<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NUMBER 0-11915
CONDUCTUS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0162388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
969 W. MAUDE AVE.
SUNNYVALE, CA 94086
(Address of principal executive offices)
(408) 523-9950
(Registrant's telephone number)
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
--- ---
As of April 30, 1999 there were 7,144,251 shares of the Registrants Common stock
outstanding.
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CONDUCTUS, INC.
FORM 10-Q
March 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements...................................................................................1
Condensed Balance Sheets at March 31, 1999 and December 31, 1998.......................................1
Condensed Statements of Operations for the Three Months Ended March 31, 1999 and 1998..................2
Condensed Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998..................3
Notes to Condensed Financial Statements................................................................4
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations..................8
Item 3: Quantitative and Qualitative Disclosures About Market Risk............................................12
PART II: OTHER INFORMATION
Item 1: Legal Proceedings.....................................................................................13
Item 2: Changes in Securities.................................................................................13
Item 3: Default upon Senior Securities........................................................................13
Item 4: Submission of Matters to a vote of Security Holders...................................................13
Item 5: Other Information.....................................................................................13
Item 6: Exhibits and Reports on Form 8-K......................................................................14
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
CONDUCTUS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 989,625 $ 1,547,169
Short-term investments.................................. 557,727 1,341,014
Accounts receivable .................................... 1,079,625 1,109,794
Inventories............................................. 706,459 842,384
Prepaid expenses and other current assets............... 117,161 145,470
------------------ ------------------
Total current assets.................................. 3,450,597 4,985,831
Property and equipment, net............................. 1,815,877 2,020,324
Other assets............................................ 32,131 28,800
----------------- ------------------
Total assets.......................................... $ 5,298,605 $ 7,034,955
================== ==================
LIABILITIES
Current liabilities:
Current portion of long-term debt....................... $ 854,050 $ 892,139
Accounts payable........................................ 492,807 658,982
Other accrued liabilities............................... 860,905 778,758
------------------ ------------------
Total current liabilities............................. 2,207,762 2,329,879
Long-term debt, net of current portion.................. 1,165,803 1,341,407
------------------ ------------------
Total liabilities..................................... 3,373,565 3,671,286
------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred stock............................................. 5,736,124 5,683,461
Common stock................................................ 714 714
Additional paid-in capital.................................. 42,278,497 42,278,423
Accumulated deficit......................................... (46,090,295) (44,598,929)
------------------ ------------------
Total stockholders' equity............................ 1,925,040 3,363,669
------------------ ------------------
Total liabilities and stockholders' equity............ $ 5,298,605 $ 7,034,955
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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CONDUCTUS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1999 1998
------------------- ------------------
<S> <C> <C>
Revenues:
Contract..................................................... $ 917,607 $ 863,614
Product sales................................................ 396,770 264,078
------------------- ------------------
Total revenues........................................... 1,314,377 1,127,692
------------------- ------------------
Costs and expenses:
Cost of product sales...................................... 569,667 338,817
Research and development................................... 1,121,295 2,298,252
Selling, general and administrative........................ 834,470 1,097,803
------------------- ------------------
Total costs and expenses................................. 2,525,435 3,734,872
------------------- ------------------
Loss from operations........................................... (1,211,055) (2,607,180)
Interest income................................................ 25,744 28,599
Other income (expense)......................................... 2,505 --
Interest expense............................................... (96,880) (55,623)
------------------- ------------------
Net loss................................................... (1,279,686) (2,634,204)
Preferred dividend............................................. (211,680) --
------------------- ------------------
Net loss attributable to common shareholders................... $ (1,491,366) $ (2,634,204)
=================== ==================
Basic and diluted net loss per share........................... $ (0.21) $ (0.38)
=================== ==================
Shares used in per share calculations.......................... 7,144,162 7,014,625
=================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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CONDUCTUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (1,279,686) $ (2,634,204)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................. 212,783 195,999
Amortization of discount on long term debt.................... 11,349 --
Provision for excess and obsolete inventories................. -- 109,895
(Increase) decrease in:
Accounts receivable........................................... 30,169 562,986
Inventories................................................... 135,926 (372,581)
Prepaid expenses and other current assets..................... 28,309 24,705
Other assets.................................................. (3,331) 5,496
Increase, (decrease) in:
Accounts payable and other accrued liabilities................ (184,708) 631,544
------------------ -----------------
Net cash used in operating activities................... (1,071,886) (1,476,160)
------------------ -----------------
Cash flows from investing activities:
Maturities of short-term investments.......................... 783,287 556,633
Purchases of short-term investments........................... -- --
Acquisition of property and equipment......................... (8,338) (181,646)
------------------ -----------------
Net cash provided by investing activities............... 774,949 374,987
------------------ -----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock.................... 74 16,685
Costs to register preferred stock............................. (58,337) --
Principal repayments on long-term debt........................ (202,344) (335,426)
------------------ -----------------
Net cash used in financing activities................... (260,607) (318,741)
------------------ -----------------
Net decrease in cash and cash equivalents..................... (557,544) (1,419,914)
Cash and cash equivalents at beginning of period.................. 1,547,169 2,611,560
------------------ -----------------
Cash and cash equivalents at end of period........................ $ 989,625 $ 1,191,646
================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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CONDUCTUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL INFORMATION:
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The unaudited financial statements as of March 31, 1999 and for the
three months ended March 31, 1999 and 1998 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, 1998 balance
sheet was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
BASIC AND DILUTED LOSS PER SHARE:
In accordance with the disclosure requirements of Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share," a
reconciliation of the numerator and denominator of the basic and diluted EPS is
provided as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
Numerator - basic and diluted net loss per share:
Net loss attributable to common shareholders.................... $ (1,491,366) $ (2,634,204)
Denominator - basic and diluted net loss per share:
Weighted average common shares outstanding...................... 7,144,162 7,014,625
Basic and diluted net loss per share............................ $ (0.21) $ (0.38)
</TABLE>
In the above computations, common equivalent shares are excluded
from the diluted loss per share as their effect is anti-dilutive. Common
equivalent shares including common stock options, warrants and convertible
preferred stock that could potentially dilute basic earnings per share in the
future and that were not included in the computations of diluted loss per share
because of anti-dilution were approximately 1,822,000 and 126,000 for the three
months ended March 31, 1999 and 1998, respectively.
4
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CONDUCTUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RECENT PRONOUNCEMENTS:
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This standard
requires companies to capitalize qualifying computer software costs which are
incurred during the application development stage and amortize them over the
software's estimated useful life. Statement of Position 98-1 is effective for
fiscal years beginning after December 15, 1998. The adoption of Statement of
Position 98-1 had no impact on the Company's financial statements.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities." This standard requires companies to expense the costs of
start-up activities and organization costs as incurred. In general, Statement of
Position 98-5 is effective for fiscal years beginning after December 15, 1998.
The adoption of Statement of Position 98-5 had no impact on the Company's
financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new standards of
accounting and reporting for derivative instruments and hedging activities. This
statement requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
Statement No. 133 will be effective for fiscal years beginning after June 15,
1999. Conductus does not currently hold derivative instruments or engage in
hedging activities.
2. ACCOUNTS RECEIVABLE:
Accounts receivable, net, consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
U.S. government contracts:
Unbilled
Recoverable costs and accrued profit on
progress completed - not billed......................... $ 754,852 $ 726,342
Billed........................................................ 371,726 297,525
Commercial....................................................... 245,682 378,562
Allowance for doubtful accounts.................................. (292,635) (292,635)
-------------------- --------------------
$ 1,079,625 $ 1,109,794
==================== ====================
</TABLE>
5
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CONDUCTUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. INVENTORIES:
Inventories, net, consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
Raw materials.............................................. $ 548,893 $ 441,130
Work in process............................................ 3,935 198,341
Finished goods............................................. 591,384 640,666
Allowance for excess and obsolete inventories.............. (437,753) (437,753)
-------------------- --------------------
$ 706,459 $ 842,384
==================== ====================
</TABLE>
4. LONG TERM DEBT:
Our credit facilities consist of a loan from a leasing company, a
bank equipment term loan, a bank line of credit and a lease line of credit for
new equipment purchases. Obligations related to our credit facilities as of
March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
Loan payable to leasing company............................ $ 1,828,468 $ 1,978,366
Bank equipment term loan payable........................... 191,385 255,180
-------------------- --------------------
Total................................................ 2,019,853 2,233,546
Less: current portion...................................... 854,050 892,139
-------------------- --------------------
Long-term debt....................................... $ 1,165,803 $ 1,341,407
==================== ====================
</TABLE>
All of the credit facilities contain reporting and financial covenants. In the
event of default on any of these covenants, no further amounts would be advanced
to the Company under any facility. Additionally, the entire amounts outstanding
could become due and payable immediately upon default and those assets that are
collateralized could be seized, unless the lender waives such default. At March
31, 1999, Conductus was in compliance with all financial covenants.
5. SUBSEQUENT EVENT:
On May 4, 1999, the Company entered into a definitive agreement with
General Dynamics Information Systems, Inc. (GDIS) to license its high
temperature superconductive (HTS) electronics and cryoelectronics technology.
Under the license agreement, GDIS will purchase rights to Conductus' HTS
thin-film technology and other intellectual property for $5 million plus future
royalties and will have rights to use and sell this technology for use in U.S.
Government or state, local and foreign government markets, as defined. Under the
license agreement, GDIS made an immediate payment to the Company of $2,900,000.
In addition, GDIS will pay the Company $175,000 on the first day of each month
for 12 months beginning on July 1, 1999. The Company and GDIS also entered into
a Cross-License, Supply and Training Agreement under which the Company and GDIS
agreed to cross-license any updates to the licensed technology developed by
either party. Additionally, the Company will provide product and training to
GDIS in exchange for payment at standard commercial rates from GDIS.
6
<PAGE>
CONDUCTUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. SUBSEQUENT EVENT (CONTINUED):
The following unaudited pro forma condensed balance sheet
information has been presented to give effect to the aforementioned transaction
as if it had occurred on March 31, 1999. The pro forma condensed balance sheet
information is presented for informational purposes only.
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Balance Sheet
(amounts in thousands)
March 31, 1999 March 31, 1999
Actual Adjustment Pro Forma
------------------ ---------------- ------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 989,625 $2,900,000 (1) $ 3,889,625
Short-term investments 557,727 557,727
Accounts receivable 1,079,625 2,100,000 (2) 3,179,625
Inventories 706,459 706,459
Prepaid expenses and other current assets 117,161 117,161
------------------ ------------------
Total current assets 3,450,597 8,450,597
Property and equipment, net 1,815,877 1,815,877
Other assets 2,131 32,131
------------------ ------------------
Total assets $ 5,298,605 $ 10,298,605
================== ==================
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 54,050 $ 54,050
Accounts payable 492,807 492,807
Other accrued liabilities 860,905 860,905
Total current liabilities 2,207,762 2,207,762
Long-term debt, net of current portion 1,165,803 1,165,803
------------------ ------------------
Total liabilities 3,373,565 3,373,565
------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred stock 5,736,124 5,736,124
Common stock 714 714
Additional paid-in-capital 42,278,497 42,278,497
Accumulated deficit (46,090,295) $5,000,000 (1,2) (41,090,295)
------------------ ------------------
Total stockholders' equity 1,925,040 6,925,040
------------------ ------------------
Total liabilities and stockholders' equity $ 5,298,605 $ 10,298,605
================== ==================
</TABLE>
(1) The Company received a cash payment of $2,900,000 upon execution of the
agreement, which has been reflected as cash.
(2) The Company will receive 12 monthly cash payments of $175,000 beginning
July 1, 1999, which have been reflected in accounts receivable.
7
<PAGE>
Item 2 : Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. CONDUCTUS, INC.'S (THE "COMPANY" OR
"CONDUCTUS") ACTUAL 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 FOR THE YEAR ENDED DECEMBER 31, 1998.
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
We develop, manufacture and market electronic components and systems
based on superconductors for applications in the worldwide telecommunications
markets. As of March 31, 1999, we had accumulated losses of approximately
$46,090,000 and we expect to incur significant additional losses during the
remainder of 1999. We, alone or with collaborative partners, must successfully
develop, manufacture, introduce and market our potential products in order to
achieve profitability. We do not expect to recognize meaningful product sales
until we successfully develop and commercialize superconductive components,
systems and subsystems that address significant market needs.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Total revenues consist primarily of contract revenue and, to a
lesser extent, product sales. Our total revenues increased by 17% to $1,314,000
for the quarter ended March 31, 1999 from $1,128,000 in the comparable period of
1998.
Revenue under U.S. government research and development contracts
represented approximately 70% of total revenue for the quarter ended March 31,
1999 compared to 77% in the comparable period of 1998. Contract revenues
increased by 6% to $918,000 for the quarter ended March 31, 1999 from $864,000
in the comparable period of 1998. This increase is primarily attributable to the
growth of contract revenues related to our core wireless business. We have
submitted several proposals related to prospective contracts associated with
this core business and we will continue to submit proposals as additional
programs become available. We believe we will be able to participate in several
of the contracts for which proposals have been submitted and anticipate that
government contract revenues will continue to increase compared to 1998, however
we cannot assure you that we will receive the level of awards we anticipate.
Additionally, the recognition of revenue and receipt of payment pursuant to
these contracts and awards are subject to numerous risks.
Product revenues increased by 50% to $397,000 from $264,000 in the
comparable period of 1998. The increase in product revenues was primarily the
result of an increase in sales of the Company's wireless telecommunications
products partially offset by a decrease in revenues from the sales of magnetic
sensing systems and other products which do not relate to our core market.
Cost of product sales was primarily composed of costs of products
related to our wireless telecommunications products. Cost of product sales was
$570,000 for the period ended March 31, 1999 compared to $339,000 for the
comparable period of 1998. This increase is primarily attributable to the
increase in product sales and the lowered gross margins resulting from the
integration of the wireless products into the product mix during the comparison
periods.
Research and development includes both externally and internally
funded projects. Research and development expenses were $1,121,000 in the
quarter ended March 31, 1999 compared to $2,298,000 in the comparable period of
the prior year. Research and development, as a percentage of revenue,
represented 85% and 204% in the quarters ended March 31, 1999 and 1998,
respectively. The decrease in research and development expense was primarily
attributable to a decrease in spending on internally funded projects partially
offset by an increase in spending on externally funded research and development
contracts. Although spending on internal research and development has decrease
from the prior year, we expect to continue to incur significant research and
development expenses on internally funded programs as we seek to develop
additional commercial products,
8
<PAGE>
particularly in the wireless communications area and, as a result, anticipate
moderate increases in research and development expenses compared to the prior
year.
Selling, general and administrative expenses include costs
associated with marketing, sales, and various administrative activities.
Selling, general and administrative expenses were $834,000 and $1,098,000 in the
quarters ended March 31, 1999 and 1998, respectively. The decrease in spending
was primarily due to decreases in sales, marketing and administrative headcount
compared to the prior year. Although selling, general and administrative
expenses decreased compared to the prior year, we expect sales and marketing
expenses to increase during 1999 to the extent we increase sales of commercial
products, particularly in the communications markets.
Interest and other expense, net was $69,000 and $27,000 for the
periods ended March 31, 1999 and 1998, respectively. Interest charges related
primarily to our loan from a leasing company as well as our bank term loan. The
increase in interest expense was primarily the result of higher average debt
levels during the comparison periods.
As a result of incurring losses, we have not incurred any income tax
liability. We have established a valuation allowance against our deferred tax
assets (principally the tax benefit of our net operating losses) and review this
allowance on a periodic basis. At such time that we believe that it is more
likely than not that the deferred tax asset will be realized, the valuation
allowance will be reduced.
We do not believe that inflation has had a material effect on our
financial condition or results of operations during the past two fiscal years.
However, we cannot assure you that our business will not be affected by
inflation in the future.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through:
- $13,251,000 in net proceeds from our initial public offering of
common stock in August 1993.
- $9,892,000 in net proceeds from our follow-on public offering of
common stock in June 1996,
- $20,989,000 raised in private placement financings,
- $44,888,000 from U.S. government contracts,
- $2,020,000 in outstanding borrowings under various lease and bank
loan arrangements, and
- $3,810,000 in interest income.
As of March 31, 1999 our aggregate cash, cash equivalents and short
term investments totaled $1,547,000. Additionally, we have a bank line of credit
facility and an equipment lease line. We may borrow up to a maximum of
$2,000,000 under the bank line of credit based on a limitation of 80% of certain
eligible receivables. As of March 31, 1999, the total amount outstanding under
the bank line of credit facility was $191,000 and no additional amount was
available under the line. Under the equipment lease, we may finance up to a
total of $1,000,000 of future equipment acquisitions. There were no balances
outstanding under the equipment line as of March 31, 1999.
Net cash used in operations was $1,072,000 during the quarter ended
March 31, 1999. Net cash used in operations was primarily the result of the net
loss of $1,280,000 partially offset by the effect of a non-cash amortization
charge of $213,000 during the quarter. We anticipate that we will incur
significant additional net losses during 1999 and anticipate that our accounts
receivable and inventories may increase during 1999 as a result of increased
working capital requirements to support wireless telecommunications products. As
a result, we anticipate the use of additional cash in operating activities
during the remainder of 1999.
9
<PAGE>
Net cash provided by investing activities was $775,000 during the
quarter ended March 31, 1999. The balance was primarily related to the proceeds
from sales of short term investments during the quarter partially offset by
investments in additional property and equipment.
Net cash used in financing activities was $261,000 during the
quarter ended March 31, 1999. This usage was primarily related to principal
payments under capital loans payable and equipment term loans as well as costs
to register the preferred stock issued in September of 1998.
We anticipate total capital expenditures of approximately $900,000
during the remainder of 1999, which will be funded primarily from our $1,000,000
lease line of credit for new equipment purchases.
All of our credit arrangements contain reporting and financial
covenants which we are required to satisfy. We cannot assure you that we will
satisfy all such covenants in the future. We cannot assure you that if we
default on any of the covenants, we could obtain a waiver of the default from
the lender. In the event of default on any of these covenants, no further
amounts would be advanced to us under any facility, the entire amounts
outstanding could become due and payable immediately upon default, and those
assets that are collateral could be seized, unless such default is waived by the
lender.
To date we have received limited revenues from product sales. The
continued development of our products will require a commitment of substantial
funds to conduct further research and development and testing, to establish
commercial-scale manufacturing and to market these products. We expect to use
significant amounts of cash for capital equipment and to support operations
until product revenues increase. Additional financing may not be available on
acceptable terms or at all. Unless we are able to raise significant additional
funds, through debt or equity issuances, asset sales or otherwise, we will be
required to delay, reduce or eliminate one or more of our research and
development programs or obtain funds from collaborative partners or others that
may require us to relinquish rights to our technologies or potential products
that we would not otherwise relinquish. Our future capital requirements will
depend on many factors, including:
- continued progress in our research and development programs,
- the magnitude of these programs,
- the time and cost involved in obtaining any required regulatory
approvals,
- the costs involved in preparing, filing, prosecuting, maintaining
and enforcing patents,
- successful completion of technological, manufacturing and market
requirements,
- changes in existing research relationships,
- the availability of funding under government contracts,
- our ability to establish collaborative arrangements, and
- the cost of manufacturing scale-up and the amount and timing of
future revenues.
As discussed in Note 5 of the Notes to Condensed Financial
Statements, the Company entered into a definitive agreement with General
Dynamics Information Systems, Inc. (GDIS) to license its high temperature
superconductive (HTS) electronics and cryoelectronics technology on May 4, 1999.
Under the license agreement, GDIS made an immediate payment to the Company of
$2,900,000. In addition, GDIS will pay the Company $175,000 on the first day of
each month for 12 months beginning on July 1, 1999.
We anticipate that existing sources of liquidity and anticipated
revenue, primarily from government contracts in addition to the cash payments
resulting from the license transaction described above, will satisfy our
projected working capital and other cash requirements through Fiscal 1999.
However, there can be no assurance
10
<PAGE>
that changes in our plans or other events affecting Conductus will not result
in the expenditure of our resources before then. Additionally, we can give you
no assurance that additional financing will be available on acceptable terms
or at all.
YEAR 2000 COMPLIANCE
The potential problem presented by the year 2000 is the result of
computer programs being written using two digits rather than four to define the
applicable year. As a result, many computer systems and applications experience
problems handling dates beyond the year 1999 and will need to be modified before
the year 2000 in order to function properly. Any of our 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 system failures or
miscalculations, causing disruptions of key operations. Important operations
which could be disrupted include, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities.
We have expended resources to review our products, services and
internal use software to identify those products, services and systems that may
not properly process the year 2000 date. The costs related to potential year
2000 problems are expensed as incurred, and represent a reallocation of existing
resources.
Our compliance project comprises four phases: (1) identification of
risks, (2) assessment of those risks, (3) development of remedies and
contingency plans, and (4) implementation and testing. The following describes
the status of our year 2000 compliance project, and our estimates regarding
future compliance expenses, in relation to four pertinent aspects of our
business:
SALES, MANUFACTURING AND FINANCE INFORMATION SYSTEMS. We are
currently in the fourth phase of our compliance project. Our vendors have
confirmed that the versions of software currently in use are year 2000
compliant. We plan to complete our tests by the end of June 1999. We do not
anticipate incurring any material expenses to complete our tests on these
systems.
NETWORK HARDWARE, SOFTWARE AND DESKTOP WORKSTATIONS. We have
completed phase three and have developed a plan to complete an upgrade of all
non-compliant hardware and software by June 1999. We estimate that we will spend
approximately $250,000 replacing non-compliant equipment.
PRODUCTS WE HAVE SOLD. Our completed assessment indicates that these
products are year 2000 compliant. We do not anticipate incurring any material
expenses related to products we have sold or to any current product designs.
FABRICATION AND MANUFACTURING EQUIPMENT. We are completing phase two
and beginning to develop remedies and contingency plans. We expect to complete
phase two by the end of March 1999, and to complete phase three by the end of
June 1999. We are unable to estimate the remaining financial impact, if any, of
the year 2000 because our assessment phase is not completed. However, we
currently anticipate that our $1,000,000 equipment lease line will be sufficient
to cover both the network costs and any costs that may be incurred related to
the upgrade or replacement of fabrication and manufacturing equipment in 1999.
We have begun to formally communicate with our significant suppliers
and large customers to determine the extent to which we are vulnerable to their
failure to fix their own year 2000 problems. We cannot assure you that the
systems of other companies on which our systems rely will be timely converted,
or that a failure to convert by another company, or a conversion that is
incompatible with our systems, would not harm us.
As our year 2000 compliance project continues, we may (a) discover
additional year 2000 problems, (b) may not be able to develop, implement, or
test remedies or contingency plans, or (c) may find that the costs of these
activities exceed current expectations and become material. These contingencies
could force us to spend additional time and money to avoid potential year 2000
problems.
In the event we do not complete our compliance program as scheduled,
the year 2000 could cause significant problems. If all of our key operations
cease to function properly, we could experience an enterprise-wide
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shutdown for an unknown period of time. We are unable to assess the magnitude
of any losses that could result from this worst case scenario.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Conductus' general policy is to limit the risk of principal loss and
ensure the safety of invested funds by limiting market and credit risk. Our
exposure to financial market risks relates primarily to our exposure to the
impact of changes in interest rates on our fixed income investment portfolio and
long-term debt obligations.
FIXED INCOME INVESTMENTS
The primary objective of our investment activities is to preserve
our principal while maximizing yields without significantly increasing risk. To
achieve this objective, we maintain a portfolio that consists primarily of
short-term, high-quality commercial paper and foreign debt. All of our fixed
income investments have maturities of less than one year. Hence, our exposure
related to changes in interest rates is somewhat limited due to the short-term
nature of our portfolio. We do not use derivative financial instruments in our
investment portfolio.
DEBT OBLIGATIONS
Conductus' outstanding debt consists of term loan obligations that
are primarily based on fixed rates. Therefore, our exposure to changes in
interest rates is limited because any increase or decrease in interest rates
would not significantly increase or decrease interest expense on our debt
obligations.
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PART II: OTHER INFORMATION
Item 1: Legal Proceedings - Not Applicable
Item 2: Changes in Securities - Not Applicable
Item 3: Default upon Senior Securities - Not Applicable
Item 4: Submission of Matters to a vote of Security Holders - Not Applicable
Item 5: Other Information
Holders of our common stock currently enjoy the substantial benefit
of being able to easily buy or sell our common stock because our common stock is
listed on the Nasdaq SmallCap Market trading system. In November 1998, Nasdaq
informed us that, on the basis of our Quarterly Report on Form 10-Q for the
quarter ending September 30, 1998, our net tangible assets had fallen below the
level required for continued listing of our common stock on the Nasdaq National
Market trading system. Subsequently, we submitted information to Nasdaq
regarding our anticipated future net tangible assets and certain financing
plans. Based on this submission, we applied to have our common stock listed on
the Nasdaq SmallCap Market. Pending approval of our application, our common
stock began trading on the Nasdaq SmallCap Market. Nasdaq informed us that
our application to be listed on the Nasdaq SmallCap Market has been denied.
We requested an oral hearing on the subject which was held on May 13, 1999,
and delisting of our common stock has been stayed pending the results of this
hearing.
Although we satisfied Nasdaq's requirements for listing on the
Nasdaq SmallCap Market as of December 31, 1998, we did not satisfy these
requirements as of March 31, 1999. As a result of our recent license
agreement with General Dynamics, we believe we have taken sufficient action
to bring us within compliance of the listing requirements. We are also
seeking to raise additional equity capital and reduce our operating losses.
However, we may not be successful in these efforts. In addition, even if we
are now compliant with Nasdaq's listing requirements, Nasdaq may deny our
appeal if they believe we will not satisfy the criteria over the longer term.
If our common stock is delisted, trading in our common stock, if
any, would then be conducted in the over-the-counter market on an electronic
bulletin board, or in what are commonly referred to as the "pink sheets."
Stockholders would then find it more difficult to sell, or to quickly and
accurately obtain quotations as to the price of, our common stock.
In addition, if we fail to maintain either (a) net tangible assets,
as defined in Rule 3a51-1 of the Securities Exchange Act, of at least $2,000,000
or (b) average revenue over a three year period of at least $6,000,000, we could
become subject to certain "penny stock" rules. These rules subject brokers and
dealers who sell or make a market in our common stock to additional trading
rules and requirements. For example, these brokers or dealers would be required
to maintain detailed records on Conductus and their own trading activities in
connection with our common stock. Consequently, this could affect the
willingness of brokers and dealers to sell or make a market in our common stock.
This, in turn, could affect stockholder's ability to quickly and easily sell our
common stock.
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Item 6: Exhibits and Reports on Form 8-K
(A) Exhibits
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------------------------ ------------------------------------------------------
2.1(1) Stock Exchange Agreement dated as of May 28, 1993,
between the Company and Tristan Technologies, Inc.
3.1(2) Restated Certificate of Incorporation.
3.2(3) Restated Bylaws.
3.3(4) Certificate of Designation of Series B Preferred
Stock.
4.1(3) Stockholder Rights Plan.
10.1(1) 1987 Stock Option Plan.
10.2(1) Amended 1989 Stock Option Plan.
10.3(5) 1992 Stock Option/Stock Purchase Plan.
10.4(6) 1994 Employee Stock Purchase Plan.
10.5(1) Second Amended and Restated Registration Rights
Agreement dated June 3, 1993.
10.6(4) Form of Series B Preferred Stock and Warrant Purchase
Agreement, dated September, 1998, and September 22,
1998, between the Company and the Series B Investors.
10.7(4) Form of Warrant to Purchase Common Stock between the
Company and the Series B Investors.
10.8(7) Employment Agreement dated May 3, 1994 between
Registrant and Mr. Charles E. Shalvoy.
10.9(1) Form of Indemnification Agreement between the
Registrant and each of its directors and officers.
10.10(1)+ Coordinated Research Program Agreement dated October
14, 1988 and Amendment dated May 26, 1991 between the
Registrant and Hewlett-Packard Company ("H-P"), as
amended by the Agreement between Registrant and
Hewlett-Packard Company dated June 2, 1993.
10.11(8) Collaboration Agreement between Registrant and CTI
dated September 19, 1995.
10.12(8) High Temperature Superconductor Thin-Film
Manufacturing Alliance Agreement among Registrant,
Superconductor Technologies, Inc., Stanford
University, Georgia Research Corporation,
Microelectronic Control and Sensing Incorporated,
IBIS, Focused Research and BDM Federal dated November
17, 1995.
10.13(9)+ Superconducting Filter Technology Joint Development
Agreement dated April 25, 1996 between the Registrant
and Lucent Technologies Inc.
10.14(4) Engagement Letter between the Company and Sutro and
Co. Inc., dated March 24, 1998.
10.15(4) Amendment to Engagement Letter between the Company and
Sutro and Co. Inc., dated September 2, 1998.
10.16(4) Engagement Letter between the Company and Davenport
and Co., dated September 2, 1998.
10.17(4) Master Lease Agreement between the Company and Leasing
Technologies International, Inc., dated June 15, 1998.
10.18(1) Lease Agreement dated May 3, 1993 between the
Registrant and Mozart-McKee Limited Partnership for
Sunnyvale facilities.
10.19(7) Lease Agreement dated December 8, 1994 between
Registrant and Mozart-McKee Limited Partnership for
Sunnyvale facilities.
10.20(7) Business Loan Agreement dated August 15, 1994 between
Registrant and Silicon Valley Bank for working capital
credit facility and term loan facility.
10.21(10) Loan Modification Agreement dated June 30, 1997,
between Registration and Silicon Valley Bank modifying
the Business Loan Agreement dated August 15, 1994.
10.22(10) Loan Modification Agreement dated November 12, 1997,
between Registration and Silicon Valley Bank modifying
the Business Loan Agreement dated August 15, 1994.
10.23(10) Loan Modification Agreement dated December 23, 1997,
between Registration and Silicon Valley Bank modifying
the Business Loan Agreement dated August 15, 1994.
10.24(11) Business Loan Agreement dated March 8, 1996 between
Registrant and Silicon Valley Bank for working capital
credit facility and term loan facility.
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10.25(12) Business Loan Agreement dated December 27, 1996
between Registrant and Silicon Valley Bank for working
capital credit facility and term loan facility.
10.26(4) Master Loan and Security Agreement between the Company
and Transamerica Business Credit Corporation, dated
June 26, 1998.
10.27(4) Stock Subscription Warrant Agreement between the
Company and Transamerica Business Credit Corporation,
dated June 26, 1998.
10.28(13) Silicon Valley Bank Loan Agreement.
10.29(13) Collateral Assignment, Patent Mortgage and Security
Agreement between the Company and Silicon Valley Bank.
10.30(10)+ Asset Purchase Agreement dated July 9, 1997 between
Registrant and Bruker Instruments, Inc. for sale of
assets of Registrant's NMR Probe business.
10.31(10) Asset Purchase Agreement dated August 15, 1997 between
Registrant and Neocera, Inc. for sale of Registrant's
assets related to its temperature controller business.
10.32(10) Asset Purchase Agreement dated September 3, 1997,
between Registrant and Niki Glass Ltd. for sale of
Registrant's assets related to portions of its
instruments business.
10.33 License Agreement with General Dynamics, dated May 4,
1999.
10.34 Cross-License, Supply and Training Agreement, dated
May 4, 1999.
27.1 Financial Data Schedule.
+ Confidential treatment granted or requested as to certain portions of
these exhibits.
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (Number 33-64020), filed with the SEC on May 15,
1996, as amended.
(2) Incorporated herein by reference to the Company's 1993 Annual Report
on Form 10-K.
(3) Incorporated herein by reference to the Company's Registration
Statement on Form 8-K filed with the SEC on January 22, 1998.
(4) Incorporated herein by reference to the Company's Form 10-Q, filed
with the SEC on November 16, 1998.
(5) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, filed with the SEC on November 26, 1997.
(6) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, filed with the SEC on August 5, 1994.
(7) Incorporated herein by reference to the Company's 1994 Annual Report
on Form 10-K.
(8) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Number 333-3815), filed with the
SEC on June 17, 1996.
(9) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (Number 333-3815), filed with the SEC on May 10,
1996, as amended.
(10) Incorporated herein by reference to the Company's 1998 Annual Report
on Form 10-K.
(11) Incorporated herein by reference to the Company's 1995 Annual Report
on Form 10-K.
(12) Incorporated herein by reference to the Company's 1996 Annual Report
on Form 10-K.
(13) Incorporated herein by reference to the Company's Form 10-Q, filed
with the SEC on May 14, 1998.
(B) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter for which this
report is filed.
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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.
Dated: May 17, 1999 /s/ Ron Wilderink
----------------------------------------------
Ron Wilderink, Vice President of Finance
and Chief Financial Officer
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LICENSE AGREEMENT
This License Agreement (this "Agreement") is entered into as of May 4
1999 between General Dynamics Information Systems, Inc., a Delaware
Corporation ("GDIS"), and Conductus, Inc., a Delaware Corporation
("Conductus").
RECITALS
Conductus owns certain technology in the area of superconductive
electronics and cryoelectronics, and uses such technology for research and
development purposes and to make products for both government and commercial
customers. Although it acknowledges that there are multiple existing
opportunities for the use of its technology and the sale of its products to
government customers, Conductus is willing to forego its independent pursuit
of such opportunities and desires to make GDIS its licensee with respect to
such government business, so that Conductus can focus on its commercial
businesses.
AGREEMENT
SECTION 1. DEFINITIONS.
1.1. An "AFFILIATE" of a party will mean an entity directly or
indirectly controlling, controlled by or under common control with that party
where control means the ownership or control, directly or indirectly, of more
than fifty percent (50%) of all of the voting power of the shares (or other
securities or rights) entitled to vote for the election of directors or other
governing authority, as of the date of this Agreement or hereafter during the
term of this Agreement; provided that such entity will be considered an
Affiliate only for the time during which such control exists. An entity will
only be considered an "Affiliate" if it has agreed to be bound to all the
obligations and restrictions set forth in this Agreement, including without
limitation the obligations of confidentiality set forth in Section 10.
1.2. "CONDUCTUS TECHNOLOGY" will mean Patents (as defined
below) as well as all trade secrets, know-how, methods, operating techniques,
processes, technical data, engineering information, drawings, software,
documentation and other technology related to high temperature
superconductive ("HTS") electronics and cryoelectronics and associated
packaging and cryogenics owned by Conductus. Notwithstanding the above,
Conductus Technology does not include (a) magnetic resonance applications, or
(b) nuclear quadrapole applications or magnetic sensing applications other
than for underwater or underground object detection.
1.3. "DISCLOSING PARTY" shall mean a party hereto that
discloses its Proprietary Information to the other party.
1.4. "GOVERNMENT CONTRACTS" will mean any contract for
Licensed Products within the Permitted Market.
1.5. "KEY PERSONNEL" will mean those individuals listed in
Exhibit C.
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1.6. "LICENSED PRODUCT(S)" means (i) any product or part
thereof, and (ii) any technology or technology application or research and
development, the use or sale of which incorporates or is based on or derived
from Conductus Technology.
1.7. "PATENTS" will mean the patents and patent applications
listed on EXHIBIT A and any continuations, continuations-in-part (to the
extent the claims are supported by patents, patent applications or invention
disclosures included in Exhibit A), divisions or reissues thereof.
1.8. "PERMITTED MARKET" will mean the U.S. government or any
state, local or foreign government or any agency, department, bureau or other
subdivision or instrumentality thereof, except that the foreign market will
be limited to military, intelligence and law enforcement entities.
1.9. "PROPRIETARY INFORMATION" of a Disclosing Party will mean
the following, to the extent previously, currently or subsequently disclosed
to the other party hereunder or otherwise: information identified as
proprietary by the Disclosing Party and relating to Licensed Products, the
manufacture or processing thereof, or to the Disclosing Party's business
(including, without limitation, know-how, formulas, processes, ideas,
inventions (whether patentable or not), schematics and other technical,
business, financial, customer and product development plans, forecasts,
strategies and information). In particular, but without limitation,
Conductus Technology will be considered Proprietary Information of Conductus,
regardless of being marked or identified as such. Information will be deemed
to be identified as proprietary, when, in the case of documents, schematics,
plans, software and other tangible information, it is clearly marked as such,
and in the case of intangible information such as know-how, the disclosing
party clearly communicates to the Receiving Party that such information is
proprietary.
1.10. "PROPRIETARY RIGHTS" will mean Patent rights, copyrights,
mask work rights, trade secret rights and all other intellectual property
rights.
1.11. "RECEIVING PARTY" will mean a party hereto that receives
Proprietary Information of the other party.
1.12. "STANDARD PRODUCTS" will mean products (a) supplied to
GDIS under the Cross-License, Supply and Training Agreement to be entered
into by the parties hereto or (b) those products listed in Exhibit F of this
Agreement that GDIS makes or has made using components from suppliers
specified by Conductus, according to procedures and designs specified by
Conductus.
SECTION 2. LICENSE GRANT.
2.1. EXCLUSIVE LICENSE. Subject to all the terms and
limitations of this Agreement, and except for that Conductus Technology
specifically subject to Section 2.2, Conductus hereby grants GDIS an
exclusive, nonsublicensable, perpetual license under its
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Proprietary Rights in the Conductus Technology, to use, make, have made
(including by Defense Microelectronics Activity ("DMEA"), but specifically
excluding Superconductor Technologies, Inc., Illinois Superconductor
Corporation, E.I.duPont de Nemours and Company, Superconductor Core
Technologies, their successors and any direct competitor of Conductus in the
HTS base station commercial wireless marketplace), market and sell Licensed
Products only to the Permitted Market. Notwithstanding the above, Conductus
shall not be prohibited from exercising any rights in the Conductus
Technology for Government Contracts entered into by Conductus as permitted
under Section 3.2 or for Conductus' own internal research and development
purposes. Affiliates of GDIS will have all rights and benefits granted
hereunder subject to the limitations and restrictions of this Agreement.
2.2. NONEXCLUSIVE LICENSE. Subject to all the terms and
limitations of this Agreement, Conductus hereby grants GDIS a nonexclusive,
nonsublicensable, perpetual license under its Proprietary Rights in Conductus
Technology for magnetic quadrapole and magnetic sensing applications for
underwater and underground object detection applications, and to US Patent
Number 5,455,595 and U.S. Patent Application 08/041,731, to use, make, have
made, market and sell Licensed Products only to the Permitted Market.
Affiliates of GDIS will have all rights and benefits granted hereunder
subject to the limitations and restrictions of this Agreement.
SECTION 3. SCOPE OF LICENSE.
3.1. GOVERNMENT AND THIRD-PARTY RIGHTS IN CONDUCTUS
TECHNOLOGY. The United States Government has certain rights, as listed in
Exhibit A, in the Conductus Technology, including patent rights under FAR
52.227-11 and rights in data under DFAR 252.227-7013. Additionally, certain
research partners of Conductus have pre-existing rights to Conductus
Technology. The exclusive license granted herein is subject to and limited by
any such pre-existing rights. Such rights of other parties are listed in
Exhibit A.
3.2. RIGHTS AND LIMITATIONS OF GDIS.
3.2.1. PRODUCTS INCORPORATING CONDUCTUS TECHNOLOGY.
Subject to Section 3.2.2, GDIS will not make, have made by a third party,
market or sell any product incorporating Conductus Technology outside the
Permitted Market either directly or indirectly by a participant in a
distribution channel (for example, an original equipment manufacturer (OEM),
value-added reseller (VAR), distributor or dealer) or by resale by a GDIS
customer. Any entity that receives the "have made" right specified above
must agree to be bound in writing to all the limitations and restrictions on
GDIS hereunder, (including, without limitation, the obligations of
confidentiality in Section 10 of this Agreement.
3.2.2. GDIS LICENSE EXTENSION. Conductus will grant
GDIS, on a case-by-case basis, at the request of GDIS, a limited license to
develop, use, make, have made by a third party, market or sell products
incorporating Conductus Technology outside the Permitted Market.
Notwithstanding the foregoing, Conductus will have no
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obligation to provide such limited license if (i) the product or activities
compete with any product or activity covered by Conductus' business plans, or
(ii) Conductus is bound by other obligations which would preclude its
granting such limited license, or (iii) Conductus elects to develop the
product or pursue the opportunity itself or with another enterprise. Any such
limited license will be subject to the royalty payment provisions of Section
5, except that the 10-year time limit shall not apply. With respect to the
Final Analysis FAISAT-TM- "Little LEO" opportunity, which is outside the
Permitted Market, Conductus will either (a) pursue the opportunity alone or
with a partner, (b) license another who agrees to pursue the opportunity or
(c) grant GDIS a limited license under this Section.
3.3. RESERVED RIGHTS AND LIMITATIONS OF CONDUCTUS.
3.3.1. BIDS SEPARATE FROM GDIS. Conductus will not bid
independently of GDIS on Government Contracts which are (a) contracts for the
delivery of hardware; (b) offered for bidding directly to GDIS by a
government customer; (c) contracts for which GDIS can provide technical
competencies which Conductus does not possess; (d) contracts for which GDIS
has access to customer or application information which Conductus does not
possess or (e) contracts which would benefit from GDIS project management
competencies which Conductus does not possess.
3.3.2. GOVERNMENT CONTRACTS. Notwithstanding the
foregoing, Conductus may bid independently of GDIS for Government Contracts
which are for (a) Small Business Innovative Research ("SBIR") awards; (b)
Category 6.1 solicitations as defined under DFAR 235.001; or (c)
opportunities GDIS elects to pursue with a subcontractor other than Conductus.
3.3.3. CONDUCTUS REFERRAL RIGHTS. Notwithstanding any
other provision of this Agreement, Conductus may bid separately on Government
Contracts that GDIS elects not to pursue.
3.4. PROCESS AND DISPUTE RESOLUTION. To ensure that the
parties have an opportunity to expeditiously resolve disputes involving the
rights and limitations of the parties set forth in Sections 2 and 3, the
parties agree to the following procedures:
3.4.1. NOTICE REQUIREMENT. The parties agree to provide
notice as follows: (i) to the extent it is permitted by law to do so, GDIS
will promptly notify Conductus of those opportunities for Government
Contracts specified under Section 3.3.1, which it does not intend to pursue
and any Government Contracts it intends to pursue with a subcontractor other
than Conductus; and (ii) Conductus will notify GDIS of its intent to pursue a
contract within the Permitted Market.
3.4.2. DISPUTE RESOLUTION PROCESS. (a) If the party
receiving notice under Section 3.4.1 believes that it has the right to submit
a bid with respect to such opportunity and intends to submit a such a bid, it
will promptly provide written notice of same to the other party (within one
week of its receipt of notice, but not later
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than fifty percent (50%) of the time remaining to the due date of the
proposal); (b) in the event that both parties believe they have the right
under this Agreement to bid on a business opportunity and that the other
party does not have such right, and have satisfied the notice requirement,
they agree to diligently try to resolve the issue of bidding rights within
one week of the date on which the second notice is delivered; (c) if the
parties cannot reach agreement they will submit the dispute to the respective
chief executive officers of GDIS or the applicable GDIS Affiliate and
Conductus who will exert reasonable, good faith efforts to resolve the
dispute within one week of the date on which the dispute is submitted to
them; and (d) if the chief executive officers cannot reach agreement, the
dispute will be submitted for binding arbitration in accordance with Section
13 of this Agreement.
3.5. FUTURE DEVELOPMENTS. The parties intend to enter into a
Cross-Licensing, Supply and Training Agreement that would, among other
things, allow each of them to cross-license future developments in the
Conductus Technology. Such agreement will address the supply of products to
GDIS and set forth various services to be provided to GDIS relating to the
Conductus Technology. Both parties acknowledge nothing herein creates any
obligation for either of the parties to develop any additional technology.
SECTION 4. TRANSFER OF TECHNOLOGY. Conductus will deliver all
tangible Conductus Technology to GDIS as set forth in Exhibit A. Conductus
will make the Key Personnel available to assist in the transfer of the
intangible Conductus Technology, as described in the Cross License, Supply
and Training Agreement executed between the parties. Any substitutions of
Key Personnel will be made only with persons having substantially similar
expertise and after prior written notice to GDIS.
SECTION 5. PAYMENTS.
5.1. UP-FRONT PAYMENTS. As consideration for the delivery of
the Conductus Technology, GDIS will pay Conductus an up-front nonrefundable,
fee of [*] upon completion of all of the following: (a) the execution of this
Agreement, (b) receipt of the releases, in the form set forth in Exhibit E,
from Transamerica and Silicon Valley Bank and any other releases, if any,
required under Section 14.3; (c) the execution of the Cross License, Supply
and Training Agreement, and (d) the delivery to GDIS of that Conductus
Technology listed in Exhibit A as deliverable on execution of this Agreement.
5.2. ON-GOING PAYMENTS. As additional consideration for this
Agreement, GDIS agrees to pay Conductus [*] on the first day of each month
for a period of [*] beginning on July 1, 1999.
5.3. ROYALTIES. For a period of [*] years after the date
of this Agreement, GDIS will pay a [*] royalty as calculated
in accordance with Exhibit D. The parties have agreed that the royalty shall
be allocated as [*]
* Confidential treatment requested.
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[*] for non-patent intellectual property and [*] for Patent rights. The
royalty rates specified in this section will be reduced to [*] for any
Licensed Products or Conductus Technology neither manufactured nor sold in a
country where a patent or patent application licensed hereunder (with claims
covering the items) remains in effect. If all or any part of the royalty is
determined to be an unallowed cost by a U.S. government contracting officer
or as a result of an audit by a U.S. government agency, the royalty to
Conductus will be reduced by one half of the amount of the unallowed royalty
cost.
5.4. NONCREDITABILITY OF PAYMENTS. The payments listed in
Sections 5.1 and 5.2 are not creditable against royalties other obligations
of GDIS to Conductus.
SECTION 6. REPORTING AND PAYMENT. Beginning with the calendar quarter
during which GDIS first invoices a customer with respect to the sale of a
Licensed Product, GDIS will make written reports (even if there are no sales)
and earned royalty payments to Conductus within forty-five (45) days after
the end of each such quarter. This report will state the number,
description, and aggregate royalty base during such completed calendar
quarter, and the resulting calculation of earned royalty payment due
Conductus for such completed calendar quarter. All royalties will be paid to
Conductus in US Dollars. The royalty on sales in currencies other than US
Dollars will be calculated using the appropriate foreign exchange rate for
such currency quoted by the Bank of America (San Francisco) foreign exchange
desk, on the close of business on the last banking day of each calendar
quarter. All non-US taxes of GDIS related to royalty payments shall be paid
by GDIS and are not deductible from the payments due to Conductus. If any
payments are not received by Conductus when due, GDIS will pay to Conductus
interest charges on such payments at a rate of eighteen percent (18%) per
annum or the maximum rate permitted by law, whichever is less. Such interest
will be calculated from the date payment is due until the date of payment.
* Confidential treatment requested.
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SECTION 7. GDIS COVENANTS. GDIS will keep and maintain detailed and
accurate books and records with regard to sales of Licensed Products by it
and any of its Affiliates, royalties, and the calculation thereof. Conductus
or its representatives will be entitled to review and audit such books and
records from time to time during normal business hours upon reasonable notice
to GDIS and at Conductus' expense; provided that GDIS will bear any such
expense if the review or audit shows an underpayment of more than five
percent (5%) for the applicable period. Any underpayments discovered during
an audit will become immediately due and payable to Conductus.
SECTION 8. FINANCIAL STATEMENTS. Beginning with the month and quarter
in which this Agreement is executed, as soon as available, but no later than
the 30th day of each calendar month until the month following the first
anniversary of this Agreement, Conductus will provide GDIS with unaudited
financial statements (balance sheet, income statement and statement of cash
flows) for the preceding month. During the one-year period, Conductus will
also provide GDIS with a copy of its 10Qs and 10K as filed with Securities
and Exchange Commission, as soon as available.
SECTION 9. MAINTENANCE COSTS. If Conductus elects not to pay for
maintenance of any Patents, it will so notify GDIS and provide GDIS with the
opportunity to request that Conductus pay maintenance fees at GDIS's expense.
If GDIS requests Conductus to maintain such Patents, GDIS will advance the
cost of such maintenance charges and associated prosecution fees to Conductus
when due.
SECTION 10. PROPRIETARY INFORMATION.
10.1. IMPORTANCE OF PROPRIETARY INFORMATION. Each party
recognizes the importance to the other of the other's Proprietary
Information. In particular, (a) GDIS recognizes that the Conductus Technology
and other Conductus' Proprietary Information (and the confidential nature
thereof) are critical to the business of Conductus and that Conductus would
not enter into this Agreement without assurance that such technology and
information and the value thereof will be protected as provided in this
Section 10 and elsewhere in this Agreement; and (b) Conductus recognizes that
GDIS's strategic plans, bid decisions and technological capabilities and
other GDIS Proprietary Information (and the confidential nature thereof) are
critical to the business of GDIS in a competitive environment and that GDIS
would not enter into this Agreement without assurance that such technology
and information and the value thereof will be protected as provided in this
Section 10 and elsewhere in this Agreement.
10.2. RESTRICTIONS. Accordingly, each party agrees as
follows: The Receiving Party agrees and will cause its employees to agree (a)
to hold the Disclosing Party's Proprietary Information in confidence and to
take reasonable precautions to protect such Proprietary Information
(including, without limitation, all precautions the Receiving Party employs
with respect to its confidential materials), (b) not to divulge (except when
GDIS is the Receiving Party and has a Licensed Product made by a third party
in accordance with the requirements of Section 2 of this Agreement provided
that third party agrees in writing to be bound by the provisions of this
Section 10) any such
-7-
<PAGE>
Proprietary Information or any information derived therefrom to any third
person and (c) not to make any use whatsoever at any time of such Proprietary
Information except as expressly authorized in this Agreement. GDIS will take
reasonable precautions to ensure Conductus financial information disclosed to
GDIS prior to public release is not used by GDIS personnel to buy, sell or
trade Conductus stock. Any Receiving Party must have a legitimate "need to
know" the information being provided hereunder.
10.3. EXCEPTIONS. Without granting any right or license, each
party hereto agrees that the restrictions in Section 10.2 will not apply with
respect to information the Receiving Party can document (a) is in or (through
no improper action or inaction by the Receiving Party, agent or employee)
enters the public domain (and is readily available without substantial
effort), or (b) was rightfully in its possession or known by it prior to
receipt from the Disclosing Party, or (c) was rightfully disclosed to it by
another person without restriction, or (d) was independently developed by it
by persons without access to such information and without use of any
Proprietary Information of the Disclosing Party.
10.4. LEGAL REQUEST OR REQUIREMENT FOR DISCLOSURE. In the
event either party is requested or required (by oral request or written
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand or similar process) to disclose any
Confidential Information of the other party, then such party will notify the
other party promptly in writing of the request or requirement so that the
other party may seek an appropriate protective order. If, in the absence of
a protective order, the party from which disclosure is sought is, on the
advice of outside counsel, compelled to disclose any of the Confidential
Information of the other party or else stand liable for contempt, then the
party from which disclosure is sought may disclose such information provided
that such party will use its reasonable best efforts to obtain at the request
and expense of the other party an order or other assurance that confidential
treatment will be accorded to such information.
10.5. RETURN OF PROPRIETARY INFORMATION. Within thirty (30)
days after a termination of this License Agreement under the provisions of
Section 12, each party will deliver to the other party all tangible
Proprietary Information of that party including all documents or media
containing any such Proprietary Information and any and all copies or
extracts thereof.
10.6. EQUITABLE RELIEF. The parties acknowledge and agree that
due to the unique nature of the Proprietary Information, there can be no
adequate remedy at law for the breach by the other of its obligations under
this Section 10, that any such breach by the other party will result in
irreparable harm to the Disclosing Party and therefore, that upon any such
breach or any threat thereof by a Receiving Party, the Disclosing Party will
be entitled to appropriate equitable relief (without the posting of any bond)
in addition to whatever remedies it might have at law. Each party will
notify the other party in writing immediately if it becomes aware of the
occurrence of any such unauthorized release or other breach. Any breach of
this Section 10 will constitute a material breach of this Agreement.
-8-
<PAGE>
SECTION 11. PROTECTION OF PROPRIETARY RIGHTS.
11.1. PRODUCT MARKING. Except to the extent otherwise agreed
by Conductus, Licensed Products will include any patent markings of
Conductus. Except as expressly provided herein, (a) GDIS will not use or
register the mark "Clear Site" or the name "Conductus" or any similar mark or
name anywhere in the world and (b) GDIS has no right or license with respect
to any mark, name or designation of, or used by, Conductus.
11.2. PROCESS. If GDIS becomes aware of any product or
activity of any third party that may involve a material infringement or
violation of any material Patent or other material Proprietary Right relating
to the Conductus Technology, then GDIS will promptly notify Conductus in
writing of such infringement or violation. Conductus may in its discretion
take or not take whatever action it believes is appropriate. If Conductus
elects to take action, GDIS will reasonably cooperate therewith at Conductus'
expense, including joining as a party, if necessary. If Conductus does not,
within ninety (90) days after receipt of such a notice of a patent
infringement, commence action directed toward restraining or enjoining such
patent infringement, GDIS, so long as its license to the Patents is
exclusive, may take such legally permissible action as it deems necessary or
appropriate to enforce its rights relating to the Conductus Technology
granted under Section 2.1 and restrain such infringement. Conductus agrees
to cooperate reasonably, at GDIS' expense, in any such action GDIS initiates
or wishes to initiate. GDIS will indemnify Conductus for any damages, as well
as Conductus' expenses, costs and attorneys' fees, in connection with any
action or suit commenced by GDIS under this Section 11.2. Nothing in this
Section 11.2 allows GDIS or requires Conductus to disclose Proprietary
Information of Conductus.
11.3. CONDUCTUS ACTION. If Conductus initiates and prosecutes
any action under this Section 11, all legal expenses (including court costs
and attorneys' fees) will be borne by Conductus and Conductus will be
entitled to all amounts awarded by way of judgment, settlement or compromise.
11.4. GDIS ACTION. If GDIS initiates and prosecutes any action
under this Section 11, all legal expenses (including court costs and
attorneys' fees) will be borne by GDIS and GDIS will be entitled to all
amounts awarded by way of judgment, settlement, or compromise.
11.5. PATENT SEARCHES. GDIS acknowledges that Conductus has
not conducted comprehensive patent searches. Conductus and GDIS agree to
work cooperatively regarding issues concerning Patents and Proprietary Rights
and similar matters and to exercise reasonable business judgment in carrying
out the objects of this Agreement to avoid exposing either party to liability
under patent or similar laws in any country.
-9-
<PAGE>
SECTION 12. TERMINATION.
12.1. GROUNDS FOR TERMINATION. Notwithstanding any provision
herein to the contrary, this Agreement may be terminated: (a) at any time by
the mutual written consent of the parties; (b) by Conductus upon thirty (30)
days written notice in the event of any failure by GDIS to make a royalty
payment when due pursuant to this Agreement, unless GDIS makes such payment
within 10 days after the receipt of written notice from Conductus requesting
that such breach or default be cured; or (c) by either party in the event of
any material breach or default by the other party in the performance of any
of its material obligations under this Agreement which are not cured within
60 days after the breaching party is provided with written notice of such
breach or default, except that if Conductus believes that GDIS has committed
a material breach with respect to Sections 2 or 3, this Agreement will not be
terminated prior to the parties' use of all of the dispute resolution
procedures set forth in Sections 3.4 and 13.
12.2. LIABILITY. If this Agreement is terminated for any
reason, then all rights, licenses and obligations of the parties hereunder
will terminate without the liability of either party to the other party,
except for any liability of a party then in breach; provided that the
provisions of Sections 5 and 6 (as to any royalties due and owing by GDIS),
10, 11.1, 12.2, 12.3 and 13-18 will survive termination and remain in full
force and effect thereafter.
12.3. CONTINUATION. In the event of termination of this
Agreement for any reason, Conductus will offer a license covering the subject
matter of this Agreement to DMEA, on terms and conditions to be mutually
agreed.
SECTION 13. ARBITRATION OF CERTAIN DISPUTES.
13.1. RESOLUTION OF ARBITRAL DISPUTES. Except as otherwise
expressly provided in this Section 13, the parties agree that any dispute or
controversy between the parties arising under or in connection with Sections
2 or 3 that is not otherwise resolved pursuant to Sections 3.4.2 (an
"ARBITRABLE DISPUTE") will be settled exclusively in accordance with the
procedures set forth in this Section 13. Upon the demand of either party, the
parties agree that the procedures set forth in this Section 13 will not be
applicable to disputes or controversies arising in connection with
third-party claims against one or both of the parties to this Agreement or to
any claim, action, suit or proceeding seeking specific enforcement of the
provisions of this Agreement.
13.2. CLAIM NOTICE. Within ten (10) days after the date on
which a dispute is submitted to the chief executive officers pursuant to
Section 3.4.2(d), provided that such dispute remains unsettled, either party
will have the right to demand arbitration of the Arbitrable Dispute by
delivering to the other party a written notice (the "CLAIM NOTICE") demanding
arbitration pursuant to this Section 13.2 and setting forth in reasonable
detail the claims asserted by such party and the facts upon which such claims
are based. Within ten (10) days after delivery of the Claim Notice, the
party receiving the Claim Notice will deliver to the party demanding
arbitration a written notice (the
-10-
<PAGE>
"DEFENSE NOTICE") setting forth in reasonable detail such party's defense,
any counterclaims and the facts upon which such defense and counterclaims are
based. In the event of a failure to deliver the Defense Notice, all claims
set forth in the Claim Notice will be deemed denied and such failure will not
serve to delay arbitration in accordance with the provisions of this Section
13.
13.3. SELECTION OF ARBITRATOR. The parties agree that they will
arbitrate before a single arbitrator selected under the rules of the American
Arbitration Association (AAA).
13.4. ARBITRATION RULES. The Arbitrator will conduct its
activities in accordance with the Commercial Rules of the American
Arbitration Association as then in effect. The Arbitrator will decide all
procedural and substantive issues relating to the Arbitrable Dispute,
including without limitation those issues relating to the scheduling of and
rules and procedures applicable to all hearings relating to the Arbitrable
Dispute.
13.5. APPLICABLE LAW. The parties agree that the Arbitrator
will apply the internal laws of the State of Delaware to the merits of the
Arbitrable Dispute and that all hearings relating to the Arbitrable Dispute
will be held in Santa Clara county, California, or at such other place as may
be mutually agreed by the parties.
13.6. DELIVERY OF INFORMATION. Each party agrees that it will
provide to the other party, at least ten (10) days prior to any scheduled
arbitration hearing, materials and information sufficient to apprise the
other party fully with regard to such party's contentions in connection with
the Arbitrable Dispute. Each party will respond promptly to all reasonable
requests for information and documents in its possessions relevant to the
Arbitrable Dispute. The Arbitrator will resolve any disputes between the
parties as to discovery procedures.
13.7. APPORTIONMENT OF COSTS. The costs of arbitration will be
apportioned by the Arbitrator in its award in such manner as the Arbitrator
deems just and reasonable taking into account the circumstances of the
dispute, the conduct of the parties during the arbitration proceeding and the
result of the arbitration. Any costs of arbitration that must be paid prior
to the Arbitrator's award will be borne by the parties equally, without
prejudice to the final apportionment of such costs by the Arbitrator.
13.8. BINDING DECISION; AWARDS. The Arbitrator will as soon as
practicable, but in any event within fifteen (15) days after the selection of
the Arbitrator, render a binding decision and, if applicable, award as to all
Arbitrable Disputes for which it was impaneled. The powers of the Arbitrator
will include the power to award declaratory judgments, specific performance
and injunctive and other equitable relief. The Arbitrator will not have the
power to modify or amend in any respect the provisions of this Agreement,
including without limitation the provision prohibiting the award of certain
damages prohibited under Section 17.
-11-
<PAGE>
13.9. U.S. ARBITRATION ACT; JUDGMENT. All arbitrations
conducted pursuant to this Section 13 will be governed by the United States
Arbitration Act, 9 U.S.C. Sections 1-16. Judgment on any award of the
Arbitrator may be entered in any court of competent jurisdiction.
SECTION 14. REPRESENTATIONS AND WARRANTIES OF CONDUCTUS. Conductus
hereby represents and warrants to GDIS that the statements contained in this
Section 14 are correct and complete as of the date of this Agreement.
14.1. ORGANIZATION, POWER AND QUALIFICATION. Conductus is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite corporate power and
authority to own or hold under lease its properties and assets and to carry
on its business as now conducted.
14.2. AUTHORITY. Conductus has all necessary power and
authority, corporate and otherwise, to make, execute and deliver this
Agreement and all other agreements and documents to be executed and delivered
by it pursuant hereto and has taken all necessary actions required to be
taken to authorize it to execute and deliver this Agreement and such other
agreements, and to perform all of its obligations, undertakings and
agreements to be observed and performed by it hereunder and thereunder. This
Agreement has been duly executed and delivered by Conductus, and constitutes
the valid and binding agreement of Conductus enforceable in accordance with
its terms.
14.3. NONCONTRAVENTION; CONSENTS. Neither the execution and
delivery of this Agreement by Conductus, nor the consummation by Conductus of
the transactions contemplated hereby or thereby, will violate any law to
which Conductus is subject or any provision of the charter or bylaws of
Conductus. Neither the execution and delivery of this Agreement by Conductus,
nor the consummation by Conductus of the transactions contemplated hereby,
will constitute a violation of, be in conflict with, constitute or create a
default under or result in the creation or imposition of any lien upon any
property of Conductus (including any of the Conductus Technology) pursuant
to, any agreement or commitment to which Conductus is a party or by which
Conductus is bound or any of its properties (including any of the Conductus
Technology) is bound or subject. Conductus has given all required notices and
obtained all licenses, permits, consents, approvals and authorizations from
third parties as are required in order to enable Conductus to perform its
obligations under this Agreement, including all consents and approvals
required to permit it to license the Conductus Technology and the Licensed
Products and to enable GDIS to enjoy all the rights and benefits thereof. No
Contract has been amended to increase the amount payable thereunder or to
provide any other benefit to any other party thereto in order to obtain any
such consent, approval or authorization.
14.4. NON-INFRINGEMENT. To the knowledge of Conductus, without
having made any specific inquiry, there are no actions, suits, claims,
proceedings or investigations pending or threatened against Conductus with
respect to any actual or alleged infringement. Conductus, is not prosecuting
any action, suit, claim, proceeding or
-12-
<PAGE>
investigation concerning any actual or potential infringement of Conductus
patents or intellectual property rights.
14.5. OWNERSHIP OF PATENTS AND CONDUCTUS TECHNOLOGY. Conductus
is the owner of the Patents included in Exhibit A, free and clear of any
liens, encumbrances or claims, and is the owner of the Conductus Technology
claims or possesses non-terminable, perpetual worldwide license rights
thereto which include the right to grant the license thereto pursuant to this
agreement, in each case free and clear of any liens, encumbrances or
Conductus has not granted and will not grant any rights in the Conductus
Technology to third parties which limits or infringes, or would limit or
infringe, the exclusivity granted to GDIS herein, except for those rights
listed in Exhibit A.
14.6. SUFFICIENCY OF LICENSED AND TRANSFERRED TECHNOLOGY. The
items listed in Exhibit A when combined with (i) the non-proprietary items
listed in Exhibit B and (ii) the training provided under the Cross-Licensing,
Supply and Training Agreement to be entered into by the parties, will include
all of the patents, documentation, trade secrets and know-how reasonably
necessary for a person skilled in the art to produce Standard Products.
SECTION 15. REPRESENTATIONS AND WARRANTIES OF GDIS. GDIS hereby
represents and warrants to Conductus that the statements contained in this
Section 15 are correct and complete as of the date of this Agreement.
15.1. ORGANIZATION, POWER AND QUALIFICATION. GDIS is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite corporate power and
authority to own or hold under lease its properties and assets and to carry
on its business as now conducted.
15.2. AUTHORITY. GDIS has all necessary power and authority,
corporate and otherwise, to make, execute and deliver this Agreement and all
other agreements and documents to be executed and delivered by it pursuant
hereto and has taken all necessary actions required to be taken to authorize
it to execute and deliver this Agreement and such other agreements, and to
perform all of its obligations, undertakings and agreements to be observed
and performed by it hereunder and thereunder. This Agreement has been duly
executed and delivered by GDIS, and constitutes the valid and binding
agreement of GDIS enforceable in accordance with its terms.
15.3. NONCONTRAVENTION; CONSENTS. Neither the execution and
delivery of this Agreement by GDIS, nor the consummation by GDIS of the
transactions contemplated hereby or thereby, will violate any law to which
GDIS is subject or any provision of the charter or bylaws of GDIS. Neither
the execution and delivery of this Agreement by GDIS, nor the consummation by
GDIS of the transactions contemplated hereby, will constitute a violation of,
be in conflict with, constitute or create a default under or result in the
creation or imposition of any lien upon any property of GDIS
-13-
<PAGE>
pursuant to, any agreement or commitment to which GDIS is a party or by which
GDIS is bound or any of its properties is bound or subject.
SECTION 16. SURVIVAL AND INDEMNIFICATION.
16.1. SURVIVAL. The representations, warranties, covenants and
agreements of the parties contained in this Agreement will survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and will continue in full force and effect
forever thereafter.
16.2. INDEMNIFICATION BY CONDUCTUS. Conductus hereby agrees to
indemnify, defend and hold GDIS harmless from and against the entirety of any
losses, expenses (including without limitation reasonable attorney's,
accountant's and expert's fees and expenses), damages and other liabilities
(collectively, "LOSSES") suffered or incurred by GDIS or any of its
stockholders, directors, officers, employees or agents, resulting from,
arising out of or caused by any third party claim of infringement with
respect to GDIS' making, having made, using or selling Standard Products, or
the misappropriation by Conductus of any trade secrets with respect to any of
the foregoing, provided that (i) GDIS promptly notifies Conductus in writing
of the claim, (ii) Conductus has sole control of the defense and all related
settlement negotiations, and (iii) GDIS gives Conductus information and
assistance for the defense all at Conductus' expense. Conductus will not be
liable under this indemnification provision to the extent that GDIS can avoid
infringement by purchase of materials from non-infringing sources and fails
to do so. To the extent that such Losses consist of fees and/or future
royalty payments, Conductus will be able to make GDIS whole by giving GDIS
credit for the amount of such Losses out of future royalty payments payable
by GDIS to Conductus.
Conductus will have no liability for any claim of patent or copyright
infringement based upon the combination, operation or use of any Standard
Product with products, software or data not supplied by Conductus, nor for
any claim based upon alteration of the products or modification of any
software supplied by entities other than Conductus.
16.3. INDEMNIFICATION BY GDIS. GDIS agrees to indemnify, hold
harmless, and defend Conductus and their respective trustees, officers,
employees, students, and agents against any and all claims for death,
illness, personal injury, property damage, and improper business practices
arising out of the manufacture, use, sale, or other disposition of Licensed
Product, or Conductus Technology by GDIS, its Affiliates, or any entity which
manufactures, uses or sells or disposes of Licensed Product under the have
made provisions of this agreement.
SECTION 17. LIMITATIONS AND WARRANTY.
17.1. LIMITATION OF DAMAGES. NOTWITHSTANDING ANY PROVISION OF
THIS AGREEMENT TO THE CONTRARY, NEITHER PARTY WILL BE ENTITLED IN CONNECTION
WITH ANY BREACH OR VIOLATION OF THIS AGREEMENT TO RECOVER ANY PUNITIVE,
EXEMPLARY OR OTHER SPECIAL DAMAGES OR ANY INDIRECT, INCIDENTAL OR
CONSEQUENTIAL
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<PAGE>
DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES RELATING TO LOSS OF PROFIT,
BUSINESS OPPORTUNITY OR BUSINESS REPUTATION. EACH PARTY, AS A MATERIAL
INDUCEMENT TO THE OTHER PARTY TO ENTER INTO AND PERFORM ITS OBLIGATIONS UNDER
THIS AGREEMENT, HEREBY EXPRESSLY WAIVES ITS RIGHT TO ASSERT ANY CLAIM
RELATING TO SUCH DAMAGES AND AGREES NOT TO SEEK TO RECOVER SUCH DAMAGES IN
CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING RELATING TO THIS AGREEMENT.
THE FOREGOING WILL NOT LIMIT THE RIGHT OF EITHER PARTY TO INDEMNIFICATION IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT WITH RESPECT TO ALL
COMPONENTS OF ANY CLAIM, AWARD OR JUDGMENT AGAINST SUCH PARTY BY ANY
UNAFFILIATED THIRD PARTY.
17.2. LIMITATION OF OBLIGATIONS AND LIABILITY. EXCEPT FOR
BODILY INJURY OF A PERSON, CONDUCTUS WILL NOT BE LIABLE WITH RESPECT TO ANY
SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER THEORY FOR COST OF PROCUREMENT OF SUBSTITUTE GOODS,
SERVICES, TECHNOLOGY OR RIGHTS OR FOR ANY AMOUNTS AGGREGATING IN EXCESS OF
AMOUNTS PAID TO IT HEREUNDER.
17.3. WARRANTY DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT, CONDUCTUS MAKES NO WARRANTY WITH RESPECT TO ANY
TECHNOLOGY, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND
HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT WITH RESPECT TO ANY OF THE FOREGOING.
SECTION 18. MISCELLANEOUS.
18.1. INDEPENDENT CONTRACTORS. The parties are independent
contractors and not partners, joint venturers or otherwise affiliated and
neither has any right or authority to bind the other in any way.
18.2. ASSIGNMENT. The rights and obligations of the parties
under this Agreement may not be assigned or transferred (and any attempt to
do so will be void) except (a) rights to payment of money may be assigned,
and (b) this Agreement and the rights and obligations hereunder may be
assigned to an acquiror of all or substantially all the assets, business or
stock of a party.
18.3. NON-SOLICITATION. For a period of five years from the
date of this Agreement, neither party will, without the prior written consent
of the other party, solicit any employee or consultant of the other party to
leave the employ of the other; the foregoing does not prohibit mass media
"want ads" not specifically directed towards employees or consultants of the
other party.
-15-
<PAGE>
18.4. AMENDMENT AND WAIVER. Except as otherwise expressly
provided herein, any provision of this Agreement may be amended and the
observance of any provision of this Agreement may be waived (either generally
or any particular instance and either retroactively or prospectively) only
with the written consent of the parties.
18.5. GOVERNING LAW. This Agreement will be governed by and
construed under the laws of the State of Delaware of the United States
without regard to conflicts of laws provisions thereof and without regard to
the United Nations Convention on Contracts for the International Sale of
Goods.
18.6. HEADINGS. Headings and captions are for convenience only
and are not to be used in the interpretation of this Agreement.
18.7. NOTICES. Notices under this Agreement will be sufficient
only if personally delivered, delivered by a major commercial rapid delivery
courier service or mailed by certified or registered mail, return receipt
requested to a party at its address as set forth below or as amended by
notice pursuant to this subsection. If not received sooner, notice by mail
will be deemed received five (5) days after deposit in the U.S. mail.
If to GDIS, to: General Dynamics Information Systems, Inc.
8800 Queen Avenue South
Bloomington, MN 55431
Attn.: A. Allen Gray, VP and General Counsel
With a copy (which
shall not constitute
notice), to: Jenner & Block
601 East 13th Street, N.W.
Suite 1100 South
Washington, D.C. 20005
Attn.: Craig A. Roeder
If to Conductus, to: Conductus, Inc.
969 West Maude Avenue
Sunnyvale, CA 94086
Attn.: Ron Wilderink, VP of Finance and CFO
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<PAGE>
With a copy (which
shall not constitute
notice), to:
Gunderson, Dettmer, Stough
155 Constitution Avenue
Menlo Park, CA 94025
Attn.: Brooks Stough
18.8. ENTIRE AGREEMENT. This Agreement, together with the
Cross-License, Supply and Training Agreement of even date herewith,
supersedes all proposals, oral or written, all negotiations, conversations,
or discussions between or among the parties relating to the subject matter of
this Agreement and all past dealing or industry custom and represents the
entire agreement between the parties.
18.9. EXPORT CONTROL. Each party will comply with all
applicable export laws, restrictions, and regulations of any United States or
foreign agency or authority and will not export or re-export, or allow the
export or re-export of any product, technology or information it obtains or
learns pursuant to this Agreement (or any direct product thereof) in
violation of any such laws, restrictions or regulations.
18.10. SEVERABILITY. If any provision of this Agreement is held
illegal, invalid or unenforceable by a court of competent jurisdiction, that
provision will be limited or eliminated to the minimum extent necessary so
that this Agreement will otherwise remain in full force and effect and
enforceable.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first set forth above.
GENERAL DYNAMICS INFORMATION SYSTEMS, INC.
By:
------------------------------------
[Name]
Its:
------------------------------------
[Title]
CONDUCTUS, INC.
By:
------------------------------------
Its: President & CEO
------------------------------------
[Title]
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<PAGE>
EXHIBIT A
SCHEDULE FOR DELIVERY OF CONDUCTUS TECHNOLOGY
1 PATENTS
1.1 US Issued Patents
<TABLE>
<CAPTION>
Limitations/
Patent No. Title Rights of Others
---------- ----- ----------------
<S> <C> <C>
5,090,819 Superconducting Bolometer
5,157,466 Grain Boundary Junctions in HTS Films
5,207,884 Superconductor Deposition System
5,219,826 Superconducting Junctions and Method of
Making Same
5,241,828 Cryogenic Thermoelectric Cooler
5,280,013 Method of Preparing HTS Films on Opposite
Sides of a Substrate
5,449,659 Method of Bonding Multilayer Structures of Maintenance fee
Crystalline Materials must be paid by
September 12 (no
intention of
paying)
5,130,294 High Temperature Superconductor - Calcium US government
Titanate Sapphire Structures license
5,131,282 High Temperature Superconductor - US government
Strontium Titanate Sapphire Structures license
5,233,500 Package for Cascaded Microwave Devices US government
license
5,651,016 Ultrahigh Speed Laser US government
license
5,696,392 Improved Barrier Layers for Oxide US government
Superconductor Devices and Circuits license
5,831,278 Three-Terminal Devices with Wide US government
Josephson Junctions and asymmetric Control license
Lines
</TABLE>
Exhibit A 1
<PAGE>
1.2 Foreign Issued Patents
<TABLE>
<CAPTION>
Country Limitations/
Patent No. Title Rights of Others
---------- ----- ----------------
<S> <C> <C>
KS Grain Boundary Junctions in HTS Films
93702809
</TABLE>
2 PATENT APPLICATIONS
2.1 US Pending Applications
[*]
2.2 Foreign Pending Applications
[*]
Exhibit A 2
* Confidential treatment requested.
<PAGE>
3 INVENTION DISCLOSURES
[*]
4 DOCUMENTATION TO BE DELIVERED AT CLOSING
[*]
Exhibit A 3
* Confidential treatment requested.
<PAGE>
[*]
Exhibit A 4
* Confidential treatment requested.
<PAGE>
[*]
Exhibit A 5
* Confidential treatment requested.
<PAGE>
[*]
Exhibit A 6
* Confidential treatment requested.
<PAGE>
5 Cryogenic LNA Technology
[*]
Exhibit A 7
* Confidential treatment requested.
<PAGE>
[*]
Exhibit A 8
* Confidential treatment requested.
<PAGE>
Exhibit A 9
6 KNOW HOW TO BE COVERED BY TRAINING AT GD' REQUEST
[*]
* Confidential treatment requested.
<PAGE>
EXHIBIT B
NONPROPRIETARY INFORMATION
[*]
Exhibit B 1
* Confidential treatment requested.
<PAGE>
EXHIBIT C
KEY PERSONNEL
[*]
Exhibit C 1
* Confidential treatment requested.
<PAGE>
EXHIBIT D
ROYALTY CALCULATION
1 CALCULATION OF ROYALTY BASE
[*]
Exhibit D 1
* Confidential treatment requested.
<PAGE>
2 ROYALTY
[*]
Exhibit D 2
* Confidential treatment requested.
<PAGE>
EXHIBIT F
STANDARD PRODUCTS
[*]
Exhibit F 1
* Confidential treatment requested.
<PAGE>
CROSS-LICENSE, SUPPLY AND TRAINING AGREEMENT
This Agreement is entered into as of May 4, 1999 ("Effective Date")
between General Dynamics Information Systems, Inc., a Delaware corporation
("GDIS") and Conductus, Inc., a Delaware corporation ("Conductus").
The parties have entered into a license agreement of even date herewith
whereby Conductus has licensed certain Conductus technology to GDIS ("License
Agreement"). In accordance with the terms of that License Agreement, the
parties agreed to enter into a cross-license, supply and training agreement to
supplement the terms therein. Certain capitalized terms not defined herein
shall have the meaning prescribed to them in the License Agreement.
1. SUPPLY. Conductus agrees to supply the products to GDIS under the terms
and conditions of this Agreement.
2. PURCHASE ORDERS. Prior to issuing any purchase order, GDIS will issue a
request for quotation ("RFQ") setting forth the products or services to be
delivered, the required delivery dates, and any special requirements for the
order. Conductus will respond to RFQs. GDIS will issue Purchase Orders for
products and services to be delivered under this Agreement. Such Purchase Order
will reference this Agreement and identify the product or service to be
purchased, the required delivery dates, the price and payment terms. The
parties understand that some or all purchase orders issued hereunder will be
subject to Federal Acquisition Regulation and Defense Federal Acquisition
Regulations "mandatory flow-down" provisions.
3. ORDER OF PRECEDENCE. Terms of any Purchase Order accepted hereunder
which differ from the terms of this Agreement shall take precedence over the
terms herein.
4. PAYMENT. Invoices for products and services provided pursuant to this
Agreement shall be sent to GDIS at the address set forth in the signature block,
unless otherwise specified by GDIS in accordance with Paragraph 17.4. Unless
otherwise agreed to in writing by Conductus, GDIS shall pay all invoices issued
within thirty (30) days from the date of the invoice. If GDIS fails to pay any
charges when due and payable, GDIS agrees that Conductus shall have the right to
invoice GDIS for, and GDIS will pay, all costs, including reasonable attorney
fees, expended in collecting overdue charges, plus the overdue payments shall be
subject to finance charges computed at a periodic rate (to the extent permitted
by law) of 1-1/2% per month (18% per year).
5. FORECASTS. Within fifteen (15) business days of the conclusion of a
calendar quarter, GDIS shall provide Conductus with a good faith forecast of its
requirements for the next six (6) months.
6. DELIVERY. Deliveries shall be F.O.B., Conductus' premises in Sunnyvale,
California. Conductus will use commercially reasonable efforts to ship products
to arrive on or before any requested delivery dates on the purchase order.
However, Conductus will not be liable for any delay in performance hereunder due
to causes beyond its control including, but not limited to, acts of nature, acts
of governments, riots, wars, fires, floods, and strikes. In the event of delay
<PAGE>
due to any such cause, time for delivery shall be extended for a period equal to
the duration of the delay, subject to all reasonable commercial efforts to work
around such causes.
7. SHIPMENT. Unless GDIS supplies specific instructions to the contrary,
Conductus will select methods and routes of shipment, but Conductus will not
assume any liability in connection with shipment nor will any carrier be
considered an agent of Conductus. All shipments will be insured at GDIS's
expense and made at GDIS's risk, and GDIS shall be responsible for making all
claims with carriers, insurers, warehousemen, and others for misdelivery,
nondelivery, loss, damage, or delay.
8. CHANGES AND CANCELLATIONS.
8.1. CANCELLATIONS. GDIS may, for its convenience, terminate work
under a Purchase Order in whole or in part at any time by giving notice to
Conductus in writing. Conductus will thereupon immediately stop work on the
Purchase Order or the terminated portion thereof and notify any subcontractors
to do likewise. Conductus shall be entitled to: (i) reimbursement for its
actual costs incurred up to and including the date of termination, such costs
to be determined in accordance with recognized accounting principles, and (ii)
a fee on the work done prior to termination at a rate equal to the fee ination
claim, Conductus hereby grants to GDIS (i) the right to physically inspect any
and all inventory included in the claim, and (ii) the right of GDIS, or its
designee, to audit the directly pertinent books, records and documents,
relating to the costs claimed for reimbursement.
8.2. CHANGES. By written Change Order to existing Purchase Orders,
GDIS may at any time unilaterally (i) suspend the work in whole or in part for a
stated time period, and/or (ii) make changes in one or more of the following
elements: designs, drawings or specifications; method of shipment or packing;
place or time of delivery; or quantities to be furnished; however, any change
that requires an earlier delivery date requires Conductus advance consent. If
such suspension or change causes an increase or decrease in the cost of, or the
time required for furnishing the work (whether supplies or services), an
equitable adjustment shall be made in the Purchase Order price, delivery
schedule, or both. If the price and /or schedule adjustment is not included in
the issued Change Order, no increase in price or delay in delivery will be
allowed unless Conductus asserts such a claim in writing within 30 days from the
date of the Change Order to be followed as soon as practicable with a
specification of the claim along with supporting data. Nothing contained in this
Section shall relieve or excuse Seller from proceeding without delay in
performing the Purchase Order as changed.
9. INSPECTION AND ACCEPTANCE. GDIS shall be allowed a maximum of fifteen
(15) business days from the date of receipt of any Product to inspect such
Product. If GDIS does not give written notice to Conductus within such fifteen
(15) day period of its rejection of such Product (and the reasons therefore),
GDIS shall be deemed to have accepted such Product. For any claims validly and
timely made, Conductus shall reserve the right to repair the defective, damaged
or missing products or to replace the same with conforming products.
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<PAGE>
10. WARRANTY. Conductus warrants for a period of one (1) year from the date
of shipment that the Product will conform in all material respects to all
specifications for that Product. Conductus' then current user documentation for
the Product. This warranty covers only problems reported to Conductus during
the warranty period. Conductus warrants that computer hardware, software and/or
firmware furnished hereunder shall be able to accurately process date/time data
(including, but not limited to, calculating, comparing, and sequencing) from,
into, and between the twentieth and twenty-first centuries, and the years 1999
and 2000 and leap year calculations to the extent that other information
technology used in combination with the information technology being acquired
properly exchanges date/time data with it. ANY LIABILITY OF CONDUCTUS WITH
RESPECT TO A PRODUCT OR THE PERFORMANCE THEREOF UNDER ANY WARRANTY, NEGLIGENCE,
STRICT LIABILITY OR OTHER THEORY WILL BE LIMITED EXCLUSIVELY TO PRODUCT REPAIR,
REPLACEMENT OR, IF THE PARTIES AGREE, TO REFUND OF THE PURCHASE PRICE. EXCEPT
FOR THE FOREGOING, ALL PRODUCTS ARE PROVIDED "AS IS" WITHOUT WARRANTY OF ANY
KIND INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT (OTHER THAN AS PROVIDED IN PARAGRAPH
16.2 OF THE LICENSE AGREEMENT). FURTHER, CONDUCTUS DOES NOT WARRANT RESULTS OF
USE OR THAT THEIR USE WILL BE UNINTERRUPTED. The foregoing warranty does not
apply to any Products which have been subject to misuse, including electrostatic
discharge, neglect, accident or modification, or which have been altered such
that they are not capable of being tested by Conductus under its normal test
conditions.
11. DISCONTINUED PRODUCTS AND MODIFICATIONS. Upon written notice to GDIS,
Conductus may discontinue the manufacture and/or sale of any Product at any
time. GDIS will have sixty (60) days after receipt of such notice to place
orders for any additional units of such Product. Conductus will accept any
Purchase Orders placed prior to the expiration of the sixty days. Conductus
will have the right to make substitutions and/or modifications in the
specifications of Products sold by Conductus provided that such substitutions
or modifications will not affect overall Product performance.
12. LIMITATION OF LIABILITY. EXCEPT FOR BODILY INJURY OF A PERSON OR A
CLAIM PURSUANT TO INDEMNITY, CONDUCTUS WILL NOT BE LIABLE WITH RESPECT TO ANY
SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR
COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES, TECHNOLOGY OR RIGHTS OR FOR
ANY AMOUNTS AGGREGATING IN EXCESS OF AMOUNTS PAID TO IT PURSUANT TO THE AFFECTED
PURCHASE ORDER.
13. TRAINING AND SUPPORT.
13.1. SUPPORT FOR INITIAL TECHNOLOGY TRANSFER. Conductus will use all
reasonable efforts to transfer the Conductus Technology (as defined in the
License Agreement) as follows:
13.1.1. TRANSFER OF DOCUMENTATION. Conductus will deliver any
revisions or corrections of the documentation prepared in the normal course of
its business to GDIS.
-3-
<PAGE>
13.1.2. SEMINARS. At times mutually agreeable to the parties,
Conductus will prepare and present training programs designed to acquaint the
GDIS selected attendees (which may include Defense Microelectronics Activity
("DMEA" personnel) with the Conductus Technology. The specific subject matter
to be covered and the number of attendees will be determined by mutual agreement
of the parties.
13.1.3. ON-SITE TRAINING. On or before July 1, 2001 and upon
thirty- (30) days prior notice to Conductus, GDIS may place up to eight
attendees (which may include DMEA personnel)) at the Conductus site in order to
obtain training and instruction regarding the Conductus Technology (as defined
in the License Agreement). On-site training will be offered in the areas of
(i) RF filter design and design tools, (ii) cryogenic packaging design,
(iii) filter fabrication, (iv) filter tuning and (v) assembly and test. Prior to
the training, such GDIS attendee shall enter into an agreement that ensures the
protection of Conductus' intellectual property rights and confidential
information and requires the attendee to abide by the rules, regulations and
policies of Conductus. GDIS will be responsible for the attendees' compliance
with such rules and regulations. Any invention of a GDIS attendee made in the
course of training at Conductus shall be jointly owned by Conductus and GDIS.
13.1.4. OFF-SITE TRAINING AND CONSULTING. Upon request from
GDIS, Conductus agrees to make its Key Personnel reasonably available to provide
training and consulting services on the Conductus Technology. GDIS shall be
responsible for the reasonable costs of any travel incurred by Conductus
personnel for off-site training and consulting.
13.2. CONTINUING TECHNOLOGY EXCHANGE. To facilitate continued
technology exchange, the parties will meet quarterly to review any new
technology developments and exchange information relevant to the cross-license
set forth in Paragraph 14.3.
13.3. KEY PERSONNEL. Provided they are employees of Conductus,
Conductus will make the people listed in Exhibit C of the Licensing Agreement
available to train GDIS attendees upon reasonable prior notice.
13.4. COSTS OF TRAINING. GDIS will pay all expenses for its employees
to attend training. Additionally, GDIS will pay for the services of Conductus
personnel (including preparation time) for services provided under Paragraphs
13.1.2. and 13.1.4. at fully loaded rates applicable to government contracts.
Conductus shall bear the cost of supervision of GDIS attendees participating in
training as set forth in Paragraph 13.1.3.
13.5. SUPPORT. Conductus agrees to use reasonable efforts to provide
the support services set forth herein. In particular, Conductus will provide
the services of the Key Personnel listed in Exhibit C of the Licensing Agreement
as well as other individuals it deems necessary to meet the needs of GDIS for
product production, training and technology/product development commensurate
with their prior involvement in government-related activities; provided that
these individuals remain Conductus employees. In the event that any of these
individuals leave the employ of the company, Conductus will provide the services
of those employees whose skills and experience most closely match those of the
originally-named employee.
14. RIGHTS IN INTELLECTUAL PROPERTY.
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<PAGE>
14.1. OWNERSHIP. Other than as provided in Section 13.1.3, each party
shall own the title to any modification to or enhancement of Conductus
Technology ("Improvement") created solely by its employees or agents. Jointly
developed Technology shall be jointly owned. Each sole or joint owner of any
Improvement shall have the unrestricted rights to fully exploit that Improvement
and, subject to the following, may grant licenses without the consent of any
other owner.
14.2. PATENTS. The sole owner of any Improvement shall have the sole
right to determine whether to obtain, maintain, enforce or defend
intellectual property rights in such Improvement. In the case of joint
ownership, the parties may mutually agree to share the expense of patenting
and to share income from licensing such Improvement. If no agreement is
reached, either joint owner may elect to obtain, maintain, enforce, license
or defend any joint Improvement at its sole expense, and that joint owner
shall have the sole right to license and receive income from any licensing of
such joint invention. Each such joint owner will execute any necessary
documents reasonably requested for the purpose of obtaining and maintaining
rights to the Improvement. With respect to enforcement, it is expected that
expenses incurred in taking such actions will be equally shared by the
owners, but if an owner declines to bear its share of enforcement expenses,
its ownership and rights will not be affected except that such owner will not
be entitled to any proceeds of an action to enforce such intellectual
property rights if it did not share the expenses of the enforcement action.
14.3. CROSS-LICENSE. Subject to the terms and conditions of this
Agreement, each party agrees to provide the other with a royalty-free, non-
exclusive, nontransferable (except pursuant to an assignment under Paragraph
16), nonsublicensable, perpetual license to make, have made (including by DMEA),
sell, market, use, distribute, reproduce or otherwise exploit any enhancement or
modification to the Conductus Technology created by such party during the term
of this Agreement. Notwithstanding the above, such license to Conductus shall
only be exercised outside of the Permitted Market (as defined in the License
Agreement, including rights provided under Section 3.3 of the License Agreement)
and such license to GDIS shall only be exercised within the Permitted Market.
15. TERM AND TERMINATION.
15.1. TERM. This Agreement will remain in effect for 10 years after
the Effective Date.
15.2. MATERIAL BREACH. If a party materially breaches a material
provision of this Agreement, the other party may terminate this Agreement upon
sixty-(60) days' notice unless the breach is cured within the applicable notice
period.
15.3. CHANGE IN CIRCUMSTANCES. Either party may terminate this
Agreement without liability by notice pursuant to Paragraph 17.4 if the other
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they mature, or proceedings are instituted by or
against the other party under the bankruptcy laws of the United States.
15.4. EFFECT OF TERMINATION. In the event of any termination of this
Agreement, the rights and licenses granted under this Agreement shall terminate.
Paragraphs 10, 12 and 14-17 shall
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<PAGE>
survive termination and any rights to payments already accrued shall become
immediately due and payable.
15.5. LIABILITY FOR TERMINATION. Neither party shall incur any
liability whatsoever for any damage, loss or expenses of any kind suffered or
incurred by the other arising from or incident to any termination of this
Agreement (or any part thereof) by such party which complies with the terms of
the Agreement whether or not such party is aware of any such damage, loss or
expenses.
15.6. SOLE REMEDY. Termination is not the sole remedy under this
Agreement and, whether or not termination is effected, all other remedies will
remain available.
16. ASSIGNMENT. The rights and obligations of the parties under this
Agreement may not be assigned or transferred (and any attempt to do so will be
void) except (i) rights to payment of money may be assigned, and (ii) this
Agreement and the rights and obligations hereunder may be assigned to an
acquirer of all or substantially all the assets, business or stock of a party.
17. MISCELLANEOUS.
17.1. AMENDMENT AND WAIVER. Except as otherwise expressly provided
herein, any provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or any particular
instance and either retroactively or prospectively) only with the written
consent of the parties.
17.2. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware and the United States without regard to
conflicts of law provisions thereof and without regard to the United Nations
Convention on Contracts for the International Sale of Goods.
17.3. HEADINGS. Headings and captions are for convenience only and
are not to be used in the interpretation of this Agreement.
17.4. NOTICES. Notices under this Agreement will be sufficient only
if personally delivered, delivered by a major commercial rapid delivery courier
service or mailed by certified or registered mail, return receipt requested to a
party at its address as set forth below or as amended by notice pursuant to this
subsection. If not received sooner, notice by mail will be deemed received five
(5) days after deposit in the U.S. mail.
If to GDIS, to: General Dynamics Information Systems, Inc.
8800 Queen Avenue South
Bloomington, MN 55431
Attn.: A. Allen Gray, VP and General Counsel
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<PAGE>
With a copy (which
shall not constitute
notice), to: Jenner & Block
601 East 13th Street, N.W.
Suite 1100 South
Washington, D.C. 20005
Attn.: Craig A. Roeder
If to Conductus, to: Conductus, Inc.
969 West Maude Avenue
Sunnyvale, CA 94086
Attn.: Ron Wilderink, VP of Finance and CFO
With a copy (which
shall not constitute
notice), to:
Gunderson, Dettmer, Stough
155 Constitution Avenue
Menlo Park, CA 94025
Attn.: Brooks Stough
17.5. ENTIRE AGREEMENT. This Agreement together with the License
Agreement of even date herewith, supersedes all proposals, oral or written, all
negotiations, conversations, or discussions between or among the parties
relating to the subject matter of this Agreement and all past dealing or
industry custom, and represents the entire agreement between the parties.
17.6. EXPORT CONTROL. Each party shall comply with all applicable
export laws, restrictions, and regulations of any United States or foreign
agency or authority and will not export or re-export, or allow the export or re-
export of any product, technology or information it obtains or learns pursuant
to this Agreement (or any direct product thereof) in violation of any such laws,
restrictions or regulations.
17.7. Severability. If any provision of this Agreement is held
illegal, invalid or unenforceable by a court of competent jurisdiction, that
provision will be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
GENERAL DYNAMICS INFORMATION SYSTEMS, INC.
By:
--------------------------------
[Name]
Its:
--------------------------------
[Title]
CONDUCTUS, INC.
By:
--------------------------------
[Name]
Its:
--------------------------------
[Title]
-8-
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