall identify such patent,
trademark or copyright application or patent, trademark or copyright
registration, and the Debtor shall execute all documents necessary to perfect
a security interest in such patent, trademark or copyright application or
such patent or trademark or copyright registration, and the Debtor shall
annually, or more frequently as the Secured Party shall request, cause an
instrument sufficient to perfect, protect or establish any Lien hereunder to
be recorded in the U.S. Patent and Trademark Office with respect to all
United States patent applications filed by it or patents issued to it during
the prior calendar year and with respect to all trademark applications filed
by it or trademark registrations issued to it during the prior calendar year,
and the Debtor shall annually, or more frequently as the Secured Party shall
request, cause an instrument sufficient to perfect, protect or establish any
Lien hereunder to be recorded in the U.S. Copyright Office with respect to
United States copyright applications filed by it or copyright registrations
issued to it during the prior calendar year.
(h) The Debtor shall not take any action, or permit any action to
be taken by others subject to the Debtor's control, including licensees, or
fail to take any action, or permit others subject to the Debtor's control,
including licensees, to fail to take any action, subject to the provisions of
Section 2(g), which would, in the case of any such actions or failures to act
taken singly or together, materially adversely affect the validity, grant and
enforceability of the security interest granted to the Secured Party
hereunder. Notwithstanding the foregoing, the Debtor shall be permitted to
abandon any of the Trademarks in accordance with the terms of Section 2(l).
(i) The Debtor shall promptly notify the Secured Party, in
writing, of any suit, action, proceeding, claim or counterclaim brought
against the Debtor that would reasonably be expected to have a Material
Adverse Effect on the Intellectual Property Collateral, and shall, on
request, deliver to the Secured Party a copy of all pleadings, papers, orders
or decrees theretofore and thereafter filed in any such suit, action or
proceeding, and shall keep the Secured Party duly advised in writing of the
progress of any such suit.
(j) To the best knowledge and belief of the Debtor, except as
disclosed in Schedule D, no infringement or unauthorized use presently is
being made of any Intellectual Property Collateral. In the event of any
material infringement of the Intellectual Property Collateral by others or in
the event of any other conduct detrimental to the Intellectual Property
Collateral by others known or brought to the attention of the Debtor, the
Debtor shall promptly notify the Secured Party in writing at its address set
forth in Section 5(a) of such infringement or other conduct and the full
nature, extent, evidence and facts of such infringement or other conduct
known to the Debtor.
(k) If reasonably requested by the Secured Party, the Debtor shall
provide the Secured Party a complete status report of all Intellectual
Property Collateral. Upon request by the Secured Party, the Debtor shall
deliver to counsel for the Secured Party copies of any such Intellectual
Property Collateral and other
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<PAGE>
documents concerning or related to the prosecution, protection, maintenance,
enforcement and issuance of the Intellectual Property Collateral.
(l) The Debtor shall notify the Secured Party in writing at the
address set forth in Section 5(a) at least thirty (30) days prior to any
proposed voluntary abandonment of any Intellectual Property Collateral (other
than items of Intellectual Property Collateral that are not useful or
beneficial to the business and operations of the Debtor) and obtain the prior
written consent of the Secured Party to such abandonment.
(m) During the term of this Agreement, the Debtor agrees:
(i) whenever any of the registered Trademarks are used by or
on behalf of the Debtor, if reasonably practicable, to affix or cause to
be affixed a notice that the mark is a registered trademark or service
mark, which notice shall be in a form accepted or required by the
trademark marking laws of each country in which the mark is so used and
registered; and
(ii) whenever any of the underlying works covered by registered
Copyrights are used by or on behalf of the Debtor, if reasonably
practicable, to affix or cause to be affixed a notice that said
underlying works are so covered, which notice shall be in a form accepted
or required by the copyright laws of such country in which said
underlying works are so used and registered.
(n) Subject to the provisions of Section 4(g), during the term of
this Agreement, all income, royalties, payments and damages due and payable
to the Debtor under or in respect of the Intellectual Property Collateral
shall be paid to the Debtor.
(o) The Debtor agrees, upon the reasonable request by the Secured
Party, during the term of this Agreement;
(i) to execute, acknowledge and deliver all additional
instruments and documents necessary or desirable to effect the purposes
and intents of this Agreement, in a form reasonably acceptable to
counsel the the Secured Party; and
(ii) to do all such other acts as may be necessary or
appropriate to carry out the purposes and intents of this Agreement,
and to create, evidence, perfect and continue the security interest of
the Secured Party in the Intellectual Property Collateral.
SECTION 3. INDEMNITY. The Debtor agrees to indemnify the Secured Party
from and against any and all claims, losses and liabilities arising out of
or resulting from this Agreement (including, without limitation, enforcement
of this Agreement and any actions taken pursuant to Section 4 or any failure
to act thereunder).
SECTION 4. RIGHTS AND REMEDIES UPON AN EVENT OF DEFAULT.
(a) If any Event of Default shall have occurred and be
continuing, then and in every such case, subject to any mandatory
Requirements of Law, the Secured Party, in addition to other rights and
remedies provided for herein and any rights now or hereafter existing under
applicable law, shall have all rights and remedies as a secured creditor
under the Uniform Commercial Code in all relevant jurisdictions and may:
(i) personally, or by agents or attorneys, immediately take
possession of the Intellectual Property Collateral or any part thereof,
from the Debtor or any other Person who then has possession of any part
thereof, with or without notice or process of law, and for that purpose
may enter upon the Debtor's premises where any of the Intellectual
Property Collateral is located and remove the same and use in
connection with such removal any and all services, supplies, aids and
other facilities of the Debtor; and
(ii) sell, assign or otherwise liquidate, or direct the
Debtor to sell, assign or otherwise liquidate, any or all of the
Intellectual Property Collateral or any part thereof, and take
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<PAGE>
possession of the proceeds of any such sale or liquidation;
(b) Any collateral repossessed by the Secured Party under or
pursuant to Section 4(a) and any other intellectual Property Collateral
whether or not so repossessed by the Secured party, may be sold, assigned,
leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of sale the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as the Secured Party may, in
compliance with any Requirements of Law, determine to be commercially
reasonable. Any such disposition which shall be a private sale or other
private proceedings permitted by such requirements shall be made upon not
less than 10 days' written notice to the Debtor specifying the time at which
such disposition is to be made and the intended sale price or other
consideration therefor, and shall be subject, for the 10 days after the
giving of such notice, to the right of the Debtor or any nominee of the
Debtor to acquire the Intellectual Property Collateral involved at a price or
for such other consideration at least equal to the intended sale price or
other consideration so specified. Any such disposition which shall be a
public sale permitted by such requirements shall be made upon not less than
10 days' written notice to the Debtor specifying the time and place
of such sale and, in the absence of applicable Requirements of Law, shall be
by public auction (which may, at the option of the Secured Party, be subject
to reserve), after publication of notice of such auction not less than 10
days prior thereto in two newspapers of general circulation in the
jurisdiction in which such auction is to be held. To the extent permitted by
any such Requirements of Law, the Secured Party may bid for and become the
purchaser of the Intellectual Property Collateral or any item thereof,
offered for sale in accordance with this Section without accountability to
the Debtor (except to the extent of surplus money received). If, under
mandatory Requirements of Law, the Secured Party shall be required to make
disposition of the Intellectual Property Collateral within a period of time
which does not permit the giving of notice to the Debtor as hereinabove
specified, the Secured Party need give the Debtor only such notice of
disposition as shall be reasonably practicable in view of such mandatory
Requirements of Law. The Secured Party shall not be obligated to make any
sale of Intellectual Property Collateral regardless of notice of sale having
been given. The Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned.
(c) Upon the occurrence and continuance of an Event of Default,
the Secured Party shall have the right at any time to make any payments and
do any other acts the Secured Party may deem necessary to protect its
security interests in the Intellectual Property Collateral, including, without
limitation, the rights to pay, purchase, contest or compromise any Lien
which, in the reasonable judgment of the Secured Party, appears to be prior
to or superior to the security interests granted hereunder, and appear in and
defend any action or proceeding purporting to affect its security interest
in, or the value of, the Intellectual Property Collateral. The Debtor hereby
agrees to reimburse the Secured Party for all payments made and expenses
incurred under this Agreement including reasonable fees, expenses and
disbursements of attorneys and paralegals acting for the Secured Party,
including any of the foregoing payments under, or acts taken to protect its
security interests in, the Intellectual Property Collateral, which amounts
shall be secured under this Agreement, and agrees it shall be bound by any
payment made or act taken by the Secured Party hereunder absent the Secured
party's gross negligence or willful misconduct. The Secured Party shall have
no obligation to make any of the foregoing payments or perform any of the
foregoing acts.
(d) The Debtor hereby irrevocably authorizes and appoints the
Secured Party, or any Person or agent the Secured Party may designate, as the
Debtor's attorney-in-fact, with full authority in the place and stead of the
Debtor and in the name of the Debtor or otherwise, at the Debtor's cost and
expense, in the Secured Party's discretion, to take any action and to
execute any instrument that the Secured Party may deem necessary or
advisable to accomplish the purposes and intents of this Agreement and to
exercise all of the following powers upon and at any time after the
occurrence and during the continuance of an Event of Default, which powers,
being coupled with an interest, shall be irrevocable until all of the
Obligations shall have been paid and satisfied in full:
(i) ask for, demand, collect, bring suit, recover,
compromise, administer, accelerate or extend the time of payment,
issue credits, compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Intellectual Property Collateral; the
(ii) receive, take, endorse, negotiate, sign, assign and
deliver and collect any checks, notes, drafts or other instruments,
documents and chattel paper, in connection with clause (i)
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above;
(iii) receive, open and dispose of all mail addressed to the
Debtor and notify postal authorities to change the address for delivery
thereof to such address as the Secured Party may designate;
(iv) give customers indebted on the Intellectual Property
Collateral notice of the Secured Party's interest therein, or to instruct
such customers to make payment directly to the Secured Party for the
Debtor's account or to request, at any time from customers indebted on
the Intellectual Property Collateral, verification of information
concerning the Intellectual Property Collateral and the amounts owing
thereon;
(v) convey any item of Intellectual Property Collateral to
any purchaser thereof;
(vi) record any instruments under Section 2(g) hereof;
(vii) make any payments or take any acts under Section 4(c)
hereof; and
(viii) file any claims or take any action or institute any
proceedings that the Secured Party may reasonably deem necessary or
desirable for the collection of any of the Intellectual Property
Collateral or otherwise to enforce the rights of the Secured Party with
respect to any of the Intellectual Property Collateral.
The Secured Party's authority under this Section 4(d) shall include, without
limitation, the authority to execute and give receipt for any certificate of
ownership or any document, transfer title to any item of Intellectual
Property Collateral, sign the Debtor's name on all financing statements or
any other documents deemed necessary or appropriate to preserve, protect or
perfect the security interest in the Intellectual Property Collateral and to
file the same, prepare, file and sign the Debtor's name on any notice of
Lien, assignment or satisfaction of Lien or similar document in connection
with any Intellectual Property Collateral and prepare, file and sign the
Debtor's name on a proof of claim in bankruptcy or similar document against
any customer of the Debtor, and to take any other actions arising from or
incident to the rights, powers and remedies granted to the Secured Party in
this Agreement. This power of attorney is coupled with an interest and is
irrevocable by the Debtor.
(e) All cash proceeds received by the Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Intellectual Property Collateral shall be applied by the Secured Party
against the Obligations in such order as the Secured Party may determine.
(f) The Secured Party shall have the right of setoff with respect to
the Intellectual Property Collateral as provided Section 9.14 of the Master
Agreement.
(g) Upon the occurrence and during the continuance of an Event of
Default, all income, royalties, payments and damages under or in respect of
the Intellectual Property Collateral, if any, received thereafter shall be
held by the Debtor in trust for the benefit of the Secured Party, separate
from the Debtor's own property or funds and immediately turned over to the
Secured Party with proper assignments or endorsements. Upon the occurrence
and during the continuance of an Event of Default, the Secured Party shall
have the right to notify payors of income, royalties, payments and damages
under or in respect of the Intellectual Property Collateral to make payment
directly to the Secured Party.
(h) Each and every right, power and remedy hereby specifically given
to the Secured Party shall be in addition to every other right, power and
remedy specifically given under this Agreement or under the other Lease
Documents or now or hereafter existing at law or in equity, or by statute,
and each and every right, power and remedy whether specifically herein given
or otherwise existing may be exercised from time to time or simultaneously
and as often and in such order as may be deemed expedient by the Secured
Party. All such rights, powers and remedies shall be cumulative and the
exercise or the beginning of exercise of one shall not be deemed a waiver of
the right to exercise of any other or others. No delay or omission of the
Secured Party in the exercise of any such right, power or remedy and no
renewal or extension of any of the Obligations shall impair any such right,
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power or remedy or shall be construed to be a waiver of any Default or Event
of Default or any acquiescence therein.
SECTION 5. GENERAL PROVISIONS.
(a) NOTICES. All notices, approvals, consents or other
communications required or desired to be given hereunder shall be in writing
and sent by certified or registered mail, return receipt requested, by
overnight delivery service, with all charges prepaid, or by telecopier
followed by a hard copy sent by regular mail, if to the Secured Party, then
to Transamerica Business Credit Corporation, 76 Batterson Road, Farmington,
Connecticut 06032, Telecopy: (860) 677-6766, Attn.: Gregory Clark, Esq., and
if to the Debtor, then to Conductus, Inc. 969 West Maude Avenue, Sunnyvale,
California, 94086, Telecopy: (408) 523-9999, Attn.: Chief Financial Officer.
All such notices and correspondence shall be deemed given (i) if sent by
certified or registered mail, three Business Days after being postmarked,
(ii) if sent by overnight delivery service, when received at the above stated
address or when delivery is refused and (iii) if sent by telecopier
transmission, when receipt of such transmission is acknowledged.
(b) HEADINGS. The headings in this Agreement are for purposes of
reference only and shall not affect the meaning or construction of any
provision of this Agreement.
(c) SEVERABILITY. The provisions of this Agreement are severable,
and if any clause or provision shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect, in that jurisdiction only, such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
(d) AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or waiver of any
provision of this Agreement and any consent to any departure by the Debtor
from any provision of this Agreement shall not be effective unless the same
shall be in writing and signed by the Debtor and the Secured Party and then
such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
(e) INTERPRETATION. Time is of the essence in each provision of this
Agreement of which time is an element. All terms not defined herein or in the
Master Agreement shall have the meaning set forth in the Code, except where
the context otherwise requires. To the extent a term or provision of this
Agreement conflicts with the Master Agreement and is not dealt with herein
with more specificity, the Master Agreement shall control with respect to the
subject matter of such term or provision. Acceptance of or acquiescence in a
course of performance rendered under this Agreement shall not be relevant in
determining the meaning of this Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and
opportunity for objection.
(f) CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Intellectual Property Collateral and
shall (i) remain in full force and effect until the payment in full in cash
of the Obligations and the termination of the Master Agreement, (ii) be
binding upon the Debtor and its successors and assigns and (iii) inure,
together with the rights and remedies of the Secured Party, to the Secured
Party's successors, transferees and assigns. Without limited the generality
of the foregoing clause (iii), the Secured Party may, in accordance with the
terms of the Master Agreement, assign or otherwise transfer all or any
portion of its rights and obligations under the Lease Documents (including,
without limitation, all or any portion of any Leases or any Notes held by it)
to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to the Secured Party herein or
otherwise, in each case as provided in the Master Agreement.
(g) REINSTATEMENT. To the extent permitted by law, this Agreement
shall continue to be effective or be reinstated if at any time any amount
received by the Secured Party in respect of the Obligations is rescinded or
must otherwise be restored or returned by the Secured Party because the
Debtor is the subject of an Insolvency Event, all as though such payments had
not been made.
(h) SURVIVAL OF PROVISIONS. All representations, warranties and
covenants of the Debt or
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contained herein shall survive the execution and delivery of this Agreement,
and shall terminate only upon the full and final payment and performance by
the Debtor of the Obligations secured hereby and termination of the Master
Agreement and the other Lease Documents.
(i) SECURED PARTY MAY PERFORM. If the Debtor fails to perform any
agreement contained herein, the Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of the Secured Party
incurred in connection therewith shall be payable by the Debtor and shall
constitute Obligations secured by this Agreement.
(j) NO DUTY ON SECURED PARTY. The powers conferred on the Secured
Party hereunder are solely to protect the interest of the Lenders in the
Intellectual Property Collateral and shall not impose any duty upon the
Secured Party to exercise any such powers. Except for the safe custody of any
Intellectual Property Collateral in its possession and the accounting for
money actually received by it hereunder, the Secured Party shall have no
duty as to Intellectual Property Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters related to any Intellectual Property Collateral, whether or not
the Secured Party has or is deemed to have knowledge of such matters, or as
to the taking of any necessary steps to preserve rights against any Person or
any other rights pertaining to any Intellectual Property Collateral. The
Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of any Intellectual Property Collateral in its
possession if such Intellectual Property Collateral is accorded treatment
substantially equal to that which the Secured Party accords its own property.
To the extent the Intellectual Property Collateral is held by a custodian,
the Secured Party shall be deemed to have exercised reasonable case if it has
selected the custodian with reasonable care.
(k) DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or omission of the
Secured Party to exercise any right or remedy hereunder, whether before or
after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of
Default. No single or partial exercise by the Secured Party of any right or
remedy shall preclude any other or further exercise thereof, or preclude any
other right or remedy.
(l) RELEASE; TERMINATION OF AGREEMENT. Subject to the provisions of
subsection (g) hereof, upon the payment in full in cash of the Obligations
and the termination of the Master Agreement, this Agreement shall terminate
and all rights in the Intellectual Property Collateral shall revert to the
Debtor. At such time, the Secured Party shall, upon the request and at the
expense of the Debtor, (A) execute and deliver to the Debtor such documents
as the Debtor shall reasonably request to evidence such termination and (B)
reassign and redeliver to the Debtor all of the Intellectual Property
Collateral hereunder which has not been sold, disposed of, retained or
applied by the Secured Party in accordance with the terms hereof. Such
reassignment and redelivery shall be without warranty by or recourse to the
Secured Party, except as to the absence of any prior assignments by the
Secured Party of its interest in the Intellectual Property Collateral.
(m) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but both of which
shall together constitute one and the same agreement.
(n) GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS,
WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES, EXCEPT TO THE EXTENT THAT
FEDERAL LAW IS APPLICABLE.
(o) SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE DEBTOR AND
THE SECURED PARTY, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO,
ILLINOIS AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED,
HOWEVER, THAT THE SECURED PARTY SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, TO PROCEED AGAINST THE DEBTOR OR ITS PROPERTY IN ANY
LOCATION REASONABLY SELECTED BY THE SECURED PARTY IN GOOD FAITH TO ENABLE THE
SECURED PARTY TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF THE SECURED PARTY. THE DEBTOR AGREES THAT IT WILL NOT
ASSERT ANY
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PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT
BY THE SECURED PARTY. THE DEBTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT IN WHICH THE SECURED PARTY HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON FORUM NON CONVENIENS.
(p) JURY TRIAL. THE DEBTOR AND THE SECURED PARTY EACH HEREBY WAIVES
TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
causing this Agreement to be signed by their respective duly authorized
officers on the day and year first above written.
CONDUCTUS, INC.
By: /s/ Charles E. Shalvoy
-----------------------------
Name: Charles E. Shalvoy
Title: President & CEO
Accepted and Agreed as of the
date first above written:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Gary P. Moro
----------------------
Name: Gary P. Moro
Title: Vice President
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SCHEDULE A
PATENT PORTFOLIO
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
SCHEDULE B
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
SCHEDULE C
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
SCHEDULE D
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
NO. 1
STOCK SUBSCRIPTION WARRANT
TO PURCHASE COMMON STOCK OF
CONDUCTUS, INC. (THE "COMPANY")
DATE OF INITIAL ISSUANCE: MAY 29, 1998
THIS CERTIFIES THAT for value received, TRANSAMERICA BUSINESS CREDIT
CORPORATION or its registered assigns (hereinafter called the "Holder") is
entitled to purchase from the Company, at any time during the Term of this
Warrant, Thirty Thousand Four Hundred Fourteen (30,414) shares of common stock,
$0.01 par value, of the Company (the "Common Stock"), at the Warrant Price,
payable as provided herein. The exercise of this Warrant shall be subject to
the provisions, limitations and restrictions herein contained, and may be
exercised in whole or in part.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
COMMON STOCK - shall mean and include the Company's authorized Common
Stock, $0.01 par value, as constituted at the date hereof.
EXCHANGE ACT - shall mean the Securities Exchange Act of 1934, as amended
from time to time.
SECURITIES ACT - the Securities Act of 1933, as amended.
TERM OF THIS WARRANT - shall mean the period beginning on the date of
initial issuance hereof and ending on June 1, 2003.
WARRANT PRICE - $4.11 per share, subject to adjustment in accordance with
Section 5 hereof.
WARRANTS - this Warrant and any other Warrant or Warrants issued in
connection with a Commitment Letter dated April 22, 1998 executed by the Company
and Transamerica Business Credit Corporation (the "Commitment Letter") to the
original holder of this Warrant, or any transferees from such original holder or
this Holder.
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.
<PAGE>
SECTION 2. EXERCISE OF WARRANT.
2.1. PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in whole
or in part (but not as to any fractional share of Common Stock), the Holder
shall deliver to the Company at its office referred to in Section 12 hereof at
any time and from time to time during the Term of this Warrant: (i) the Notice
of Exercise in the form attached hereto, (ii) cash, certified or official bank
check payable to the order of the Company, wire transfer of funds to the
Company's account, or evidence of any indebtedness of the Company to the Holder
(or any combination of any of the foregoing) in the amount of the Warrant Price
for each share being purchased, and (iii) this Warrant. Notwithstanding any
provisions herein to the contrary, if the Current Market Price (as defined in
Section 5) is greater than the Warrant Price (at the date of calculation, as set
forth below), in lieu of exercising this Warrant as hereinabove permitted, the
Holder may elect to receive shares of Common Stock equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the office of the Company referred to in Section 12
hereof, together with the Notice of Exercise, in which event the Company shall
issue to the Holder that number of shares of Common Stock computed using the
following formula:
CS = WCS x (CMP-WP)
-------------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of such
calculation)
CMP equals the Current Market Price (at the date of such calculation)
WP equals the Warrant Price (as adjusted to the date of such calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
2.2. TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii)
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<PAGE>
any securities exchange upon which such Warrant Shares may, at the time of
such exercise, be listed) on the face thereof unless at the time of exercise
such Warrant Shares shall be registered under the Securities Act:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption
therefrom under said Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO COMMON STOCK. The Company covenants and agrees that
all shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof. The Company further covenants and agrees that it will pay
when due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
The Company further covenants and agrees that if any shares of capital stock to
be reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the exercise
of this Warrant is listed on any national securities exchange, the Company will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon exercise of this Warrant.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price as provided in Section 5, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject to
adjustment from time to time as follows:
If, at any time during the Term of this Warrant, the number of shares of Common
Stock outstanding is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then, following
the record date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or split-up, the Warrant Price shall
be appropriately decreased so that the number of shares of Common Stock issuable
upon the exercise hereof shall be increased in proportion to such increase in
outstanding shares.
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<PAGE>
(ii) If, at any time during the Term of this Warrant, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such combination,
the Warrant Price shall appropriately increase so that the number of shares of
Common Stock issuable upon the exercise hereof shall be decreased in proportion
to such decrease in outstanding shares.
(iii) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than out
of earnings or earned surplus or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends and distributions) or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Warrant Price in effect thereafter shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date by a fraction of which the numerator shall be an amount equal to the
difference of (x) the Current Market Price of one share of Common Stock minus
(y) the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the stock, securities,
evidences of indebtedness, assets, options or rights so distributed in respect
of one share of Common Stock, and of which the denominator shall be such Current
Market Price.
(iv) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(v) For the purpose of any computation pursuant to this Section 5, the
Current Market Price at any date of one share of Common Stock shall be deemed to
be the average of the daily closing prices for the 15 consecutive business days
ending on the last business day before the day in question (as adjusted for any
stock dividend, split, combination or reclassification that took effect during
such 15 business day period). The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or as reported by Nasdaq (or if the
Common Stock is not at the time listed or admitted for trading on any such
exchange or if prices of the Common Stock are not reported by Nasdaq then such
price shall be equal to the average of the last reported bid and asked prices on
such day as reported by The National Quotation Bureau Incorporated or any
similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Common Stock is not traded in such manner that the quotations referred to
in this clause (v) are available for the period required hereunder, the Current
Market Price shall be determined in good faith by the Board of Directors of the
Company or, if such determination cannot be made, by a nationally recognized
independent investment banking firm selected by the Board of Directors of the
Company (or if such selection cannot be made, by a nationally recognized
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules).
(vi) Whenever the Warrant Price shall be adjusted as provided in Section
5, the Company shall prepare a statement showing the facts requiring such
adjustment and the Warrant Price that shall be in effect after such adjustment.
The Company shall cause a copy of such statement to be sent by mail, first
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<PAGE>
class postage prepaid, to each Holder of this Warrant at its, his or her
address appearing on the Company's records. Where appropriate, such copy may
be given in advance and may be included as part of the notice required to be
mailed under the provisions of subsection (viii) of this Section 5.
(vii) Adjustments made pursuant to clauses (i), (ii) and (iii) above shall
be made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
(viii) In the event the Company shall propose to take any action of the
types described in clauses (i), (ii), or (iii) of this Section 5, the Company
shall forward, at the same time and in the same manner, to the Holder of this
Warrant such notice, if any, which the Company shall give to the holders of
capital stock of the Company.
(ix) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
SECTION 6. OWNERSHIP.
6.1. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 12
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 6, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection
- 5 -
<PAGE>
with a transfer of this Warrant, which shall be payable by the Holder. Holder
will not transfer this Warrant and the rights hereunder except in compliance
with federal and state securities laws.
SECTION 7. MERGERS, CONSOLIDATION, SALES. In the case of any proposed
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of shares of such Common Stock
purchasable hereunder immediately before such consolidation, merger, sale,
reorganization or reclassification. In any such case appropriate provision
shall be made with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof shall thereafter be applicable as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of this Warrant.
SECTION 8. NOTICE OF DISSOLUTION OR LIQUIDATION. In case of any distribution
of the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of the
Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this Section 10, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Company shall,
upon the exercise of this Warrant for the largest number of whole shares then
called for, pay a sum in cash equal to the excess of the value of such
fractional share (determined in such reasonable manner as may be prescribed in
good faith by the Board of Directors of the Company) over the Warrant Price for
such fractional share.
SECTION 11. SPECIAL ARRANGEMENTS OF THE COMPANY. The Company covenants and
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
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<PAGE>
11.1. WILL RESERVE SHARES. The Company will reserve and set apart and
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. WILL NOT AMEND CERTIFICATE. The Company will not amend its
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. WILL BIND SUCCESSORS. This Warrant shall be binding upon any
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. NOTICES. Any notice or other document required or permitted to be
given or delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at Transamerica Technology Finance Division, 76
Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to the Lender at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention:
Legal Department or to such other address as shall have been furnished to the
Company in writing by the Holder. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered at, or sent
by certified or registered mail to, the Company at 969 West Maude Avenue,
Sunnyvale, California, 94086, Attention: Chief Financial Officer or to such
other address as shall have been furnished in writing to the Holder by the
Company. Any notice so addressed and mailed by registered or certified mail
shall be deemed to be given when so mailed. Any notice so addressed and
otherwise delivered shall be deemed to be given when actually received by the
addressee.
SECTION 13. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This Warrant
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 14. LAW GOVERNING. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 15. MISCELLANEOUS. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by both parties (or any respective predecessor in interest thereof). The
headings in this Warrant are for purposes of reference only and shall not affect
the meaning or construction of any of the provisions hereof
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this _______ day of _________, 199__.
CONDUCTUS, INC.
[CORPORATE SEAL]
By:
----------------------------
Title:
-------------------------
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<PAGE>
FORM OF NOTICE OF EXERCISE
[TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase _________ shares of
Common Stock which the undersigned is entitled to purchase by the terms of the
within Warrant according to the conditions thereof, and herewith
[check one]
/ / makes payment of $__________ therefor; or
/ / directs the Company to issue ______ shares, and to
withhold ____ shares in lieu of payment of the
Warrant Price, as described in Section 2.1 of the
Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following denominations:
---------------------------
[Type Name of Holder]
By:
---------------------------
Title:
---------------------------
Dated:__________________________
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<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
[TO BE SIGNED ONLY UPON TRANSFER OF ENTIRE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto _______________________________ all rights of the undersigned
under and pursuant to the within Warrant, and the undersigned does hereby
irrevocably constitute and appoint _______________________________ Attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution.
-------------------------------
[Type Name of Holder]
By:
---------------------------
Title:
------------------------
Dated:________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
FORM OF ASSIGNMENT
(PARTIAL)
[To be signed only upon partial transfer of Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _______________________________ (i) the rights of the undersigned
to purchase ___ shares of Common Stock under and pursuant to the within Warrant,
and (ii) on a non-exclusive basis, all other rights of the undersigned under and
pursuant to the within Warrant, it being understood that the undersigned shall
retain, severally (and not jointly) with the transferee(s) named herein, all
rights assigned on such non-exclusive basis. The undersigned does hereby
irrevocably constitute and appoint __________________________ Attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution.
-------------------------------
[Type Name of Holder]
By:
---------------------------
Title:
------------------------
Dated:
--------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT (THE "LEASE") IS MADE THE 15TH DAY OF JUNE,
1998 BETWEEN LEASING TECHNOLOGIES INTERNATIONAL, INC., OFFICE AT 221 DANBURY
ROAD, WILTON, CT 06897 (THE "LESSOR"), AND CONDUCTUS, INC., WITH ITS
PRINCIPAL OFFICE AT 969 WEST MAUDE AVENUE, SUNNYVALE, CA 94086-2802 (THE
"LESSEE"). THE PARTIES HERETO AGREE AS FOLLOWS:
1. LEASE:
This Lease establishes the general terms and conditions by which Lessor
may lease to Lessee the Equipment (the "Equipment") listed on each Equipment
Schedule executed periodically pursuant to this Lease. Each such Equipment
Schedule shall incorporate by reference the terms of this Lease, and shall be
a separate lease agreement as to the Equipment listed thereon for all
purposes, including default. In the event of any conflict between the terms
and conditions of this Lease and the terms and conditions of any Equipment
Schedule(s) or Rider(s) thereto, the terms and conditions of such Equipment
Schedule(s) or Rider(s) shall prevail.
2. DEFINITIONS:
(a) The "Installation Date" means the date determined in accordance with
the applicable Equipment Schedule.
(b) The "Commencement Date" means, as to any item of Equipment
designated on any Equipment Schedule where the Installation Date for such
item of Equipment falls on the first day of the month, that date, or, in any
other case, the first day of the month following the month in which such
Installation Date falls.
(c) The "Daily Rental" means 1/30th of the amount set forth as the
monthly rental in the applicable Equipment Schedule.
3. TERM OF LEASE:
The term of this Lease, as to all Equipment designated on any Equipment
Schedule, shall commence on the Installation Date for such Equipment, and
shall continue for an initial period ending that number of months as is
specified on the applicable Equipment Schedule from the Commencement Date for
the last item of Equipment to be installed (the "Initial Term"). The term of
this Lease for all such Equipment shall be automatically extended for
successive monthly periods until terminated in accordance with this Lease.
Any termination shall be effective only on the last day of the Initial Term
or the last day of any such successive period.
4. RENTAL:
The monthly rental payable hereunder is as set forth in the Equipment
Schedule(s). Rental shall begin to accrue on the Installation Date for each
item of Equipment and shall be due and payable by Lessee in advance on the
first day of each month. If the Installation Date does not fall on the first
day of a month, the rental for that period of time from the Installation Date
until the Commencement Date shall be an amount equal to the Daily Rental
multiplied by the number of days from (and including) the Installation Date
to (but not including) the Commencement Date and shall be due and payable on
the Installation Date. In addition to the monthly rental set forth in the
Equipment Schedule(s), Lessee shall pay to Lessor an amount equal to all
taxes paid, payable or required to be collected by Lessor, however
designated, which are levied or based on the rental, on the Lease or on the
Equipment or on its purchase for lease hereunder, or on its use, lease,
operation, control or value (including, without limitation, state and local
privilege or excise taxes based on gross revenue), any penalties or interest
in connection therewith which are attributable to Lessee's negligence or
taxes or amounts in lieu thereof paid or payable by Lessor in respect of the
foregoing, but excluding taxes based on Lessor's net income. Personal
property taxes assessed on the Equipment during the term hereof shall be paid
by Lessee. Lessee agrees that Lessor, or Lessor's agent may file all required
property tax returns and reports and pay all taxes thereon pertaining to the
Equipment. In such event, Lessee shall reimburse Lessor or Lessor's agent
for all costs and expenses incurred in connection therewith, provided that
such costs and expenses (including property taxes) shall not exceed the
property taxes pursuant to statutory tax rates and regulations. If
requested by Lessor, Lessee agrees to file, on behalf of Lessor, all required
property tax returns and reports concerning the Equipment with all
appropriate governmental agencies, and, within not more than thirty (30) days
after the due date of such filing to send Lessor confirmation of such filing.
Interest on any past due payments, including but not limited to
administrative charges and any other charges or fees arising out of or
related to this Lease, shall accrue at the rate of 1 1/2% per month, or if
such rate shall exceed the maximum rate allowed by law, then at such maximum
rate, and shall be payable on demand. Charges for taxes, penalties and
interest shall be promptly paid by Lessee when invoiced by Lessor.
1
<PAGE>
As security for the full performance of all of Lessee's obligations
under each Equipment Schedule, Lessee shall, simultaneously with the
execution and delivery of each Equipment Schedule, deposit with Lessor the
amount set forth on such Equipment Schedule. The security deposit shall be
promptly returned to Lessee by Lessor upon the expiration of such Equipment
Schedule and return or purchase of all Equipment, as the case may be,
provided that all Lessee obligations under such Equipment Schedule have been
fulfilled.
5. INSTALLATION, USE AND QUIET POSSESSION OF EQUIPMENT:
(a) Lessee, at its own expense, will provide the required suitable
electric current to operate the Equipment and appropriate installation
facilities as specified by the manufacturer.
(b) Any equipment, cards, disks, tapes or other items not specified in
the Equipment Schedule(s) which are used on or in connection with the
Equipment must meet the specifications of the manufacturer and shall be
acquired by Lessee at its own expense.
(c) Lessee shall use the Equipment solely in connection with Lessee's
business and for no other purpose. Subject to the preceding sentence, Lessee
shall be entitled to unlimited usage of the Equipment without extra charge by
Lessor.
(d) Unless otherwise set forth in the applicable Equipment Schedule,
Lessee will at all times keep the Equipment in its sole possession and
control. The Equipment shall not be moved from the location stated in the
applicable Equipment Schedule without the prior written consent of Lessor.
(e) After prior notice to Lessor, Lessee may, at its own expense, make
alterations in or add attachments to the Equipment, provided such alterations
or attachments do not interfere with the normal and satisfactory operation or
maintenance of the Equipment or with Lessee's ability to obtain and maintain
the maintenance contract required by Section 5(h) hereof. The manufacturer
or other organization selected by Lessee and approved in writing by Lessor to
maintain the Equipment ("Maintenance Organization") may incorporate
engineering changes or make temporary alterations to the Equipment upon
request of Lessee. All such alterations and attachments shall be and become
the property of Lessor or, at the option of Lessee, shall be removed by
Lessee and the Equipment restored, at Lessee's expense, to its original
condition as of the Installation Date thereof, reasonable wear and tear only
excepted, and upon the removal and restoration, the alteration and/or
attachment which was made by Lessee shall become the property of Lessee.
(f) So long as Lessee is not in default hereunder, neither Lessor nor
any party claiming through or under Lessor shall interfere with Lessee's use
or possession of any Equipment during the term of this Lease.
(g) Lessee shall, during the term of this Lease, at its expense, keep
the Equipment in good working order and condition and make all necessary
adjustments, repairs and replacements and shall not use or permit the
Equipment to be used in any manner or for any purpose for which, in the
opinion of the manufacturer, the Equipment is not designed or reasonably
suitable.
(h) Unless otherwise set forth in the applicable Equipment Schedule,
Lessee shall, during the term of this Lease, at its own expense, enter into
and maintain in force a contract with the manufacturer or the Maintenance
Organization covering at least prime shift maintenance of each item of
Equipment. Such contract shall commence upon expiration of the
manufacturer's warranty period, if any, relating to such item. Lessee shall
furnish Lessor with a copy of such contract(s).
(i) At the termination of the applicable Equipment Schedule, Lessee at
its expense shall return, if permitted by the applicable Equipment Schedule,
not less than all the Equipment subject thereto to Lessor (at the location
designated by Lessor within the Continental United States) in the same
operating order, repair, condition and appearance as on the Installation
Date, reasonable wear and tear only excepted, with all engineering and safety
changes prescribed by the manufacturer or Maintenance Organization
incorporated therein. Lessee shall, prior to such termination, arrange and
pay for any repairs, changes and manufacturer's certifications as are
necessary for the manufacturer or Maintenance Organization to accept the
Equipment under contract maintenance at its then standard rates. Lessee
shall return all accessories supplied with the Equipment, including but not
limited to all manuals, cables and software diskettes. Lessee shall promptly
pay, after receipt of an invoice therefore, all costs and expenses pertaining
to the replacement of any missing items and for the repair of any Equipment,
together with any audit, inspection or certification charges reasonably
incurred by Lessor.
6. LEASEHOLD RIGHTS AND INSPECTION:
(a) Lessee shall have no interest in the Equipment other than the rights
acquired as a lessee hereunder and the Equipment shall remain personalty
regardless of the manner in which it may be installed or attached. Lessee
shall, at Lessor's request, affix to the Equipment, tags, decals or plates
furnished by Lessor, indicating Lessor's ownership and Lessee shall not
permit their removal or
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concealment. Lessee shall replace any such tag, decal or plate which may be
removed or destroyed or become illegible. Lessee shall keep all Equipment
free from any marking or labeling which might be interpreted as a claim of
ownership thereof by Lessee or any party other than Lessor or anyone claiming
through Lessor.
(b) Lessee shall keep the Equipment free and clear of all liens and
encumbrances except liens or encumbrances arising through the actions or
omissions of Lessor. LESSEE SHALL NOT ASSIGN OR OTHERWISE ENCUMBER THIS
LEASE OR ANY OF ITS RIGHTS HEREUNDER OR SUBLEASE THE EQUIPMENT WITHOUT THE
PRIOR WRITTEN CONSENT OF LESSOR except that Lessee may assign this Lease or
sublease the Equipment to its parent or any subsidiary corporation, or to a
corporation which shall have acquired all or substantially all of the
property of Lessee by merger, consolidation or purchase. No permitted
assignment or sublease shall relieve Lessee of any of its obligations
hereunder.
(c) Lessor or its agents shall have free access to the Equipment at all
reasonable times for the purpose of inspection and for any other purpose
contemplated by this Lease.
(d) Lessee shall immediately notify Lessor of all details concerning any
damage to, or loss of, the Equipment arising out of any event or occurrence
whatsoever, including but not limited to, the alleged or apparent improper
manufacture, functioning or operation of the Equipment.
7. NO WARRANTIES BY LESSOR:
Lessee represents that, at the Installation Date thereof, it shall have
(a) thoroughly inspected the Equipment; (b) determined for itself that all
items of Equipment are of a size, design, capacity and manufacture selected
by it; and (c) satisfied itself that the Equipment is suitable for Lessee's
purposes. LESSOR SUPPLIES THE EQUIPMENT AS IS AND NOT BEING THE MANUFACTURER
OF THE EQUIPMENT, THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO
WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED AS TO THE EQUIPMENT'S
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DESIGN, CONDITION,
QUALITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR
THE LIKE, it being agreed that all such risks, as between Lessor and Lessee,
are to be borne by Lessee. Lessee agrees to look solely to the manufacturer
or to suppliers of the Equipment for any and all warranty claims and any and
all warranties made by the manufacturer or the supplier of Lessor are, to the
extent to which the same may be assignable, hereby assigned to Lessee for the
term of the applicable Equipment Schedule. Lessee agrees that Lessor shall
not be responsible for the delivery, installation, maintenance, operation or
service of the Equipment or for delay or inadequacy of any or all of the
foregoing. Lessor shall not be responsible for any direct or consequential
loss or damage resulting from the installation, operation or use of the
Equipment or otherwise. Lessee will defend, indemnify and hold Lessor
harmless against any and all claims, demands and liabilities arising out of
or in connection with the design, manufacture, possession or operation of the
Equipment.
8. RISK OF LOSS ON LESSEE:
(a) Beginning on the Installation Date thereof and continuing until the
Equipment is either returned to Lessor or purchased by Lessee as provided in
this Lease, Lessee relieves Lessor of responsibility for all risks of
physical damage to or loss or destruction of the Equipment, howsoever caused.
During the term of this Lease as to any Equipment Schedule, Lessee shall, at
its own expense, keep in effect "all risk" property insurance and public
liability insurance policies covering the Equipment designated in each
Equipment Schedule. The public liability insurance policy shall be in such
amount as is reasonably acceptable to Lessor. The "all risk" property
insurance policy shall be for an amount not less than the replacement cost of
the Equipment. Lessor, its successors and assigns and/or such other party as
may be designated by any thereof to Lessee, in writing, shall be named as
additional insureds and loss payees on such policies, which shall be written
by an insurance company of recognized responsibility which is reasonably
acceptable to Lessor. Evidence of such insurance coverage shall be furnished
to Lessor no later than the Installation Date set forth in the Equipment
Schedule(s) and, from time to time, thereafter as Lessor may request. Such
policies shall provide that no less than ten days written notice shall be
given Lessor and any other party named as loss payee prior to cancellation of
such policies for any reason. To the extent of Lessor's interest therein,
Lessee hereby irrevocably appoints Lessor or any other party named as loss
payee as Lessee's attorney-in-fact coupled with an interest to make claim
for, receive payment of, and execute any and all documents that may be
required to be provided to the insurance carrier in substantiation of any
such claim for loss or damage under said insurance policies, and to endorse
Lessee's name to any and all drafts or checks in payment of the loss proceeds.
(b) If any item of Equipment is rendered unusable as a result of any
physical damage to, or destruction of, the Equipment, Lessee shall give to
Lessor immediate notice thereof and this Lease shall continue in full force
and effect without any abatement of rental. Lessee shall determine, within
fifteen (15) days after the date of occurrence of such damage or destruction,
whether such item of Equipment can be repaired. In the event Lessee
determines that the item of Equipment cannot be repaired, Lessee shall
either, at its expense, promptly replace such item of Equipment and convey
title to such replacement to Lessor free and clear of all
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liens and encumbrances, and this Lease shall continue in full force and
effect as though such damage or destruction had not occurred, or pay Lessor
therefor in cash the Stipulated Loss Value (defined below) within thirty (30)
days of such loss or damage. "Stipulated Loss Value," as used herein, shall
be an amount as shown on Exhibit A to the applicable Equipment Schedule. In
the event Lessee determines that such item of Equipment can be repaired,
Lessee shall cause such item of Equipment to be promptly repaired. All
proceeds of insurance received by Lessor, the designated loss payee, or
Lessee under the policy referred to in the preceding paragraph of this
Section shall be applied toward the cost of any such repair or replacement so
long as Lessee shall not be in default of its obligations hereunder.
9. EVENTS OF DEFAULT AND REMEDIES:
The occurrence of any one of the following shall constitute an Event of
Default hereunder:
(a) Lessee fails to pay an installment of rent on or before the date
when the same becomes due and payable and such failure continues for a period
of five days;
(b) Lessee attempts to remove, sell, transfer, encumber, sublet or part
with possession of the Equipment or any items thereof, except as expressly
permitted herein;
(c) Lessee shall fail to observe or perform any of the other obligations
required to be observed or performed by Lessee hereunder and such failure
shall continue uncured for ten (10) days after written notice thereof to
Lessee by Lessor or the then assignee hereof;
(d) Lessee ceases doing business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay its
debts as they become due, files a voluntary petition of bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar arrangement under any present or future statute, law
or regulation or files an answer admitting the material allegations of the
petition filed against it in any such proceeding, consents to or acquiesces
in the appointment of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets or properties, or if it or its
shareholders shall take any action looking to its dissolution or liquidation;
(e) Within thirty (30) days after the commencement of any proceedings
against Lessee seeking reorganization, arrangement, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, such proceedings shall not have been dismissed,
or if within thirty (30) days after the appointment without Lessee's consent
or acquiescence of any trustee, receiver or liquidator of it or of all or any
substantial part of its assets and properties, such appointment shall not be
vacated;
(f) Lessee defaults in the performance or observation of any material
term, condition or covenant of any loan agreement, indenture, trust
agreement, lease or similar agreement to which Lessee is a party or by which
Lessee is bound and such default continues beyond any applicable cure period;
(g) Lessee enters into any transaction, the effect of which adversely
affects (i) a material portion of Lessee's business value and (ii) the
ability of Lessee, in Lessor's reasonable judgment, to repay Lessee's
obligations under the Lease as they become due.
Upon the occurrence of an Event of Default, Lessor may at its option do
any one or more of the following: (i) by notice to Lessee terminate this
Lease as to any or all Equipment Schedules; (ii) whether or not this Lease is
terminated as to any or all Equipment Schedules, take possession on not less
than three (3) days' notice of any or all of the Equipment listed on any or
all Equipment Schedules, wherever situated, and for such purpose, enter upon
any premises without liability for so doing or Lessor may cause Lessee and
Lessee hereby agrees, to return said Equipment to Lessor as provided in this
Lease; (iii) recover from Lessee, as liquidated damages for loss of a bargain
and not as a penalty, all past due amounts as well as an amount equal to the
present value of all monies to be paid by Lessee during the remaining Initial
Term or any successive period then in effect, calculated by discounting at
the rate of six percent (6%) per annum compounded monthly, which payment
shall become immediately due and payable; and (iv) sell, dispose of, hold,
use or lease any Equipment as Lessor in its sole discretion may determine
(and Lessor shall not be obligated to give preference to the sale, lease or
other disposition of the Equipment over the sale, lease or other disposition
of similar equipment owned or leased by Lessor).
In the event that Lessee shall have first paid to Lessor or its assigns
the liquidated damages referred to in (iii) above, Lessee shall thereafter be
entitled to receive all rentals or proceeds received from any reletting or
sale of the Equipment during the balance of the Initial Term (after deduction
of Lessor's expected residual value of the Equipment at the expiration of the
Initial Term or any
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extension thereof and of all expenses incurred in connection therewith) said
amount never to exceed the amount of the liquidated damages paid by Lessee.
Lessee agrees that Lessor shall have no obligation to sell the Equipment.
Lessee shall in any event remain fully liable for reasonable damages as
provided by law and for all costs and expenses incurred by Lessor or its
assigns on account of such default including but not limited to all court
costs and reasonable attorney's fees. Lessee hereby agrees that, in any
event, it will be liable for any deficiency after any lease or other
disposition of the Equipment. The rights afforded Lessor hereunder shall not
be deemed to be exclusive, but shall be in addition to any rights or remedies
provided by law.
10. NET LEASE:
Except as otherwise specifically provided in this Lease, it is
understood and agreed that this is a net lease, and that, as between Lessor
and Lessee, Lessee shall be responsible for all costs and expenses of every
nature whatsoever arising out of or in connection with or related to this
Lease or the Equipment (including, but not limited to, equipment inspection,
tagging, transportation in and out, rigging, manufacturer's approved packing,
installation, certification costs and disconnect charges). Lessee hereby
agrees that in the event that Lessee fails to pay or perform any obligation
under this Lease, Lessor may, at its option, pay or perform said obligation
and any payment made or expense incurred by Lessor in connection therewith
shall become additional rent which shall be due and payable by Lessee upon
demand. Lessee acknowledges that Lessor may, from time to time, and at
Lessee's request, execute and deliver purchase orders pertaining to the
purchase of equipment to be leased pursuant to this Lease. Lessee agrees
that it will indemnify and hold Lessor harmless from and against any and all
loss, cost, liability and expense that Lessor may incur as a result of the
execution and delivery of such purchase orders.
11. ASSIGNMENT:
Lessee agrees that Lessor may transfer or assign all or any part of
Lessor's right, title, and interest in, under or to the Equipment and this
Lease and any or all sums due or to become due pursuant to any of the above,
to any third party (the "Assignee") for any reason and that the Assignee may
so re-assign and transfer. Lessee agrees that upon receipt of written notice
from Lessor or Assignee of such assignment, Lessee shall perform all of its
obligations hereunder for the benefit of Assignee and any successor assignee
and, if so directed, shall pay all sums due or to become due thereunder
directly to the Assignee or to any other party designated by the Assignee.
Lessee hereby covenants, represents and warrants as follows and agrees that
the Assignee and any successor assignee shall be entitled to rely on and
shall be considered a third party beneficiary of the following covenants,
representations and warranties: (i) Lessee's obligations hereunder are
absolute and unconditional and are not subject to any abatement, reduction,
recoupment, defense, offset or counterclaim available to Lessee for any
reason whatsoever including operation of law, defect in the Equipment,
failure of Lessor or Assignee to perform any of its obligations hereunder or
for any other cause or reason whatsoever, whether similar or dissimilar to
the foregoing; (ii) Lessee shall not look to Assignee or any successor
assignee to perform any of Lessor's obligations hereunder; (iii) Lessee will
not amend or modify this Agreement without the prior written consent of the
Assignee and any successor assignee; and (iv) Lessee will send a copy to
Assignee and any successor assignee of each notice which Lessee sends to
Lessor.
12. REPRESENTATIONS AND WARRANTIES OF LESSEE:
Lessee represents and warrants to Lessor and its assigns, as follows:
1. The execution, delivery and performance of this Lease has been duly
authorized and, upon execution by Lessor and Lessee, will constitute a valid
obligation binding upon and enforceable against Lessee in accordance with its
terms, subject to laws governing creditors' rights;
2. The performance by Lessee will not result in any breach, default or
violation of, Lessee's certificate of incorporation or by-laws or any
agreement to which Lessee is a party;
3. Lessee is in good standing in its jurisdiction of incorporation and
in any jurisdiction in which any of the Equipment is to be located; and
4. Any and all financial statements or other information with respect
to Lessee heretofore furnished by Lessee to Lessor was, when furnished, and
remains at the time of execution of this Lease, true and complete.
Lessor represents and warrants to Lessee as follows:
1. The execution, delivery and performance of this Lease has been duly
authorized and, upon execution by Lessor and Lessee, will constitute a valid
obligation binding upon and enforceable against Lessor in accordance with its
terms, subject to laws governing creditors' rights; and
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2. The performance by Lessor will not result in any breach, default or
violation of, Lessor's certificate of incorporation or by-laws or any
agreement to which Lessor is a party;
The foregoing representations and warranties shall survive the
expiration or termination of this Lease.
13. END OF LEASE:
Provided (i) no Event of Default has occurred and is continuing and (ii)
Lessee has made all payments in accordance with the Lease, upon written
notice furnished by Lessee no later than four (4) months prior to the
expiration of the Initial Term, Lessee shall, with respect to each Equipment
Schedule elect only such alternatives as may be set forth on the Equipment
Schedule.
To the extent that any of such alternatives involves a determination of
Fair Market Value, the Fair Market Value shall be defined and determined by
the provisions of this Section. For purposes hereof, Fair Market Value shall
mean the amount that would obtain in a retail arm's length transaction
between an informed and willing lessee-buyer in possession and an informed
and willing lessor-seller. Rental charges previously paid pursuant to the
applicable Equipment Schedule shall have no effect on the determination of
Fair Market Value. Unless otherwise stated in the Equipment Schedule: the
Fair Market Value for items set forth on the Equipment Schedule which do not
have a readily ascertainable market value, (including but not limited to
software, cabling and certain equipment) shall be determined by multiplying
the Lessor's acquisition cost of such items by a fraction, the numerator of
which shall be the Fair Market Value of the other items and the denominator
of which shall be the Lessor's acquisition cost of such other items; and the
determination of Fair Market Value shall be based upon the assumption that
all items set forth on the Equipment Schedule or included with the Equipment
may be transferred to, and used by, a third party user. In such
determination, all alternative uses in the hands of each buyer or lessee,
including, without limitation, the further leasing of the Equipment shall be
taken into account in making such determination.
If, on or before a date which is sixty (60) days prior to the expiration
of the Initial Term, Lessor and Lessee are unable to agree upon a
determination of the Fair Market Value of the Equipment, the Fair Market
Value (to be determined in accordance with the definition set forth in this
Section) shall, upon written request by Lessee therefor, be conclusively
established not less than thirty (30) days prior to the expiration of the
Initial Term by an independent appraiser selected by Lessor. Lessor shall
notify Lessee of the name and address of said appraiser. The costs of such
appraiser shall be paid by Lessee within ten (10) days after receipt of an
invoice therefor. The Lease, including the obligation to pay monthly rentals,
shall remain in effect pending the determination of Fair Market Value.
14. MISCELLANEOUS:
(a) During the term of this Lease, Lessee hereby agrees to deliver to
Lessor or Assignee and any successor assignee a copy of Lessee's monthly
unaudited financial statements, and the annual financial budget for the
upcoming year as soon as available and as it may be adjusted during the year.
Lessee shall also furnish, as soon as available and in any event within
ninety (90) days after the last day of Lessee's fiscal year, a copy of
Lessee's annual audited statements and consolidating and consolidated balance
sheet, if any, as of the end of such fiscal year, accompanied by the opinion
of an independent certified public accounting firm of recognized standing.
The Lessee shall furnish such other financial information as may be
reasonably requested by Lessor, including but not limited to any material
changes in budgets or financial reports furnished to the Lessee's Board of
Directors or Shareholders.
(b) This Lease constitutes the entire agreement between Lessee and
Lessor with respect to the Equipment, and except as agreed upon in writing no
covenant, condition or other term or provision hereof may be waived or
modified orally.
(c) All notices hereunder shall be in writing and shall be delivered in
person or sent by registered or certified mail, postage prepaid, or by
facsimile transmission (confirmed by registered mail as set forth in this
section) to the address of the other party as set forth herein or to such
other address as such party shall have designated by proper notice.
(d) This Lease shall be binding upon and inure to the benefit of Lessor
and Lessee and their respective successors and assigns (including any
subsequent assignee of Assignee).
(e) If any term or provision of this Lease or the application thereof to
any person is, to any extent, invalid or unenforceable, the remainder of this
Lease, or the application of such provision to the person other than those to
which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
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(f) No waiver of any of the terms and conditions hereof shall be
effective unless in writing and signed by the party against whom such waiver
is sought to be enforced. Any waiver of the terms hereof shall be effective
only in the specific instance and for the specific purpose given. The
subsequent acceptance of rental payments hereunder by Lessor shall not be
deemed a waiver of any prior existing breach by Lessee regardless of Lessor's
knowledge of such prior existing breach at the time of acceptance of such
rental payments. Where permitted by law, Lessee authorizes any attorney of
record, Clerk of Court or Prothonotary of any state to appear for and confess
judgment (a) against Lessee for all amounts as to which Lessee is in default
under this Agreement and (b) against Lessee in any action for writ of
replevin or possession of the Equipment. No bond shall be required.
(g) Lessor is hereby authorized by Lessee to cause this Lease or other
instruments, including Uniform Commercial Code Financing Statements to be
filed or recorded for the purpose of showing Lessor's interest in the
Equipment and Lessee agrees that Lessor may execute such instruments for and
on behalf of Lessee. All filing fees reasonably incurred by Lessor in
connection therewith and filing fees incurred by Lessor's assignees in
perfecting security interests shall be paid by Lessee or reimbursed to Lessor
by Lessee.
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(h) No consent or approval provided for herein shall be binding upon
Lessor unless signed on its behalf by an officer of Lessor. THIS LEASE AND
EACH EQUIPMENT SCHEDULE SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CONNECTICUT AND SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF SUCH STATE.
The Lessee accepts for itself the non-exclusive jurisdiction of any Federal
or State court of competent jurisdiction in the State of Connecticut in any
action, suit or proceeding of any kind against it which arises out of or by
reason of this Lease or any Equipment Schedule.
(i) Lessee acknowledges that the late payment by Lessee to Lessor of
monthly rental and other sums due hereunder will cause Lessor harm and to
incur costs not contemplated by this Lease, the precise amount and severity
of which will be difficult to ascertain. Such costs include, but are not
limited to, administrative, accounting and legal charges which Lessor may
incur due to such late payment. Accordingly, if any monthly rent or any
other sum due from Lessee shall not be received by Lessor or Lessor's
assignee within twenty (20) days after the same is due, Lessee shall pay to
Lessor or Lessor's assignee a late charge equal to five per cent (5%) of such
overdue amount monthly until such overdue amount is paid. Lessee
acknowledges that such late charge represents a fair and reasonable estimate
of the cost Lessor will incur by reason of a late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default, if any, with respect to such overdue amounts, nor
prevent Lessor from exercising any of the other rights and remedies which
Lessor may have pursuant to this Lease.
(j) The obligations which Lessee is required to perform during the term
of this Lease shall survive the expiration or other termination of this Lease.
(k) Lessee will promptly execute and deliver to Lessor such further
documents and assurances and take such further action as Lessor may
reasonably request in order to effectuate the intent and purpose of this
Lease and to establish and protect the rights, interests and remedies
intended to be created in favor of Lessor hereunder, including without
limitation, the execution and filing of financing statements and continuation
statements with respect to this Lease, the Equipment and any Equipment
Schedule. Lessee authorizes Lessor to effect any such filing and Lessor's
reasonable expenses (together with the reasonable expenses of Lessor's
assignees in this regard) shall be payable by Lessee on demand.
LESSOR: LESSEE:
LEASING TECHNOLOGIES INTERNATIONAL, INC. CONDUCTUS, INC.
BY:_______________________________ BY:____________________________
NAME:_____________________________ NAME:__________________________
TITLE:____________________________ TITLE:_________________________
DATE:_____________________________ DATE:__________________________
<PAGE>
[LETTERHEAD]
CONFIDENTIAL
------------
March 24, 1998
Conductus, Inc.
969 West Maude Avenue
Sunnyvale, California 94086
Attention: Mr. Charles E. Shalvoy, President and Chief Executive Officer
-------------------------------------------------------------
Dear Charlie:
This letter agreement sets forth the terms and conditions under which
Conductus, Inc. ("Conductus" or the "Company") has retained Sutro & Co.
Incorporated ("Sutro") to act as its exclusive financial advisor with respect
to the private placement (the "Financing") of equity or equity-related
securities (the "Securities") on a best efforts basis on terms satisfactory
to the Company and in compliance with Section 4(2) of the Securities Act of
1933 as amended, and other federal and state securities laws.
1. SERVICES TO BE RENDERED - Sutro will assist the Company in effecting the
Financing on the terms and conditions of this letter agreement. In this
regard, we propose to undertake certain activities including, if
appropriate, the following:
(a) Advising the Company as to the form and structure of the Financing;
(b) Assisting in the preparation of a Private Placement Memorandum (the
"Memorandum") describing the Company, the transaction and the
securities offered in connection therewith (the "Securities").
Responsibility for the contents of such Memorandum shall be solely
that of the Company, and the Memorandum shall not be made available
to or used in discussions with prospective investors (the "Party"
or "Parties") by Sutro until both the Memorandum and its use for
that purpose have been approved by the Company;
(c) Identifying, introducing to, and consulting as to strategy for
initiating discussions with, potential investors;
(d) Negotiating the sale of the Securities to investors;
(e) Assisting in the preparation of definitive documentation for the
Financing.
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2. RETAINER - Sutro shall be paid a nonrefundable retainer in the amount of
$25,000 which shall be deemed compensation hereunder and which shall be
credited against any fees payable pursuant to paragraph 3(a) upon
completion of the Financing.
3. COMPENSATION - Upon completion of the Financing, the Company agrees to
pay Sutro:
(a) A cash placement fee (the "Placement Fee") equal to the greater of
$200,000 or six percent (6%) of the Securities sold to new investors and
three percent (3%) of the Securities to sold to existing shareholders and
certain investors listed on Attachment A. The Placement Fee is paid upon
consummation of, and out of the proceeds of, the proposed Financing.
Notwithstanding the above, Sutro will not be due a Placement Fee on the
first $400,000 raised from Asset Management Company or on Securities sold
to current Directors of the Company. The Placement Fee will be payable
regardless of the size of the Financing and whether or not the Financing
occurs in one transaction or a series of transactions.
4. SUTRO'S EXPENSES - In addition to the foregoing fees, and regardless of
whether the Financing contemplated by this letter agreement is
consummated, the Company agrees, upon request from time to time, to
promptly reimburse Sutro for all reasonable out-of-pocket expenses up to
limit of $25,000, including, but not limited to, such costs as
(i) printing, telephone, fax, courier service, copying, accommodations,
travel, and direct computer expenses, secretarial overtime and fees and
(ii) disbursements of legal counsel, if required. In the event, the
above expenses exceed $25,000; the Company will approve expenses in
advance, which approval shall not be unreasonably withheld.
5. TERM AND TERMINATION RIGHTS - It is understood that the Company hereby
engages Sutro on an exclusive basis for investment banking services
relating to the Financing for a term (the "Term") commencing on the date
hereof and ending on September 30, 1998. The Term shall be automatically
renewed for successive 30 day periods unless either party gives written
notice to the other within 30 days of the expiration of the Term of its
desire that this engagement expire.
Notwithstanding the foregoing, either Sutro or the Company may terminate
its obligation hereunder without liability if, in the reasonable opinion
of either party, a change has occurred in the Company's financial
condition, results of operations, properties, business prospects, or the
composition of the Company's management or Board of Directors, which has
adversely effected the marketability of the Company. The remaining
provisions of this letter relating to the payment of expenses incurred
prior to the end of the Term and the Indemnification Agreement shall
survive any termination or expiration of the engagement.
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<PAGE>
If during the Term, or within the six months following the expiration
thereof, (a) a financing transaction or transactions occur for the
benefit of the Company which involves a Party (i) identified to the
Company by Sutro or (ii) with whom the Company or Sutro had a discussion
regarding the Financing during the engagement and whether or not such
discussions were initiated by Sutro, or (b) the Company enters into a
definitive agreement with any such Party specified in (i) or (ii) above
which subsequently results in a financing transaction or transactions,
then the Company will be obligated to pay Sutro the fees and expenses of
Sections 3 and 4.
6. SALE TRANSACTION - If during the Term, the Company consummates a Sale
Transaction (as defined below) or reaches a definitive agreement which
subsequently results in a Sale Transaction, the Company agrees to pay or
cause to be paid to Sutro, a sale transaction fee (the "Sale Transaction
Fee") equal to the lesser of three percent (3%) of the Aggregate
Consideration (as defined below) or $750,000. The Sale Transaction Fee
will be payable in cash upon the closing of the Sale Transaction.
The term "Sale Transaction" shall be defined to include any merger,
consolidation, sale of assets, tender or exchange offer, leveraged
buy-out, formation of a joint venture or partnership, reorganization or
other business combination, pursuant to which the business of the
Company is combined with that of an acquiring entity or any entity
affiliated with one or more acquirers (the "Party" or "Parties"), where
the Party has at least 50% of the capital stock of the surviving company.
The term "Aggregate Consideration" shall be defined to include cash,
equity securities, the fair market value of revolving credit facilities,
straight and convertible debt instruments or other obligations, and any
other form of payment or assumption of obligations made to the Company
or its shareholders in connection with the Sale Transaction. If any of
the consideration to be received by the Company is contingent upon
future performance of the Company's operations (e.g. revenues or
income), the portion of the fee attributable to such consideration shall
be paid to Sutro at such time or times as the Company receives such
consideration.
7. DUE DILIGENCE - In connection with Sutro's engagement, the Company and
its advisors will furnish Sutro with all data, material, and information
concerning the Company (the "Information") which Sutro reasonably
requests, all of which will be accurate and complete in all material
respects, except with respect to the Company's financial statements
which shall present fairly the financial position of the Company, to the
best of the Company's knowledge, at the time furnished. The Company
recognizes and confirms that in advising it and in undertaking the
assignment, Sutro will be using and relying on the Information and
financial and other information furnished to Sutro by potential
interested Parties, without independent verification. Moreover, Sutro
will not perform any appraisal of the assets or businesses of the
Company or any Party. Sutro is hereby authorized to use and deliver the
Information, and any other data obtained by Sutro from reliable
published sources, to prospective interested Parties. In connection with
the engagement of Sutro hereunder, the Company has entered into a
separate letter agreement, dated as of the date hereof, providing for
the indemnification of Sutro and certain related parties by the Company
(the "Indemnification Agreement").
8. RIGHT OF FIRST REFUSAL - The Company will provide Sutro with the right
of first refusal for one year to serve as a managing underwriter on any
public or private financing (debt or equity), or act as an advisor on
any merger, business combination, recapitalization or sale of some or
all of the equity or assets of the Company (collectively, "Future
Services"). In the event the Company notifies Sutro of its intention to
pursue an activity that would enable Sutro to exercise its right of
first refusal to provide Future Services, Sutro shall notify the Company
of its election to provide such Future Services,
3 of 4
<PAGE>
including notification of the compensation and other terms to which
Sutro claims to be entitled, within twenty (20) days of written notice
by the Company. In the event Sutro is engaged by the Company to provide
such Future Services, Sutro will be compensated as is reasonable and
customary within the industry PROVIDED; HOWEVER, that the terms of the
Indemnification Agreement shall apply to any additional engagement.
9. CALIFORNIA LAW - This letter agreement and the related indemnification
agreement referred to above shall be deemed made in California. Such
agreements shall be governed by the laws of the state of California,
without regard to such state's rules concerning conflicts of laws.
Should suit be brought to enforce this letter agreement or the
Indemnification Agreement, the prevailing party shall be entitled to
recover from the other reimbursement for reasonable attorneys' fees. Any
dispute arising from the interpretation, validity or performance of this
letter agreement or any of its terms and provisions shall be submitted
to binding arbitration with the National Association of Securities
Dealers.
10. Upon execution of this engagement letter, Sutro and the Company will
exchange mutually acceptable Confidentiality Agreements.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to us the enclosed duplicate copy of this letter
agreement along with the retainer. We look forward to working with you and to
the successful conclusion of this assignment.
Very truly yours,
SUTRO & CO. INCORPORATED
By: /s/ John M. Morris
---------------------------------
John M. Morris
Managing Director
Accepted and Agreed to
as of the date written above:
CONDUCTUS, INC.
By: /s/ Charles E. Shalvoy
-------------------------------------
Charles E. Shalvoy
President and Chief Executive Officer
4 of 4
<PAGE>
[LETTERHEAD]
Attachment A
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL
------------
March 24, 1998
Sutro & Co. Incorporated
11150 Santa Monica Blvd.
Suite 1500
Los Angeles, CA 90025
Gentlemen:
In consideration of Sutro's agreement to act on behalf of Conductus, Inc.
(the "Company"), in connection with the private placement, pursuant to the
engagement letter of even date herewith (the "Engagement Letter"), we hereby
agree to indemnify and hold harmless Sutro, its affiliates, the respective
partners, directors, officers, agents and employees of Sutro and its
affiliates and each person, if any, controlling Sutro or any of its
affiliates within the meaning of either Section 15 of the Securities Act of
1933 or Section 20 of the Securities Exchange Act of 1934, (Sutro and each
such other person are hereinafter referred to as an "Indemnified Person"),
from and against any such losses, claims, damages, expenses and liabilities
(or actions in respect thereof), joint or several, as they may be incurred
(including all legal fees and other expenses incurred in connection with
investigating, preparing, defending, paying, settling or compromising any
claim, action, suit, proceeding, loss, damage, expense or liability, whether
or not in connection with an action in which any Indemnified Person is a
named party) to which any of them may become subject (including in settlement
of any action, suit or proceeding, if such settlement is effected with the
Company's consent, which consent shall not be unreasonably withheld), and
which are related to or arise out of Sutro's engagement, the transaction
contemplated by such engagement or any Indemnified Person's role in
connection therewith, including, but not limited to, any losses, claims,
damages, expenses and liabilities (or actions in respect thereof) arising out
of, based upon or caused by any untrue statement or alleged untrue statement
of a material fact contained in the offering memorandum, or any amendment or
supplement thereto, or in any other document of the Company furnished to any
party or to Sutro in connection with the Financing Transaction, or arising out
of, based upon or caused by any omission or alleged omission to state in any
of them a material fact required to be stated therein or necessary to make
the statements in any of them not misleading. The Company will not, however,
be responsible under the foregoing provisions with respect to any loss,
claim, damage, expense or liability to the extent that a court having
jurisdiction shall have determined by a final judgment (not subject to
further appeal) that such loss, claim, damage, expense or liability resulted
from actions taken or omitted to be taken by Sutro due to its gross
negligence or willful misconduct. All capitalized terms not otherwise defined
herein have the same meaning as ascribed to them in the Engagement Letter,
unless the context indicates or requires otherwise.
1 of 3
<PAGE>
Promptly after receipt by an Indemnified Person of notice of the commencement
of any action, such Indemnified Person will, if a claim in respect thereof is
to be made against the Company, notify the Company of the commencement
thereof; but the omission to notify the Company will not relieve it from any
liability which it may have to any Indemnified Person otherwise than stated
in this Indemnification Agreement. In case any such action is brought against
any Indemnified Person, and it notifies the Company of the commencement
thereof, the Company will be entitled to participate therein and, to the
extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Person; provided, however, that
if the defendants in any such action include both the Indemnified Person and
the Company and counsel for the Indemnified Person reasonably determines
there is a conflict of interest that cannot or should not be waived, the
Company shall not have the right to direct the defense of such action on
behalf of such Indemnified Person and such Indemnified Person shall have the
right to select separate counsel to defend such action on behalf of such
Indemnified Person. After notice from the Company to such Indemnified Person
of its election to assume the defense thereof and approval by such
Indemnified Person of counsel appointed to defend such action, the Company
will not be liable to such Indemnified Person for any legal or other
expenses, other than reasonable costs of investigation, incurred by such
Indemnified Person in connection with the defense thereof, unless: (i) the
Indemnified Person shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however,
that in connection with such action the Company shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in
any one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances);
or (ii) the Company has authorized the employment of counsel for the
Indemnified Person at the expense of the Company. After any notice from the
Company to such Indemnified Person, the Company will not be liable for the
costs and expenses of any settlement of such action effected by such
Indemnified Person without the consent of the Company.
If the indemnity referred to above should be, for any reason whatsoever,
unenforceable, unavailable to or otherwise insufficient to hold harmless
Sutro and each Indemnified Person in connection with the transaction, each
Indemnified Person shall be entitled to receive from the Company, and the
Company shall pay, contributions for such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) so that each
Indemnified Person ultimately bears only a portion of such losses, claims,
damages, liabilities, expenses and actions as is appropriate (i) to reflect
the relative benefits received by Sutro on the one hand and the Company on
the other hand in connection with the transaction or (ii) if the allocation
on that basis is not permitted by applicable law, to reflect not only the
relative benefits referred to in clause (i) above but also the relative
fault of Sutro and the Company in connection with the actions or omissions to
act which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations; provided, however,
that in no event shall the aggregate contribution of all Indemnified Persons
to all losses, claims, damages, liabilities, expenses and actions exceed the
amount of the fee actually received by Sutro pursuant to the engagement
letter. The respective relative benefits received by Sutro and the Company in
connection with the transaction shall be deemed to be in the same proportion
as the aggregate fee paid to Sutro in connection with the transaction bears
to the total consideration of the transaction. The relative fault of Sutro
and the Company shall be determined by reference to, among other things,
whether the actions or omissions to act were by Sutro or the Company and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action or omission to act.
2 of 3
<PAGE>
The indemnity, contribution and expense payment obligations of the Company
referred to above shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any Indemnified
Person and the Company. The Company also agrees that the Indemnified Persons
shall have no liability to the Company or any person asserting claims on
behalf of or in right of the Company for or in connection with any matter
referred to in this letter except to the extent that any such liability
results from the gross negligence or willful misconduct of Sutro in
performing the services that are the subject of this letter and in no event
shall such liability exceed the amount of fees actually received by Sutro
hereunder.
Very truly yours,
CONDUCTUS, INC.
By: /s/ Charles E. Shalvoy
-------------------------------------
Charles E. Shalvoy
President and Chief Executive Officer
Accepted and Agreed to
as of the date written above:
SUTRO & CO. INCORPORATED
By: /s/ John M. Morris
-------------------------------
John M. Morris
Managing Director
3 of 3
<PAGE>
September 2, 1998
CONDUCTUS, INC.
969 West Maude Avenue
Sunnyvale, California 94086
Attn: Mr. Charles E. Shalvoy, President and Chief Executive Officer
Re: Conductus, Inc. Series B Private Placement
Dear Mr. Shalvoy:
In connection with that certain Letter Agreement dated March 24, 1998 by
and among Conductus, Inc. (the "Company") and Sutro & Co. Incorporated (the
"Agreement"), we hereby agree to waive the payment by the Company to us of
one-half of any cash placement fee owed to us pursuant to Paragraph 3(a) that
arises out of the sale of the Securities (as such term is defined in the
Agreement) to investors identified to the Company by Davenport and PMG.
Very truly yours,
Sutro & Co. Incorporated
By: /s/ John Morris
---------------------------------
John Morris
Managing Director
Accepted and Agreed to
as of the date written above:
CONDUCTUS, INC.
By: /s/ Charles E. Shalvoy
-------------------------------------
Charles E. Shalvoy
President and Chief Executive Officer
<PAGE>
CONFIDENTIAL
September 2, 1998
Conductus, Inc.
969 West Maude Avenue
Sunnyvale, California 94086
Attention: Mr. Charles E. Shalvoy, President and Chief Executive Officer
Dear Mr. Shalvoy:
This letter agreement sets forth the terms and conditions under which Conductus,
Inc. ("Conductus" or the "Company") has retained Davenport & Company LLC
("Davenport") to act as its financial advisor with respect to the private
placement (the "Financing") of equity or equity-related securities (the
"Securities") on a best efforts basis on terms satisfactory to the Company and
in compliance with Section 4(2) of the Securities Act of 1933 as amended, and
other federal and state securities laws.
1. SERVICES TO BE RENDERED - Davenport will assist the Company in effecting
the Financing on the terms and conditions of this letter agreement. In
this regard, we propose to undertake certain activities including, if
appropriate, the following:
(a) Identify, introducing to, and consulting as to strategy for initiating
discussions with, potential investors;
(b) Negotiating the sale of the Securities to investors; and
(c) Assisting in the preparation of definitive documentation for the
Financing.
2. COMPENSATION - Upon completion of the Financing the Company agrees to pay
Davenport a cash placement fee (the "Placement Fee") equal to four percent
(4%) of the Securities sold to investors identified to the Company by
Davenport. The Placement Fee is paid upon consummation of, and out of the
proceeds of, the proposed Financing. The Placement Fee will be payable
regardless of the size of the Financing and whether or not the Financing
occurs in one transaction or a series of transactions.
3. DUE DILIGENCE - In connection with Davenport's engagement, the Company and
its advisors will furnish Davenport with all data, material, and
information concerning the Company (the "Information") which Davenport
reasonably requests, all of which will be accurate and complete in all
material respects, except with respect to the Company's financial
statements which shall present fairly the financial position of the
Company, to the best of the Company's knowledge, at the time furnished.
The Company recognizes and confirms that in advising it and in undertaking
the assignment, Davenport will be using and relying on the Information and
financial and other information furnished to Davenport by the Company and
its advisors, without independent verification. Moreover, Davenport will
not perform any appraisal of the assets or businesses of the
<PAGE>
Conductus, Inc.
September 2, 1998
Page 2
Company or any party. Davenport is hereby authorized to use and deliver
the Information, and any other data obtained by Davenport from reliable
published sources to prospective interested investors. In connection with
the engagement of Davenport hereunder, the Company has entered into
separate letter agreement, dated as of the date hereof, providing for the
indemnification of Davenport and certain related parties by the Company
(the "Indemnification Agreement").
4. CALIFORNIA LAW - This letter agreement and the related indemnification
agreement referred to above shall be deemed made in California. Such
agreements shall be governed by the laws of the state of California,
without regard to such state's rules concerning conflicts of laws. Should
suit be brought to enforce this letter agreement or the Indemnification
Agreement, the prevailing party shall be entitled to recover from the other
reimbursement for reasonable attorneys' fees. Any dispute arising from the
interpretation, validity or performance of this letter agreement or any of
its terms and provisions shall be submitted to binding arbitration with the
National Association of Securities Dealers.
5. Upon execution of this engagement letter, Davenport and the Company will
exchange mutually acceptable Confidentiality Agreements.
<PAGE>
Conductus, Inc.
September 2, 1998
Page 3
Please confirm that the foregoing correctly sets forth our agreement by signing
and returning to us the enclosed duplicate copy of this letter agreement. We
look forward to working with you and to the successful conclusion of this
assignment.
Very truly yours,
DAVENPORT & COMPANY LLC
By: /s/ Robert F. Mizell
----------------------------------
Name: Robert F. Mizell
--------------------------------
Title: Vice President
-------------------------------
Accepted and Agreed to
as of the date written above:
CONDUCTUS, INC.
By: /s/ Charles E. Shalvoy
-------------------------------------
Charles E. Shalvoy
President and Chief Executive Officer
<PAGE>
CONFIDENTIAL
September 2, 1998
Davenport & Company LLC ("Davenport")
901 E. Cary Street, 11th Floor
Richmond, VA 23219
Gentlemen:
In consideration of Davenport's agreement to act on behalf of Conductus, Inc.
(the "Company"), in connection with the private placement, pursuant to the
engagement letter of even date herewith (the "Engagement Letter"), we hereby
agree to indemnify and hold harmless Davenport, its affiliates, the respective
partners, directors, officers, agents and employees of Davenport and its
affiliates and each person, if any, controlling Davenport or any of its
affiliates within the meaning of either Section 15 of the Securities Act of 1933
or Section 20 of the Securities Exchange Act of 1934, (Davenport and each such
other person are hereinafter referred to as an "Indemnified Person"), from and
against any such losses, claims, damages, expenses and liabilities (or actions
in respect thereof), joint or several, as they may be incurred (including all
legal fees and other expenses incurred in connection with investigating,
preparing, defending, paying, settling, or compromising any claim, action, suit,
proceeding, loss, damage, expense or liability, whether or not in connection
with an action in which any Indemnified Person is a named party) to which any of
them may become subject (including in settlement of any action, suit or
proceeding, if such settlement is effected with the Company's consent, which
consent shall not be unreasonably withheld), and which are related to or arise
out of Davenport's engagement, the transaction contemplated by such engagement
or any Indemnified Person's role in connection therewith, including, but not
limited to, any losses, claims, damages, expenses and liabilities (or actions in
respect thereof) arising out of, based upon or caused by any untrue statement or
alleged untrue statement of a material fact contained in the offering
memorandum, or any amendment or supplement thereto, or in any other document of
the Company furnished to any party or to Davenport in connection with the
Financing Transaction, or arising out of, based upon or caused by any omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading. The Company will not, however, be responsible under the foregoing
provisions with respect to any loss, claim, damage, expense or liability to the
extent that a court having jurisdiction shall have determined by a final
judgment (not subject to further appeal) that such loss, claim, damage, expense
or liability resulted from actions taken or omitted to be taken by Davenport due
to its gross negligence or willful misconduct. All capitalized terms not
otherwise defined herein have the same meaning as ascribed to them in the
Engagement Letter, unless the context indicates or requires otherwise.
Promptly after receipt by an Indemnified Person of notice of the commencement of
any action, such Indemnified Person will, if a claim in respect thereof is to be
made against the Company, notify the Company of the commencement thereof; but
the omission to notify the Company will
<PAGE>
Davenport & Company LLC
September 2, 1998
Page 2
not relieve it from any liability which it may have to any Indemnified Person
otherwise than stated in this Indemnification Agreement. In case any such
action is brought against any Indemnified Person, and it notifies the Company of
the commencement thereof, the Company will be entitled to participate therein
and, to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Person; provided, however, that if
the defendants in any such action include both the Indemnified Person and the
Company and counsel for the Indemnified Person reasonably determines there is a
conflict of interest that cannot or should not be waived, the Company shall not
have the right to direct the defense of such action on behalf of such
Indemnified Person and such Indemnified Person shall have the right to select
separate counsel to defend such action on behalf of such Indemnified Person.
After notice from the Company to such Indemnified Person of its election to
assume the defense thereof and approval by such Indemnified Person of counsel
appointed to defend such action, the Company will not be liable to such
Indemnified Person for any legal or other expenses, other than reasonable costs
of investigation, incurred by such Indemnified Person in connection with the
defense thereof unless: (i) the Indemnified Person shall have employed separate
counsel in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the Company shall not
be liable for the expenses of more than one separate counsel (in addition to
local counsel) in any one action or separate but substantially similar actions
in the same jurisdiction arising out of the same general allegations or
circumstances); or (ii) the Company has authorized the employment of counsel for
the Indemnified Person at the expense of the Company. After any notice from the
Company to such Indemnified Person, the Company will not be liable for the costs
and expenses of any settlement of such action effected by such Indemnified
Person without the consent of the Company.
If the indemnity referred to above should be, for any reason whatsoever,
unenforceable, unavailable to or otherwise insufficient to hold harmless
Davenport and each Indemnified Person in connection with the transaction, each
Indemnified Person shall be entitled to receive from the Company, and the
Company shall pay, contributions for such losses, claims, damages, liabilities
and expenses (or actions in respect thereof) so that each Indemnified Person
ultimately bears only a portion of such losses, claims, damages, liabilities
expenses and actions as is appropriate (i) to reflect the relative benefits
received by Davenport on the one hand and the Company on the other hand in
connection with the transaction or (ii) if the allocation on that basis is not
permitted by applicable law, to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of Davenport and the Company
in connection with the actions or omissions to act which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations; provided, however, that in no event shall the
aggregate contribution of all Indemnified Persons to all losses, claims,
damages, liabilities, expenses and actions exceed the amount of the fee actually
received by Davenport pursuant to the engagement letter. The respective
relative benefits received by Davenport and the Company in connection with the
transaction shall be deemed to be in the same proportion as the aggregate fee
paid to Davenport in connection with the transaction bears to the total
consideration of the transaction. The relative fault of Davenport and the
Company shall be determined by reference to, among other things, whether the
actions or omissions to act were by Davenport or the Company and the
<PAGE>
Davenport & Company LLC
September 2, 1998
Page 3
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action or omission to act.
The indemnity, contribution and expense payment obligations of the Company
referred to above shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any Indemnified
Person and the Company. The Company also agrees that the Indemnified Persons
shall have no liability to the Company or any person asserting claims on behalf
of or in right of the Company for or in connection with any manner referred to
in this letter except to the extent that any such liability results from the
gross negligence or willful misconduct of Davenport in performing the services
that are the subject of this letter and in no event shall such liability exceed
the amount of fees actually received by Davenport hereunder.
Very truly yours,
CONDUCTUS, INC.
By: /s/ Charles E. Shalvoy
-------------------------------------
Charles E. Shalvoy
President and Chief Executive Officer
Accepted and Agreed to
as of the date written above:
DAVENPORT & COMPANY LLC
By: /s/ Robert F. Mizell
----------------------------
Name: Robert F. Mizell
--------------------------
Title: Vice President
-------------------------
<PAGE>
SERIES B PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
This SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
"Agreement") dated September 11, 1998 is entered into by and between Conductus,
Inc., a Delaware corporation (together with its successors, the "Company"), and
the investor set forth on the signature page attached hereto ("Investor").
Unless otherwise defined herein, capitalized terms used herein and not
defined herein shall have the meanings given to them under the Securities Act of
1933, as amended (the "Securities Act").
The parties hereto agree as follows:
1. PURCHASE AND SALE. In consideration of and upon the basis of the
representations, warranties and agreements and subject to the terms and
conditions set forth in this Agreement:
a. Investor agrees to purchase from the Company, and the
Company agrees to sell to Investor, on the Closing Date specified in Section 2
hereof, the number of shares of the Company's Series B Preferred Stock (the
"Preferred Shares") set forth on the signature page attached hereto for a price
per share equal to $2.70 (the "Purchase Price") and a warrant, in the form
attached hereto as EXHIBIT A, to purchase that number of shares of Common Stock
of the Company equal to 20% of the Preferred Shares purchased hereunder (rounded
to the nearest whole number) at an exercise price per share equal to the
Purchase Price (the "Warrant"). On or before the Closing Date (as defined
below), the Company will have authorized the sale and issuance to Investor of
the Preferred Shares, having the rights, preferences and priviledges set forth
in the Certificate of Designation attached hereto as EXHIBIT B (the "Certificate
of Designation"). The Company and Investor acknowledges and agrees that the
aggregate value of the Warrants and the portion of the purchase price hereunder
to be allocated to the Warrants shall be a total amount equal to $0.03 per
share.
b. The term "Conversion Stock" shall mean any shares of the
Company's common stock, par value $0.0001 per share (the "Common Stock"), issued
or to be issued to Investor upon conversion of the Preferred Shares pursuant to
the terms of this Agreement and the Certificate of Designation or upon the
exercise of the Warrant.
2. CLOSING.
a. The closing of the sale of the Preferred Shares and the
Warrant (the "Closing") shall take place on September 11, 1998 upon satisfaction
or, if applicable, waiver of the conditions set forth in Sections 6 and 7
hereof, or at such other date and time as the Investor and the Company shall
mutually agree (such date and time and any subsequent closing pursuant to
Section being referred to herein as the "Closing Date").
<PAGE>
b. At the Closing, the Company shall deliver to Investor (i) a
certificate representing the Preferred Shares that Investor is purchasing and
(ii) the Warrant, duly registered on the books of the Company in the name of
Investor, against payment by Investor of the Purchase Price by check or wire
transfer of immediately available funds.
c. The Company may sell up to the balance of the authorized
number of shares of Series B Preferred Stock not sold at the Closing to such
purchasers as it shall select, such new purchasers to become parties hereto by
executing a signature page hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth in the Disclosure Letter delivered to Investor by the Company concurrently
with this Agreement, the Company hereby represents and warrants to Investor as
follows:
a. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business or
properties.
b. All corporate action on the part of the Company, its
officers and directors necessary for the authorization, execution and delivery
of this Agreement, the performance of all obligations of the Company hereunder
and thereunder, and the authorization, issuance (or reservation for issuance),
sale and delivery of the Preferred Shares and the Warrant being sold hereunder
and the Conversion Stock has been taken or will be taken prior to the Closing,
and this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
c. The Company is not in violation or default of any provision
of its Amended and Restated Certificate of Incorporation or bylaws, or of any
judgment, order, writ, or decree by which it is bound. The Company is not in
violation or default in any material respect of any instrument or contract to
which it is a party or by which it is bound, or, to its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to the
Company, which violation or default would have a material adverse effect on its
business or properties. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties.
d. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental
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authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by this Agreement, except (i)
the filing of the Certificate of Designation with the Secretary of State of
Delaware; and (ii) the filing pursuant to Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act, which filing
will be effected within 15 days of the sale of the Preferred Shares
hereunder, or such other post-closing filings as may be required.
e. Except as disclosed in the SEC Filings (as defined below)
(i) there is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened against the Company that questions the
validity of this Agreement or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby, and (ii)
there is no action, suit, proceeding or investigation pending or, to the
knowledge of the Company, currently threatened in writing against the Company,
or against any executive officer or director of the Company which might result,
either individually or in the aggregate, in any material adverse change in the
business, properties, financial condition or operating results of the Company,
as such business is presently conducted.
f. The Company has filed all filings with the United States
Securities and Exchange Commission (the "SEC") under the Securities Act or under
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or under the rules and regulations promulgated by the SEC (any
such filing, an "SEC Filing") required to be filed by the Company pursuant to
such acts and no SEC Filing contained, on the date on which such document was
filed with the SEC, any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in SEC Filings
(including any similar documents filed after the date of this Agreement) comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto), and fairly present the consolidated financial position of
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
g. Since the date of the Company's most recent quarterly report
on Form 10-Q or most recent periodic report on Form 8-K filed with the SEC,
there has not been any development that has not otherwise been publicly
disclosed that is reasonably likely to result in any material adverse change in
the financial condition or results of operations of the Company.
h. Except as disclosed in the SEC Filings and as contemplated
hereby, the Company has not granted or agreed to grant any registration rights,
including piggy-back rights, to any person or entity.
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i. As of August 10, 1998, the authorized capital stock of the
Company consisted of 5,000,000 shares of Preferred Stock, none of which were
issued and outstanding, and 20,000,000 shares of Common Stock, 7,116,410 shares
of which were issued and outstanding (the "Preferred Stock" and the "Common
Stock" are collectively referred to herein as the "Capital Stock"). All of the
issued and outstanding shares of Capital Stock have been duly authorized,
validly issued and are fully paid and nonassessable. There has been no material
change in the capitalization of the Company from August 10, 1998 to the date of
this Agreement.
j. The Preferred Shares and the Warrant that are being
purchased by the Investor hereunder, when issued, sold or delivered in
accordance with the terms hereof, for the consideration expressed herein, and
the Conversion Stock, upon issuance in accordance with the terms of the
Certificate of Designation, will be duly and validly issued, fully paid and
nonassessable and will be free of any liens and encumbrances created by the
Company and, subject to the accuracy of the representations of the Investor in
this Agreement, will be issued in compliance with all applicable federal and
state securities laws.
4. REPRESENTATIONS AND WARRANTIES OF INVESTOR. Investor hereby
represents and warrants to the Company on the date hereof, and agrees with the
Company (unless otherwise specified as provided in the paragraphs below), as
follows:
a. Investor understands that no United States federal or state
agency has passed on, reviewed or made any recommendation or endorsement of the
Preferred Shares, the Warrant or the Conversion Stock.
b. Investor has full power and authority to enter into this
Agreement and such Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
c. This Agreement is made with Investor in reliance upon
Investor's representation to the Company, which by Investor's execution of this
Agreement Investor hereby confirms, that the Preferred Shares to be received by
Investor, the Warrant and the Conversion Stock (collectively, the "Securities")
will be acquired for investment for Investor's own account, not as a nominee or
agent, and not with a present view to the resale or distribution of any part
thereof, and that Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Investor further represents that Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
d. Investor is an investor in securities of companies in the
development stage and acknowledges that it can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating
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the merits and risks of the investment in the Securities. Investor also
represents it has not been organized for the purpose of acquiring the
Securities.
e. Investor is an "accredited investor" within the meaning of
SEC Rule 501(a) of Regulation D, as presently in effect and all representations
made by Investor in that certain Investor Questionnaire completed by Investor
and delivered to the Company are true and correct in all respects as if made on
the date hereof.
f. Investor understands that the Securities are being offered
and sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Investor set forth herein
in order to determine the applicability of such exemptions and the suitability
of the Investor to acquire the Securities.
g. Investor understands that the Securities it is purchasing
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, Investor represents
that it is familiar with SEC Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Securities Act.
h. Without in any way limiting the representations set forth
above, Investor further agrees not to make any disposition of all or any portion
of the Securities unless and until the transferee has agreed in writing for the
benefit of the Company to be bound by the terms of this Agreement provided and
to the extent such terms are then applicable, and:
(1) There is then in effect a Registration Statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement; or
(2) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, Investor shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in circumstances that require a
designation of an entity's status as an "affiliate".
i. It is understood that the certificates evidencing the
Securities will bear the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
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SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT."
j. The execution, delivery and performance of this Agreement
and the consummation by Investor of the transactions contemplated hereby do not
and will not (i) result in a violation of Investor's charter documents or bylaws
or (ii) conflict with any material agreement, indenture or instrument to which
Investor is a party, or (iii) result in a violation of any order, judgment or
decree of any court or governmental agency applicable to Investor or, to the
Investor's knowledge, of any law, rule, or regulation. Investor is not required
to obtain any consent or authorization of any governmental agency in order for
it to perform its obligations under this Agreement.
5. COVENANTS.
a. The Company covenants and agrees with Investor as follows:
(1) For so long as any of the Preferred Shares are
outstanding, and in any case for a period of 40 calendar days thereafter, 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 said act, 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 thereunder) to terminate or suspend its reporting and
filing obligations under said acts, except as permitted herein. For so long as
any of the Preferred Shares are outstanding, and in any case for a period of 40
calendar days thereafter, the Company will use commercially reasonable efforts
to continue the listing or trading of its Common Stock on the Nasdaq Stock
Market ("Nasdaq") or on a national securities exchange (as defined in the
Exchange Act) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers and Nasdaq. Notwithstanding the foregoing,
the provisions of this subsection shall not in any way restrict the Company's
ability to negotiate and consummate the consolidation, reorganization or merger
of the Company with or into any other corporation or corporations or a sale,
conveyance, or other disposition of all or substantially all of the Company's
property or business.
(2) The Company will (i) comply with the terms and
conditions of the Preferred Shares as set forth in the Certificate of
Designation and (ii) not amend the Certificate of Designation without the
express written consent of holders of 66 2/3% of the then outstanding Series B
Preferred Stock.
(3) For so long as any of the Preferred Shares and the
Warrant are outstanding, the Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, for issuance upon conversion of such Preferred Shares or upon
exercise of such Warrant, not less than the maximum number of shares of
Conversion Stock then so issuable.
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b. The Investor covenants and agrees with the Company that (i)
neither Investor nor any of Investor's affiliates nor any person acting on its
or their behalf will at any time offer or sell any Preferred Shares, the Warrant
or any Conversion Stock other than pursuant to registration under the Securities
Act or pursuant to an available exemption therefrom, and (ii) that such Investor
shall report to the Company Sales made pursuant to a registration statement
under Section 6 below.
c. The covenants contained in this Section 5 shall terminate
upon the consummation of any consolidation, reorganization or merger of the
Company with or into any other corporation or corporations or a sale,
conveyance, or other disposition of all or substantially all of the Company's
property or business.
d. With a view to making available the benefits of certain
rules and regulations of the SEC that may at any time permit the sale of the
restricted securities to the public without registration, the Company agrees to:
(1) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date of the first registration under the Securities
Act filed by the Company for an offering of its securities to the general
public;
(2) Use its best efforts to then file with the SEC in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(3) So long as Investor owns any Preferred Shares, to
furnish to the Investor upon request, a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 and of the
Securities Act and of the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as the Investor may reasonably request in availing itself of any rule or
regulation of the SEC allowing the Investor to sell any such securities without
registration.
6. REGISTRATION RIGHTS.
a. REGISTRATION OF SHARES. The Company shall file with the
SEC, as promptly as practicable following the Closing and in any event within
120 days after the Closing, a registration statement under the Securities Act
covering the resale to the public by the Investor of the Conversion Stock (the
"Registration Statement"). The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the SEC as soon as
practicable and in any event within 180 days after the Closing. The Company
shall cause the Registration Statement to remain effective until the later of 2
years from the Closing Date or such time as all Conversion Stock may be sold
under Rule 144 within a ninety (90) day period (assuming exercise of all
Warrants and conversion of all Preferred Shares) or such earlier time as all of
the Conversion Stock covered by the Registration Statement have been sold
pursuant thereto.
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b. LIMITATIONS ON REGISTRATION RIGHTS.
(1) The Company may, by written notice to the Investor, (x)
delay the filing or effectiveness of the Registration Statement (for up to a
total of sixty (60) days) or (y) suspend (for up to a total of seventy-five (75)
days within any twelve-month period) the Registration Statement after
effectiveness and require that the Investor immediately cease sales of shares
pursuant to the Registration Statement, in the event and during such period as
the Company determines that the existence of any fact or the happening of any
event (including without limitation pending negotiations relating to, or the
consummation of, a transaction or the occurrence of any other event) would
require additional disclosure of material information by the Company in the
Registration Statement the confidentiality of which the Company has a business
purpose to preserve or which fact or event would render the Company unable to
comply with SEC requirements (in either case, a "Suspension Event"). In the
case of any Suspension Event occurring prior to and delaying the filing of the
Registration Statement, the Company shall file the Registration Statement, the
Company shall be required to keep the Registration Statement effective until the
earlier of (x) such time as all of the shares offered thereby have been disposed
of in accordance with the intended methods of distribution set forth in the
Registration Statement or (y) the period required by Section 6.a above plus an
extended period equal to the number of days during which any such suspension was
in effect.
(2) If the Company delays or suspends the Registration
Statement or requires the Investor to cease sales of shares pursuant to
paragraph (1) above, the Company shall, as promptly as practicable following the
termination of the circumstance which entitled the Company to do so, take such
actions as may be necessary to file or reinstate the effectiveness of the
Registration Statement and/or give written notice to all Investors authorizing
them to resume sales pursuant to the Registration Statement. If as a result
thereof the prospectus included in the Registration Statement has been amended
to comply with the requirements of the Securities Act, the Company shall enclose
such revised prospectus with the notice to Investor given pursuant to this
paragraph 2, and the Investor shall make no offers or sales of shares pursuant
to the Registration Statement other than by means of such revised prospectus.
c. REGISTRATION PROCEDURES.
(1) In connection with the filing by the Company of the
Registration Statement, the Company shall furnish to each Investor a copy of the
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act and such additional copies as are reasonably
requested by the Investor.
(2) The Company shall use its best efforts to register or
qualify the Conversion Stock covered by the Registration Statement under the
securities laws of such
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states as the Investor shall reasonably request; PROVIDED, HOWEVER, that the
Company shall not be required in connection with this paragraph (ii) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
(3) If the Company has delivered final prospectuses to the
Investor and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify the
Investor and, if requested by the Company, the Investor shall immediately cease
making offers or sales of shares under the Registration Statement and return all
prospectuses to the Company. The Company shall promptly provide the Investor
with revised prospectuses and, following receipt of the revised prospectuses,
the Investor shall be free to resume making offers and sales under the
Registration Statement.
(4) The Company shall pay the expenses incurred by it in
complying with its obligations under this Section 6, including all registration
and filing fees, exchange listing fees, fees and expenses of counsel for the
Company, and fees and expenses of accountants for the Company, but excluding (x)
any brokerage fees, selling commissions or underwriting discounts incurred by
the Investor in connection with sales under the Registration Statement and (y)
the fees and expenses of any counsel retained by Investor.
d. REQUIREMENTS OF INVESTOR. The Company shall not be required
to include any Conversion Stock in the Registration Statement unless the
Investor owning such shares furnishes to the Company in writing such information
regarding such Investor and the proposed sale of Conversion Stock by such
Investor as the Company may reasonably request in writing in connection with the
Registration Statement or as shall be required in connection therewith by the
SEC or any state securities law authorities.
e. ASSIGNMENT OF RIGHTS. A Investor may not assign any of its
rights under this Section 6 except in connection with the transfer of some or
all of his or her Preferred Shares or Conversion Stock to a child or spouse, an
affiliated entity, charitable trust or trust for their benefit or to the limited
or general partner of a Investor, PROVIDED each such transferee agrees in a
written instrument delivered to the Company to be bound by the provisions of
this Section 6.
f. INDEMNIFICATION.
(1) To the extent permitted by law, the Company shall
indemnify and hold each Investor, the partners or officers, directors and
stockholders of each Investor, legal counsel and accountants for each Investor,
any underwriter (as defined in the Securities Act) for such Investor and each
person, if any, who controls such Investor or
9
<PAGE>
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
any state securities laws, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations in connection with
the Registration Statement (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities laws or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any
state securities laws; and the Company will reimburse each such Investor,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 6.f(1) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation that occurs in reliance
upon and in conformity with written information furnished expressly for use
in connection with such registration by any such Investor, underwriter or
controlling person; provided further, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Investor or underwriter, or any person controlling such
Investor or underwriter, from whom the person asserting any such losses,
claims, damages or liabilities purchased shares in the offering, if the
Company shall have furnished to the Investor a revised prospectus (by
amendment or supplement) which cures the defect giving rise to such loss,
claim, damage or liability and if a copy of such revised prospectus (as then
amended or supplemented) was not sent or given by or on behalf of such
Investor or underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the shares
to such person.
(2) To the extent permitted by law, each selling Investor
shall indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, legal counsel and
accountants for the Company, any underwriter, any other Investor selling
securities in such registration statement and any controlling person of any such
underwriter or other Investor, against any losses, claims, damages or
liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Securities Act, the Exchange Act or any state
securities laws, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Investor expressly for use in connection with such registration; and each
such Investor will reimburse any person intended to be indemnified
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pursuant to this subsection 6.f(2), for any legal or other expenses
reasonably incurred by such person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this subsection 6.f(2)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Investor (which consent shall not be unreasonably withheld),
provided that in no event shall any indemnity under this subsection 6.f(2)
exceed the gross proceeds from the offering received by such Investor.
(3) Promptly after receipt by an indemnified party under
this Section 6.f of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6.f, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6.f, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 6.f.
(4) If the indemnification provided for in this Section 6.f
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relevant intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(5) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
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7. CONDITIONS PRECEDENT TO INVESTOR'S OBLIGATIONS. The obligations
of Investor under subsection 1.a of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, unless
expressly waived in writing by the Investor:
a. The representations and warranties of the Company contained
in Section 3 shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing, except for representations and warranties made as of a
particular date, which shall be true and correct as of such date.
b. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
c. The President of the Company shall deliver to Investor at
the Closing a certificate stating that the conditions specified in Sections 7.a
and 7.b have been fulfilled and stating that there shall have been no material
adverse change in the business, affairs, operations, properties, assets or
financial condition of the Company since the date of this Agreement.
d. The Company shall have caused the Certificate of Designation
to be filed with the Secretary of State of the State of Delaware in accordance
with the laws thereof.
e. 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.
f. The Company shall have delivered to Investor a certificate
representing the Preferred Shares, duly registered on the books of the Company
in the name of the Investor.
g. The Company shall have delivered to Investor the Warrant.
h. Investor shall have received from Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, counsel for the Company, an opinion, dated
as of the Closing Date, in substantially the form attached hereto as EXHIBIT C.
i. The Company shall have received aggregate proceeds from the
sale of the Preferred Shares and Warrants in the amount of $4,000,000.
8. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS. The
obligations of the Company to Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions
by the Investor, unless expressly waived in writing by the Company:
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a. The representations and warranties of the Investor contained
in Section 4 shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing, except for representations and warranties made as of a
particular date, which shall be true and correct as of such date.
b. The Investor shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
c. 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. The Investor shall have delivered the aggregate Purchase
Price for the Preferred Shares and the Warrant.
e. The Company shall have caused the Certificate of Designation
to be filed with the Secretary of State of the State of Delaware in accordance
with the laws thereof.
9. FEES AND EXPENSES. Each of Investor and the Company agrees to
pay its own expenses incident to the performance of its obligations hereunder,
including, but not limited to the fees, expenses and disbursements of such
party's counsel, except as is otherwise expressly provided in this Agreement.
10. SURVIVAL OF THE REPRESENTATIONS, WARRANTIES, ETC. The respective
representations, warranties, and agreements made herein by or on behalf of the
parties hereto shall remain in full force and effect for a period of two years
from the Closing Date, regardless of any investigation made by or on behalf of
the other party to this Agreement or any officer, director or employee of, or
person controlling or under common control with, such party and will survive
delivery of and payment for the Preferred Shares and any Conversion Stock
issuable hereunder.
11. TERMINATION.
a. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the Closing
as follows:
(i) by mutual written consent of the Company and the
Investor; or
(ii) by either the Company or the Investor if the Closing
shall not have occurred on or before October 31, 1998 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this
Section 11 shall not be available to any party
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<PAGE>
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before
the Termination Date.
b. In the event of termination of this Agreement by either the
Company or Investor as provided in this Section 11, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of the Company or Investor, other than the provisions of this
Section 11 and Section 13, and except to the extent that such termination
results from the willful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
12. NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon delivery by confirmed facsimile or reliable international
courier service or upon personal delivery to the party to be notified.
13. MISCELLANEOUS.
a. This Agreement may be executed in one or more counterparts
and it is not necessary that signatures of all parties appear on the same
counterpart, but such counterparts together shall constitute but one and the
same agreement.
b. This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their respective successors and assigns.
c. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California without regard to
principles of conflict of laws.
d. The provisions of this Agreement are severable, and if any
clause or provision hereof shall be held invalid, illegal or unenforceable in
whole or in part, such invalidity or unenforceability shall not in any manner
affect any other clause or provision of this Agreement.
e. The headings of the sections of this document have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
f. This Agreement (including the terms and conditions of the
Certificate of Designation relating to the Preferred Shares) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties hereto with respect to the subject matter
of this Agreement and is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder or under the terms of the term
sheets between such parties.
g. The term "affiliate" is used herein as defined in Rule
144(a)(1) under the Securities Act.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, all as of the day and year first above written.
CONDUCTUS, INC.
By:
-------------------------------
Name:
Title:
No. of Preferred Shares _____________ INVESTOR
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
WARRANT TO PURCHASE COMMON STOCK
OF
CONDUCTUS, INC.
VOID AFTER SEPTEMBER 10, 2003
NO. ___
This Warrant is issued to ___________ or its registered assigns
("Holder") by CONDUCTUS, INC., a Delaware corporation (the "Company"), on
September 11, 1998 (the "Warrant Issue Date"). This Warrant is issued pursuant
to the terms of that certain Series B Preferred Stock and Warrant Purchase
Agreement dated as of September 11, 1998 (the "Purchase Agreement") by and
between the Company and Holder.
1. PURCHASE SHARES. Subject to the terms and conditions hereinafter
set forth, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the Holder in writing), to purchase from the Company up to _____________
(________) fully paid and nonassessable shares of Common Stock of the Company,
as constituted on the Warrant Issue Date (the "Common Stock"). The number of
shares of Common Stock issuable pursuant to this Section 1 (the "Shares") shall
be subject to adjustment pursuant to Section 8 hereof.
2. EXERCISE PRICE. The purchase price for the Shares shall be
$2.70, as adjusted from time to time pursuant to Section 8 hereof (the "Exercise
Price").
3. EXERCISE PERIOD. This Warrant shall be exercisable, in whole or
in part, during the term commencing on the date six months following the Warrant
Issue Date and ending at 5:00 p.m. on September 10, 2003; provided, however,
that in the event of (a) the closing of the Company's sale or transfer of all or
substantially all of its assets, or (b) the closing of the acquisition of the
Company by another entity by means of merger, consolidation or other transaction
or series of related transactions, resulting in the exchange of the outstanding
shares of the Company's capital stock such that at least 50% of the voting power
of the Company is transferred, this Warrant shall, on the date of such event, no
longer be exercisable and become null and void. In the event of a proposed
transaction of the kind described above, the Company
<PAGE>
shall notify the Holder at least fifteen (15) business days prior to the
consummation of such event or transaction.
4. METHOD OF EXERCISE. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly executed
copy of the form of Notice of Election attached hereto, to the Secretary of the
Company at its principal offices; and
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
5. NET EXERCISE. In lieu of exercising this Warrant pursuant to
Section 4, the Holder may elect to receive, without the payment by the Holder of
any additional consideration, shares of Common Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder a number of shares of Common
Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common Stock to be issued to
the Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Common Stock
at the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of Common
Stock as of a particular date shall be determined as follows: (i) if traded on
a securities exchange or through the Nasdaq National Market, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the thirty (30) day period ending three (3) days prior to the net
exercise election; (ii) if traded over-the-counter, the value shall be deemed to
be the average of the closing bid or sale prices (whichever is applicable) over
the thirty (30) day period ending three (3) days prior to the net exercise; and
(iii) if there is no active public market, the value shall be the fair market
value thereof, as determined in good faith by the Board of Directors of the
Company.
2
<PAGE>
6. CERTIFICATES FOR SHARES. Upon the exercise of the purchase
rights evidenced by this Warrant, one or more certificates for the number of
Shares so purchased shall be issued as soon as practicable thereafter (with
appropriate restrictive legends, if applicable), and in any event within thirty
(30) days of the delivery of the subscription notice.
7. ISSUANCE OF SHARES. The Company covenants that the Shares, when
issued pursuant to the exercise of this Warrant, will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, and charges
with respect to the issuance thereof.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time prior to the expiration of this Warrant subdivide its
Common Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock as a dividend with respect to any shares
of its Common Stock, the number of Shares issuable on the exercise of this
Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 8(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) RECLASSIFICATION, REORGANIZATION AND CONSOLIDATION. In case
of any reclassification, capital reorganization, or change in the Common Stock
of the Company (other than as a result of a subdivision, combination, or stock
dividend provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Common Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the purchase price per
share payable hereunder, provided the aggregate purchase price shall remain the
same.
(c) NOTICE OF ADJUSTMENT. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Warrant Price, the Company shall promptly notify the Holder of such
event and of the number of
3
<PAGE>
shares of Common Stock or other securities or property thereafter purchasable
upon exercise of this Warrant.
9. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. NO STOCKHOLDER RIGHTS. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a stockholder with respect to the
Shares, including (without limitation) the right to vote such Shares, receive
dividends or other distributions thereon, exercise preemptive rights or be
notified of stockholder meetings, and such Holder shall not be entitled to any
notice or other communication concerning the business or affairs of the Company.
However, nothing in this Section 10 shall limit the right of the Holder to be
provided any notices required under this Warrant or the Purchase Agreement.
11. TRANSFERS OF WARRANT. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable in whole or in part by the Holder to any person or entity upon
written notice to the Company. The transfer shall be recorded on the books of
the Company upon the surrender of this Warrant, properly endorsed, to the
Company at its principal offices, and the payment to the Company of all transfer
taxes and other governmental charges imposed on such transfer. In the event of
a partial transfer, the Company shall issue to the holders one or more
appropriate new warrants.
12. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
and the Purchase Agreement shall inure to the benefit of, and be binding upon,
the Company and the Holders hereof and their respective successors and assigns.
13. AMENDMENTS AND WAIVERS. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the Holder. Any waiver or amendment effected
in accordance with this Section shall be binding upon each holder of any Shares
purchased under this Warrant at the time outstanding (including securities into
which such Shares have been converted), each future holder of all such Shares,
and the Company.
14. NOTICES. All notices required under this Warrant and shall be
deemed to have been given or made for all purposes (i) upon personal delivery,
(ii) upon confirmation receipt that the communication was successfully sent to
the applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
4
<PAGE>
15. ATTORNEYS' FEES. If any action of law or equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
16. CAPTIONS. The section and subsection headings of this Warrant
are inserted for convenience only and shall not constitute a part of this
Warrant in construing or interpreting any provision hereof.
17. GOVERNING LAW. This Warrant shall be governed by the laws of the
State of California as applied to agreements among California residents made and
to be performed entirely within the State of California.
5
<PAGE>
IN WITNESS WHEREOF, the Company caused this Warrant to be executed by
an officer thereunto duly authorized.
CONDUCTUS, INC.
By:
------------------------------------------
Charles E. Shalvoy, President and Chief
Executive Officer
<PAGE>
NOTICE OF EXERCISE
To: Chief Executive Officer
Conductus, Inc.
969 W. Maude Avenue
Sunnyvale, CA 94086
The undersigned hereby elects to [CHECK APPLICABLE SUBSECTION]:
________ (a) Purchase _________________ shares of Common Stock of
Conductus, Inc., pursuant to the terms of the attached Warrant
and payment of the Exercise Price per share required under such
Warrant accompanies this notice;
OR
________ (b) Exercise the attached Warrant for [all of the shares]
[________ of the shares] [CROSS OUT INAPPLICABLE PHRASE]
purchasable under the Warrant pursuant to the net exercise
provisions of Section 5 of such Warrant.
WARRANTHOLDER:
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address:
--------------------------------------
--------------------------------------
Date:
----------------------
Name in which shares should be registered:
- - ------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,506,566
<SECURITIES> 0
<RECEIVABLES> 1,315,444
<ALLOWANCES> 0
<INVENTORY> 872,619
<CURRENT-ASSETS> 6,802,899
<PP&E> 9,387,914
<DEPRECIATION> (7,166,055)
<TOTAL-ASSETS> 9,107,024
<CURRENT-LIABILITIES> 2,665,997
<BONDS> 0
0
0
<COMMON> 728
<OTHER-SE> 47,851,283
<TOTAL-LIABILITY-AND-EQUITY> 9,107,024
<SALES> 0
<TOTAL-REVENUES> 3,432,070
<CGS> 0
<TOTAL-COSTS> 9,240,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 448,535
<INCOME-PRETAX> (6,200,423)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,200,423)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
<PAGE>
FOR IMMEDIATE RELEASE
AINSLIE MAYBERRY
CHIEF FINANCIAL OFFICER (INTERIM)
CONDUCTUS, INC.
408-523-9428
CONDUCTUS, INC. MOVES TO THE NASDAQ SMALLCAP MARKET
SUNNYVALE, CA - November 10, 1998 - Conductus, Inc. (NASDAQ: CDTS), a leading
manufacturer of high-performance superconductive wireless systems, announced
today that trading in its shares will move from the Nasdaq National Market to
the Nasdaq SmallCap Market, effective today. The Company's common stock will
continue trading under its current symbol, CDTS. Daily price quotations for its
stock will continue to be available in the financial newspapers, on-line
services, and in many general circulation newspapers.
In July, the Company attended a Nasdaq hearing to discuss the Company's
non-compliance with the net tangible assets requirements for continued listing
on the Nasdaq National Market. On November 6, 1998, the Company was informed by
Nasdaq that trading in the Company's common stock will be moved to the Nasdaq
SmallCap Market.
"We will continue to use our best efforts to maintain the maximum liquidity
for our stockholders, and in that regard we are happy to retain a Nasdaq Stock
Market listing. We hope that the continued growth of the Company will enable us
to reapply for the Nasdaq National Market in the future," said Charles E.
Shalvoy, President and CEO of Conductus, Inc.
The Company's continued listing on the Nasdaq SmallCap Market is contingent
upon its successful completion of an application and review process. This
process will require the Company to file an application and listing agreement
for a new listing on the Nasdaq SmallCap Market, to demonstrate compliance with
all applicable continued listing criteria, and to pay all new listing fees.
- more -
<PAGE>
CONDUCTUS/Page 2
Conductus, Inc., founded in 1987 and based in Sunnyvale, California,
develops, manufactures and markets electronic components and systems based on
superconductors for applications in the worldwide telecommunications market.
For many applications, the unique properties of superconductors offer
significant performance advantages over products based on conventional copper
electronic components. These advantages can provide improved price/performance
at the system level because of enhanced sensitivity and efficiency as well as
reduced size and weight.
###
The statements contained in this press release that are not purely historical
are forward-looking statements within the meaning of Section 21E of the
Securities and Exchange Act of 1934, including statements regarding the
Company's expectations, beliefs, hopes, intentions, or strategies regarding the
future. Forward-looking statements include statements regarding future sales,
product introduction and acceptance, market acceptance and financial stability.
The Company's actual results and the timing of certain events may differ
significantly from the results discussed in the forward-looking statements.
Press announcements and other information about Conductus are available on the
World Wide Web. Type http://www.conductus.com at the prompt.
