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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 MARCH 31, 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
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or organization)
969 W. Maude Ave., Sunnyvale, California 94086
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(Address of principal executive offices) (Zip Code)
(408) 523-9950
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(Registrant's Telephone Number, including area code)
Not Applicable
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(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 May 4, 1998: 7,076,814
Total pages: 17
Index to Exhibits to be found on page 17
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CONDUCTUS, INC.
Index
<TABLE>
<CAPTION>
<S> <C> <C>
PART I : FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1 : FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 3
Condensed Balance Sheets at March 31, 1998 and December 31, 1997 . . 3
Condensed Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . 6
ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . .10
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
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
CONDUCTUS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $691,646 $2,111,560
Restricted cash 500,000 500,000
Short-term investments - 556,633
Accounts receivable, net 1,492,269 2,055,255
Inventories, net 873,053 610,367
Prepaid and other assets 114,774 139,479
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Total current assets 3,671,742 5,973,294
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Property, plant and equipment, net 2,686,241 2,700,594
Other assets 82,266 87,762
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Total assets $6,440,249 $8,761,650
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $1,330,377 $1,547,507
Accounts payable 2,335,441 1,539,590
Other accrued liabilities 899,414 1,063,721
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Total current liabilities 4,565,232 4,150,818
Long-term debt, net of current portion 191,385 309,681
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Total liabilities 4,756,617 4,460,499
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Stockholders' equity:
Common stock 718 702
Additional paid-in capital 41,087,305 41,070,636
Accumulated deficit (39,404,391) (36,770,187)
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Total stockholders' equity 1,683,632 4,301,151
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Total liabilities and stockholders' equity $6,440,249 $8,761,650
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
3
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CONDUCTUS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Contract $863,614 $2,272,586
Product 264,078 867,044
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Total revenues 1,127,692 3,139,630
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Operating expenses:
Cost of product 338,817 435,073
Research and development 2,298,252 2,977,954
Selling, general & adminstrative 1,097,803 1,125,359
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Total operating expenses 3,734,872 4,538,386
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Loss from operations (2,607,180) (1,398,756)
Interest income 28,599 96,715
Other income (expense) - (4,079)
Interest expense (55,623) (56,936)
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Net loss $(2,634,204) $(1,363,056)
------------ ------------
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Net loss per basic and diluted common
share $(0.38) $(0.20)
------- -------
------- -------
Shares used in computing per share
amounts 7,014,625 6,841,000
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---------- ----------
</TABLE>
See accompanying notes.
4
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CONDUCTUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
--------------------------
March 31, March 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,634,204) $(1,363,056)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 195,999 225,796
Provision for excess and obsolete inventory 109,895
(Increase) decrease in:
Accounts receivable 562,986 947,772
Inventories (372,581) (219,008)
Prepaid expenses, other current assets, and other assets 30,201 (115,020)
Increase (decrease) in:
Accounts payable and other accrued liabilities 631,544 (13,787)
------- --------
Net cash used in operating activities (1,476,160) (537,303)
----------- ---------
Cash flows from investing activities:
Proceeds from sales of short-term investments 556,633 11,599,336
Purchases of short-term investments - (10,684,069)
Acquisition of property and equipment (181,646) (252,216)
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Net cash provided by investing activities 374,987 663,051
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Cash flows from financing activities:
Proceeds from borrowings - 207,573
Net proceeds from issuance of common stock 16,685 151,787
Principal payments on long-term debt (335,426) (271,631)
--------- ---------
Net cash provided by (used in) financing activities (318,741) 87,729
--------- -------
Net increase (decrease) in cash and cash equivalents (1,419,914) 213,477
Cash and cash equivalents at beginning of period 2,611,560 1,119,991
--------- ---------
Cash and cash equivalents at end of period $1,191,646 $1,333,468
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
5
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CONDUCTUS, INC.
NOTES TO 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 March 31, 1998 and
for the three months ended March 31, 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 March 31, 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>
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Three months ended March 31,
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1998 1997
<S> <C> <C>
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Numerator - basic and diluted EPS:
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Net loss $(2,634,204) $(1,363,056)
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Denominator - basic and diluted EPS:
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Common Stock outstanding 7,014,625 6,841,000
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Basic loss per share $(0.38) $(0.20)
------- -------
------- -------
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Diluted loss per share $(0.38) $(0.20)
------- -------
------- -------
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</TABLE>
6
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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 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 126,000 and 416,000 for the
quarters ended March 31, 1998 and 1997 respectively.
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 Standards 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.
<TABLE>
<CAPTION>
2. ACCOUNTS RECEIVABLE :
Accounts receivable, net, consist of the following:
March 31, 1998 December 31, 1997
--------------- -----------------
<S> <C> <C>
U. S. government contracts:
Unbilled $878,584 $1,146,283
Billed 796,194 793,382
Commercial 64,689 363,822
Reserves (247,198) (248,232)
--------- ---------
$1,492,269 $2,055,255
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3. INVENTORIES:
Inventories, net, consist of the following:
March 31, 1998 December 31, 1997
-------------- -----------------
Raw materials and purchased parts $ 634,326 $ 293,336
Work in process 295,683 366,550
7
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Finished goods 333,784 231,326
Reserves (390,740) (280,845)
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$ 873,053 $ 610,367
--------- --------
--------- --------
</TABLE>
4. LONG TERM DEBT:
At March 31, 1998, the Company's credit facilities consisted of a bank
line of credit and three equipment term loans. 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 are collateralized by a $500,000 certificate of
deposit, accounts receivable, equipment and other assets of the Company. At
March 31, there was $ 500,000 outstanding under this facility.
The three equipment term loans bear interest at the bank's prime
rate plus 2%, with principal and interest payments paid monthly, and are
collateralized by the related equipment. After July 28, 1998, these loans
must be collateralized by certificates of deposit or other restricted cash
accounts. At March 31, 1998, there was $1,022,000 outstanding under these
loans, and no further amounts were available.
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 the facility and the entire amounts outstanding
could become due and payable immediately upon default, unless such default is
waived by the lender.
5. SUBSEQUENT EVENTS:
On April 17, 1998, the Company received a commitment letter from a
current stockholder stating that the stockholder is prepared, if necessary,
to participate in future financing efforts in the amount of at least
$1,500,000. This commitment expires March 31, 1999.
On April 22, 1998 the Company entered into a sale leaseback
commitment with a leasing company. Under the terms of this commitment, the
Company will sell certain of its assets to the leasing company and lease the
assets back from the leasing company. The amount available under this
facility is $2,000,000, with another $500,000 available contingent upon the
Company achieving certain financial requirements in the future. The facility
grants to the leasing company warrants to purchase up to $125,000 of the
Company's stock at a price equal to the average closing bid price for the
five days immediately preceding and including April 22, 1998. The effective
interest rate would be 13.98% and there are certain reporting and financial
covenants which the Company is required to satisfy.
On April 23, 1998, the Company entered into a "bridge" loan credit
facility agreement with its bank. The facility provides for borrowings of up to
$2,000,000, with interest at the bank's prime rate plus 2%. The facility
matures in 120 days but may be paid off sooner at the Company's option. The
agreement grants to the bank a warrant to purchase 15,000 shares of
8
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the Company's stock at $3.625 per share. The agreement further provides for
additional warrants to be granted based on the length of time the loan is
outstanding, as follows:
If the loan is outstanding after May 29, 1998, a warrant for an
additional 10,000 shares, at the May 31, 1998 closing price, will
be granted.
If the loan is outstanding after June 30, 1998, a warrant for an
additional 25,000 shares, at the June 30, 1998 closing price,
will be granted.
Borrowings under this facility are collateralized by a first priority security
interest in all of the Company's property, including intellectual property
rights.
9
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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 results 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 March 31, 1998, Conductus had accumulated
losses of $39,404,000 and expects to incur significant additional losses at
least during 1998. 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 QUARTERS ENDED MARCH 31, 1998 AND 1997
The Company's total revenues decreased to $1,128,000 for the first
quarter of 1998, a 64% decrease from $3,140,000 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 $864,000 for the first quarter of 1998, a decrease of 62% from
$2,273,000 in the same period in the prior year. This decrease reflects the
focus of the Company's business interests on the wireless market, following
the disposal of the Instrument and System division and the NMR product line
in the third quarter of 1997, and a lower level of federal R & D funding in
the Company's technology area. At March 31, 1998, Conductus had a backlog of
approximately $955,000 under existing U.S. government contracts, most of
which is to be performed in the next 12 months, and approximately $5,413,000
in awards from U. S. government agencies for which such agencies had not yet
entered into research contracts with the Company. The Company anticipates
that contract revenues for the second quarter of 1998 may slightly exceed
those of the first 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 decreased to $264,000 in the first quarter of 1998, a
70% decrease from $867,000 of product sales in same period in the prior year.
The decrease in product revenues resulted primarily from decreased shipments of
products from the Instrument and Systems division, 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 wireless products,
as shown in the table below:
10
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<TABLE>
<CAPTION>
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Three months ended:
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<S> <C> <C> <C>
March 31, 1998 March 31, 1997 Change
(A) (B) (A)-(B)
- ------------------------------------------------------------------------------------
Government wireless product $149,000 $-0- $149,000
- ------------------------------------------------------------------------------------
San Diego division products -0- 441,000 (441,000)
- ------------------------------------------------------------------------------------
Other magnetic sensing products 115,000 426,000 (311,000)
------- ------- ---------
- ------------------------------------------------------------------------------------
Total product sales $264,000 $867,000 $(603,000)
-------- -------- ----------
-------- -------- ----------
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</TABLE>
Cost of product sales decreased to $339,000 for the first quarter
of 1998, a 22% decrease over the same period in 1997, primarily due to
decreased product sales, offset somewhat by higher unit production costs on
wireless and magnetic sensing products, and a $110,000 increase in the
inventory valuation reserve, related to higher levels of commercial wireless
product inventories and customer demo units. Gross margins decreased to -28%
in the first quarter of 1998 from 50% in the same period in 1997, reflecting
the higher unit production costs and the increase in the inventory valuation
reserve due to the introduction of the wireless product. Margins are
anticipated to improve to the extent unit volumes increase significantly,
which could lead 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 $2,298,000 in the
first quarter of 1998, a 23% decrease from $2,978,000 for the same period in
1997. The decrease is primarily attributable to lower levels of expenditures
for government contracts, and 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.
Selling, general and administrative expenses decreased to
$1,098,000 for the first quarter of 1998, a 2% decrease over 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 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 79 at March 31, 1998 from 124 at March
31, 1997, reflecting reductions in personnel in the Instrument and Systems
division and the NMR product line, as well as recent reductions of
approximately 11 people. 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 $3,735,000 for the
first quarter of 1998, an 18% decrease from the $4,538,000 for the same
period in 1997 for the reasons described above.
The change in interest income and expense in the first quarter of
1998 compared to the same period in the prior year reflects lower levels of
cash and debt in the respective
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periods. 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, $14,645,000 raised in private placement
financings, $41,136,000 from U.S. government contracts, $6,556,000 in aggregate
borrowings under equipment lease lines of credit, equipment term loans, and bank
line of credit, and $3,715,000 in interest income. As of March 31, 1998, the
Company's aggregate cash and cash equivalents totaled $1,192,000, including
$500,000 of restricted cash.
During the first quarter of 1998, the Company took several steps to
conserve cash and improve its liquidity. The Company re-negotiated its bank
line of credit agreement to provide 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 are collateralized by a
$500,000 certificate of deposit, accounts receivable, equipment and other assets
of the Company. At March 31, there was $ 500,000 outstanding under this
facility. The Company also implemented a cost reduction program that resulted
in headcount reductions of approximately 11 people and anticipated lower levels
of operating expenses, working capital requirements and capital expenditures
over the remainder of 1998.
Net cash used in operations was $1,476,000 for the first three
months of 1998 compared to $537,000 for the same period in 1997. The
increase in net cash used in operating activities in the first three months
of 1998 was primarily due to the larger net loss for the quarter and an
increase in inventories, offset partially by the decrease in accounts
receivable (though somewhat less than the decrease in accounts receivable for
the first quarter of 1997), and the increase in accounts payable and other
accrued liabilities. The accounts receivable decrease for the quarter was
due to lower levels of revenue, offset somewhat by slower than anticipated
collections on certain government receivables. The increase in inventories
came primarily in the raw material and purchased parts for wireless
commercial products. The increase in accounts payable and other accrued
liabilities was primarily due to general delays in the payments to vendors as
the Company attempted to conserve cash while it continued to negotiate
various financing arrangements during the quarter.
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. The Company anticipates fewer delays in payments to vendors during
the rest of 1998. 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 $375,000 for the
first three months of 1998 compared to net cash provided by investing
activities of $663,000 for the first three 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 is pursuing leasing
arrangements to finance further purchases of property and equipment, if any,
during the remainder of 1998.
12
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Net cash used in financing activities was $319,000 for the first
three months of 1998 compared to net cash provided by financing activities
$88,000 in the first three months of the prior year. Net cash used in
financing activities in the first three months of 1998 was primarily for
principal payments on debt, offset partially by net proceeds of the issuance
of common stock. In the first three months of 1997, net cash provided by
financing activities was primarily from the proceeds of the issuance of
common stock and from borrowings under credit facilities, offset somewhat by
principal payments on debt.
Subsequent to March 31, 1998, the Company has taken the following
actions to improve its liquidity. There can be no assurance that any or all of
the actions taken by the Company will provide sufficient liquidity. Failure
to maintain adequate liquidity would have a material adverse effect on the
Company.
On April 17, 1998, the Company received a commitment letter from a
current stockholder stating that the stockholder is prepared, if necessary, to
participate in future financing efforts in the amount of at least $1,500,000.
This commitment expires March 31, 1999.
On April 22, the Company entered into a sale leaseback commitment
with a leasing company. Under the terms of this commitment, the Company will
sell certain of its assets to the leasing company and lease the assets back
from the leasing company. The amount available under this facility is
$2,000,000, with another $500,000 available contingent upon the Company
achieving certain financial requirements in the future. The facility grants
to the leasing company warrants to purchase up to $125,000 of the Company's
stock at a price equal to the average closing bid price for the five days
immediately preceding and including April 22, 1998. The effective interest
rate would be 13.98% and there are certain reporting and financial covenants
which the Company is required to satisfy.
On April 23, 1998, the Company entered into a "bridge" loan credit
facility agreement with its bank. The facility provides for borrowings of up to
$2,000,000, with interest at the bank's prime rate plus 2%. The facility
matures in 120 days but may be paid off sooner at the Company's option. The
agreement grants to the bank a warrant to purchase 15,000 shares of the
Company's stock at $3.625 per share. The agreement further provides for
additional warrants to be granted based on the length of time the loan is
outstanding, as follows:
If the loan is outstanding after May 31, 1998, a warrant for an
additional 10,000 shares, at the May 31, 1998 closing price, will
be granted.
If the loan is outstanding after June 30, 1998, a warrant for an
additional 25,000 shares, at the June 30, 1998 closing price,
will be granted.
Borrowings under this facility are collateralized by a first priority security
interest in all of the Company's property, including intellectual property
rights.
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. In the event
of default on any of these covenants, no further amounts would be advanced to
the Company under the facility and the entire amounts outstanding could
become due and payable immediately upon default, unless such default is
waived by the lender. 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.
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.
Conductus anticipates that its existing available cash, other sources
of liquidity, and anticipated revenue, primarily from government contracts,
should be adequate to fund the Company's operations at least through December
1998. There can be no assurance, however, that changes in the Company's plans
or other events affecting the Company will not result in the
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expenditure of such resources before such time. There can be no assurance
that additional funding will be available on acceptable terms or at all, if
required.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. 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.
Based on a recent assessment of the Company's sales, manufacturing
and finance systems, the Company determined that it will be required to
replace this software so that these computer systems will properly utilize
dates beyond December 31, 1999. The Company presently believes that with the
conversion of its sales, manufacturing, and finance systems to new software,
the Year 2000 Issue can be mitigated as far as its impact on those systems.
However, if the conversion is not completed in a timely manner, the Year 2000
Issue could have a material impact on the operations of the Company. The
Company has not yet completed the assessment of its remaining internal
systems which may be effected by the Year 2000 Issue.
The Company has not yet 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 sytems, would not have a material adverse
effect on the Company. The Company has not yet determined if it has exposure
to contingencies related to the Year 2000 Issue for the products it has sold.
The Company will utilize both internal and external resources to
replace its sales, manufacturing, and finance systems. The Company plans to
complete this phase in early 1999, and anticipates that the cost of the
software and its implementation will not have a material financial impact.
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.
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 Standards 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.
Item 3 : Quantitative and Qualitative Discussions About Market Risk - Not
Applicable
14
<PAGE>
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS - NOT APPLICABLE.
ITEM 2: CHANGES IN SECURITIES - NOT APPLICABLE.
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 - NOT APPLICABLE.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS - SEE BELOW.
(B) REPORTS ON FORM 8-K - NOT APPLICABLE.
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: May 14, 1998 /S/ Donald F. DePascal
----------------------
Donald F. DePascal
Principal Accounting 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
Exhibits Sequential
--------
Page Number
-----------
10.38(A) Collateral Assignment, Patent Mortage and Security Agreement
10.39 Silicon Valley Bank Loan Agreement
27.01 Financial Data Schedule
17
(A) CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
AND SECURITY AGREEMENT
This Collateral Assignment, Patent Mortgage and Security Agreement is
made as of the 23rd day of April 1998, by and between CONDUCTUS, INC. a
Delaware corporation ("Assignor"), and Silicon Valley Bank, a California
banking corporation ("Assignee") whose address is 3003 Tasman Drive, Santa
Clara, CA 95054.
RECITALS
A. Assignee has agreed to lend to Assignor certain funds (the
"Loans"), pursuant to a Loan and Security Agreement dated of even date
herewith (the "Loan Agreement") and Assignor desires to borrow such funds
from Assignee.
B. In order to induce Assignee to make the Loans, Assignor has
agreed to assign certain intangible property to Assignee for purposes of
securing Assignor's "Obligations" (as defined in the Loan Agreement) to
Assignee (collectively, the "Obligations").
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. ASSIGNMENT, PATENT MORTGAGE AND GRANT OF SECURITY INTEREST. As
collateral security for the prompt and complete payment and performance of
all of Assignor's present or future indebtedness, obligations and liabilities
to Assignee, Assignor hereby assigns, transfers, conveys and grants a
security interest and mortgage to Assignee, as security, but not as an
ownership interest in and to Assignor's entire right, title and interest in,
to and under the following (all of which shall collectively be called the
"Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not
the same also constitutes a trade secret, now of hereafter existing, created,
acquired or held, including without limitation those set forth on EXHIBIT A
attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Assignor now or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections
including, without limitation, improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same,
including without limitation the patents and patent applications set forth on
EXHIBIT B attached hereto (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered
or not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks, including without limitation those
set forth on EXHIBIT C attached hereto (collectively, the "Trademarks")
(f) Any and all claims for damages by way of past, present and
future infringements of any of the rights included above, with the right, but
not be obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such
use to the extent permitted by such license or rights; and
(h) All amendments, extensions, renewals and extensions of any
of the Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
-1-
<PAGE>
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
CONSTRUED AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE
ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER THE LOAN AGREEMENT.
2. AUTHORIZATION AND REQUEST. Assignor authorizes and requests that
the Register of Copyrights and the Commissioner of Patents and Trademarks
record this conditional assignment.
3. COVENANTS AND WARRANTIES. Assignor represents, warrants,
covenants and agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except
for non-exclusive licenses granted by Assignor to its customers in the
ordinary course of business.
(b) Performance of this Assignment does not conflict with or
result in a breach of any agreement to which Assignor is bound, except to the
extent that certain intellectual property agreements prohibit the assignment
of the rights thereunder to a third party without the licensor's or other
party's consent and this Assignment constitutes an assignment.
(c) During the term of this Agreement, Assignor will not
transfer or otherwise encumber any interest in the Collateral, except for
non-exclusive licenses granted by Assignor in the ordinary course of business
or as set forth in this Assignment;
(d) To its knowledge, each of the Patents is valid and
enforceable, and no part of the Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part
of the Collateral violates the rights of any third party;
(e) Assignor shall promptly advise Assignee of any material
adverse change in the composition of the Collateral, including but not
limited to any subsequent ownership right of the Assignor in or to any
Trademark, Patent or Copyright not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents and Copyrights, (ii)
use its best efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Assignee in writing of material infringements
detected and (iii) not allow any Trademarks, Patents, or Copyrights to be
abandoned, forfeited or dedicated to the public without the written consent
of Assignee, which shall not be unreasonably withheld unless Assignor
determines that reasonable business practices suggest that abandonment is
appropriate.
(g) Assignor shall promptly register the most recent version
of any of Assignor's Copyrights, if not so already registered, and shall,
from time to time, execute and file such other instruments, and take such
further actions as Assignee may reasonably request from time to time to
perfect or continue the perfection of Assignee's interest in the Collateral;
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights
in such after acquired Collateral, in favor of Assignee a valid and perfected
first priority security interest in the collateral in the United States
securing the payment and performance of the Obligations upon making the
filings referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with
the United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with the respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder
and except as has been already made or obtained, no authorization, approval
or other action by, and no notice to or filing with, any U.S. governmental
authority of U.S. regulatory body is required either (i) for the grant by
Assignor of the security interest granted hereby or for the execution,
delivery or performance of this Assignment by Assignor in the U.S. or (ii)
for the perfection in the United States or the exercise by Assignee of its
rights and remedies thereunder;
(j) All information heretofore, herein or hereafter supplied
to Assignee by or on behalf of Assignor with respect to the Collateral is
accurate and complete in all material respects.
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
-2-
<PAGE>
withheld. Assignor shall not permit the inclusion in any material contract
to which its becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interest
in any property included within the definition of the Collateral acquired
under such contracts, except that certain contracts may contain
anti-assignment provisions that could in effect prohibit the creation of a
security interest in such contracts.
(l) Upon any executive officer or Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any material Collateral,
the ability of Assignor to dispose of any material Collateral of the rights
and remedies of Assignee in relation thereto, including the levy of any legal
process against any of the Collateral.
4. ASSIGNEE'S RIGHTS. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take,
after fifteen (15) days' notice to Assignor. Assignor shall reimburse and
indemnify Assignee for all reasonable costs and reasonable expenses incurred
in the reasonable exercise of its rights under this section 4.
5. INSPECTION RIGHTS. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, and any of Assignor's
plants and facilities that manufacture, install or store products (or that
have done so during the prior six-month period) that are sold utilizing any
of the Collateral, and to inspect the products and quality control records
relating thereto upon reasonable written notice to Assignor and as often as
may be reasonably requested, but not more than one (1) in every six (6)
months; provided, however, nothing herein shall entitle Assignee access to
Assignor's trade secrets and other proprietary information.
6. FURTHER ASSURANCES: ATTORNEY IN FACT.
(a) On a continuing basis, Assignor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make,
execute, acknowledge and deliver, and file and record in the proper filing
and recording places in the United States, all such instruments, including,
appropriate financing and continuation statements and collateral agreements
and filings with the United States Patent and Trademarks Office and the
Register of Copyrights, and take all such action as may reasonably be deemed
necessary or advisable, or as requested by Assignee, to perfect Assignee's
security interest in all Copyrights, Patents and Trademarks and otherwise to
carry out the intent and purposes of this Collateral Assignment, or for
assuring and confirming to Assignee the grant or perfection of a security
interest in all Collateral.
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and
in the name of Assignor, Assignee or otherwise, from time to time in
Assignee's discretion, upon Assignor's failure or inability to do so, to take
any action and to execute any instrument which Assignee may deem necessary or
advisable to accomplish the purposes of this Collateral Assignment,
including, without limitation:
(i) To modify, in its sole discretion, this Collateral
Assignment without first obtaining Assignor's apporval of or signature
modification by amending Exhibit A, Exhibit B and Exhibit C, thereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents or Trademarks acquired by Assignor after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Assignor no longer has or claims
any right, title or interest; and
(ii) To file, in its sole discretion, one or more financing
or continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law.
7. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Loan Agreement; or
(b) Assignor breaches any warranty or agreement made by Assignor
in this Agreement.
8. REMEDIES. Upon the occurrence and continuance of an Event of
Default, Assignee shall have the right to exercise all the remedies of a
secured party under the California Uniform Commercial Code, including without
limitation the right to require Assignor to assemble the Collateral and any
tangible property in which
-3-
<PAGE>
Assignee has a security interest and to make it available to Assignee at a
place designated by Assignee. Assignee shall have a nonexclusive, royalty
free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies
upon the occurrence of an Event of Default. Assignor will pay any expenses
(including reasonable attorney's fees) incurred by Assignee in connection
with the exercise of any of Assignee's rights hereunder, including without
limitation any expense incurred in disposing of the Collateral. All of
Assignee's rights and remedies with respect to the Collateral shall be
cumulative.
9. INDEMNITY. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by this
Agreement, and (b) all losses or expenses in any way suffered, incurred, or
paid by Assignee as a result of or in any way arising out of, following or
consequential to transactions between Assignee and Assignor, whether under
this Assignment or otherwise (including without limitation, reasonable
attorneys fees and reasonable expenses), except for losses arising form or
out of Assignee's gross negligence or willful misconduct.
10. REASSIGNMENT. At such time as Assignor shall completely satisfy all
of the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deed, assignments, and other instruments as may necessary or
proper to reinvest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee
pursuant hereto.
11. COURSE OF DEALING. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. ATTORNEYS' FEES. If any action relating to this Assignment is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys fees, costs and
disbursements.
13. AMENDMENTS. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. COUNTERPARTS. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. CALIFORNIA LAW AND JURISDICTION. This Assignment shall be governed
by the laws of the State of California, without regard for choice of law
provisions. Assignor and Assignee consent to the nonexclusive jurisdiction
of any state or federal court located in Santa Clara County, California.
16. CONFIDENTIALITY. In handling any confidential information, Assignee
shall exercise the same degree of care that it exercises with respect to its
own proprietary information of the same types to maintain the confidentiality
of any non-public information thereby received or received pursuant to this
Assignment except that the disclosure of this information may be made (i) to
the affiliates of the Assignee, (ii) to prospective transferee or purchasers
of an interest in the obligations secured hereby, provided that they have
entered into comparable confidentiality agreement in favor of Assignor and
have deliver a copy to Assignor, (iii) as required by law, regulation, rule
or order, subpoena judicial order or similar order and (iv) as may be
required in connection with the examination, audit or similar investigation
of Assignee.
IN WITNESS THEREOF, the parties hereto have executed this Assignment on the
day and year first above written.
ADDRESS OF ASSIGNOR: ASSIGNOR:
969 WEST MAUDE AVENUE CONDUCTUS, INC.
SUNNYVALE, CALIFORNIA 94086
By:
------------------------
Name:
------------------------
-4-
<PAGE>
EXHIBIT "A"
COPYRIGHTS
<TABLE>
<CAPTION>
REG. NO. REG. DATE COPYRIGHT
- -------- --------- ---------
<S> <C> <C>
SU TX 4-449-856 3/7/97 Squid Control Instrumentation
SU TX 4-606-423 6/2/97 PC Squid Configuration
</TABLE>
-5-
<PAGE>
EXHIBIT B
IP SUMMARY
4/9/98
US PATENT NO. 5,090,819
US APPLICATION NO. 07/569,435
Filed: 08/20/90 Issued: 2/25/92 Expires 8/20/10
For: Superconducting Bolometer Construction
Inventors: Kapitulnik, A.
- -------------------------------------------------------------------------------
US PATENT NO. 5,219,826
US APPLICATION NO. 07/569,434
Filed: 08/20/90 Issue: 06/15/93 Expires 8/20/10
For: Superconducting Junctions and Method of Making Same
Inventors: Kapitulnik, A.
- -------------------------------------------------------------------------------
US PATENT NO. 5,126,533
US APPLICATION NO. 07/494,738
Filed: 03/19/90 Issued: 06/30/92 Expires 3/19/10
For: Substrate Heater Utilizing Protective Heat Sinking Means
Inventors: Newman, N., Char, K.
- -------------------------------------------------------------------------------
Page 1
<PAGE>
IP SUMMARY
4/9/98
US PATENT NO. 5,132,282
US APPLICATION NO. 07/495,568
Filed: 03/16/90 Issued: 07/21/92 Expires 3/16/10
For: High Temperature Superconductor-Strontium Titanate Sapphire
Structures
Inventors: Newman, N., Char, K.
- -------------------------------------------------------------------------------
US PATENT NO. 5,130,294
US APPLICATION NO. 07/565,691
Filed: 08/13/90 Issued: 07/14/92 Expires 8/13/10
For: High Temperature Superconductor-Calcium Titanate Structures
Inventors: Char, K.
- -------------------------------------------------------------------------------
US PATENT NO. 5,207,884
US APPLICATION NO. 07/633,275
Filed: 12/24/90 Issued: 05/04/93 Expires 12/24/10
For: Superconductor Deposition System
Inventors: Char, K., Newman, N., Rowell, J.M.
- -------------------------------------------------------------------------------
Page 2
<PAGE>
IP SUMMARY
4/9/98
US PATENT NO. 5,157,466
US APPLICATION NO. 07/672,664
Filed: 03/19/91 Issued: 10/20/92 Expires 3/19/11
For: Grain Boundary Junctions in HTS Films
Inventors: Char, K., Garrison, S.M., Newman, N., Zaharchuk, G.G
- -------------------------------------------------------------------------------
US PATENT NO. 5,241,828
US APPLICATION NO. 07/915,440
Filed: 07/17/92 Issued: 09/07/93 Expires 7/17/12
For: Cryogenic Thermoelectric Cooler
Inventors: Kapitulnik, A.
- -------------------------------------------------------------------------------
US PATENT NO. 5,651,016
US APPLICATION NO. 08/657,638
Filed: 5/30/96 Issued: 7/22/97 Expires 7/22/14
For: Ultrahigh Speed Laser
Inventors: Yu, R-C., Whiteley, S.R., Whalen, H.
- -------------------------------------------------------------------------------
Page 3
<PAGE>
IP SUMMARY
4/9/98
US PATENT NO. 5,455,594
US APPLICATION NO. 08/288,659
Filed: 8/10/94 Issued: 10/03/95 Expires 10/3/12
For: Internal Thermal Isolation Layer For Array Antenna
Inventors: Blasing, R.R., Johnson, E.S., Lockie, D.G., Mohnwinkel, C.,
Whalen, B., Withers, R.S.
- -------------------------------------------------------------------------------
US PATENT NO. 5,432,151
US APPLICATION NO. 08/090,422
Filed: 07/12/93 Issued: 7/11/95 Expires 7/12/13
For: Process for Ion-Assisted Laser Deposition of Biaxially Textured
Intermediate Layer for Forming Superconducting Thin Film on
Substrate
Inventors: Russo, R.E., Reade, R.P., Garrison, S.M., Berdahl, P.
- -------------------------------------------------------------------------------
US PATENT NO. 5,449,659
US APPLICATION NO. 07/973,966
Filed: 11/09/92 Issued: 09/12/95 Expires 11/9/12
For: Method of Bonding Multilayer Structures of Crystalline Materials
Inventors: Garrison, S., Simon, R.W.
- -------------------------------------------------------------------------------
Page 4
<PAGE>
IP SUMMARY
4/9/98
AU PATENT NO. 651,463
AU APPLICATION NO. 18818/92
Filed: 03/19/92 Issued: 11/09/94 Expires 3/19/12
For: Grain Boundary Junctions in HTS Films
Inventors: Char, K., Garrison, S.M., Newman, N., Zaharchuk, G.G.
- -------------------------------------------------------------------------------
KR PATENT NO. 122283
KR APPLICATION NO. 93-702809
Filed: 03/19/92 Issued: 9/3/97 Expires
For: Grain Boundary Junctions in HTS Films
Inventors: Char, K., Garrison, S.M., Newman, N., Zaharchuk, G.G
- -------------------------------------------------------------------------------
US PATENT NO. 5,366,953
US APPLICATION NO. 08/119,133
Filed: 12/22/93 Issued: 11/22/94 Expires 3/19/11
For: Method of Forming Grain Boundary Junctions in HTS Films
Inventors: Char, K.; Garrison, S.M.; Newman, N.; Zaharchuk, G.G.
- -------------------------------------------------------------------------------
Page 5
<PAGE>
IP SUMMARY
4/9/98
US PATENT NO. 5,233,500
US APPLICATION NO. 07/893,416
Filed: 06/01/92 Issued: 08/03/93 Expires 6/1/12
For: Package for Cascaded Microwave Devices
Inventors: Liang, G-C., Withers, R.S.
- -------------------------------------------------------------------------------
US PATENT NO. 5,351,007
US APPLICATION NO. 07/891,591
Filed: 06/01/92 Issued: 09/27/94 Expires 6/1/12
For: Superconducting Magnetic Resonance Probe Coil
Inventors: Withers, R.S., Liang, G-C.
- -------------------------------------------------------------------------------
AU PATENT NO. 677590
AU APPLICATION NO. 44004/93
Filed: 05/28/93 Issued: 8/21/97 Expires
For: Superconducting Magnetic Resonance Probe Coil
Inventors: Withers, R.S., Liang, G-C.
- -------------------------------------------------------------------------------
Page 6
<PAGE>
IP SUMMARY
4/9/98
US PATENT NO. 5,276,398
US APPLICATION NO. 07/929,900
Filed: 08/11/92 Issued: 01/04/94 Expires 6/1/12
For: Superconducting Magnetic Resonance Probe Coil
Inventors: Withers, R.S., Liang, G-C.
- -------------------------------------------------------------------------------
US PATENT NO. 5,532,592
US APPLICATION NO. 08/012,500
Filed: 02/02/93 Issued: 7/2/96 Expires 7/2/13
For: SQUID Control Apparatus with Non-Cryogenic Flux-Locked Loop
Disposed in Closed Proximity to the SQUID (as amended)
Inventors: Colclough, M.S.
- -------------------------------------------------------------------------------
US PATENT NO. 5,280,013
US APPLICATION NO. 07/968,280
Filed: 10/29/92 Issued: 1/18/94 Expires 7/5/11
For: Method of Preparing HTS Films on Opposite Sides of a Substrate
Inventors: Newman, N., Kapitulnik, A., Cole, B.F., Simon, R.W.
- -------------------------------------------------------------------------------
Page 7
<PAGE>
EXHIBIT "C"
CONDUCTUS TRADEMARK LIST
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
TRADEMARK NUMBER DATE COUNTRY
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONDUCTUS 1,746,909 1/19/93 US
- ----------------------------------------------------------------------------------------
CONDUCTUS and 1,742,131 12/22/92 US
design
- ----------------------------------------------------------------------------------------
MR. SQUID 1,812,785 12/21/93 US
- ----------------------------------------------------------------------------------------
TOO GOOD TO 1,753,065 2/16/93 US
RESIST
- ----------------------------------------------------------------------------------------
CONDUCTUS B533,237 2/17/93 Australia
- ----------------------------------------------------------------------------------------
CONDUCTUS 134,199 1/17/91 Austria
- ----------------------------------------------------------------------------------------
CONDUCTUS 482,967 4/2/91 Benelux
- ----------------------------------------------------------------------------------------
CONDUCTUS 414,967 7/9/93 Canada
- ----------------------------------------------------------------------------------------
CONDUCTUS 1592354 5/16/90 France
- ----------------------------------------------------------------------------------------
CONDUCTUS 11177397 1/13/91 Germany
- ----------------------------------------------------------------------------------------
CONDUCTUS 401727 C/90 12/31/92 Italy
- ----------------------------------------------------------------------------------------
CONDUCTUS (cl. 9) 66274/1990 2/26/93 Japan
- ----------------------------------------------------------------------------------------
CONDUCTUS (cl. 10) 2451964 9/30/92 Japan
- ----------------------------------------------------------------------------------------
CONDUCTUS (cl. 11) 2703995 2/28/95 Japan
- ----------------------------------------------------------------------------------------
CONDUCTUS 233430 3/2/92 S. Korea
- ----------------------------------------------------------------------------------------
CONDUCTUS 383,556 7/1/91 Switzerland
- ----------------------------------------------------------------------------------------
CONDUCTUS 00531974 8/16/91 Taiwan
- ----------------------------------------------------------------------------------------
CLEARSITE Pending Japan, Europe, US
Canada
- ----------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF______________ )
On ___________________, 1998, before me, _________________________________
___________________________________________, Notary Public, personally appeared
_________________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signatures(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
Witness my hand and official seal.
------------------------
(Seal)
-8-
<PAGE>
EXHIBIT "A"
COPYRIGHTS
REG. NO. REG. DATE COPYRIGHT
- -------- --------- ---------
SU TX 4-449-856 3/7/97 Squid Control Instrumentation
SU TX 4-606-423 6/2/97 PC Squid Configuration
-5-
<PAGE>
EXHIBIT "B"
PATENTS
DOCKET NO. COUNTRY SERIAL NO. FILING DATE STATUS
- ---------- ------- ---------- ----------- ------
-6-
<PAGE>
EXHIBIT "C"
TRADEMARKS
MARK COUNTRY SERIAL NO. STATUS
- ---- ------- ---------- ------
-7-
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF______________ )
On ___________________, 1998, before me, _________________________________
___________________________________________, Notary Public, personally appeared
_________________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signatures(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
Witness my hand and official seal.
------------------------
(Seal)
-8-
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
-------------------------
WARRANT TO PURCHASE STOCK
WARRANT TO PURCHASE 15,000 ISSUE DATE: APRIL 23, 1998
SHARES OF THE COMMON EXPIRATION DATE: APRIL 23, 2003
STOCK OF CONDUCTUS, INC. INITIAL EXERCISE PRICE: $3.625 PER SHARE
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to
purchase the number of fully paid and non-assessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 ALTERNATIVE STOCK APPRECIATION RIGHT. At Holder's option, the Company
shall pay Holder the fair market value of the Shares issuable upon conversion of
this Warrant pursuant to Section 1.2 in cash in lieu of such Shares.
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall
be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant, "Acquisition" means
any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
-9-
<PAGE>
WARRANT TO PURCHASE STOCK
-----------------------------------------------------------------
1.7.3. NONASSUMPTION. If upon the closing of any Acquisition the successor
entity does not assume the obligations of this Warrant and Holder has not
otherwise exercised this Warrant in full, then the unexercised portion of this
Warrant shall be deemed to have been automatically converted pursuant to Section
1.2 and thereafter Holder shall participate in the acquisition on the same terms
as other holders of the same class of securities of the Company.
1.7.4. PURCHASE RIGHT. Notwithstanding the foregoing, at the election of
Holder, the Company shall purchase the unexercised portion of this Warrant for
cash upon the closing of any Acquisition for an amount equal to (a) the fair
market value of any consideration that would have been received by Holder in
consideration of the Shares had Holder exercised the unexercised portion of this
Warrant immediately before the record date for determining the shareholders
entitled to participate in the proceeds of the Acquisition, less (b) the
aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a 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 under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant
is not greater than (i) the price per share at which the Shares were last issued
in an arms-
-10-
<PAGE>
WARRANT TO PURCHASE STOCK
-----------------------------------------------------------------
length transaction in which at least $500,000 of the Shares were sold and (ii)
the fair market value of the Shares as of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holder written notice of Holder's right to
exercise this Warrant in the form attached as Appendix 2 not more than 90 days
and not less than 30 days before the Expiration Date. If the notice is not so
given, the Expiration Date shall automatically be extended until 30 days after
the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holders notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
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<PAGE>
WARRANT TO PURCHASE STOCK
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4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
CONDUCTUS, INC.
BY
-------------------------------
CHAIRMAN OF THE BOARD, PRESIDENT
OR VICE PRESIDENT
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
<PAGE>
WARRANT TO PURCHASE STOCK
-----------------------------------------------------------------
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ____________ shares of the
Common/Series ____ Preferred [strike one] Stock of______________ pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _______ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
__________________________
(NAME)
__________________________
__________________________
(ADDRESS)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
- -------------------------------------
(Signature)
- -------------------------------------
(Date)
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_____________, __
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear ____________:
This is to advise you that the Warrant issued to you described below will
expire on ________________, 19__.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any questions
you may have concerning exercise of the Warrant. This is your only notice of
pending expiration.
(Name of Issuer)
By
-----------------------------
Its
----------------------------
<PAGE>
WARRANT TO PURCHASE STOCK
-----------------------------------------------------------------
EXHIBIT A
ANTI-DILUTION PROVISIONS
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, or, if the Shares are common stock, less than the then conversion
price of the Company's Preferred Stock, then the number of shares of common
stock issuable upon conversion of the Shares, or if the Shares are common stock,
the number of Shares issuable upon exercise of the Warrant, shall be adjusted as
a result of Diluting Issuances in accordance with the Holder's standard form of
Anti-Dilution Agreement in effect on the Issue Date.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion of
the Shares, shall be deemed "registrable securities" or otherwise entitled to
"piggy back" registration rights in accordance with the terms of the following
agreement (the "Agreement") between the Company and its investor(s):
------------------------------------------------------------------------
[Identify Agreement by date, title and parties. If no Agreement exists,
indicate by "none".]
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration rights thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached, Holder shall be deemed to be a party to the Agreement.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
<PAGE>
-----------------------------------------------------------------
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT
ISSUER: CONDUCTUS, INC.
ADDRESS: 969 W. MAUDE AVENUE
SUNNYVALE, CALIFORNIA 94068
DATE: APRIL 23, 1998
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the above date by and
between SILICON VALLEY BANK ("Purchaser"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and the above Company, whose address is set
forth above.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Shares (if Common
Stock) or all shares of Common Stock of the Company issuable or issued upon
conversion of the Shares and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the Purchaser or qualifying
transferees under subsection 1.8 hereof who hold Registrable Securities.
(d) The term "SEC" means the Securities and Exchange Commission.
1.2 COMPANY REGISTRATION.
(a) Registration. If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the account
of any of its shareholders, other than a registration on Form S-1 or S-8
relating solely to employee stock option or purchase plans, or a registration on
Form S-4 relating solely to an SEC Rule 145 transaction, or a registration on
any other form (other than Form S-1, S-2, S-3 or S-18, or their successor forms)
or any successor to such forms, which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other state securities
laws); and
(ii) include in such registration (and compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 30 days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in subsection 1.2(b)
below.
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to
subsection 1.2(a)(i). In such event the right of any Holder to registration
pursuant to this subsection 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent
-1-
<PAGE>
SILICON VALLEY BANK REGISTRATION RIGHTS AGREEMENT
-----------------------------------------------------------------
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.
1.3 EXPENSES OF REGISTRATION. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Section 1
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company except the Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities.
All expenses of any registered offering not otherwise borne by the Company shall
be borne pro rata among the Holders participating in the offering and the
Company.
1.4 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.3, at its expense the Company will:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.5 INDEMNIFICATION.
(a) The Company will indemnify each Holder of Registrable Securities and
each of its officers, directors and partners, and each person controlling such
Holder, with respect to which such registration, qualification or compliance has
been effected pursuant to this Rights Agreement, and each underwriter, if any,
and each person who controls any underwriter of the Registrable Securities held
by or issuable to such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934, as amended ("Exchange Act"), or any state securities law applicable
to the Company or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any such state law and relating to action or inaction
required of the Company in connection with any such registration, qualification
of compliance, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, within a
reasonable amount of time after incurred for any reasonable legal and any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.5(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld); and provided further, that the Company will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company
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SILICON VALLEY BANK REGISTRATION RIGHTS AGREEMENT
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by an instrument duly executed by such Holder or underwriter specifically for
use therein.
(b) Each Holder will, if Registrable Securities held by or issuable to
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, partners, persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
specifically for use therein; provided, however, that the indemnity agreement
contained in this subsection 1.5(b) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld); and provided further, that the total amount for
which any Holder shall be liable under this subsection 1.5(b) shall not in any
event exceed the aggregate proceeds received by such Holder from the sale of
Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this subsection 1.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.6 INFORMATION BY HOLDER. Any Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 RULE 144 REPORTING. With a view to making available to Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees at all times to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, after 90 days after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;
(b) 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 (at any
time after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to furnish to
such Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
90 days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as the Holder may reasonably request in complying with any rule or
regulation of the SEC allowing the Holder to sell any such securities without
registration.
1.8 TRANSFER OF REGISTRATION RIGHTS. Holders' rights to cause the Company
to register their securities and keep information available, granted to them by
the Company under subsections 1.2 and 1.7 may be assigned to a transferee or
assignee of a Holder's Registrable Securities not sold to the public, provided,
that the Company is given
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SILICON VALLEY BANK REGISTRATION RIGHTS AGREEMENT
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written notice by such Holder at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned. The Company may prohibit the transfer of any Holders' rights
under this subsection 1.8 to any proposed transferee or assignee who the Company
reasonably believes is a competitor of the Company.
2. GENERAL.
2.1 WAIVERS AND AMENDMENTS. With the written consent of the record or
beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities. Upon the effectuation of
each such waiver, consent, agreement of amendment or modification, the Company
shall promptly give written notice thereof to the record holders of the
Registrable Securities who have not previously consented thereto in writing.
This Agreement or any provision hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, except to
the extent provided in this subsection 2.1.
2.2 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
2.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
2.4 ENTIRE AGREEMENT. Except as set forth below, this Agreement and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 NOTICES. ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth in the heading
to this Agreement, or at such other address as such Holder shall have furnished
to the Company in writing, or (b) if to the Company, at the Company's address
set forth in the heading to this Agreement, or at such other address as the
Company shall have furnished to the Holder in writing.
2.6 SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement or any provision of the other
Agreements shall not in any way be affected or impaired thereby.
2.7 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
COMPANY:
CONDUCTUS, INC.
BY
------------------------------
PRESIDENT OR VICE PRESIDENT
BY
------------------------------
SECRETARY OR ASS'T SECRETARY
PURCHASER:
SILICON VALLEY BANK
BY
-------------------------------
TITLE
----------------------------
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SILICON VALLEY BANK
ANTIDILUTION AGREEMENT
ISSUER: CONDUCTUS, INC.
ADDRESS: 969 W. MAUDE AVENUE
SUNNYVALE, CALIFORNIA 94068
DATE: APRIL 23, 1998
THIS AGREEMENT is entered into as of the above date by and between SILICON
VALLEY BANK ("Purchaser"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054, and the above Company, whose address is set forth above.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant as a result of a Diluting Issuance (as defined in Exhibit A to the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set forth
in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. DEFINITIONS. As used in this Antidilution Agreement, the following
terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe for,
purchase, or otherwise acquire common stock or Convertible Securities.
(b) "Convertible Securities" means any evidences of indebtedness, shares
of stock, or other securities directly or indirectly convertible into or
exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a record date for
determining persons entitled to receive, any security (including Options),
whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock (including reissued
shares) issued (or deemed to be issued pursuant to Section 2) after the date of
the Warrant. Additional Common Shares does not include, however, any common
stock issued in a transaction described in Sections 2.1 and 2.2 of the Warrant;
any common stock Issued upon conversion of preferred stock outstanding on the
date of the Warrant; the Shares; or common stock Issued as incentive or in a
nonfinancing transaction to employees, officers, directors, or consultants to
the Company.
(e) The shares of common stock ultimately Issuable upon exercise of an
Option (including the shares of common stock ultimately Issuable upon conversion
or exercise of a Convertible Security Issuable pursuant to an Option) are deemed
to be Issued when the Option is Issued. The shares of common stock ultimately
Issuable upon conversion or exercise of a Convertible Security (other than a
Convertible Security Issued pursuant to an Option) shall be deemed Issued upon
Issuance of the Convertible Security.
2. DEEMED ISSUANCE OF ADDITIONAL COMMON SHARES. The shares of common
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
3. ADJUSTMENT OF WARRANT PRICE FOR DILUTING ISSUANCES.
3.1 WEIGHTED AVERAGE ADJUSTMENT. If the Company Issues Additional Common
Shares after the date of the Warrant and the consideration per Additional Common
Share (determined pursuant to Section 9) is less than the
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Warrant Price in effect immediately before such Issue, the Warrant Price in
effect immediately before such Issue shall be reduced, concurrently with such
Issue, to a price (calculated to the nearest hundredth of a cent) determined by
multiplying the Warrant Price by a fraction:
(a) the numerator of which is the amount of common stock outstanding
immediately before such Issue plus the amount of common stock that the aggregate
consideration received by the Company for the Additional Common Shares would
purchase at the Warrant Price in effect immediately before such Issue, and
(b) the denominator of which is the amount of common stock outstanding
immediately before such Issue plus the number of such Additional Common Shares.
3.2 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price, the number of Shares issuable upon exercise of the Warrant shall be
increased to equal the quotient obtained by dividing (a) the product resulting
from multiplying (i) the number of Shares issuable upon exercise of the Warrant
and (ii) the Warrant Price, in each case as in effect immediately before such
adjustment, by (b) the adjusted Warrant Price.
3.3 SECURITIES DEEMED OUTSTANDING. For the purpose of this Section 3, all
securities issuable upon exercise of any outstanding Convertible Securities or
Options, warrants, or other rights to acquire securities of the Company shall be
deemed to be outstanding.
4. NO ADJUSTMENT FOR ISSUANCES FOLLOWING DEEMED ISSUANCES. No adjustment
to the Warrant Price shall be made upon the exercise of Options or conversion of
Convertible Securities.
5. ADJUSTMENT FOLLOWING CHANGES IN TERMS OF OPTIONS OR CONVERTIBLE
SECURITIES. If the consideration payable to, or the amount of common stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. RECOMPUTATION UPON EXPIRATION OF OPTIONS OR CONVERTIBLE SECURITIES.
The Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. LIMIT ON READJUSTMENTS. No readjustment of the Warrant Price pursuant
to Sections 5 or 6 shall increase the Warrant Price more than the amount of any
decrease made in respect of the Issue of any Options or Convertible Securities.
8. 30 DAY OPTIONS. In the case of any Options that expire by their terms
not more than 30 days after the date of Issue thereof, no adjustment of the
Warrant Price shall be made until the expiration or exercise of all such
Options.
9. COMPUTATION OF CONSIDERATION. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) CASH shall be valued at the amount of cash received by the
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends.
(b) PROPERTY. Property other than cash shall be computed at the fair
market value thereof at the time of the Issue as determined in good faith by the
Board of Directors of the Company.
(c) MIXED CONSIDERATION. The consideration for Additional common Shares
Issued together with other property of the Company for consideration that covers
both shall be determined in good faith by the Board of Directors.
(d) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per Additional
Common Share for Options and Convertible Securities shall be determined by
dividing:
(i) the total amount, if any, received or receivable by the Company for
the Issue of the Options or Convertible Securities, plus the minimum amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Company upon exercise of the Options or
conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number) ultimately Issuable upon the exercise of
such Options or the conversion of such Convertible Securities.
10. GENERAL.
10.1 GOVERNING LAW. This Antidilution Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between
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California residents entered into and to be performed entirely within
California.
10.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
10.3 ENTIRE AGREEMENT. Except as set forth below, this Antidilution
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
10.4 NOTICES. ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth in the heading
to this Agreement, or at such other address as Purchaser shall have furnished to
the Company in writing, or (b) if to the Company, at the Company's address set
forth in the heading to this Agreement, or at such other address as the Company
shall have furnished to the Purchaser in writing.
10.5 SEVERABILITY. In case any provision of this Antidilution Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Antidilution Agreement shall
not in any way be affected or impaired thereby.
10.6 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Antidilution Agreement.
10.7 COUNTERPARTS. This Antidilution Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
COMPANY:
CONDUCTUS, INC.
BY
------------------------------
PRESIDENT OR VICE PRESIDENT
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
PURCHASER:
SILICON VALLEY BANK
BY
-------------------------------
TITLE
----------------------------
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SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: CONDUCTUS, INC.
ADDRESS: 969 W. MAUDE AVENUE
SUNNYVALE, CALIFORNIA 94086
DATE: APRIL 23, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named
above (jointly and severally, the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a part of this
Agreement, and the same is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing, and subject to deduction of any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount
of Obligations that may be outstanding from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its sole
discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, --Letters of Credit--). The aggregate
face amount of all outstanding Letters of Credit from time to time shall not
exceed the amount shown on the Schedule (the --Letter of Credit Sublimit--), and
shall be reserved against Loans which would otherwise be available hereunder.
Borrower shall pay all bank charges (including charges of Silicon) for the
issuance of Letters of Credit, together with such additional fee as Silicon's
letter of credit department shall charge in connection with the issuance of the
Letters of Credit. Any payment by Silicon under or in connection with a Letter
of Credit shall constitute a Loan hereunder on the date such payment is made.
Each Letter of Credit shall have an expiry date no later than thirty days prior
to the Maturity Date. Borrower hereby agrees to indemnify, save, and hold
Silicon harmless from any loss, cost, expense, or liability, including payments
made by Silicon, expenses, and reasonable attorneys' fees incurred by Silicon
arising out of or in connection with any Letters of Credit. Borrower agrees to
be bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications,
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amendments, or supplements thereto. Borrower understands that Letters of Credit
may require Silicon to indemnify the issuing bank for certain costs or
liabilities arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify and hold Silicon harmless with respect to
any loss, cost, expense, or liability incurred by Silicon under any Letter of
Credit as a result of Silicon's indemnification of any such issuing bank. The
provisions of this Loan Agreement, as it pertains to Letters of Credit, and any
other present or future documents or agreements between Borrower and Silicon
relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an
interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien
or otherwise), Borrower shall, whenever requested by Silicon, use its best
efforts to cause such third party to execute and deliver to Silicon, in form
acceptable to Silicon, such waivers and subordinations as Silicon shall specify,
so as to ensure that Silicon's rights in the Collateral are, and will continue
to be, superior to the rights of any such third party. Borrower will keep in
full force and effect, and will comply with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
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3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no material adverse change in the financial condition or business
of Borrower. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein. Loan requests received after 12:00 Noon will not be considered by
Silicon until the next Business Day. Together with
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each such schedule and assignment, or later if requested by Silicon, Borrower
shall furnish Silicon with copies (or, at Silicon's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Silicon an aged accounts receivable trial balance
in such form and at such intervals as Silicon shall request. In addition,
Borrower shall deliver to Silicon the originals of all instruments, chattel
paper, security agreements, guarantees and other documents and property
evidencing or securing any Receivables, immediately upon receipt thereof and in
the same form as received, with all necessary indorsements, all of which shall
be with recourse. Borrower shall also provide Silicon with copies of all credit
memos within two days after the date issued.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred, Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete equipment disposed of by Borrower
in good faith in an arm's length transaction for an aggregate purchase price of
$25,000 or less (for all such transactions in any fiscal year). Borrower agrees
that it will not commingle proceeds of Collateral with any of Borrower's other
funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Silicon. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Silicon from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such
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other business insurance, with insurers reasonably acceptable to Silicon, in
such form and amounts as Silicon may reasonably require, and Borrower shall
provide evidence of such insurance to Silicon, so that Silicon is satisfied that
such insurance is, at all times, in full force and effect. All such insurance
policies shall name Silicon as an additional loss payee, and shall contain a
lenders loss payee endorsement in form reasonably acceptable to Silicon. Upon
receipt of the proceeds of any such insurance, Silicon shall apply such proceeds
in reduction of the Obligations as Silicon shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Silicon shall release to Borrower insurance proceeds with
respect to Equipment totaling less than $100,000, which shall be utilized by
Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. Silicon may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, Silicon may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly deliver to Silicon copies of all
reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one Business Day's notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter into
any other transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower's business, and except for the sale of obsolete or
unneeded Equipment in the ordinary course of business; (v) store any Inventory
or other Collateral with any warehouseman or other third party; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis; (vii) make any loans of any money or other assets; (viii) incur any
debts, outside the ordinary course of business, which would have a material,
adverse effect on Borrower or on the prospect of repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity; (x) pay or declare any dividends on Borrower's stock
(except for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's stock;
(xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) pay total compensation, including salaries, fees,
bonuses, commissions, and all other payments, whether directly or indirectly, in
money or otherwise, to Borrower's executives, officers and directors (or any
relative thereof) in an amount in excess of the amount set forth on the
Schedule; or (xiv) dissolve or elect to dissolve. Transactions permitted by the
foregoing provisions of this Section are only permitted if no Default or Event
of Default would occur as a result of such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to terminate
this Agreement effective on the next Maturity Date.
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6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Silicon; or (ii) by Silicon at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Silicon under
this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount
equal to $20,000. The termination fee shall be due and payable on the effective
date of termination and thereafter shall bear interest at a rate equal to the
highest rate applicable to any of the Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or
on any earlier effective date of termination, there are any outstanding Letters
of Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right
or remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or (e) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within 5 Business Days after the date due; or (f) Any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower or
any guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under any
bankruptcy or insolvency law; or (l) revocation or termination of, or limitation
or denial of liability upon, any pledge of any certificate of deposit,
securities or other property or asset of any kind pledged by any third party to
secure any or all of the Obligations, or any attempt to do any of the foregoing,
or commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law; or (m) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations terminates or in
any way limits his subordination agreement; or (n) there shall be a change in
the record or beneficial ownership of an aggregate of more than 20% of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Silicon; or (o) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent
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under any bankruptcy, fraudulent conveyance or similar law; or (p) there shall
be a material adverse change in Borrower's business or financial condition; or
(q) Silicon, acting in good faith and in a commercially reasonable manner, deems
itself insecure because of the occurrence of an event prior to the effective
date hereof of which Silicon had no knowledge on the effective date or because
of the occurrence of an event on or subsequent to the effective date. Silicon
may cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and Borrower, and to remove the Collateral to such locations as Silicon
may deem advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Silicon shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Silicon to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Silicon's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables and
the like for less than face value; (h) Offset against any sums in any of
Borrower's general, special or other Deposit Accounts with Silicon; and (i)
Demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional four percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price
in cash or by cashier's check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Silicon may (but is not obligated to) direct
any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Silicon shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights
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<PAGE>
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
and remedies, Borrower grants to Silicon an irrevocable power of attorney
coupled with an interest, authorizing and permitting Silicon (acting through any
of its employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Silicon agrees
to exercise the following powers in a commercially reasonable manner: (a)
Execute on behalf of Borrower any documents that Silicon may, in its sole
discretion, deem advisable in order to perfect and maintain Silicon's security
interest in the Collateral, or in order to exercise a right of Borrower or
Silicon, or in order to fully consummate all the transactions contemplated under
this Agreement, and all other present and future agreements; (b) Execute on
behalf of Borrower any document exercising, transferring or assigning any option
to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any
real or personal property which is part of Silicon's Collateral or in which
Silicon has an interest; (c) Execute on behalf of Borrower, any invoices
relating to any Receivable, any draft against any Account Debtor and any notice
to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien,
claim of mechanic's, materialman's or other lien, or assignment or satisfaction
of mechanic's, materialman's or other lien; (d) Take control in any manner of
any cash or non-cash items of payment or proceeds of Collateral; endorse the
name of Borrower upon any instruments, or documents, evidence of payment or
Collateral that may come into Silicon's possession; (e) Endorse all checks and
other forms of remittances received by Silicon; (f) Pay, contest or settle any
lien, charge, encumbrance, security interest and adverse claim in or to any of
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle Receivables and General Intangibles for less than face value
and execute all releases and other documents in connection therewith; (h) Pay
any sums required on account of Borrower's taxes or to secure the release of any
liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Silicon the same rights
of access and other rights with respect thereto as Silicon has under this
Agreement; and (k) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and attorneys' fees incurred by Silicon with respect to the
foregoing shall be added to and become part of the Obligations, shall be payable
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. In no event shall Silicon's rights under
the foregoing power of attorney or any of Silicon's other rights under this
Agreement be deemed to indicate that Silicon is in control of the business,
management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Silicon shall have all the other rights and remedies accorded
a secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Silicon is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE INVENTORY" [NOT APPLICABLE].
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<PAGE>
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "MINIMUM
ELIGIBILITY REQUIREMENTS") are the minimum requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more
than 90 days from its invoice date, (ii) the Receivable must not represent
progress billings, or be due under a fulfillment or requirements contract with
the Account Debtor, (iii) the Receivable must not be subject to any
contingencies (including Receivables arising from sales on consignment,
guaranteed sale or other terms pursuant to which payment by the Account Debtor
may be conditional), (iv) the Receivable must not be owing from an Account
Debtor with whom the Borrower has any dispute (whether or not relating to the
particular Receivable), (v) the Receivable must not be owing from an Affiliate
of Borrower, (vi) the Receivable must not be owing from an Account Debtor which
is subject to any insolvency or bankruptcy proceeding, or whose financial
condition is not acceptable to Silicon, or which, fails or goes out of a
material portion of its business, (vii) the Receivable must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Silicon's satisfaction, with the United States
Assignment of Claims Act), (viii) the Receivable must not be owing from an
Account Debtor located outside the United States or Canada (unless pre-approved
by Silicon in its discretion in writing, or backed by a letter of credit
satisfactory to Silicon, or FCIA insured satisfactory to Silicon), (ix) the
Receivable must not be owing from an Account Debtor to whom Borrower is or may
be liable for goods purchased from such Account Debtor or otherwise. Receivables
owing from one Account Debtor will not be deemed Eligible Receivables to the
extent they exceed 25% of the total eligible Receivables outstanding. In
addition, if more than 50% of the Receivables owing from an Account Debtor are
outstanding more than 90 days from their invoice date (without regard to
unapplied credits) or are otherwise not eligible Receivables, then all
Receivables owing from that Account Debtor will be deemed ineligible for
borrowing. Silicon may, from time to time, in its discretion, revise the
Minimum Eligibility Requirements, upon written notice to the Borrower.
"EQUIPMENT" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and
Silicon.
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<PAGE>
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
"PERMITTED LIENS" means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens consented to in writing by Silicon, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi)+liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii)+liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"RESERVES" means, as of any date of determination, such amounts as Silicon
may from time to time establish and revise in good faith reducing the amount of
Loans and Letters of Credit which would otherwise be available to Borrower under
the lending formula(s) provided in the Schedule: (a) to reflect events,
conditions, contingencies or risks which, as determined by Silicon in good
faith, do or may affect either (i) the Collateral or any other property which is
security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Guarantor or (iii) the security interests and other
rights of Silicon in the Collateral (including the enforceability, perfection
and priority thereof), or (b) to reflect Silicon's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Guarantor to Silicon is or may have been incomplete, inaccurate or
misleading in any material respect, or (c) in respect of any state of facts
which Silicon determines in good faith constitutes an Event of Default or may,
with notice or passage of time or both, constitute an Event of Default.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations
may be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt re-
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
quested, addressed to Silicon or Borrower at the addresses shown in the heading
to this Agreement, or at any other address designated in writing by one party to
the other party. Notices to Silicon shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE ARE
NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH
ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE
PARTIES IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Silicon at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Silicon shall not waive
or diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. IN SATISFYING BORROWER'S OBLIGATION
HEREUNDER TO REIMBURSE SILICON FOR ATTORNEYS FEES, BORROWER MAY, FOR
CONVENIENCE, ISSUE CHECKS DIRECTLY TO SILICON'S ATTORNEYS, LEVY, SMALL & LALLAS,
BUT BORROWER ACKNOWLEDGES AND AGREES THAT LEVY, SMALL & LALLAS IS REPRESENTING
ONLY SILICON AND NOT BORROWER IN CONNECTION WITH THIS AGREEMENT. If either
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. All attorneys' fees
and costs to which Silicon may be entitled pursuant to this Paragraph shall
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be
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<PAGE>
void. No consent by Silicon to any assignment shall release Borrower from its
liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Silicon, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of an
action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon which
such claim or cause of action, or any part thereof, is based, and the service of
a summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
CONDUCTUS, INC.
BY
------------------------------
PRESIDENT OR VICE PRESIDENT
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY
---------------------------------
TITLE
------------------------------
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<PAGE>
----------------------------------------------------------------------
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: CONDUCTUS, INC.
ADDRESS: 969 W. MAUDE AVENUE
SUNNYVALE, CALIFORNIA 94086
DATE: APRIL 23, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
- --------------------------------------------------------------------------------
1. CREDIT LIMIT
(Section 1.1): I. REVOLVING FACILITY.
An amount (collectively referred to herein as the
"Accounts Loans") not to exceed the lesser of: (i)
$2,000,000 at any one time outstanding (the "Maximum
Credit Limit"); or (ii) 80% of the amount of
Borrower's Eligible Receivables (as defined in
Section 8 above).
PLUS
II. BRIDGE FACILITY.
An amount (collectively referred to herein as the
"Bridge Loans") not exceed $2,000,000.
PLUS
III. EXISTING TERM NOTES.
Amounts currently outstanding under the following
promissory notes executed by Borrower, as maker,
with Silicon, as payee (collectively referred to
herein as the "Term Notes"): (A) Promissory Note
dated August 15, 1994 in the original principal
amount of $1,500,000, as amended from time to time;
(B) Promissory Note dated March 1, 1996 in the
original principal amount of $1,000,000, as amended
from time to time; and (C) Promissory Note dated
December 26, 1996 in the original principal amount
of $1,000,000, as amended from time to time.
LETTER OF CREDIT SUBLIMIT
(Section 1.5): $500,000
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<PAGE>
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. INTEREST
INTEREST RATE (Section 1.2):
With rate equal to the "Prime Rate" in effect from
time to time, plus 2.00% per annum. Interest shall
be calculated on the basis of a 360-day year for the
actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as
its "prime rate;" it is a base rate upon which other
rates charged by Silicon are based, and it is not
necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall
change on each date there is a change in the Prime
Rate. Each of the Term Notes is amended to reflect
the above interest rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): N/A.
- --------------------------------------------------------------------------------
3. FEES (Section 1.4):
Loan Fee: $25,000, which has been already been paid by the
Borrower. (Any Commitment Fee previously paid by
the Borrower in connection with this loan shall be
credited against this Fee.)
Collateral Monitoring
Fee: $750, per month, payable in arrears (prorated for
any partial month at the beginning and at
termination of this Agreement).
Unused Line Fee: In the event, in any calendar month (or portion
thereof at the beginning and end of the term
hereof), the average daily principal balance of the
Accounts Loans outstanding during the month is less
than $2,000,000, Borrower shall pay Silicon an
unused line fee in an amount equal to 0.25% per
annum on the difference between $2,000,000 and the
average daily principal balance of the Loans
outstanding during the month, which unused line fee
shall be computed and paid monthly, in arrears, on
the first day of the following month.
- --------------------------------------------------------------------------------
4. MATURITY DATE
(Section 6.1): WITH RESPECT TO THE ACCOUNTS LOANS REVOLVING
FACILITY: the date that is one day prior to first
anniversary of the date of this Agreement, subject
to automatic renewal as provided in Section 6.1
above, and early termination as provided in Section
6.2 above.
WITH RESPECT TO THE BRIDGE LOANS FACILITY: The
earlier of 120 days from the date hereof OR the date
of the consummation of the equity financing
transaction of the Borrower.
WITH RESPECT TO THE TERM NOTES: the later of
maturity dates set forth in each of the Term Notes
OR the date of the consummation of the equity
financing transaction of the Borrower, PROVIDED,
HOWEVER, that if the
-2-
<PAGE>
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
Borrower chooses to secure the Term Notes with cash
deposits at Silicon then the Maturity Date for the
Term Notes shall remain as originally set forth
therein. Each of the Term Notes is amended to
reflect the above change.
- --------------------------------------------------------------------------------
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with all of the following
covenants. Compliance shall be determined as of the
end of each month:
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible Net Worth of not
less than $900,000 plus (A) 50% of the Borrower's
positive net income plus (B) 50% of the amount of
subordinated debt of the Borrower that is acceptable
to Silicon in its discretion and which is incurred
on and after December 31, 1998 plus (C) 50% of the
amount of net proceeds the Borrower receives from
equity financing transactions consummated on and
after December 31, 1998.
DEFINITIONS. For purposes of the foregoing financial covenants,
the following terms shall have the following
meanings:
"Current assets", "current liabilities" and
"liabilities" shall have the meanings ascribed to
them by generally accepted accounting principles.
"Tangible Net Worth" shall mean the excess of total
assets over total liabilities, determined in
accordance with generally accepted accounting
principles, with the following adjustments:
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other obligations
owing to the Borrower from its officers or other
Affiliates, and (ii) all assets which would be
classified as intangible assets under generally
accepted accounting principles, including without
limitation goodwill, licenses, patents,
trademarks, trade names, copyrights, capitalized
software and organizational costs, licenses and
franchises
(B) there shall be excluded from liabilities: all
indebtedness which is subordinated to the
Obligations under a subordination agreement in
form specified by Silicon or by language in the
instrument evidencing the indebtedness which is
acceptable to Silicon in its discretion.
- --------------------------------------------------------------------------------
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. Monthly Receivable agings, aged by invoice date,
within 15 days after the end of each month.
-3-
<PAGE>
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
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2. Monthly accounts payable agings, aged by invoice
date, and outstanding or held check registers,
if any, within 15 days after the end of each
month.
3. Monthly reconciliations of Receivable agings
(aged by invoice date), transaction reports, and
general ledger, within 15 days after the end of
each month, or sooner, if available prior to
such 15 day period.
4. Monthly list of a government contracts within 15
days after the end of each month.
5. Monthly unaudited financial statements, as soon
as available, and in any event within thirty
days after the end of each month.
6. Monthly Compliance Certificates, within thirty
days after the end of each month, in such form
as Silicon shall reasonably specify, signed by
the Chief Financial Officer of Borrower,
certifying that as of the end of such month
Borrower was in full compliance with all of the
terms and conditions of this Agreement, and
setting forth calculations showing compliance
with the financial covenants set forth in this
Agreement and such other information as Silicon
shall reasonably request, including, without
limitation, a statement that at the end of such
month there were no held checks.
7. Quarterly unaudited financial statements, as
soon as available, and in any event within
forty-five days after the end of each fiscal
quarter of Borrower.
8. Annual operating budgets (including income
statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal
year of Borrower within thirty days prior to the
end of each fiscal year of Borrower.
9. Annual financial statements, as soon as
available, and in any event within 120 days
following the end of Borrower's fiscal year,
certified by independent certified public
accountants acceptable to Silicon.
- --------------------------------------------------------------------------------
7. COMPENSATION
(Section 5.5): N/A.
- --------------------------------------------------------------------------------
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): See Representations and Warranties dated April
14, 1998.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): See Representations and Warranties dated April
14, 1998.
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): See Representations and Warranties dated April
14, 1998.
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Representations and Warranties dated April
14, 1998.
-4-
<PAGE>
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
- --------------------------------------------------------------------------------
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with all of the
following additional covenants:
(1) BANKING RELATIONSHIP. Borrower shall at all
times maintain its primary banking relationship
with Silicon.
(2) CONTINUATION OF PRIOR AGREEMENTS (EXCEPT FOR
PRIOR REVOLVING LINE). Notwithstanding the
execution of this Agreement, all of the other
documents and agreements in place between the
Borrower and Silicon (other than the revolving
facility of $500,000 (the "Prior Revolving
Line") set forth in the Business Loan Agreement
dated August 15, 1994 between the Borrower and
Silicon) shall continue in full force and
effect: All standard documents of Silicon
entered into by the Borrower in connection with
Letters of Credit and/or Foreign Exchange
Contracts; all security agreements (including
but not limited to the Assignment of Deposit
Account which shall secure all Obligations),
collateral assignments and mortgages, including
but not limited to those relating to patents,
trademarks, copyrights and other intellectual
property; all lockbox agreements and/or blocked
account agreements; and all UCC-1 financing
statements and other documents filed with
governmental offices which perfect liens or
security interests in favor of Silicon. In
addition, in the event the Borrower has
previously issued any stock options, stock
purchase warrants or securities to Silicon, the
same and all documents and agreements relating
thereto shall also continue in full force and
effect. The Prior Revolving Line shall be
deemed terminated and of no further force upon
the effectiveness of this Agreement and the
beginning balance of the Accounts Loans
hereunder shall be the balance under the Prior
Revolving Line plus any new Accounts Loans made
hereunder.
(3) MODIFICATION OF TERM NOTES. The Term Notes
have been modified by the interest rate and
maturity date provisions of this Schedule to
Loan Agreement.
(4) CONDITIONS. Prior to the effectiveness of this
Agreement the following represent conditions
precedent thereto: All conditions set forth in
Section B of the letter dated March 30, 1998
from Silicon Valley Bank to the Borrower shall
be satisfied or waived by Silicon in its sole
discretion in writing.
(5) ISSUANCE OF WARRANTS. The Borrower shall
provide Silicon with five year warrants to
purchase15,000 shares of common stock of the
Borrower at an initial exercise price of $3.625
per share on the terms and conditions set forth
in the Warrant to Purchase Stock, Anti-Dilution
Agreement and Registration Right Agreement
being executed concurrently with this
Agreement, which shall in such form and contain
such provisions as are satisfactory to Silicon
in its discretion. Further, Borrower shall
issue to Silicon additional
-5-
<PAGE>
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
warrants at such initial exercise for 10,000
additional shares of common stock of the
Borrower if the Bridge Loans facility is
utilized and remains in place on and after May
31, 1998. Finally, Borrower shall issue to
Silicon additional warrants at such initial
exercise for 25,000 additional shares of common
stock of the Borrower if the Bridge Loans
facility is utilized and remains in place on
and after June 30, 1998.
(6) INTELLECTUAL PROPERTY SECURITY AGREEMENTS. The
Borrower shall execute and deliver to Silicon
security agreements regarding its copyrights,
trademarks and patent intellectual property,
which shall in form satisfactory to Silicon in
its discretion, and Borrower shall undertake
all actions that Silicon determines are
necessary or desirable in order to permit
Silicon to establish and perfect its security
interest therein.
Borrower: Silicon:
CONDUCTUS, INC. SILICON VALLEY BANK
By By
--------------------------- ----------------------------------
President or Vice President Title
-------------------------------
By
----------------------------
Secretary or Ass't Secretary
-6-
<PAGE>
SILICON VALLEY BANK
CERTIFIED RESOLUTION AND INCUMBENCY CERTIFICATE
BORROWER: CONDUCTUS, INC.,
A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE
DATE: APRIL 23, 1998
I, the undersigned, Secretary or Assistant Secretary of the above-named
borrower, a corporation organized under the laws of the state set forth above,
do hereby certify that the following is a full, true and correct copy of
resolutions duly and regularly adopted by the Board of Directors of said
corporation as required by law, and by the by-laws of said corporation, and that
said resolutions are still in full force and effect and have not been in any way
modified, repealed, rescinded, amended or revoked.
RESOLVED, that this corporation borrow from Silicon Valley Bank
("Silicon"), from time to time, such sum or sums of money as, in the
judgment of the officer or officers hereinafter authorized hereby, this
corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, directed and empowered, in the name of this corporation,
to execute and deliver to Silicon, and Silicon is requested to accept, the
loan agreements, security agreements, notes, financing statements, and
other documents and instruments providing for such loans and evidencing
and/or securing such loans, with interest thereon, and said authorized
officers are authorized from time to time to execute renewals, extensions
and/or amendments of said loan agreements, security agreements, and other
documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any and all
indebtedness of this corporation to Silicon, whether arising pursuant to
this resolution or otherwise, to grant, transfer, pledge, mortgage, assign,
or otherwise hypothecate to Silicon, or deed in trust for its benefit, any
property of any and every kind, belonging to this corporation, including,
but not limited to, any and all real property, accounts, inventory,
equipment, general intangibles, instruments, documents, chattel paper,
notes, money, deposit accounts, furniture, fixtures, goods, and other
property of every kind, and to execute and deliver to Silicon any and all
grants, transfers, trust receipts, loan or credit agreements, pledge
agreements, mortgages, deeds of trust, financing statements, security
agreements and other hypothecation agreements, which said instruments and
the note or notes and other instruments referred to in the preceding
paragraph may contain such provisions, covenants, recitals and agreements
as Silicon may require and said authorized officers may approve, and the
execution thereof by said authorized officers shall be conclusive evidence
of such approval.
RESOLVED FURTHER, that Silicon may conclusively rely upon a certified copy
of these resolutions and a certificate of the Secretary or Ass't Secretary
of this corporation as to the officers of this corporation and their
offices and signatures, and continue to conclusively rely on such certified
copy of these resolutions and said certificate for all past, present and
future transactions until written notice of any change hereto or thereto is
given to Silicon by this corporation by certified mail, return receipt
requested.
RESOLVED FURTHER, that, in connection with the foregoing loans, this
corporation shall issue to Silicon five year warrants to purchase up
to50,000 shares of common stock of this corporation, at $3.625 per share,
on the terms and provisions of Silicon's standard form Warrant to Purchase
Stock and related documents, with such changes therein as Silicon and this
corporation shall agree; any officer of this corporation is hereby
authorized to execute and deliver such Warrant to Purchase Stock and
related documents, and all documents and instruments relating thereto, in
such form and containing such additional provisions as said authorized
officers may approve, and the execution thereof by said authorized officers
shall be conclusive evidence of such approval.
-1-
<PAGE>
SILICON VALLEY BANK CERTIFIED RESOLUTION AND INCUMBENCY CERTIFICATE
--------------------------------------------------------------------------
The undersigned further hereby certifies that the following persons are the
duly elected and acting officers of the corporation named above as borrower and
that the following are their actual signatures:
<TABLE>
<CAPTION>
NAMES OFFICE(S) ACTUAL SIGNATURES
- ----- --------- -----------------
<S> <C> <C>
- ------------------------- ------------------------ X------------------------
- ------------------------- ------------------------ X------------------------
- ------------------------- ------------------------ X------------------------
- ------------------------- ------------------------ X------------------------
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant
Secretary on the date set forth above.
----------------------------------
Secretary or Assistant Secretary
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-01-1998
<CASH> 1,191,646
<SECURITIES> 0
<RECEIVABLES> 1,739,467
<ALLOWANCES> 247,195
<INVENTORY> 873,053
<CURRENT-ASSETS> 3,671,742
<PP&E> 9,363,726
<DEPRECIATION> 6,677,485
<TOTAL-ASSETS> 6,440,249
<CURRENT-LIABILITIES> 4,565,232
<BONDS> 191,385
0
0
<COMMON> 718
<OTHER-SE> 41,087,305
<TOTAL-LIABILITY-AND-EQUITY> 6,440,249
<SALES> 0
<TOTAL-REVENUES> 1,127,692
<CGS> 0
<TOTAL-COSTS> 3,734,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,623
<INCOME-PRETAX> (2,634,204)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,634,204)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
