<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JULY 3, 1999
[ ] 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 0-21074
SUPERCONDUCTOR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0158076
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
460 WARD DRIVE,
SANTA BARBARA, CALIFORNIA 93111-2310
(Address of principal executive offices & zip code)
(805) 683-7646
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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 August 13, 1999 there were 7,738,216 shares of the Registrant's Common
Stock outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
JULY 3, 1999 JUNE 27, 1998 JULY 3, 1999 JUNE 27, 1998
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenues:
Government contract revenues $ 1,239,000 $ 1,985,000 $ 2,293,000 $ 3,676,000
Commercial product revenues 239,000 255,000 676,000 468,000
----------- ----------- ----------- -----------
Total net revenues 1,478,000 2,240,000 2,969,000 4,144,000
----------- ----------- ----------- -----------
Costs and expenses:
Cost of commercial product revenues 1,124,000 1,486,000 2,630,000 2,519,000
Contract research and development 773,000 1,077,000 1,528,000 2,400,000
Other research and development 494,000 495,000 932,000 648,000
Selling, general and administrative 1,397,000 1,393,000 2,790,000 2,640,000
----------- ----------- ----------- -----------
Total costs and expenses 3,788,000 4,451,000 7,880,000 8,207,000
----------- ----------- ----------- -----------
Loss from operations (2,310,000) (2,211,000) (4,911,000) (4,063,000)
Interest (expense) income, net (102,000) 28,000 (117,000) 44,000
----------- ----------- ----------- -----------
Net loss $(2,412,000) $(2,183,000) $(5,028,000) $(4,019,000)
=========== =========== =========== ===========
Deemed distribution for accounting purposes (1,195,000) 0 (1,195,000) 0
----------- ----------- ----------- -----------
Net loss available for common stockholders $(3,607,000) $(2,183,000) $(6,223,000) $(4,019,000)
=========== =========== =========== ===========
Basic and diluted loss per share:
Net loss $ (0.31) $ (0.28) $ (0.65) $ (0.52)
Deemed distribution (0.15) (0.00) (0.15) (0.00)
----------- ----------- ----------- -----------
Net loss available to common stockholders $ (0.46) $ (0.28) $ (0.80) $ (0.52)
=========== =========== =========== ===========
Weighted average number of shares outstanding 7,744,053 7,723,335 7,740,267 7,721,787
=========== =========== =========== ===========
</TABLE>
(See accompanying notes)
2
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SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
ASSETS JULY 3, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,136,000 $ 310,000
Short-term investments 0 0
Accounts receivable 1,784,000 1,939,000
Inventory 3,793,000 2,719,000
Prepaid expenses and other current assets 228,000 173,000
------------ ------------
Total current assets 7,941,000 5,141,000
Property and equipment, net of accumulated depreciation
of $7,559,000 and $6,985,000, respectively 4,666,000 5,114,000
Patents and licenses, net of accumulated amortization
of $1,401,000 and $1,285,000, respectively 1,997,000 2,070,000
Other assets 175,000 184,000
------------ ------------
Total assets $ 14,779,000 $ 12,509,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,689,000 $ 2,396,000
Accrued compensation 695,000 583,000
Current portion of debt and capitalized lease obligations 999,000 813,000
------------ ------------
Total current liabilities 4,383,000 3,792,000
Long-term debt 915,000 932,000
------------ ------------
Total liabilities 5,298,000 4,724,000
------------ ------------
Redeemable Preferred, $.001 par value,
2,000,000 shares authorized, Series A
645,833 shares issued and outstanding,
Series A-1 125,000 shares issued and outstanding,
Series B 500,000 shares issued and outstanding 0 8,982,000
Commitments and contingencies
Stockholders' equity:
Convertible Preferred Shares, $.001 par value, 2,000,000
shares authorized, Series A-2 64,584 shares issued and
outstanding, Series A-3 12,500 shares issued and
outstanding, Series B-1 50,000 shares issued and
outstanding, Series C 41,667 shares issued and
outstanding, Series D 77,296 shares issued
and outstanding 14,561,000 0
Common Stock, $.001 par value, 30,000,000 shares
authorized, 7,737,216 and 7,722,591 shares
issued and outstanding 8,000 8,000
Capital in excess of par value 37,350,000 35,010,000
Deficit accumulated during development stage (42,438,000) (36,215,000)
------------ ------------
Total stockholders' equity (deficit) 9,481,000 (1,197,000)
------------ ------------
Total liabilities and stockholders' equity $ 14,779,000 $ 12,509,000
============ ============
</TABLE>
(See accompanying notes)
3
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SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
JULY 3, JUNE 27,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before deemed distribution for accounting purposes $(5,028,000) $(4,019,000)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 625,000 614,000
Changes in assets and liabilities:
Accounts receivable 155,000 (546,000)
Inventory (1,074,000) (568,000)
Prepaid expenses and other current assets (55,000) 34,000
Patents and licenses (44,000) (58,000)
Other assets 9,000 (89,000)
Accounts payable and accrued expenses 405,000 1,123,000
----------- -----------
Net cash used in operating activities (5,007,000) (3,509,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 0 2,099,000
Purchases of property and equipment (960,000) (1,593,000)
Proceeds from sale/leaseback of property and equipment 900,000 0
----------- -----------
Net cash (used for) provided by investing activities (60,000) 506,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings, net 267,000 159,000
Principal payments on long-term obligations (97,000) (39,000)
Proceeds from sale of preferred and common stock 6,723,000 2,983,000
----------- -----------
Net cash provided by financing activities 6,893,000 3,103,000
----------- -----------
Net increase in cash and cash equivalents 1,826,000 100,000
Cash and cash equivalents at beginning of period 310,000 1,438,000
----------- -----------
Cash and cash equivalents at end of period $ 2,136,000 $ 1,538,000
=========== ===========
</TABLE>
(See accompanying notes)
4
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SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
A. GENERAL
The unaudited financial information furnished herein has been prepared
in accordance with generally accepted accounting principles and reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management, are necessary to fairly state the Company's financial
position, the results of its operations and its cash flows for the periods
presented.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements. This quarterly report
on Form 10-Q should be read in conjunction with the Company's Form 10-K for the
year ended December 31, 1998, including but not limited to the caption entitled
"Factors Affecting Future Business Operations." The results of operations for
the three months and six months ended July 3, 1999 are not necessarily
indicative of results for the entire fiscal year ending December 31, 1999.
The Company reports on a 13-week quarter period ending on the Saturday nearest
the calendar quarter end. The Company's fiscal year-end is December 31.
B. INVENTORIES
Inventories are stated at the lower of cost (first-in, first out) or market and
consist of the following:
<TABLE>
<CAPTION>
JULY 3, 1999 DECEMBER 31, 1998
------------ -----------------
<S> <C> <C>
Raw Materials $ 541,000 $ 817,000
Work-in-Progress 2,232,000 1,666,000
Finished Goods 1,020,000 236,000
---------- ----------
Total Inventory $3,793,000 $2,719,000
========== ==========
</TABLE>
C. PER SHARE INFORMATION
Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of common shares outstanding
in each year. Net loss available to common stockholders is computed by deducting
dividends accumulated on cumulative preferred stock and accretion of redemption
value on redeemable preferred shares while outstanding. Diluted net loss per
share is computed by dividing loss available to common stockholders plus income
associated with dilutive securities by the weighted average number of common
shares outstanding plus any potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock in each year. Potential Common Stock issuable upon exercise of options and
warrants to purchase shares of the Company's Common Stock and conversion of the
outstanding Preferred Stock to Common Stock is not included as the result would
have been antidilutive considering the Company's reported net loss from
operations for all periods presented.
The Company has reflected an accounting deemed distribution in the
second quarter of 1999 relating to the issuance of the Series D Preferred Stock
which, at issuance, is convertible at a discount from the market price for the
Company's common stock. This accounting deemed dividend is a non-cash,
non-recurring accounting entry for determining net loss available to common
stockholders and the related net loss per share.
D. PRIVATE PLACEMENT
On June 23, 1999, the Company entered into a private equity financing
agreement providing for the sale of securities in two tranches with gross
proceeds of up to $6.5 million. Under the first transaction, which took place
June 23, 1999, the Company sold 77,296 shares of Series D 6% Cumulative
Convertible Preferred Stock to certain investors at $50.00 per share which
resulted in gross proceeds of approximately $3.8 million. Under the second
transaction, which took place on August 17, 1999, the Company sold 28,704 shares
of Series D 6% Cumulative Convertible Preferred Stock to certain investors at
$50.00 per share which resulted in gross proceeds of approximately $1.4 million.
Each share of Preferred Stock is convertible into twenty shares of Common Stock
at $2.50 per share and carries a cumulative dividend of 6% per annum. The
Preferred Stock also has voting rights and liquidation preferences. In
connection with the Series D financing the Company also issued warrants for the
purchase of up to 212,000 shares of Common Stock at a price of $3.00 per share.
The Company granted the Series D investors registration rights with respect to
the Common Stock underlying the Series D Preferred Stock and related warrants.
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F. WORKING CAPITAL CREDIT AGREEMENT
On June 18, 1999, the Company entered into a new credit agreement, which
includes a revolving line of credit maturing on July 1, 2000. The revolving line
of credit is not to exceed the lesser of (i) $2.5 million or (ii) 80% of
eligible accounts receivable. The revolving line of credit bears interest at the
prime rate plus 1% (9.00% at July 3, 1999). The Company is required to maintain
certain minimum tangible net worth, debt and other financial and business
covenants. Borrowings under the revolving line of credit are secured by
substantially all of the Company's assets. The agreement is renewable annually.
All outstanding borrowings under all previous agreements were fully paid at July
3, 1999. At July 3, 1999, the Company had $858,000 outstanding under this
agreement. In connection with the new credit agreement, the Company issued
warrants for the purchase of 62,500 shares of Common Stock at a price of $3.00
per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, as amended. These statements are in
"Results of Operations for the three-month and six-month periods ended June 27,
1998 and July 3, 1999" and "Liquidity and Capital Resources." These statements
represent the Company's expectations or beliefs concerning future events and
include statements, among others, regarding commercial revenues and the
Company's financial resources. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors, a
portion of which is set forth herein under the caption "Factors Affecting Future
Business Operations." Investors are strongly encouraged to review the section
entitled "Factors Affecting Future Business Operations" in the Company's Form
10-K for a full discussion of the risk factors that could affect future
performance.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED JUNE 27, 1998 AND JULY
3, 1999
Total net revenues decreased by $762,000, or 34%, from $2,240,000 in the
second quarter of 1998 to $1,478,000 in the second quarter of 1999. Net revenues
decreased by $1,175,000 or 28%, from $4,144,000 in the first six months of 1998
to $2,969,000 in the first six months of 1999. These changes are due to a
decrease in government contract revenue offset in part by increases in
commercial revenue and sublicense royalties.
Government contract revenue decreased by $746,000, or 38%, from
$1,985,000 in the second quarter of 1998 to $1,239,000 in the second quarter of
1999. Government contract revenue decreased by $1,383,000 or 38%, from
$3,676,000 in the first six months of 1998 to $2,293,000 in the first six months
of 1999. These decreases are attributable to the completion of certain
government programs and the transition period associated with entering into new
government contracts.
Commercial product revenue decreased by $16,000 or 6%, from $255,000 in
the second quarter of 1998 to $239,000 in the second quarter of 1999. Commercial
product revenue increased by $208,000 or 44%, from $468,000 in the first six
months of 1998 to $676,000 in the first six months of 1999. These increases are
the result of the Company's increased sales of the SuperFilter(R) product.
Additionally, sublicense royalties were $10,000 in the first half of 1999. There
were no sublicense royalties in the first half of 1998.
As the Company continues to focus on its commercial products, commercial
revenues are expected to increase as a percentage of revenues over the next
several quarters; however, there can be no assurance that such commercial
revenues will increase. Furthermore, as the Company attempts to achieve
commercialization of products, it could encounter seasonality or other currently
unforeseen factors causing additional variability in its results.
The cost of commercial product revenues decreased by $362,000 or 24%,
from $1,486,000 for the second quarter of 1998 to $1,124,000 in the second
quarter of 1999 due to the Company's cost reduction efforts. The cost of
commercial product revenues increased by $111,000 or 4%, from $2,519,000 for the
first six months of 1998 to $2,630,000 in the first six months of 1999 due to
the substantial increase in sales of commercial products offset by product cost
reductions.
Contract research and development expenses decreased by $304,000 or 28%,
from $1,077,000 in the second quarter of 1998 to $773,000 in the second quarter
of 1999. Contract research and development expenses decreased by $872,000 or
36%, from $2,400,000 in the first six months of 1998 to $1,528,000 in the first
six months of 1999. These decreases are attributable to the decrease in contract
activity.
Other research and development expenses were essentially unchanged from
$495,000 in the second quarter of 1998 to $494,000 in the second quarter of
1999. Other research and development expenses increased by $284,000 or 44%, from
$648,000 in the first six months of 1998 to $932,000 in the first six months of
1999. This increase is due to the Company's efforts in expanding market
opportunities through product line enhancement and development.
Selling, general and administrative expenses remained effectively the
same at $1,393,000 in the second quarter of 1998 as compared to $1,397,000 in
the second quarter of 1999. Selling, general and administrative expenses
increased by $150,000 or 6%, from $2,640,000 in the first six months of 1998 to
$2,790,000 in the first six months of 1999.
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These increases reflect increased labor-related expenses, attributable to the
Company's sales force and marketing program expansions.
Interest income decreased by approximately $34,000 or 99%, from $34,000
in the second quarter of 1998 to $0 in the second quarter of 1999. Interest
income decreased by $51,000 or 98%, from $52,000 in the first six months of 1998
to $1,000 in the first six months of 1999. The decreases in interest income are
primarily due to withdrawal of interest-earning investment balances by the
Company to fund and expand operations.
Interest expense increased by $96,000 or over 100%, from $6,000 in the
second quarter of 1998 to $102,000 in the second quarter of 1999. Interest
expense increased by $110,000 or over 100%, from $8,000 in the first six months
of 1998 to $118,000 in the first six months of 1999. These increases occurred as
the Company entered into new working capital financing agreements and borrowed
for working capital needs in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $1,826,000 or over 100%, from
$310,000 on December 31, 1998 to $2,136,000 on July 3, 1999. The increase is the
result of two private placements of $3 million and $3.8 million, respectively, a
sale/leaseback of equipment of $900,000, and net borrowings from bank lines of
$267,000 offset by operating losses of $5.0 million, working capital increases
of $1,212,000 (accounts receivable decrease of $155,000 offset by accounts
payable increase of $293,000 and inventory increase of $1,074,000) and purchases
of new equipment in the amount of $960,000 for expansion of manufacturing
operations. The net increase in inventory is due to the Company's strategy of
creating capacity and products to quickly respond to anticipated demand.
The Company's principal resource commitments at July 3, 1999 consist of
accounts payable and accrued employee compensation of $2,689,000 and $695,000,
respectively, and approximately $1.9 million of obligations under financing
commitments.
On February 26, 1999, the Company entered into an Exchange Agreement
with the holders of all of the Company's then outstanding redeemable Preferred
Stock to remove redemption provisions and to place limits on Preferred Stock
conversions and warrant exercises by the holders of the Preferred Stock pending
approval by the Company's stockholders of the removal of such limitations. The
Company's stockholders approved the elimination of conversion and exercise
limitations at the Company's 1999 Annual Meeting of Stockholders. In partial
exchange for the elimination of the redemption feature the Company issued the
holders exchanging Preferred Stock warrants to purchase up to 75,000 shares of
common stock at $7.00.
On March 5, 1999, the Company completed a private placement of 41,667
shares of Series C 7% Cumulative Convertible Preferred Stock to a certain
investor at $72.00 per share. The gross proceeds of the offering totaled $3
million. Each share of Preferred Stock is convertible into twenty shares of
Common Stock at $3.60 per share and carries a cumulative dividend of 7% per
annum. The Preferred Stock also has voting rights and liquidation preferences.
In March 1999, the Company entered into a master lease agreement for
$1.5 million in lease financing. The Company has drawn upon $900,000 as of July
3, 1999 in an equipment sale/leaseback transaction under the agreement to
provide working capital. The implicit interest rate of the lease agreement is
14.4% for a term of 48 months. In connection with the new lease, the Company
issued warrants for the purchase of 25,180 shares of Common Stock at a price of
$4.17 per share.
On June 23, 1999, the Company entered into a private equity financing
agreement providing for the sale of securities in two tranches with gross
proceeds of up to $6.5 million. Under the first transaction, which took place
June 23, 1999, the Company sold 77,296 shares of Series D 6% Cumulative
Convertible Preferred Stock to certain investors at $50.00 per share which
resulted in gross proceeds of approximately $3.8 million. Under the second
transaction, which took place on August 17, 1999, the Company sold 28,704 shares
of Series D 6% Cumulative Convertible Preferred Stock to certain investors at
$50.00 per share which resulted in gross proceeds of approximately $1.4 million.
Each share of Preferred Stock is convertible into twenty shares of Common Stock
at $2.50 per share and carries a cumulative dividend of 6% per annum. The
Preferred Stock also has voting rights and liquidation preferences. In
connection with the Series D financing the Company also issued warrants for the
purchase of up to 212,000 shares of Common Stock at a price of $3.00 per share.
The Company granted the Series D investors registration rights with respect to
the Common Stock underlying the Series D Preferred Stock and related warrants.
On June 18, 1999, the Company entered into a new credit agreement, which
includes a revolving line of credit maturing on July 1, 2000. The revolving line
of credit is not to exceed the lesser of (i) $2.5 million or (ii) 80% of
eligible accounts receivable. The revolving line of credit bears interest at the
prime rate plus 1% (9.00% at July 3, 1999). The Company is required to maintain
certain minimum tangible net worth, debt and other financial and business
covenants. Borrowings under the revolving line of credit are secured by
substantially all of the Company's assets. The agreement is renewable annually.
All outstanding borrowings under all previous agreements were fully paid at July
3, 1999. At July 3, 1999, the Company had $858,000 outstanding under this
agreement. In connection with the new credit agreement, the Company issued
warrants for the purchase of 62,500 shares of Common Stock at a price of $3.00
per share.
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The Company anticipates relying on external sources of financing to meet
its cash needs over the next 12 months. In an effort to support its capital
requirements, the Company continues to explore several financing alternatives.
The Company is exploring the expansion of its working capital lines of credit in
order to provide the additional flexibility to fund its working capital needs.
The Company is also reviewing other means of equity infusion in order to support
the Company's growth potential and operations. There can be no assurance that
additional financing will be available to the Company, on terms acceptable to
the Company, if at all. In addition, if the Company does not meet its operating
objectives for market penetration and manufacturing production, the need for
capital will increase substantially.
IMPACT OF YEAR 2000
The Company currently uses a limited number of software products that
are not Year 2000 compliant. However, the Company has acquired manufacturing
software, which replaces substantially all non-Year 2000 compliant software, in
order to support its expansion efforts. The software developer has represented
that the new software is Year 2000 compliant. The Company has reviewed the
remaining software programs that are not Year 2000 compliant and believes that
with modification to existing software or cessation of utilization of
non-compliant software, the Year 2000 problem will not pose significant
operational problems. The Company currently does not expect the amounts required
to be incurred to become Year 2000 compliant to have a material effect on its
business, operating results or financial condition.
FACTORS AFFECTING FUTURE BUSINESS OPERATIONS
FUTURE CAPITAL NEEDS
To foster growth of its commercial product sales, the Company has built
a sales and marketing infrastructure and is currently ramping up its
manufacturing operations to support anticipated increased sales of its
SuperFilter(R) product. In order to fully implement its business plan, the
Company is in the process of seeking additional debt and equity financing. There
can be no assurance that the Company will be successful in obtaining such
additional debt or equity financing on acceptable terms or at all. In the event
that the Company is unable to obtain additional financing throughout the course
of 1999, the Company will have insufficient cash to fund operations. The
Company's independent accountants have indicated in their report accompanying
the Company's 1998 year-end financial statements that, based on generally
accepted auditing standards, there is substantial doubt about the Company's
ability to continue as a going concern. If the Company is successful in
obtaining additional equity financing, future dilution to existing or future
stockholders is likely to result.
EARLY STAGE OF THE COMMERCIAL SUPERCONDUCTOR PRODUCTS MARKET: MARKET ACCEPTANCE
AND RELIABILITY
The commercial superconductor products market has experienced limited
product commercialization to date. Moreover, since inception, the Company has
been principally engaged in research and development activities and has only
limited experience in the commercialization of its products. The Company's
ability to grow will depend on its ability to successfully transition its
expertise in superconducting filter and cryogenics technologies and applications
to commercial markets, including the wireless communications market. There can
be no assurance that the Company will be able to produce its products in
sufficient volume to meet market demand or that any of the Company's products
will achieve market acceptance. If the Company is unable to manufacture and
market its products for its target markets successfully, its business, results
of operations and financial condition will be materially affected.
DEPENDENCE ON SALES TO SERVICE PROVIDERS AND OEMS
Most of the Company's products, including those developed for wireless
communications base stations and government applications, are intended for use
as components or subsystems in base station systems or other complex systems.
Therefore, to gain market acceptance, particularly in the wireless market, the
Company must demonstrate that its products will provide advantages to the
service providers who utilize base station systems and the OEMs that manufacture
base station systems. These benefits include a decrease in system size, an
increase in base station range and a reduction in interference. There can be no
assurance that upon acceptance, the Company's products will be able to achieve
any of these advantages. Moreover, even if the Company is able to demonstrate
such advantages, there can be no assurance that service providers and OEMs will
elect to incorporate the Company's products into their systems or, if they do,
that related system and manufacturing requirements can or will be met.
LIMITED MANUFACTURING EXPERIENCE
To date, the Company has sold products only in limited quantities,
primarily for limited deployment, use in field-testing as well as development
and prototypes. During 1998, the Company significantly increased its
manufacturing capacity in order to meet the increased demand for its products as
well as expected future requirements. While the Company has increased its
manufacturing capacity, there can be no assurance that the Company will be
successful in overcoming the technological, engineering and management
challenges associated with the production of
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commercial quantities of superconducting or cryogenic products for large scale
deployment at acceptable costs and on a timely basis.
HIGH DEGREE OF DEPENDENCE ON GOVERNMENT CONTRACTS
Since inception, 91% of the Company's net revenues have been from
research and development contract sales directly to the government or to
resellers to the government. Although the Company recently has been devoting
substantial resources to the development of commercial markets for its products,
the Company is, and expects to continue to be in the near term, dependent on
government funding for its research and development projects. Funds authorized
by the government under any development contract may be reduced or eliminated at
any time, and there can be no assurance that the Company will receive all or any
part of the funds under any of the Company's existing government contracts not
yet performed. Absent significant future revenues from commercial sales, a
significant loss of government funding would have a material adverse effect on
the Company's business, results of operations and financial condition.
UNCERTAINTY OF PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of patent, trademark, trade secret
and copyright law and internal procedures and nondisclosure agreements to
protect its intellectual property. There can be no assurance that the Company's
intellectual property rights can be successfully asserted in the future or will
not be invalidated, circumvented or challenged. In addition, the laws of certain
foreign countries in which the Company's products may be produced or sold do not
protect the Company's intellectual property rights to the same extent as the
laws of the United States.
The Company has an exclusive, worldwide license, in all fields of use,
to formulations covered by patents held by the University of Arkansas covering
TBCCO, the material upon which the Company primarily relies for its HTS products
and product development. There can be no assurance that the validity of these
patents will not be subject to challenge. In addition, other parties may have
developed similar materials utilizing TBCCO formulations and may design around
the patented aspects of this material. In addition, the Company has granted
DuPont and its affiliates a non-exclusive worldwide sublicense under its license
with the University of Arkansas to develop and market TBCCO materials and
superconducting technologies. There can be no assurance that this sublicense
will not adversely affect the Company's business, results of operations and
financial condition.
PREFERRED STOCK FINANCINGS
The market value of the Company's Common Stock will likely be diluted by
the issuance of Common Stock upon the conversion of the Company's Series A-2,
Series A-3, Series B-1, Series C and Series D Preferred Stock and the exercise
of options and warrants for the purchase of Company Common Stock, including the
warrants issued in connection with the Company's Preferred Stock financings and
the Exchange Agreement. At its annual meeting of stockholders that was held on
June 2, 1999 the Company received stockholder approval of the elimination of
limitations on conversions of the Company's Preferred Stock and exercises of
warrants issued in connection with the Series C Preferred Stock financing and
the Exchange Agreement. Similarly, and at the special meeting of stockholders
held on August 6, 1999, the Company's stockholders approved the issuance of
Series D Preferred Stock and related warrants. As a result, the Series A-2,
Series A-3, Series B-1, Series C and Series D Preferred Stock may be fully
converted into shares of Common Stock, potentially at a discount to the market
price of the Common Stock on the date of conversion. Also, the holders of
warrants issued in connection with the Preferred Stock financings and the
Exchange Agreement may fully exercise warrants for the purchase of Company
Common Stock at prices that may be below the market value of the Company's
Common Stock on the date of such exercise. The total number of shares that may
be issued upon such Preferred Stock conversions and warrant exercises shall be
6,353,841 shares, plus approximately 6,700 shares pursuant to an antidilution
adjustment on the Series B-1 Warrants. This number of shares is subject to
adjustment for certain future dilutive stock issuances by the Company and for
recapitalizations, stock combinations, stock dividends, stock splits and the
like.
The Company anticipates issuing additional securities in the foreseeable
future to satisfy its capital requirements. In addition, as a means of obtaining
benefits for the Company without the expenditure of cash, the Company has in the
past and may in the future offer equity participation to parties in connection
with debt, leasing, supply agreements or similar arrangements. In such cases,
the Company may issue warrants or other securities providing for the purchase of
Common Stock. These future financing and operating arrangements will likely
result in the eventual issuance of Company Common Stock that may be dilutive to
the Company's current holders of Common Stock.
The Company has never paid a cash dividend on its Common Stock and does
not expect to do so in the foreseeable future. Cumulative dividends on the
Series A-2, Series A-3, Series B-1, Series C and Series D Preferred Stock are
payable at the rates of 6%, 6%, 7%, 7% and 6% per annum, respectively. While the
Series A-2, Series A-3, Series B-1, Series C and Series D Preferred Stock are
outstanding, the Company is limited in its ability to pay dividends on the
Common Stock.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Between June 23, 1999 and the date of this Form 10-Q the Company raised
a total of $5.3 million through the sale of securities to institutional
investors, in private offerings (the "Financings") of preferred stock and
warrants for the purchase of Common Stock. On June 23, 1999 and August 17, 1999,
the Company issued Series D Preferred Stock and related warrants.
The chart below reflects the private securities outstanding following completion
of the Financings:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Common Stock
Issuable
upon Warrants for
Conversion Purchase of Total
Series of Number of of Preferred Common Consideration Date of
Preferred Stock Shares Issued Shares Stock(1) Received Issuance
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series D 77,296 1,545,920 154,592 $3,864,800 June 23, 1999
- ----------------------------------------------------------------------------------------------
Series D 28,704 574,080 57,408 $1,435,200 August 17, 1999
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) The exercise prices and expiration dates of the warrants are as follows:
Series D first closing, $3.00 per share, expiring June 23, 2004; Series
D second closing, $3.00 per share, expiring August 17, 2004.
All of the Company's private placements were effected pursuant to an
exemption from federal registration requirements provided under Rule 506 of
federal Regulation D. The purchasers in each case were accredited investors.
security holders provided under Section 3(a)(9) of the Securities Act of 1933,
as amended (the "Securities Act").
During the last quarter, the Company also issued warrants in connection
with the Company's leasing activities. On June 18, 1999 the Company issued
warrants to PNC Bank, National Association for the purchase of 62,500 shares of
Common Stock at a price of $3.00 per share. The securities were issued pursuant
to an exemption from registration provided under Section 4(2) of the Securities
Act. The warrant holder is a sophisticated institutional investor that obtained
the warrants for investment purposes.
The Company also issued warrants under an obligation in connection with
the Company's Series B and Series C financing to Tanner Unman Securities Inc.
for the purchase of 3,750 shares of Common Stock at a price of $4.50 per share.
The securities were issued pursuant to an exemption from registration provided
under Section 4(2) of the Securities Act. The warrant holder is a sophisticated
institutional investor that obtained the warrants for investment purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In addition to the election of the directors, the following matters were
submitted to the shareholders at the Company's Annual Meeting of Shareholders
held June 2, 1999:
1) The removal of limitations on conversion of preferred stock into common
stock and exercises of warrants to purchase common stock issued by the Company
in private offerings in 1998 and 1999 were approved.
<TABLE>
<S> <C>
Votes For: 3,621,607
Votes Against: 135,782
Votes Abstaining: 83,750
Broker Non-Votes: 3,135,331
</TABLE>
2) The provision on the Company's Series C Preferred Stock financing
providing Wilmington Securities, Inc. (an indirect, wholly owned subsidiary of
The Hillman Company) representation on the Board of Directors was approved.
<TABLE>
<S> <C>
Votes For: 3,702,434
Votes Against: 82,155
Votes Abstaining: 56,550
Broker Non-Votes: 3,135,331
</TABLE>
3) The proposal to adopt the Company's 1999 Stock Plan was approved.
<TABLE>
<S> <C>
Votes For: 5,037,120 (including 1,533,709 Preferred)
Votes Against: 225,279
Votes Abstaining: 112,449
Broker Non-Votes: 3,135,331
</TABLE>
10
<PAGE> 11
4) The appointment of PricewaterhouseCoopers as independent auditors of the
Company was ratified for the year ending December 31, 1999.
<TABLE>
<S> <C>
Votes For: 8,466,277 (including 1,533,709 Preferred)
Votes Against: 20,200
Votes Abstaining: 23,702
Broker Non-Votes: 0
</TABLE>
In addition to the election of the directors, the following matters were
submitted to the shareholders at the Company's Special Meeting of Shareholders
held August 6, 1999:
1) The issuance of Series D Preferred Stock and related warrants and the
issuance of Common Stock upon the conversion and exercise of such securities
were approved.
<TABLE>
<S> <C>
Votes For: 7,042,201(including 3,375,020 Preferred)
Votes Against: 158,900
Votes Abstaining: 38,357
Broker Non-Votes: 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3.1 Certificate of Designation for Series D Preferred Stock
Exhibit 3.2 Corporate Bylaws
Exhibit 4.1 Third Amended and Restated Stockholder Rights Agreement
Exhibit 4.2 Form of Series D Warrant
Exhibit 4.3 Form of Series D Stock Certificate
Exhibit 4.4 Warrant issued to PNC Bank, National Association in
connection with Credit Agreement
Exhibit 10.2 PNC Bank, National Association Credit Agreement
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended July 3, 1999.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERCONDUCTOR TECHNOLOGIES INC.
(Registrant)
Dated: August 17, 1999 /s/ James G. Evans, Jr.
----------------------------------------
James G. Evans, Jr.
Vice President, Chief Financial Officer
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
Exhibit 3.1 Certificate of Designation for Series D Preferred Stock
Exhibit 3.2 Corporate Bylaws
Exhibit 4.1 Third Amended and Restated Stockholder Rights Agreement
Exhibit 4.2 Form of Series D Warrant
Exhibit 4.3 Form of Series D Stock Certificate
*Exhibit 4.4 Warrant issued to PNC Bank, National Association in
connection with Credit Agreement
Exhibit 10.2 PNC Bank, National Association Credit Agreement
Exhibit 27 Financial Data Schedule
</TABLE>
*The exhibit is incorporated by reference to Exhibit 10.2 of Registrant's Report
on Form 10-Q.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND
PRIVILEGES OF SERIES D PREFERRED STOCK
OF
SUPERCONDUCTOR TECHNOLOGIES INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
I, Peter Thomas, the Chief Executive Officer of Superconductor
Technologies, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), in accordance with
the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Restated Certificate of Incorporation of the Corporation, the Board of
Directors on May 17, 1999 adopted the following resolution creating a series of
130,000 shares of Preferred Stock designated as Series D Preferred Stock:
RESOLVED: That pursuant to the authority vested in the Board of
Directors of the Corporation by the Restated Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a series of Preferred
Stock, $0.001 par value, of the Corporation, to be designated Series D Preferred
Stock ("Series D Preferred"), consisting of 130,000 shares and to the extent
that the designations, powers, preferences and relative and other special rights
and the qualifications, limitations and restrictions of the Series D Preferred
are not stated and expressed in the Restated Certificate of Incorporation, does
hereby fix and herein state and express such designations, powers, preferences
and relative and other special rights and the qualifications, limitations and
restrictions thereof, as follows (all terms used herein which are defined in the
Restated Certificate of Incorporation shall be deemed to have the meanings
provided therein):
SECTION 1. Designation and Amount. The shares of such series shall
be designated as "Series D Preferred," par value $0.001 per share, and the
number of shares constituting such series shall be 130,000.
SECTION 2. Rank. Except as provided in Section 8, the Series D
Preferred Stock shall rank (i) prior to the Corporation's common stock, par
value $.001 per share (the "Common Stock"); (ii) prior to the Series A-2, Series
A-3, Series B-1 and Series C Preferred Stock; (iii) pari passu with any class or
series of capital stock of the Corporation hereafter created specifically
ranking, by its terms, on parity with the Series D Preferred Stock; and (iv)
junior to any class or series of capital stock of the Corporation hereafter
created specifically ranking, by its terms, senior to the Series D Preferred
Stock, in each case as to distribution of assets upon liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary.
SECTION 3. Dividends. The holders of shares of Series D Preferred
shall be entitled to receive dividends, out of funds legally available therefor,
payable in preference and
<PAGE> 2
priority to any payment of any dividend on Common Stock of the Corporation, at
the rate of $3.00 per share (adjusted for any recapitalization, stock
combinations, stock dividends, stock splits and the like (a "Recapitalization"))
per annum for the Series D Preferred. Such dividends shall be cumulative, accrue
daily (beginning June 17, 1999) and be paid quarterly in cash or as an addition
to the Series D Liquidation Preference (as defined below). No dividend shall be
paid on the Common Stock in any year, other than dividends payable solely in
Common Stock, until all dividends due and payable on the Preferred Stock have
been declared and paid, and then such dividends on the Common Stock shall not be
in excess of the dividends paid on the Preferred Stock unless the amount of such
excess is also paid on the Preferred Stock on an as-converted per share basis.
SECTION 4. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary (a
"Liquidation Event"), distributions to the stockholders of the Corporation shall
be made in the following manner:
(a) The holders of Series D Preferred shall be entitled to
receive, on a pari passu basis with any series of Preferred Stock ranked pari
passu with Series D Preferred Stock, but prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Series A-2, Series A-3, Series B-1 and Series C Preferred Stock, the
holders of any other series of Preferred Stock ranked junior to Series D
Preferred Stock or holders of the Common Stock by reason of their ownership of
such stock, an amount per share (the "Series D Liquidation Preference") of (i)
$50.00 for each share of Series D Preferred (the "Original Purchase Price") then
held by them, adjusted for any Recapitalizations with respect to such shares
and, (ii) an amount equal to all unpaid dividends on the Series D Preferred held
by them; provided, however, in the event of a Liquidation Event pursuant to
Section 4(b) below that is consummated on or before December 17, 2003 the
Liquidation Preference shall be the greater of (i) $65.00 or (ii) $50.00 plus
all accrued dividends for each share of Series D Preferred, adjusted for any
Recapitalizations. If the assets and funds thus distributed among the holders of
the Series D Preferred and any series of Preferred Stock ranked pari passu with
the Series D Preferred shall be insufficient to permit the payment to such
holders of their full preferential amount, then the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series D Preferred and any series of Preferred Stock
ranked pari passu with the Series D Preferred in proportion to the aggregate
preferential amount of shares of Series D and any series of Preferred Stock
ranked pari passu with the Series D Preferred outstanding as of the date of the
distribution upon the occurrence of such event. After payment has been made to
the holders of the Series D Preferred and any series of Preferred Stock ranked
pari passu with the Series D Preferred of the full preferential amounts to which
they shall be entitled, distributions shall then be made to the holders of
junior series of Preferred Stock in accordance with their respective
liquidation. After payment has been made to the holders of the Preferred Stock
of the full preferential amounts to which they shall be entitled, the holders of
the Common Stock shall be entitled to share ratably in the remaining assets,
based on the number of shares of Common Stock held.
(b) For purposes of this Section 4, a merger or consolidation of
the Corporation (as contemplated under Section 251 of the Delaware General
Corporation Law, or similar state statute) with or into any other
-2-
<PAGE> 3
corporation or corporations, or the merger of any other corporation or
corporations into the Corporation, or the sale of all or substantially all of
the assets of the Corporation, or any other corporate reorganization, in which
consolidation, merger, sale of assets or reorganization the stockholders of the
Corporation receive distributions in cash or securities of another corporation
or corporations (the "Consideration") as a result of such consolidation, merger,
sale of assets or reorganization, shall be treated as a Liquidation Event (such
that the Preferred holders shall be entitled to receive Consideration equal to
the value of the Liquidation Preference for the respective series of Preferred
Stock held) unless the stockholders of this Corporation immediately prior to
such consolidation, merger, sale of assets or reorganization hold or control
more than fifty percent (50%) of the voting equity securities of the successor
or surviving corporation immediately following such consolidation, merger, sale
of assets or reorganization, in which case such consolidation, merger, sale of
assets or reorganization shall not be treated as a Liquidation Event.
SECTION 5. Voting Rights. Except as otherwise required by law, the
Restated Certificate of Incorporation or Bylaws of the Corporation or this
Certificate of Designation, the holder of each share of Common Stock issued and
outstanding shall have one vote and the holder of each share of Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which such share of Series D Preferred could be converted at the
record date for determination of the stockholders entitled to vote on such
matters, or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited, such votes to be
counted together with all other shares of stock of the Corporation having
general voting power and not separately as a class. Holders of Common Stock and
Preferred Stock shall be entitled to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation. Fractional votes by the holders
of Preferred Stock shall not, however, be permitted and any fractional voting
rights shall (after aggregating all shares into which shares of Preferred Stock
held by each holder could be converted) be rounded to the nearest whole number.
SECTION 6. Conversion. The holders of Series D Preferred have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series D Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Series D Preferred into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $50.00 by the Series D
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. The price at which shares of Common Stock shall be deliverable upon
conversion of shares of Series D Preferred shall initially be $2.50 with respect
to each share of Series D Preferred (the "Series D Conversion Price"). The
initial Series D Conversion Price shall be subject to adjustment as hereinafter
provided.
(b) Automatic Conversion. Each share of Series D Preferred shall
automatically be converted into shares of Common Stock at the then effective
Series D Conversion Price for such series upon the election of holders of at
least sixty percent (60%) of the then outstanding shares of Series D Preferred.
-3-
<PAGE> 4
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Series D Preferred. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Series D
Conversion Price. Before any holder of Series D Preferred shall be entitled to
convert the same into full shares of Common Stock and to receive certificates
therefor, the holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series D Preferred, and shall give written notice to the Corporation at such
office that the holder elects to convert the same; provided, however, that in
the event of an automatic conversion pursuant to Section 6(b), the outstanding
shares of Series D Preferred shall be converted automatically without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent and provided further, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Series D Preferred
are either delivered to the Corporation or its transfer agent as provided above,
or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. The Corporation shall, as
soon as practicable after such delivery, or such agreement and indemnification
in the case of a lost certificate, issue and deliver at such office to such
holder of Series D Preferred, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Series D Preferred to be converted,
or in the case of automatic conversion then on the date of election by a
majority of the then outstanding shares of Series D Preferred, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(d) (1) Adjustment of Conversion Price of Series D Preferred
Stock. The Series D Conversion Price shall be subject to adjustment from time to
time as follows:
(i) Adjustments for Subdivisions, Combinations or
Consolidation of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided by stock split, stock dividends or otherwise, into a
greater number of shares of Common Stock, the Series D Conversion Price then in
effect shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Series D Conversion Price then in
effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(ii) Adjustments for Stock Dividends and Other
Distributions. In the event the Corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive any distribution
-4-
<PAGE> 5
(excluding any repurchases of securities by the Corporation not made on a pro
rata basis from all holders of any class of the Corporation's securities)
payable in property or in securities of the Corporation other than shares of
Common Stock, and other than as otherwise adjusted in this Section 6 or as
provided in Section 3, then and in each such event the holders of Series D
Preferred shall receive at the time of such distribution, the amount of property
or the number of securities of the Corporation that they would have received had
their Series D Preferred been converted into Common Stock on the date of such
event.
(iii) Adjustments for Reclassification, Exchange and
Substitution. Except as provided in Section 4 upon any liquidation, dissolution
or winding up of the Corporation, if the Common Stock issuable upon conversion
of the Series D Preferred shall be changed into the same or a different number
of shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for above), each share of Series D Preferred
shall thereafter be convertible into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such share of Series D
Preferred shall have been entitled upon such reorganization or reclassification.
(2) Adjustments of Series D Conversion Price for Diluting
Issues. In addition to the adjustment of the Series D Conversion Price provided
in Section 6(d)(1) above, the Series D Conversion Price shall be subject to
further adjustment from time to time as follows:
(i) Special Definitions. For purposes of this Section
6(d)(2), the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Original Issue Date" shall mean the date that
the Series D Preferred Stock is first issued.
(3) "Convertible Securities" shall mean securities
convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or, pursuant to Section 6(d)(2)(iii), deemed
to be issued) by the Corporation after the Original Issue Date other than shares
of Common Stock issued or issuable:
(A) upon conversion of shares of the Preferred
Stock;
(B) to officers, directors and employees of, and
consultants to, the Corporation pursuant to plans and arrangements approved by
the Board of Directors;
-5-
<PAGE> 6
(C) as a dividend or other distribution on the
Preferred Stock or pursuant to clause (i), (ii) or (iii) of Section 6(d)(1);
(D) upon the exercise of options issued prior to
the Original Issue Date;
(E) to research or development collaborators or
to banks or other institutional lendors or lessors in connection with capital
asset leases or borrowings for the acquisition of capital assets, pursuant to
any arrangement approved by the Board of Directors;
(F) upon exercise of warrants outstanding on the
Original Issue Date or warrants to be issued pursuant to agreements outstanding
on the Original Issue Date;
(G) with the written approval of the holders of a
majority of the outstanding Series D Preferred; or
(H) by way of dividend or other distributions on
securities referred to in clauses (A), (B), (C), (D) (E), (F) and (G) above.
(ii) No Adjustment of Series D Conversion Price. No
adjustment in the Series D Conversion Price of a particular share of Series D
Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Series D Conversion Price in effect on the date of, and immediately prior to
such issue, for such share of Series D Preferred.
(iii) Deemed Issue of Additional Shares of Common Stock.
(1) Options and Convertible Securities. Except as
otherwise provided in Section 6(d)(2)(i) above, in the event the Corporation at
any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of any holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 6(d)(2)(v) below) of such Additional
Shares of Common Stock would be less than the Series D Conversion Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
additional shares of Common Stock are deemed to be issued:
-6-
<PAGE> 7
(A) no further adjustment in the Series D
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series D Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Series D Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only additional shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Series D Conversion Price to an
amount which exceeds the lower of (i) the Series D Conversion Price on the
original adjustment date, or (ii) the Series D Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date; and
-7-
<PAGE> 8
(E) in the case of any Options which expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Series D Conversion Price shall be made until the expiration
or exercise of all such Options.
(iv) Adjustment of Series D Conversion Price Upon
Issuance of Additional Shares of Common Stock.
(1) In the event that both (A) the Corporation shall
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 6(d)(2)(iii), but excluding stock
dividends, subdivisions or split-ups that are the subject of adjustment pursuant
to Section 6(d)(1)(i)) without consideration or for a consideration per share
less than the Series D Conversion Price, in effect on the date of, and
immediately prior to such issue and (B) such issuance of Additional Shares of
Common Stock occurs on or before June 3, 2000, then and in such event, such
Series D Conversion Price shall be reduced, concurrently with such issue, to a
price (calculated to the nearest cent) determined by dividing the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued (or deemed to be issued) by the total number of
Additional Shares of Common Stock so issued (or deemed to be issued).
(2) In the event that both (A) the Corporation shall
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 6(d)(2)(iii), but excluding stock
dividends, subdivisions or split-ups that are the subject of adjustment pursuant
to Section 6(d)(1)(i)) without consideration or for a consideration per share
less than the Series D Conversion Price, in effect on the date of, and
immediately prior to such issue and (B) such issuance of Additional Shares of
Common Stock occurs after June 3, 2000, then and in such event, such Series D
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series D
Conversion Price by a fraction, the numerator of which shall be the sum of (i)
the number of shares of Common Stock outstanding immediately prior to such
issue, (ii) the number of shares of Common Stock issuable upon conversion of the
Preferred Stock outstanding immediately prior to such issue and (iii) the number
of shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Series D Conversion Price; and the denominator of which
shall be the sum of (i) the number of shares of Common Stock outstanding
immediately prior to such issue, (ii) the number of shares of Common Stock
issuable upon conversion of the Preferred Stock outstanding immediately prior to
such issue and (iii) the number of such Additional Shares of Common Stock so
issued; and provided further that, for the purposes of this Section
6(d)(2)(iv)(2), all shares of Common Stock issuable upon exercise of outstanding
Options or conversion of outstanding Convertible Securities shall be deemed to
be outstanding, and immediately after any Additional Shares of Common Stock are
deemed issued pursuant to Section 6(d)(2)(iii), such Additional Shares of Common
Stock shall be deemed to be outstanding.
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<PAGE> 9
(v) Determination of Consideration. For purposes of this
Section 6(d)(2), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation (excluding amounts
paid or payable for accrued interest or accrued dividends);
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 6(d)(2)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Option or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) No Impairment. Except as provided in Section 8, the
Corporation will not, by amendment of its Restated Certificate of Incorporation
or this Certificate of Designation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 6 and in the taking of all such
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action as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series D Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series D Conversion Price pursuant to this
Section 6, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series D Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series D Preferred, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Series D Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series D
Preferred.
(g) Notices of Record Date. In the event that the Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to effect any reclassification or capitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iii) to merge or consolidate with or into any other
person or entity, or sell, lease or convey all or substantially all its property
or business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Series D Preferred:
(1) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (ii) and (iii) above; and
(2) in the case of the matters referred to in (ii)
and (iii) above, at least twenty (20) days' prior written notice of the date
when the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of the Series D
Preferred at the address for each such holder as shown on the books of the
Corporation. The above written notice requirement may be waived by the holders
of a majority of the then outstanding Series D Preferred Stock.
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SECTION 7. Status of Converted Stock. In case any shares of Series D
Preferred shall be repurchased or converted pursuant to Section 6, the shares so
repurchased or converted shall be canceled and shall not be issued by the
Corporation as Series D Preferred and this Certificate of Designation shall be
appropriately amended to effect the corresponding reduction in the Corporation's
authorized Series D Preferred.
SECTION 8. Covenants. In addition to any other rights provided by
law, so long as at least twenty-five percent (25%) of the authorized Series D
Preferred shall be outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than sixty percent (60%) of the outstanding shares of Series D Preferred:
(a) amend or repeal any provision of the Corporation's Amended or
Restated Certificate of Incorporation, certificates of designation or Bylaws if
such action would materially and adversely alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of, the Series D Preferred;
(b) authorize additional shares of Series D Preferred or
authorize or issue shares of any class or series of stock having any preference
or priority as to dividends or assets superior to or on parity with any such
preference or priority of the Series D Preferred;
(c) declare or pay any dividends on any shares of Common Stock or
pay dividends on Preferred Stock; or
(d) redeem or otherwise repurchase any shares of Preferred Stock
or Common Stock (other than pursuant to equity incentive arrangements with
service providers, including employees of the Corporation, that gives the
Corporation the right to repurchase shares upon termination of services or
failure to achieve targets).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
IN WITNESS WHEREOF, Superconductor Technologies Inc. has caused this
Certificate to be signed by Peter Thomas, its Chief Executive Officer, this 16th
day of June, 1999.
/s/ M. Peter Thomas
------------------------------------
Peter Thomas
Chief Executive Officer
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
SUPERCONDUCTOR TECHNOLOGIES INC.
A DELAWARE CORPORATION
(AS AMENDED AND RESTATED ON JUNE 2, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I - CORPORATE OFFICES....................................................................1
1.1 REGISTERED OFFICE...............................................................1
1.2 OTHER OFFICES...................................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS............................................................1
2.1 PLACE OF MEETINGS...............................................................1
2.2 ANNUAL MEETING..................................................................1
2.3 SPECIAL MEETING.................................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS................................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS............................................................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE....................................3
2.7 QUORUM..........................................................................4
2.8 ADJOURNED MEETING; NOTICE.......................................................4
2.9 VOTING..........................................................................4
2.10 WAIVER OF NOTICE................................................................5
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING ......................................................................5
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS........................................................................5
2.13 PROXIES.........................................................................6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE...........................................6
2.15 CONDUCT OF BUSINESS.............................................................6
ARTICLE III - DIRECTORS..........................................................................7
3.1 POWERS..........................................................................7
3.2 NUMBER..........................................................................7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.........................7
3.4 RESIGNATION AND VACANCIES.......................................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................................8
3.6 FIRST MEETINGS..................................................................8
3.7 REGULAR MEETINGS................................................................9
3.8 SPECIAL MEETINGS; NOTICE........................................................9
3.9 QUORUM..........................................................................9
3.10 WAIVER OF NOTICE................................................................9
3.11 ADJOURNED MEETING; NOTICE......................................................10
3.12 CONDUCT OF BUSINESS............................................................10
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..............................10
3.14 FEES AND COMPENSATION OF DIRECTORS.............................................10
3.15 APPROVAL OF LOANS TO OFFICERS..................................................10
3.16 REMOVAL OF DIRECTORS...........................................................11
ARTICLE IV - COMMITTEES.........................................................................11
4.1 COMMITTEES OF DIRECTORS........................................................11
4.2 COMMITTEE MINUTES..............................................................12
4.3 MEETINGS AND ACTION OF COMMITTEES..............................................12
ARTICLE V - OFFICERS............................................................................12
5.1 OFFICERS.......................................................................12
5.2 ELECTION OF OFFICERS...........................................................12
5.3 REMOVAL AND RESIGNATION OF OFFICERS............................................13
5.4 CHAIRMAN OF THE BOARD..........................................................13
5.5 CHIEF EXECUTIVE OFFICER........................................................13
5.6 PRESIDENT......................................................................14
5.7 VICE PRESIDENT.................................................................14
5.8 SECRETARY......................................................................14
5.9 CHIEF FINANCIAL OFFICER........................................................14
5.10 ASSISTANT SECRETARY............................................................15
5.11 AUTHORITY AND DUTIES OF OFFICERS...............................................15
ARTICLE VI - INDEMNITY..........................................................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS......................................15
6.2 INDEMNIFICATION OF OTHERS......................................................16
6.3 INSURANCE......................................................................16
ARTICLE VII - RECORDS AND REPORTS...............................................................16
7.1 MAINTENANCE AND INSPECTION OF RECORDS..........................................16
7.2 INSPECTION BY DIRECTORS........................................................17
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................................17
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE VIII - GENERAL MATTERS..................................................................17
8.1 CHECKS.........................................................................17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...............................17
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.........................................18
8.4 SPECIAL DESIGNATION ON CERTIFICATES............................................18
8.5 LOST CERTIFICATES..............................................................19
8.6 CONSTRUCTION; DEFINITIONS......................................................19
8.7 DIVIDENDS......................................................................19
8.8 FISCAL YEAR....................................................................19
8.9 SEAL...........................................................................19
8.10 TRANSFER OF STOCK..............................................................20
8.11 STOCK TRANSFER AGREEMENTS......................................................20
8.12 REGISTERED STOCKHOLDERS........................................................20
ARTICLE IX - AMENDMENTS.........................................................................20
ARTICLE X - DISSOLUTION.........................................................................20
ARTICLE XI - CUSTODIAN..........................................................................21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES....................................21
11.2 DUTIES OF CUSTODIAN............................................................21
</TABLE>
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<PAGE> 5
BYLAWS
OF
SUPERCONDUCTOR TECHNOLOGIES INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. At the meeting, directors shall
be elected and any other proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, the chairman of the board, the president, the chief
executive officer or one or more stockholders holding shares in the aggregate
entitled to cast not less than ten percent of the votes at that meeting (the
"10% Stockholders"); provided that, notwithstanding the above and any provision
contained in these bylaws to the contrary, effective upon such time as (i)
shares of capital stock of the corporation are designated as qualified for
trading as National Market System securities on the National Association of
Securities Dealers, Inc. Automated Quotation System (or any successor national
market system), and (ii) the corporation has at least 800 holders of shares of
its capital stock, the 10% Stockholders shall no longer be entitled to call such
meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, chief
executive officer or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than 35 nor more than 60 days after the
receipt of the request. If the notice is not given within 20 days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.6 of these bylaws not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be
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timely, such stockholder's notice must be delivered to or mailed and received by
the secretary of the corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. To be in
proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to
make the nominations, propose the business, and, as the
case may be, the name and address of the person or
persons to be nominated or the nature of the business to
be proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the corporation entitled to vote at
such meeting and, if applicable, intends to appear in
person or by proxy at the meeting to nominate the person
or persons specified in the notice or introduce the
business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee
and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations
are to be made by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as
would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed,
or intended to be proposed by the board of directors;
and
(v) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the
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<PAGE> 8
records of the corporation. An affidavit of the secretary or an assistant
secretary or of the transfer agent of the corporation that the notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stock holders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting, or
(ii) the stockholders entitled to vote thereat, present in person or represented
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of the statutes or
of the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of the question.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Sections 2.12 and 2.14 of
these bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
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<PAGE> 9
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding the foregoing, effective upon the closing of the
corporation's initial public offering of securities pursuant to a registration
statement file under the Securities Act of 1933, as amended, the stockholders of
the corporation may not take action by written consent without a meeting but
must take any such actions at a duly called annual or special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors
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<PAGE> 10
may fix, in advance, a record date, which shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to any
other action.
If the board of directors does not so fix a record date, the fixing of
such record date shall be governed by the provisions of Section 213 of the
General Corporation Law of Delaware.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after 3 years from its date, unless the proxy
provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stock ledger shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the president, or in his absence by a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his
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<PAGE> 11
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting. The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such matters as
the regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER
The number of directors of the corporation shall be nine. No reduction
of the authorized number of directors shall have the effect of removing any
director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, at each annual
meeting of stockholders, directors of the corporation shall be elected to hold
office until the expiration of the term for which they are elected, and until
their successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the Delaware General Corporation Law.
Directors need not be stockholders unless so required by the certificate
of incorporation or these bylaws, wherein other qualifications for directors may
be prescribed.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. Stockholders may remove directors with or without cause. Any
vacancy occurring in the board of directors with or without cause may be filed
by a majority of the remaining members of the board of directors, although such
majority is less than a quorum, or by a plurality of the votes cast at a meeting
of stock-
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holders, and each director so elected shall hold office until the expiration of
the term of office of the director whom he has replaced.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
3.4.1 Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by
a majority of the directors then in office, although less than a quorum,
or by a sole remaining director.
3.4.2 Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and newly
created directorships of such class or classes or series may be filled
by a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so
elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law
of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
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3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least 4 days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such
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meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 CONDUCT OF BUSINESS
Meetings of the board of directors shall be presided over by the
chairman of the board, if any, or in his absence by the chief executive officer,
or in their absence by a chairman chosen at the meeting. The secretary shall act
as secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of any
meeting shall determine the order of business and the procedures at the meeting.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.14 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.15 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan,
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guaranty or other assistance may be with or without interest and may be
unsecured, or secured in such manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this section contained shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of the corporation at common law or under any
statute.
3.16 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. If at any time a class
or series of shares is entitled to elect one or more directors, the provisions
of this Article 3.16 shall apply to the vote of that class or series and not to
the vote of the outstanding shares as a whole.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation
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or a revocation of a dissolution, or (v) amend the bylaws of the corporation;
and, unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), Section 3.12 (conduct of business) and 3.13 (action without a
meeting), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members; provided, however, that the time of regular meetings of committees may
also be called by resolution of the board of directors and that notice of
special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a chief executive officer, one
or more vice presidents, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
Except as otherwise provided in this Section 5.2, the officers of the
corporation shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment. The board of directors may
appoint, or empower an officer to appoint, such officers
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and agents of the business as the corporation may require (whether or not such
officer or agent is described in this Article V), each of whom shall hold office
for such period, have such authority, and perform such duties as are provided in
these bylaws or as the board of directors may from time to time determine. Any
vacancy occurring in any office of the corporation shall be filled by the board
of directors or may be filled by the officer, if any, who appointed such
officer.
5.3 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors or, in the case of an officer appointed by
another officer, by such other officer.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.4 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no chief
executive officer, then the chairman of the board shall also be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.5 of these bylaws.
5.5 CHIEF EXECUTIVE OFFICER
The chief executive officer of the corporation shall, subject to the
control of the board of directors, have general supervision, direction and
control of the business and the officers of the corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a chairman of the board at all meetings of the board of directors. He or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation, including general supervision,
direction and control of the business and supervision of other officers of the
corporation, and shall have such other powers and duties as may be prescribed by
the board of directors or these bylaws.
The chief executive officer shall, without limitation, have the
authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the board of directors to some other
officer or agent of the corporation.
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5.6 PRESIDENT
Subject to such supervisory powers as may be given by these bylaws or
the board of directors to the chairman of the board or the chief executive
officer, if there be such officers, the president shall have general
supervision, direction and control of the business and supervision of other
officers of the corporation, and shall have such other powers and duties as may
be prescribed by the board of directors or these bylaws. In the event a chief
executive officer shall not be appointed, the president shall have the duties of
such office.
5.7 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the chief executive officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the chief executive
officer. The vice presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them respectively by the board
of directors, these bylaws, the chief executive officer or the chairman of the
board.
5.8 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.9 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the
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corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his transactions as treasurer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
5.10 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.11 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
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6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
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7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The Court may summarily order the corporation
to permit the director to inspect any and all books and records, the stock
ledger, and the stock list and to make copies or extracts therefrom. The Court
may, in its discretion, prescribe any limitations or conditions with reference
to the inspection, or' award such other and further relief as the Court may deem
just and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, any vice
president, the chief financial officer, the secretary or assistant secretary of
this corporation, or any other person authorized by the board of directors or
the chief executive officer or a vice president, is authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
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8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the
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corporation may require the owner of the lost, stolen or destroyed certificate,
or his legal representative, to give the corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
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8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim or interest in such share
or shares on the part of another person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
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ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
11.1.1 at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon
qualification of their successors; or
11.1.2 the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the
required vote for action by the board of directors cannot be obtained
and the stockholders are unable to terminate this division; or
11.1.3 the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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EXHIBIT 4.1
SUPERCONDUCTOR TECHNOLOGIES INC.
THIRD AMENDED AND RESTATED
STOCKHOLDER RIGHTS AGREEMENT
This Third Amended and Restated Stockholder Rights Agreement (the
"AGREEMENT") is made as of June 23, 1999 between Superconductor Technologies
Inc., a Delaware corporation (the "COMPANY"), the persons on EXHIBIT A to this
Agreement (the "SECURITYHOLDERS").
RECITALS
A. Wilmington Securities, Inc. ("WILMINGTON") and certain trusts for the
benefit of members of the Hillman family (as identified on Exhibit A) hold
shares of the Company's Series A-2, Series A-3, Series B-1 and Series C
Preferred Stock (the "OUTSTANDING PREFERRED") and warrants for the purchase of
Company Common Stock obtained in connection with the purchase of the Outstanding
Preferred and possess registration rights and rights of first refusal pursuant
to the Second Amended and Restated Stockholder Rights Agreement dated as of
February 26, 1999 between the Company and Wilmington (the "RIGHTS AGREEMENT") or
registration rights pursuant to the Amended and Restated Registration Rights
Agreement dated as of February 26, 1999 (the "REGISTRATION RIGHTS AGREEMENT" and
together with the Rights Agreement, the "PRIOR RIGHTS AGREEMENTS").
B. Wilmington as the holder of a majority of the Preferred Stock (as
such term is defined in the Rights Agreement) together with the Company may
amend the Rights Agreement pursuant to Section 3.4 of the Rights Agreement, and
Wilmington and the Henry L. Hillman Trust under Agreement of Trust dated
November 18, 1985 (the "Trust") as the holders of a majority of the Registrable
Securities (as defined in the Registration Rights Agreement) together with the
Company may amend the Registration Rights Agreement pursuant to Section 10 of
the Registration Rights Agreement.
C. The Company proposes to sell shares of Series D Preferred Stock
pursuant to a Series D Stock Purchase Agreement dated as of the date hereof (the
"SERIES D AGREEMENT") between the Company and certain of the Securityholders
(the "PURCHASERS"), and the completion of such sale is conditioned upon, among
other things, the grant by the Company to the Securityholders of certain
registration rights and rights of first refusal.
D. The Company, Wilmington, the Trust and the other holders of
Registrable Securities (as defined in the Registration Rights Agreement) desire
to amend and restate the Prior Rights Agreements into this Agreement and desire
to provide the Purchasers with the rights set forth in this Agreement.
E. The Company has requested, and the parties to the Prior Rights
Agreements have agreed, that upon execution of the Agreement, the Prior Rights
Agreements shall be of no further force and effect, that Wilmington will waive
its right of first refusal set forth in Section 2 of the Rights Agreement with
respect to the purchase of the Series D Preferred Stock and related warrants
<PAGE> 2
(and the shares of Common Stock underlying the Series D Preferred Stock and
related warrants) being issued pursuant to the Series D Agreement.
F. The Company has requested and the parties to the Registration Rights
Agreement have agreed to hereby expressly waive any and all rights to any
penalty payments from the Company under Section 2(b) of the Registration Rights
Agreement.
NOW, THEREFORE, in consideration of the promises of the parties set
forth herein, the parties agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"AFFILIATED PERSONS OR ENTITIES" shall mean partners, members,
former members of a limited partnership or limited liability company, or an
affiliated entity managed by the same manager or managing partner or management
company, or managed or owned by an entity controlling, controlled by, or under
common control with, such manager or managing partner or management company.
"CLOSING DATE" shall mean, (i) as to the holders of Series A-2 and
A-3 Preferred Stock, February 26, 1999, (ii) as to the holders of Series C
Preferred Stock, March 5, 1999, and (iii) as to the holders of Series D
Preferred Stock, June 3, 1999.
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"CONVERSION STOCK" means the Common Stock issued or issuable
pursuant to conversion of the Preferred Stock and exercise of the Warrants.
"HOLDER" shall mean (i) any Securityholder holding Registrable
Securities and (ii) any person holding Registrable Securities to whom the rights
under this Section 1 have been transferred in accordance with Section 1.13
hereof.
"INITIATING HOLDERS" shall mean Holders in the aggregate of greater
than 50% of the Registrable Securities issued as a result of the Series D
Agreement.
"PREFERRED STOCK" shall, collectively, mean the Series A-2, Series
A-3 and Series B-1 Preferred Stock issued pursuant to the Exchange Agreement
dated as of February 26, 1999 (the "EXCHANGE AGREEMENT"), the Series C Preferred
Stock issued pursuant to the Series C Stock
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<PAGE> 3
Purchase Agreement dated as of March 5, 1999 (the "SERIES C AGREEMENT"), and the
Series D Preferred Stock issued pursuant to the Series D Agreement.
"REGISTRABLE SECURITIES" shall mean (i) the Conversion Stock, (ii)
any Common Stock acquired pursuant to the exercise of the right of first refusal
in Section 2 of this Agreement (including any shares issued by virtue of such
shares upon any stock split, stock dividend, recapitalization or similar event),
and (iii) any Common Stock of the Company issued or issuable in respect of the
Conversion Stock upon any stock split, stock dividend, recapitalization or
similar event, or any Common Stock otherwise issued or issuable in respect of
the Conversion Stock; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold or are, in
the opinion of counsel for the Company, available for sale in a single
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 1.5, 1.6 and
1.7 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders.
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all reasonable fees and
disbursements of counsel for any Holder.
"SERIES D HOLDERS" shall mean holders of Series D Registrable
Securities attributable to the Series D Agreement.
"SERIES D REGISTRABLE SECURITIES" shall mean Registrable Securities
attributable to the Series D Agreement.
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<PAGE> 4
"WARRANTS" shall mean, collectively, the warrants issued pursuant to
the Exchange Agreement, the Series C Agreement and the Series D Agreement.
1.2 RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock, the
Conversion Stock and the Warrants shall not be sold, assigned, transferred or
pledged except upon the conditions specified in this Section 1, which conditions
are intended to ensure compliance with the provisions of the Securities Act. The
Holders will cause any proposed purchaser, assignee, transferee, or pledgee of
any such securities held by the Holders to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 1.
1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Preferred
Stock, (ii) the Warrants, (iii) the Conversion Stock and (iv) any other
securities issued in respect of the Preferred Stock or the Conversion Stock upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section
1.4 below) be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SAID ACT.
Each Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Preferred Stock,
the Warrants or the Conversion Stock in order to implement the restrictions on
transfer established in this Section 1.
1.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder
of each certificate representing Restricted Securities by acceptance thereof
agrees to comply in all respects with the provisions of this Section 1.4. Prior
to any proposed sale, assignment, transfer or pledge of any Restricted
Securities (other than (i) a transfer not involving a change in beneficial
ownership, (ii) in transactions involving the distribution without consideration
of Restricted Securities by the Holder to any of its partners, or retired
partners, or to the estate of any of its partners or retired partners, or to the
estate of any of its members or former members, (iii) any transfer by any Holder
to (A) any Affiliated Persons or Entities, (B) any individual or entity
controlled by, controlling, or under common control with, such Holder or (C) any
individual or entity with respect to which such Holder (or any person controlled
by, controlling, or under common control with, such Holder) has the power to
direct investment decisions, or (iv) in transactions in compliance with Rule
144), and unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances
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<PAGE> 5
of the proposed transfer, sale, assignment or pledge in sufficient detail, and
shall be accompanied, at such holder's expense by either (i) an unqualified
written opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear, except if such transfer is made pursuant to Rule 144,
the appropriate restrictive legend set forth in Section 1.3 above, except that
such certificate shall not bear such restrictive legend if in the opinion of
counsel for such holder and the Company such legend is not required in order to
establish compliance with any provision of the Securities Act.
1.5 Requested Registration.
(a) Request for Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to (1) at least fifty
percent (50%) of the issued and outstanding Registrable Securities or (2) not
less than that number of shares of Registrable Securities which would result in
an anticipated aggregate offering price, net of underwriting discounts and
commissions, greater than five million dollars ($5,000,000), the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company;
Provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 2.5:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
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<PAGE> 6
(B) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(C) After the Company has effected one (1) such
registration pursuant to this subparagraph 1.5(a), and such registration has
been declared or ordered effective;
(D) If the Company shall furnish to such Holders a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 1.5 shall be deferred
for a period not to exceed one hundred eighty (180) days from the date of
receipt of written request from the Initiating Holders; provided that the
Company may not exercise this deferral right more than once per twelve (12)
month period.
Subject to the foregoing clauses (A) through (D), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
Section 1.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.5(a)(i). In such event, the right of any Holder to registration
pursuant to Section 1.5 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 1.5, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Initiating Holders, but
subject to the Company's reasonable approval. Notwithstanding any other
provision of this Section 1.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated first to the Series D Holders to the extent of the Series D
Registrable Securities held by such Series D Holders, and then among all other
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. If the number of Registrable Securities to be
underwritten shall be less than the number of Series D Registrable
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<PAGE> 7
Securities, then the then the number of Registrable Securities that may be
included in the registration and underwriting shall be allocated among the
Series D Holders in proportion, as nearly as practicable, to the respective
amounts of Series D Registrable Securities held by such Series D Holders at the
time of filing the registration statement. For purposes of such allocations, the
amount of Registrable Securities allocated to a Holder and its Affiliated
Persons or Entities shall be determined by aggregating all Registrable
Securities held by such Holder and its Affiliated Persons or Entities. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares, as adjusted for any recapitalization, stock
combinations, stock dividends, stock splits and the like.
If any Holder of Registrable Securities disapproves of the terms
of the underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of such registration, or such other shorter period of
time as the underwriters may require.
1.6 Company Registration.
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter and the Company may
reduce the Registrable Securities to be included in such registration to the
extent the underwriters deem necessary. The
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<PAGE> 8
Company shall so advise all Holders and other holders distributing their
securities through such underwriting and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated first to the Series D Holders to the extent of the Series D
Registrable Securities held by such Series D Holders, and then among all other
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. If the number of Registrable Securities to be
underwritten shall be less than the number of Series D Registrable Securities,
then the then the number of Registrable Securities that may be included in the
registration and underwriting shall be allocated among the Series D Holders in
proportion, as nearly as practicable, to the respective amounts of Series D
Registrable Securities held by such Series D Holders at the time of filing the
registration statement. For purposes of such allocations, the amount of
Registrable Securities allocated to a Holder and its Affiliated Persons or
Entities shall be determined by aggregating all Registrable Securities held by
such Holder and its Affiliated Persons or Entities. To facilitate the allocation
of shares in accordance with the above provisions, the Company may round the
number of shares allocated to any Holder or holder to the nearest 100 shares, as
adjusted for any recapitalization, stock combinations, stock dividends, stock
splits and the like.
If any Holder or holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.6 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
1.7 REGISTRATION ON FORM S-3.
(a) If any Holder or Holders hold Registrable Securities equal or
convertible in the aggregate to not less than 2% of the then outstanding Common
Stock request that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of shares of the Registrable
Securities the reasonably anticipated aggregate price to the public of which,
net of underwriting discounts and commissions, would exceed $1,000,000, and the
Company is a registrant entitled to use Form S-3 (or any successor form to Form
S-3) to register the Registrable Securities for such an offering, the Company
shall use its best efforts to cause such Registrable Securities to be registered
for the offering on such form and to cause such Registrable Securities to be
qualified in such jurisdictions as such Holder or Holders may reasonably
request; provided, however, that the Company shall not be required to effect
more than one registration pursuant to this Section 1.7 in any six (6) month
period. The Company shall inform other Holders of the proposed registration and
offer them the opportunity to participate. The substantive provisions of Section
1.5(b) shall be applicable to each registration initiated under this Section
1.7.
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(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.7 (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; (ii) if the Company, within
ten (10) days of the receipt of the request of the Holders, gives notice of its
bona fide intention to effect the filing of a registration statement with the
Commission within ninety (90) days of receipt of such request (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities); (iii) during the period
starting with the date sixty (60) days prior to the Company's estimated date of
filing of, and ending on the date six (6) months immediately following, the
effective date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; or (iv) if the Company shall furnish to such
Holder a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its shareholders for registration statements to be filed in
the near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed ninety (90)
days from the receipt of the request to file such registration by such Holder;
provided that the Company may not exercise this deferral right more than once
per twelve (12) month period.
1.8 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date hereof, the Company shall not enter into any agreement granting any holder
or prospective holder of any securities of the Company registration rights with
respect to such securities unless such new registration rights, including
standoff obligations, are subordinate to the registration rights granted Holders
hereunder.
1.9 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with (i) one (1) registration pursuant to Section 1.5, (ii) all
registrations pursuant to Section 1.6, and (iii) all registrations pursuant to
Section 1.7 shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders and all
other Registration Expenses shall be borne by the Holders of such securities pro
rata on the basis of the number of shares so registered.
1.10 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed;
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(b) Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statements as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions; and
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
1.11 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers
and directors, members and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 1, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state
securities law or any rule or regulation promulgated under such laws applicable
to the Company in connection with any such registration, qualification or
compliance, and within a reasonable period the Company will reimburse each such
Holder, each of its officers and directors, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action; provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue
10
<PAGE> 11
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and within a
reasonable period will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 1.11
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1.11 unless the failure to give such notice
is materially prejudicial to an Indemnifying Party's ability to defend such
action and provided further, that the Indemnifying Party shall not assume the
defense for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party shall be liable for indemnification hereunder
with respect to any settlement or consent to judgment, in connection with any
claim or litigation to which these indemnification provisions apply, that has
been entered into without the prior consent of the Indemnifying Party (which
consent will not be unreasonably withheld)
11
<PAGE> 12
(d) If the indemnification provided for in this Section 1.11 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations; provided, that, in no event shall any contribution by a Holder
under this Subsection 1.1(d) exceed the net proceeds from the offering received
by such Holder. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.11 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.12 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.12.
1.13 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) So long as a Holder owns any Restricted Securities to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most
12
<PAGE> 13
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Holder
to sell any such securities without registration.
1.14 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted Holders under Sections 1.5, 1.6 and 1.7 may be
assigned to Affiliated Persons or Entities, or other transferees or assignees
reasonably acceptable to the Company, in connection with any transfer or
assignment of Registrable Securities by the Holder, provided that (a) such
transfer may otherwise be effected in accordance with applicable securities laws
and Section 1.3 and 1.4, and (b) such assignees or transferees that are not
Affiliated Persons or Entities acquire at least 100,000 shares of Registrable
Securities.
1.15 STANDOFF AGREEMENT. In connection with any public offering of the
Company's securities, the Holder agrees, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the underwriters; provided that the officers and directors of
the Company who own stock of the Company and each holder representing at least
one percent (1%) of the Company's outstanding voting securities also agrees to
such restrictions.
1.16 TERMINATION OF REGISTRATION RIGHTS. The registration rights
granted pursuant to Section 1 shall terminate as to each Holder at such time as
all Registrable Securities held by such Holder may, in the opinion of counsel to
the Company (which opinion shall be addressed and rendered to Holder), be sold
within a given three month period pursuant to Rule 144 or any other applicable
exemption that allows for a resale free of registration.
SECTION 2
RIGHT OF FIRST REFUSAL
2.1 GRANT OF RIGHT OF FIRST REFUSAL. Subject to compliance with all
applicable federal and state securities laws, the Company grants to the Holders
the right of first refusal to purchase, pro rata, all or any part of New
Securities (as defined in this Section 2) which the Company may, from time to
time after the date of this Agreement, propose to sell and issue. A pro rata
share, for purposes of this right of first refusal, is the ratio that the sum of
the number of shares of Conversion Stock then held by a Holder bears to the
total outstanding Common Stock of the Company (assuming conversion of all
convertible securities and the exercise of all outstanding options and
warrants).
2.2 DEFINITION OF NEW SECURITIES. Except as set forth below, "NEW
SECURITIES" shall mean any shares of capital stock of the Company, including
Common Stock and Preferred Stock, whether now authorized or not, and rights,
options or warrants to purchase said shares of Common
13
<PAGE> 14
Stock or Preferred Stock, and securities of any type whatsoever that are, or may
become, convertible into said shares of Common Stock or Preferred Stock.
Notwithstanding the foregoing, "New Securities" does not include (i) the
Preferred Stock, the Warrants or the Conversion Stock, (ii) securities offered
to the public generally pursuant to a registration statement under the
Securities Act, (iii) securities issued pursuant to the acquisition of another
corporation by the Company by merger, purchase of all or substantially all of
the assets or other reorganization, (iv) securities issuable upon exercise or
conversion of currently outstanding securities, (v) securities issued in
connection with any stock split, stock dividend or recapitalization by the
Company, (vi) securities issued to the Company's employees, officers, directors,
and consultants pursuant to any arrangement approved by the Board of Directors
of the Company, and (vii) securities issued to research or development
collaborators or issued to banks or other institutional lenders or lessors in
connection with capital asset leases or borrowings for the acquisition of
capital assets, pursuant to any arrangement approved by the Board of Directors
of the Company (including securities issued upon exercise or conversion of any
such securities).
2.3 NOTICE OF INTENT TO ISSUE NEW SECURITIES; NOTICE PERIOD. In the
event the Company proposes to undertake an issuance of New Securities, it shall
give each Holder written notice of its intention, describing the type of New
Securities and the price and terms upon which the Company proposes to issue the
same. Each Holder shall have 15 days from the date of receipt of any such notice
to agree to purchase up to its pro rata share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
2.4 OFFERS TO THIRD PARTIES. In the event a Holder fails to exercise
the right of first refusal within said 15 day period, the Company shall have 90
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all, within 60 days
from the date of said agreement) to sell the New Securities not elected to be
purchased by the Holder at the price and upon the terms no more favorable to the
Holders of such securities than specified in the Company's notice. In the event
the Company has not sold the New Securities or entered into an agreement to sell
the New Securities in accordance with the foregoing within 60 days from the date
of said agreement, the Company shall not thereafter issue or sell any New
Securities without first offering such securities in the manner provided above.
2.5 ASSIGNMENT. The right of first refusal granted under this Agreement
is not assignable except by each of such Holders to any "affiliated persons or
entities," which shall include, partners, members, former members of a limited
partnership or limited liability company, or an affiliated entity managed by the
same manager or managing partner or management company, or managed or owned by
an entity controlling, controlled by, or under common control with, such manager
or managing partner or management company.
2.6 TERMINATION OF RIGHT OF FIRST REFUSAL. The right of first refusal
granted under this Agreement shall terminate upon the first to occur of the
following:
14
<PAGE> 15
(i) if a Holder at any time holds less than 250,000 shares of
Conversion Stock (appropriately adjusted for any stock split, stock dividend or
any other recapitalization), the right of first refusal shall terminate as to
such Holder;
(ii) if a Holder converts or has at any time converted all of
the Preferred Stock owned by such Holder, the right of first refusal shall
terminate as to such Holder;
(iii) the liquidation, dissolution or indefinite cessation of
business operations of the Company; or
(iv) the execution by the Company of a general assignment for
the benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company.
SECTION 3
MISCELLANEOUS
3.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of California.
3.2 SURVIVAL. The covenants and agreements made herein shall survive
any investigation made by the Holders and the closing of the transactions
contemplated hereby.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Exchange
Agreement, the Series C Agreement, the Series D Agreement and the other
documents delivered pursuant hereto or delivered on the Closing Date for each of
the Exchange Agreement, the Series C Agreement, and the Series D Agreement
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. The provisions of
this Agreement amend and supersede any rights or obligations under the Prior
Rights Agreements. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought; provided, however, that
holders of a majority of the issued or outstanding shares of the Preferred Stock
(which majority shall include at least sixty percent (60%) of the voting power
of the holders of Series D Preferred Stock) may, with the Company's prior
written consent, waive, modify or amend on behalf of all holders, any provisions
hereof.
3.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise
15
<PAGE> 16
delivered by hand or by messenger, addressed (a) if to a Holder, at such
Holder's address, as shown on the stock records of the Company, or at such other
address as such Holder shall have furnished to the Company in writing, or (b) if
to any other holder of Preferred Stock, at such address as such holder shall
have furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Preferred Stock who has so furnished an address to the Company, or (c) if to the
Company, one copy should be sent to its address set forth on the cover page of
this Agreement and addressed to the attention of the Chief Executive Officer, or
at such other address as the Company shall have furnished to the Holders.
Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.
3.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such nondefaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.
3.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.8 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
3.9 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
3.10 WAIVER OF RIGHTS. In consideration of the rights granted herein,
(i) all rights granted to, and any obligations of, the parties to the Prior
Rights Agreements are amended and restated in full to read as set forth in this
Agreement; (ii) Wilmington waives its right of first refusal as set forth in
Section 2 of the Rights Agreement with respect to the issuance of Series D
Preferred Stock and related warrants (and the shares of Common Stock underlying
the Series D Preferred Stock and related warrants) pursuant to the Series D
Agreement; (iii) Wilimington, the Trust, and other parties
16
<PAGE> 17
to the Registration Rights Agreement hereby waive any and all rights to payments
by the Company under Section 2(b) of the Registration Rights Agreement.
[Signature Pages Follow]
17
<PAGE> 18
The foregoing agreement is hereby executed as of the date first above written.
"COMPANY"
SUPERCONDUCTOR TECHNOLOGIES INC.
a Delaware corporation
By:
------------------------------------------
Name: Peter Thomas,
Title: Chief Executive Officer
"SERIES A-2 HOLDER"
WILMINGTON SECURITIES, INC.
By:
------------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
"SERIES A-3 HOLDER"
WILMINGTON SECURITIES, INC.
By:
------------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
"SERIES B-1 HOLDERS"
WILMINGTON SECURITIES, INC.
By:
------------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
18
<PAGE> 19
Henry L. Hillman, Elsie Hilliard Hillman and
C.G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A dated November 18, 1985
By:
------------------------------------------
Name: C.G. Grefenstette
Thomas G. Bigley and C.G.Grefenstette,
Trustees under Agreement of Trust
dated 12/30/76 for the children of
Juliet Lea Hillman Simonds
By:
------------------------------------------
Name: C.G. Grefenstette
By:
------------------------------------------
Name: Thomas G. Bigley
Thomas G. Bigley and C.G.Grefenstette,
Trustees under Agreement of Trust
dated 12/30/76 for the children of
Audrey Hilliard Hillman
By:
------------------------------------------
Name: C.G. Grefenstette
By:
------------------------------------------
Name: Thomas G. Bigley
19
<PAGE> 20
Thomas G. Bigley and C.G.Grefenstette,
Trustees under Agreement of Trust dated
12/30/76 for the children of
Henry Lea Hillman, Jr.
By:
------------------------------------------
Name: C.G. Grefenstette
By:
------------------------------------------
Name: Thomas G. Bigley
Thomas G. Bigley and C.G.Grefenstette,
Trustees under Agreement of Trust dated
12/30/76 for the children of
William Talbott Hillman.
By:
------------------------------------------
Name: C.G. Grefenstette
By:
------------------------------------------
Name: Thomas G. Bigley
"SERIES C HOLDER"
WILMINGTON SECURITIES, INC.
By:
------------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
20
<PAGE> 21
"SERIES D HOLDERS"
WILMINGTON SECURITIES, INC.
By:
------------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
TGI FUND III, LLC
By: Tredegar Investments, Inc., its Manager
By:
------------------------------------------
Name:
Title:
21
<PAGE> 22
EXHIBIT A
TO THE SUPERCONDUCTOR TECHNOLOGIES INC.
THIRD AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT
<TABLE>
<CAPTION>
SECURITYHOLDER SECURITIES HELD THAT ARE SUBJECT TO THE AGREEMENT
<S> <C>
Wilmington Securities, Inc. Series A-2 Preferred Stock and related warrants
Series A-3 Preferred Stock and related warrants
Series B-1 Preferred Stock and related warrants
Series C Preferred Stock and related warrants
Series D Preferred Stock and related warrants
Warrants received in connection with the Exchange
Agreement
Henry L. Hillman, Elsie Hilliard Hillman Series B-1 Preferred Stock and related warrants
and C. G. Grefenstette, Warrants received in connection with the
Trustees of the Henry L. Hillman Exchange Agreement
Trust U/A Dated November 18, 1985
Thomas G. Bigley and C.G. Grefenstette, Series B-1 Preferred Stock and related warrants
Trustees Under Agreement of Trust Warrants received in connection with the
Dated 12/30/76 for Children of Exchange Agreement
Juliet Lea Hillman Simonds
Thomas G. Bigley and C.G. Grefenstette, Series B-1 Preferred Stock and related warrants
Trustees Under Agreement of Trust Warrants received in connection with the
Dated 12/30/76 for Children of Exchange Agreement
Audrey Hillman Fisher
Thomas G. Bigley and C.G. Grefenstette, Series B-1 Preferred Stock and related
Trustees Under Agreement of Trust Warrants received in connection with
Dated 12/30/76 for Children of Exchange Agreement Henry Lea Hillman, Jr.
Henry Lea Hillman, Jr.
Thomas G. Bigley and C.G. Grefenstette, Series B-1 Preferred Stock and related warrants
Trustees Under Agreement of Trust Warrants received in connection with the
Dated 12/30/76 for Children of Exchange Agreement
William Talbott Hillman
TGI Fund III, LLC Series D Preferred Stock and related warrants
</TABLE>
<PAGE> 1
EXHIBIT 4.2
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN
TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE
DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT OR REGULATION A NOTIFICATION UNDER SUCH ACT
COVERING SUCH SECURITIES OR SUPERCONDUCTOR TECHNOLOGIES INC.
(THE "COMPANY") RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE
COUNSEL FOR THE COMPANY) STATING THAT SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
No. D-[__] Right to Purchase [______]
[__________], 1999 Shares of Common Stock
Void After [_________], 2004
SUPERCONDUCTOR TECHNOLOGIES INC.
WARRANT
THIS CERTIFIES THAT, subject to the terms of this agreement,
[_________________], (the "HOLDER") is entitled to subscribe for and purchase
from Superconductor Technologies Inc, a Delaware corporation (the "COMPANY"), at
the Warrant Price defined in Section 2 herein, [_____________________________]
fully paid and non-assessable shares of the Company's Common Stock (the "COMMON
STOCK"), such price and such number of shares being subject to adjustment upon
occurrence of the contingencies set forth in this Warrant.
This Warrant is issued pursuant to a Series D Preferred Stock Purchase
Agreement dated June 23, 1999 between the Company and the purchasers named
therein (the "PURCHASE AGREEMENT").
Upon delivery of this Warrant (with the Notice of Exercise in the form
attached hereto as EXHIBIT A), together with payment of the Warrant Price of the
shares of Common Stock thereby purchased, which payment may be made by
converting this Warrant, or any portion thereof, pursuant to Section 3 below
("WARRANT CONVERSION"), at the principal office of the Company or at such other
office or agency as the Company may designate by notice in writing to the holder
hereof, the holder of this Warrant shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. All shares of Common
Stock which may be issued upon the exercise of this Warrant will, upon issuance,
be fully paid and non-assessable and free from all taxes, liens and charges with
respect thereto.
<PAGE> 2
This Warrant is subject to the following terms and conditions:
1. Term of Warrant.
This Warrant may be exercised in whole or in part, at any time after
issuance and prior to the first to occur of the following:
(a) 5:00 p.m., Pacific Standard Time, June 23, 2004; or
(b) The consummation of any transaction or Series of transactions
(collectively, the "TRANSACTION"), including without limitation, the sale,
transfer or disposition of all or substantially all of the Company's assets or
the merger of the Company with or into, or consolidation with, any other
corporation, whereby the holders of the Company's voting securities prior to the
Transaction do not hold more than 50% of the voting securities of the surviving
entity following consummation of the Transaction (a "CHANGE OF CONTROL").
Upon the occurrence of any of the events described in clause (a) above,
this Warrant, to the extent not exercised, shall terminate. Upon the occurrence
of any of the events described in clause (b) above, this Warrant, to the extent
not otherwise exercised, shall be deemed to have been automatically converted
pursuant to Section 3 and thereafter the Holder shall participate in the
Transaction on the same terms as other holders of Common Stock.
2. Warrant Price. The exercise price of this Warrant (the "WARRANT
PRICE") shall equal $3.00 per share.
3. Payment by Warrant Conversion. The Holder may exercise the purchase
right represented by this Warrant with respect to a particular number of shares
of Common Stock (the "SHARES") subject to this Warrant ("CONVERTED WARRANT
SHARES") and elect to pay for a number of Shares through Warrant Conversion by
specifying such election in the Notice of Exercise attached hereto as EXHIBIT A.
In such event, the Company shall deliver to the Holder (without payment by the
Holder of any Warrant Price or any cash or other consideration) that number of
Shares equal to the quotient obtained by dividing (x) the value of this Warrant
(or the specified portion hereof) on the date of exercise, which value shall be
determined by subtracting (A) the aggregate Warrant Price of the Converted
Warrant Shares immediately prior to the exercise of the Warrant from (B) the
aggregate fair market value of the Converted Warrant Shares issuable upon
exercise of this Warrant (or the specified portion hereof) on the date of
exercise, by (y) the fair market value of one Share on the date of exercise. For
purposes of this Section 3, fair market value of a Share and of a Converted
Warrant Share as of a particular date shall be determined as follows:
(a) if such share is then quoted on The Nasdaq National Market, the
simple average of the closing sale prices as reported on The Nasdaq National
Market for the ten (10) consecutive trading days prior to such date;
(b) if such share is publicly traded and is then listed on a
national securities exchange, the simple average of the closing sale prices on
the principal national securities
-2-
<PAGE> 3
exchange on which the share is listed or admitted to trading for the ten (10)
consecutive trading days prior to such date;
(c) if such share is publicly traded but is not quoted on The Nasdaq
National Market nor listed or admitted to trading on a national securities
exchange, the simple average of the closing bid prices for the ten (10)
consecutive trading days prior to such date, as reported by The Wall Street
Journal or other widely available reporting source, for the over-the-counter
market; or
(d) if none of the foregoing is applicable, the value shall be the
fair market value thereof, as mutually determined by the Company and the holders
of sixty (60%) of the voting power of all then outstanding Series D Preferred
Stock. If the parties are unable to reach agreement as to the fair market value,
the parties shall select a mutually agreeable third party to determine the fair
market value, with the cost of such valuation being borne by the party whose
fair market value estimate is furthest from that of the third party appraiser.
4. Adjustment of Purchase Price and Number of Shares; Limitation on
Exercise.
The number and kind of securities purchasable upon the exercise of
this Warrant and the Warrant Price shall be subject to adjustment from time to
time in accordance with the following provisions; provided that, no such
adjustment shall be made if a corresponding adjustment is made pursuant to the
Company's Amended and Restated Certificate of Incorporation.
(a) Reclassification, Consolidation or Merger. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than as a result of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a Change of Control as provided in Section
1(b) hereof), the Company, or such successor corporation, as the case may be,
shall execute a new Warrant, providing that the holder of this Warrant shall
have the right to exercise such new Warrant and procure upon such exercise in
lieu of each share of Common Stock theretofore issuable upon exercise of this
Warrant the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change, consolidation or merger
by a holder of one share of Common Stock. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this subsection
(a) shall similarly apply to successive reclassifications, changes,
consolidations and mergers.
(b) Subdivision or Combination of Shares. If at any time on or after
the date of this Warrant the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of shares receivable upon exercise of the Warrant shall be
proportionately increased; and, conversely, if at any time on or after the date
of this Warrant the outstanding number of shares of Common Stock shall be
combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall be proportionately increased and the
number of shares receivable upon exercise of the Warrant shall be
proportionately decreased.
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<PAGE> 4
(c) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
5. Notices.
(a) Upon any adjustment of the Warrant Price and any increase or
decrease in the number of shares of Common Stock purchasable upon the exercise
of this Warrant, then, and in each such case, the Company, within thirty (30)
days thereafter, shall give written notice thereof to the registered holder of
this Warrant (the "NOTICE"). The Notice shall be mailed to the address of such
holder as shown on the books of the Company, and shall state the Warrant Price
as adjusted and the increased or decreased number of shares purchasable upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation of each.
(b) In the event that the Company shall propose at any time to
effect a Change of Control, the Company shall send to the Holder at least ten
(10) days' prior written notice of the date when the same shall take place.
(c) Each such written notice shall be given by first class mail,
postage prepaid, addressed to the Holder at the address as shown on the books of
the Company for the Holder.
6. Investment Letter. Upon exercise or conversion of this Warrant in
accordance with the provisions hereof, the Holder shall either (i) execute and
deliver to the Company an investment letter in the form attached hereto as
Exhibit A or (ii) deliver to the Company an opinion of counsel for the Holder
reasonably satisfactory to the Company, stating that such exercise or conversion
is exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT").
7. Registration Rights. The Common Stock issued or issuable upon the
exercise or conversion of this Warrant are subject to registration in accordance
with the registration rights in favor of the Holder as provided for in that
certain Third Amended and Restated Stockholder Rights Agreement dated as of June
23, 1999 between the Company and certain holders of Company Preferred Stock.
8. Restrictions on Transfer. Certificates representing any of the
Common Stock acquired pursuant to the provisions of this Warrant shall have
endorsed thereon legends substantially in the following form, as appropriate.
(a) Unless such shares of Common Stock are received in a transaction
registered under the Securities Act and qualified (if necessary) under
applicable state securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURI-
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<PAGE> 5
TIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT."
(b) Any legend required to be placed thereon by any applicable state
securities laws.
9. Compliance with Act. The Holder, by acceptance hereof, agrees that
this Warrant and the Common Stock to be issued upon the exercise or conversion
hereof are being acquired solely for its own account and not as a nominee for
any other party and not with a view toward the resale or distribution thereof
and that it will not offer, sell or otherwise dispose of this Warrant or any of
the Common Stock to be issued upon the exercise or conversion hereof except in
accordance herewith and under circumstances which will not result in a violation
of the Securities Act or of applicable state securities laws.
10. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the Common Stock issued or issuable upon the exercise
hereof.
(b) No holder of this Warrant, as such, shall be entitled to vote
or receive dividends or be deemed to be a stockholder of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder of this Warrant, as such, any rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action,
receive notice of meetings, receive dividends or subscription rights, or
otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of and agreement to the foregoing terms and conditions.
(d) The Company will not, by amendment of its Restated Certificate
of Incorporation or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
(e) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or distribution, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
date and tenor.
-5-
<PAGE> 6
(f) This Warrant shall be nontransferable, other than pursuant to
(i) a transfer not involving a change in beneficial ownership, (ii) a
distribution without consideration of the Warrant by the Holder to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, or if the Holder is a limited liability company, to any of its
members, former members, or to the estate of any of its members or former
members, and (iii) any transfer by any Holder to (A) any individual or entity
controlled by, controlling, or under common control with, such Holder or (B) any
individual or entity with respect to which such Holder (or any person controlled
by, controlling, or under common control with, such Holder) has the power to
direct investment decisions
(g) This Warrant or any provision of this Warrant may be amended,
waived, discharged or terminated by a statement in writing signed by the either
(i) the Company and the holders of warrants representing at least sixty percent
(60%) of the Common Stock issuable upon exercise of all Warrants issued pursuant
to the Purchase Agreement, or (ii) the party against which enforcement of the
amendment, waiver, discharge or termination is sought. A written instrument
signed as provided in clause (i) above shall be effective as to all Warrants
issued under the Purchase Agreement.
(h) This Warrant shall be governed by the laws of the State of
Delaware.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: __________________, 1999
SUPERCONDUCTOR TECHNOLOGIES INC.
_______________________________________
Peter Thomas, Chief Executive Officer
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<PAGE> 8
EXHIBIT A
NOTICE OF EXERCISE
TO: Superconductor Technologies Inc.
1. The undersigned hereby elects to purchase ___________ shares of the
Common Stock of SUPERCONDUCTOR TECHNOLOGIES INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full, together with all applicable transfer taxes, if any.
2. The undersigned hereby elects to exercise the purchase right with
respect to ___________ shares of such Common Stock through Warrant Conversion,
as set forth in Section 3 of the attached Warrant.
3. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_________________________________
(Name)
_________________________________
_________________________________
(Address)
4. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. In support thereof, the undersigned has executed the Investment
Representation Statement attached hereto as Exhibit A.
Signature of Holder
_________________________________
By:______________________________
Title:___________________________
Date:____________________________
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<PAGE> 9
EXHIBIT A TO NOTICE OF EXERCISE
SUPERCONDUCTOR TECHNOLOGIES INC.
WARRANT EXERCISE
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
COMPANY : Superconductor Technologies, Inc.
SECURITY : Common Stock
NUMBER OF SHARES :
DATE : ________________, _____
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Company the following:
(a) I am an accredited investor within the meaning of Rule 501 under
the Securities Act of 1933, as amended (the "Securities Act") and have such
knowledge and experience in financial and business matters that I am capable of
evaluating the merits and risks of the purchase of the Securities.
(b) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. In making my
decision to the acquire the Securities, I am not relying on representations of
any officer, director, stockholder or agent of the Company. I am purchasing
these Securities for my own account for investment purposes only and not with a
view to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act.
(c) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, and that
reliance by the Company on such an exemption is predicated in part on the
representations set forth in this letter.
(d) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, except as set forth in that
certain Third Amended and Restated Stockholder Rights Agreement dated as of June
__, 1999 between the Company and certain purchasers referred to therein, I
understand that the Company is under no obligation to register the Securities.
In addition, I understand that the certificate evidencing the Securities will be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for the Purchaser satisfactory to the Company or unless the Company
receives a no-action letter from the Securities and Exchange Commission.
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<PAGE> 10
(e) I am familiar with the provisions of Rule 144, promulgated under
the Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, including, among other things: (1)
the resale occurring not less than one year after the later of the date the
securities were sold by the Company or the date they were sold by an affiliate
of the Company, within the meaning of Rule 144; and, in the case of an
affiliate, or of a non-affiliate who has held the securities less than two
years, (2) the availability of certain public information about the Company, (3)
the sale being made through a broker in an unsolicited "broker's transaction" or
in transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934), and (4) the amount of securities being sold
during any three month period not exceeding the specified limitations stated
therein, if applicable.
(f) I further understand that at the time I wish to sell the Securities
there may be no public market upon which to make such a sale, and that, even if
such a public market exists, the Company may not be satisfying the current
public information requirements of Rule 144, and that, in such event, I would be
precluded from selling the Securities under Rule 144 even if the one-year
minimum holding period had been satisfied.
(g) I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Signature of Purchaser
_________________________________
By:______________________________
Title:___________________________
Date:____________________________
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<PAGE> 1
EXHIBIT 4.3
Number D-_ [_______] Shares
Series D Preferred Stock
SUPERCONDUCTOR TECHNOLOGIES INC.
A Delaware Corporation
CAPITAL STOCK 32,000,000 SHARES
Par Value $0.001
Preferred Stock 2,000,000 Shares Common Stock 30,000,000 Shares
THIS CERTIFIES THAT *****[STOCKHOLDER]***** is the record holder of
***[NUMBER]*** fully paid and nonassessable shares of Series D Preferred Stock
of SUPERCONDUCTOR TECHNOLOGIES INC., transferable only on the share register of
said corporation, in person or by duly authorized attorney, upon surrender of
this certificate properly endorsed or assigned.
This certificate and the shares represented thereby shall be held
subject to all of the provisions of the Certificate of Incorporation and the
Bylaws of the Corporation, a copy of each of which is no file at the office of
the Corporation, and made a part hereof as fully as though the provisions of
said Certificate of Incorporation and Bylaws are imprinted in full on this
certificate, to all of which the holder of this certificate, by acceptance
hereof, asserts and agrees to be bound.
Any stockholder may obtain from the principal office of the
Corporation, upon request and without charge, a statement of the number of
shares constituting each class or series of stock and the designation thereof;
and a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights granted to or imposed upon the respective classes or series of
stock and upon the holders thereof by said Certificate of Incorporation and the
Bylaws.
WITNESS the Seal of the corporation and the signature of its duly
authorized officers this ___ day of ____, 1999.
_______________________________ _______________________________
James G. Evans, Jr., Secretary M. Peter Thomas, President
<PAGE> 2
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
FOR VALUE RECEIVED ______________________________ hereby sells, assigns, and
transfers unto ___________________ ____________________ Shares represented by
the within certificate and do hereby irrevocably constitute and appoint
____________________________, attorney to transfer the said shares on the share
register of the within named corporation with full power of substitution in the
premises.
DATED ___________________, 199__
IN PRESENCE OF __________________________ _______________________________
(Witness) (Stockholder)
_______________________________
(Stockholder)
<PAGE> 1
EXHIBIT 10.2
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of June 18, 1999 and is made by and
between SUPERCONDUCTOR TECHNOLOGIES, INC., a Delaware corporation (the
"Borrower"), and PNC BANK, NATIONAL ASSOCIATION ("Bank").
WITNESSETH:
WHEREAS, Borrower has requested Bank to provide a revolving credit
facility to Borrower in an aggregate principal amount not to exceed
$2,500,000.00; and
WHEREAS, the revolving credit facility shall be used for general and
corporate working capital purposes; and
WHEREAS, Bank is willing to provide such credit upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 Certain Definitions.
In addition to words and terms defined elsewhere in this
Agreement, the following words and terms shall have the following meanings,
respectively, unless the context hereof clearly requires otherwise:
Accounts shall mean all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
Affiliate as to any Person shall mean any other Person (i) which
directly or indirectly controls, is controlled by, or is under common control
with such Person, (ii) which beneficially owns or holds 15% or more of any class
of the voting or other equity interests of such Person, or (iii) 15% or more of
any class of voting interests or other equity interests of which is beneficially
owned or held, directly or indirectly, by such Person. Control, as used in this
definition, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, including
the power to elect a majority of the directors or trustees of a corporation or
trust, as the case may be.
Agreement shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules and exhibits.
Annual Statements shall have the meaning assigned to that term
in Section 5.1.8.1.
Authorized Officer shall mean those individuals, designated by
written notice to Bank from Borrower, authorized to execute notices, reports and
other documents on behalf of Borrower required hereunder. The Borrower may amend
such list of individuals from time to time by giving written notice of such
amendment to Bank.
Base Rate shall mean the interest rate per annum announced from
time to time by Bank at its Principal Office as its then prime rate, which rate
may not be the lowest rate then being charged commercial borrowers by Bank.
<PAGE> 2
Borrower shall mean Superconductor Technologies, Inc., a
corporation organized and existing under the laws of the State of Delaware.
Borrower's Books shall mean all of Borrower's books and records
including, without limitation: ledgers, records concerning Borrower's assets or
liabilities, business operations or financial condition; and all computer
programs, or tape files and the equipment containing such information.
Borrowing Base means an amount equal to (I) eighty percent (80%)
of Eligible Accounts PLUS (II) $500,000 until December 31, 1999, after which the
Borrowing Base shall be as set forth in (i) above.
Borrowing Date shall mean, with respect to any Revolving Credit
Loan, the date for the making thereof, which shall be a Business Day.
Business Day shall mean any day other than a Saturday or Sunday
or a legal holiday on which commercial banks are authorized or required to be
closed for business in Pittsburgh, Pennsylvania.
Cash Flow from Operations for any period of determination shall
mean (i) the sum of net income, depreciation, amortization, other non-cash
charges to net income, interest expense and income tax expense minus (ii)
non-cash credits to net income, in each case of Borrower for such period
determined and in accordance with GAAP.
Closing Date shall mean June 18, 1999 or, the date upon which
all the conditions specified in Section 7 have been satisfied or waived.
Collateral shall mean the UCC Collateral and the Intellectual
Property Collateral.
Commitment shall mean an extension of credit in an amount of up
to Two Million Five Hundred Thousand Dollars ($2,500,000).
Commitment Fee shall have the meaning assigned to that term in
Section 2.2.
Consideration shall mean with respect to any Permitted
Acquisition, the aggregate of (i) the cash paid by Borrower, directly or
indirectly, to the seller in connection therewith, (ii) the Indebtedness
incurred or assumed by Borrower, whether in favor of the seller or otherwise and
whether fixed or contingent, (iii) any Guaranty given or incurred by any Person
in connection therewith, and (iv) any other consideration given or obligation
incurred by Borrower in connection therewith.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful
money of the United States of America.
Eligible Accounts means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in the Security Agreement;
provided, that standards of eligibility may be fixed and revised from time to
time by Bank in Bank's reasonable judgment, in accordance with Bank policy and
upon notification thereof to Borrower in accordance with the provisions hereof.
Unless otherwise agreed to by Bank in writing, Eligible Accounts shall not
include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty percent (20%) of
all Accounts, except with respect to account debtors that have been approved by
Bank in writing to exceed the aforementioned percentage;
2
<PAGE> 3
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof, except for those Accounts of the United States or any
department, agency or instrumentality thereof as to which the payee has assigned
its rights to payment thereof to Bank and the assignment has been acknowledged,
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines
after inquiry and consultation with Borrower to be doubtful.
Environmental Complaint shall mean any written complaint setting
forth a cause of action for personal or property damage or natural resource
damage or equitable relief, order, notice of violation, citation, request for
information issued pursuant to any Environmental Laws by an Official Body,
subpoena or other written notice of any type relating to, arising out of, or
issued pursuant to, any of the Environmental Laws or any Environmental
Conditions, as the case may be.
Environmental Conditions shall mean any conditions of the
environment, including the workplace, the ocean, natural resources (including
flora or fauna), soil, surface water, groundwater, any actual or potential
drinking water supply sources, substrata or the ambient air, relating to or
arising out of, or caused by, the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, emptying,
discharging, injecting, escaping, leaching, disposal, dumping, threatened
release or other management or mismanagement of Regulated Substances resulting
from the use of, or operations on, any Property.
Environmental Laws shall mean all federal, state, local and
foreign Laws and regulations, including permits, licenses, authorizations,
bonds, orders, judgments, and consent decrees issued, or entered into, pursuant
thereto, relating to pollution or protection of human health or the environment
or employee safety in the workplace.
ERISA shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
Event of Default shall mean any of the events described in
Section 8.1 and referred to therein as an "Event of Default."
Expiration Date shall mean, with respect to the Revolving Credit
Commitment, July 1, 2000.
3
<PAGE> 4
Financial Projections shall have the meaning assigned to that
term in Section 5.1.8.2.
GAAP shall mean generally accepted accounting principles as are
in effect from time to time, subject to the provisions of Section 1.3, and
applied on a consistent basis both as to classification of items and amounts.
Guaranty of any Person shall mean any obligation of such Person
guaranteeing or in effect guaranteeing any liability or obligation of any other
Person in any manner, whether directly or indirectly, including any agreement to
indemnify or hold harmless any other Person, any performance bond or other
suretyship arrangement and any other form of assurance against loss, except
endorsement of negotiable or other instruments for deposit or collection in the
ordinary course of business.
Historical Statements shall have the meaning assigned to that
term in Section 5.1.8(i).
Indebtedness shall mean, as to any Person at any time, any and
all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such Person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations (contingent or
otherwise) under any letter of credit, currency swap agreement, interest rate
swap, cap, collar or floor agreement or other interest rate management device,
(iv) any other transaction (including forward sale or purchase agreements,
capitalized leases and conditional sales agreements) having the commercial
effect of a borrowing of money entered into by such Person to finance its
operations or capital requirements (but not including trade payables and accrued
expenses incurred in the ordinary course of business which are not represented
by a promissory note or other evidence of indebtedness and which are not more
than sixty (60) days past due), or (v) any Guaranty of Indebtedness for borrowed
money.
Ineligible Security shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.
Insolvency Proceeding shall mean, with respect to any Person,
(a) a case, action or proceeding with respect to such Person (i) before any
court or any other Official Body under any bankruptcy, insolvency,
reorganization or other similar Law now or hereafter in effect, or (ii) for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of Borrower or otherwise
relating to the liquidation, dissolution, winding-up or relief of such Person,
or (b) any general assignment for the benefit of creditors, composition,
marshaling of assets for creditors, or other, similar arrangement in respect of
such Person's creditors generally or any substantial portion of its creditors;
undertaken under any Law.
Intellectual Property Collateral shall mean all of the property
described in the Intellectual Property Security Agreement.
Interim Statements shall have the meaning assigned to that term
in Section 5.1.8.1.
Internal Revenue Code shall mean the Internal Revenue Code of
1986, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
Labor Contracts shall mean all employment agreements, employment
contracts, collective bargaining agreements and other material agreements among
Borrower and its employees.
Law shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Lien shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge or other encumbrance or security arrangement of any
nature whatsoever, whether voluntarily or involuntarily given,
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including any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security and any filed financing statement or other notice of any of the
foregoing (whether or not a lien or other encumbrance is created or exists at
the time of the filing).
Loan Documents shall mean this Agreement, the Warrant, the Note,
the Intellectual Property Security Agreement, the Security Agreement, and any
other instruments, certificates or documents delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or therewith, as the
same may be supplemented or amended from time to time in accordance herewith or
therewith, and Loan Document shall mean any of the Loan Documents.
Loan Request shall have the meaning given to such term in
Section 2.3.
Material Adverse Change shall mean any set of circumstances or
events which (a) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of this Agreement
or any other Loan Document, (b) is or could reasonably be expected to be
material and adverse to the business, properties, assets, financial condition,
results of operations or prospects of Borrower taken as a whole, (c) impairs
materially or could reasonably be expected to impair materially the ability of
Borrower taken as a whole to duly and punctually pay or perform its
Indebtedness, or (d) impairs materially or could reasonably be expected to
impair materially the ability of Bank, to the extent permitted, to enforce their
legal remedies pursuant to this Agreement or any other Loan Document.
Note shall mean the Revolving Credit Note.
Notices shall have the meaning assigned to that term in Section
8.7.
Obligation shall mean any obligation or liability of Borrower or
Bank, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
under or in connection with this Agreement, the Note or any other Loan Document.
Official Body shall mean any national, federal, state, local or
other government or political subdivision or any agency, authority, bureau,
central bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
Intellectual Property Security Agreement shall mean the
Intellectual Property Security Agreement in substantially the form of Exhibit A
executed and delivered by Borrower to Bank.
Permitted Acquisitions shall have the meaning assigned to such
term in Section 7.2.6.
Permitted Investments shall mean:
(a) direct obligations of the United States of America or any
agency or instrumentality thereof or obligations backed by the full faith and
credit of the United States of America maturing in twelve (12) months or less
from the date of acquisition;
(b) commercial paper maturing in 270 days or less rated not
lower than A-1, by Standard & Poor's or P-1 by Moody's Investors Service, Inc.
on the date of acquisition; and
(c) demand deposits, time deposits or certificates of deposit
maturing within one year in commercial banks whose obligations are rated A-1, A
or the equivalent or better by Standard & Poor's on the date of acquisition.
(d) any investments permitted by Borrower's investment policy,
as amended from time to time, provided that such investment policy has been
approved by Bank;
(e) investments consisting of the endorsement of negotiable
instruments for deposit or
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collection or similar transactions in the ordinary course of business;
(f) investments accepted in connection with transactions
permitted by Section 7.2.7;
(g) investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business; and
(h) deposit accounts of Borrower in which Bank has a Lien prior
to any other lien.
Permitted Liens shall mean:
(a) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business and which are either not yet due and payable
or being contested in good faith or Borrower maintains such reserves or other
appropriate provisions as shall be required by GAAP and pays all such taxes,
assessments or charges forthwith upon the commencement of proceedings to
foreclose any such Lien;
(b) Pledges or deposits made in the ordinary course of business
to secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age pensions
or other social security programs;
(c) Liens of mechanics, materialmen, warehousemen, carriers, or
other like Liens, securing obligations incurred in the ordinary course of
business and Liens of landlords securing obligations to pay lease payments that
are not in default;
(d) Good-faith pledges or deposits made in the ordinary course
of business to secure performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, not in excess of the aggregate
amount due thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the ordinary course of
business;
(e) Encumbrances consisting of zoning restrictions, easements or
other restrictions on the use of real property, none of which materially impairs
the use of such property or the value thereof, and none of which is violated in
any material respect by existing or proposed structures or land use;
(f) Liens, security interests and mortgages in favor of Bank;
(g) Liens on property leased by Borrower under capital and
operating leases permitted in Section 7.2.15 securing obligations of Borrower to
the lessor under such leases;
(h) Any Lien existing on the date of this Agreement and
described on Schedule 1, provided that the principal amount secured thereby is
not hereafter increased, and no additional assets become subject to such Lien;
(i) Purchase Money Security Interests, provided that the
aggregate amount of loans and deferred payments secured by such Purchase Money
Security Interests shall not exceed $3,500,000 (excluding for the purpose of
this computation any loans or deferred payments secured by Liens described on
Schedule 1); and
(j) The following, (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final judgment is entered and such judgment is discharged
within thirty (30) days of entry, and in either case they do not affect the
Collateral or, in the aggregate, materially impair the ability of Borrower to
perform its Obligations hereunder or under the other Loan Documents:
(k) Claims, Liens or encumbrances upon, and defects of title to,
real or personal property other than the Collateral, including any attachment of
personal or real property or other legal process prior to adjudication of a
dispute on the merits; or
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(l) Liens resulting from final judgments or orders described in
Section 8.1.6; or
(m) Leases or subleases and licenses or sublicenses granted in
the ordinary course of Borrower's business and any interest or title of a
lessor, licensor under any lease or license subject to the limitations found in
Sections 7.2.1, 7.2.7 and 7.2.15 hereof.
Person shall mean any individual, corporation, partnership,
limited liability company, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political subdivision
or agency thereof, or any other entity.
Plan shall mean at any time an employee pension benefit plan
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code.
PNC Bank shall mean PNC Bank, National Association, its
successors and assigns.
Potential Default shall mean any event or condition which with
notice, passage of time or a determination by Bank would constitute an Event of
Default.
Principal Office shall mean the main banking office of Bank in
Pittsburgh, Pennsylvania.
Prior Security Interest shall mean a valid and enforceable
perfected first-priority security interest under the Uniform Commercial Code in
the UCC Collateral which is subject only to Liens for taxes not yet due and
payable to the extent such prospective tax payments are given priority by
statute or Purchase Money Security Interests as permitted hereunder.
Property shall mean all real property, both owned and leased, of
Borrower.
Purchase Money Security Interest shall mean Liens upon tangible
personal property securing loans to Borrower or deferred payments by such
Borrower for the purchase of such tangible personal property.
Quick Assets shall mean, as of any applicable date, the cash,
cash equivalents, accounts receivable and investments with maturities of fewer
than 90 days of Borrower.
Regulated Substances shall mean any substance, including any
solid, liquid, semisolid, gaseous, thermal, thoriated or radioactive material,
refuse, garbage, wastes, chemicals, petroleum products, by-products, coproducts,
impurities, dust, scrap, heavy metals, defined as a "hazardous substance,"
"pollutant," "pollution," "contaminant," "hazardous or toxic substance,"
"extremely hazardous substance," "toxic chemical," "toxic waste," "hazardous
waste," "industrial waste," "residual waste," "solid waste," "municipal waste,"
"mixed waste," "infectious waste," "chemotherapeutic waste," "medical waste," or
"regulated substance" or any related materials, substances or wastes as now or
hereafter defined pursuant to any Environmental Laws, ordinances, rules,
regulations or other directives of any Official Body, the generation,
manufacture, extraction, processing, distribution, treatment, storage, disposal,
transport, recycling, reclamation, use, reuse, spilling, leaking, dumping,
injection, pumping, leaching, emptying, discharge, escape, release or other
management or mismanagement of which is regulated by the Environmental Laws.
Regulation U shall mean Regulation U, T, or X as promulgated by
the Board of Governors of the Federal Reserve System, as amended from time to
time.
Revolving Credit Loans shall mean collectively and Revolving
Credit Loan shall mean separately all Revolving Credit Loans or any Revolving
Credit Loan made by Bank to Borrower pursuant to Section 2.1.
Revolving Credit Note shall mean the Revolving Credit Note of
Borrower in the form of Exhibit B evidencing the Revolving Credit Loans together
with all amendments, extensions, renewals, replacements, refinancings or
refundings thereof in whole or in part.
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Revolving Facility Usage shall mean at any time the sum of the
Revolving Credit Loans outstanding.
Section 20 Subsidiary shall mean the Subsidiary of the bank
holding company controlling any Bank, which Subsidiary has been granted
authority by the Federal Reserve Board to underwrite and deal in certain
Ineligible Securities.
Security Agreement shall mean the Security Agreement in
substantially the form of Exhibit C executed and delivered by Borrower to Bank.
Shares shall have the meaning assigned to that term in the
Warrant.
Standard & Poor's shall mean Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc.
Subsidiary of any Person at any time shall mean (i) any
corporation or trust of which 50% or more (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such Person or one or
more of such Person's Subsidiaries, (ii) any partnership of which such Person is
a general partner or of which 50% or more of the partnership interests is at the
time directly or indirectly owned by such Person or one or more of such Person's
Subsidiaries, or (iii) any limited liability company of which such Person is a
member or of which 50% or more of the limited liability company interests is at
the time, directly or indirectly owned by such Person or one or more of such
Person's Subsidiaries.
Tangible Net Worth shall mean as of any date of determination
total stockholders' equity less intangible assets of Borrower as of such date
determined in accordance with GAAP.
UCC Collateral shall mean the property of Borrower in which
security interests are to be granted under the Security Agreement.
Uniform Commercial Code shall have the meaning assigned to that
term in Section 5.1.15.
Warrant shall mean a warrant in favor of Bank to purchase
securities of Borrower substantially in the form of Exhibit D.
1.2 Construction.
Unless the context of this Agreement otherwise clearly requires,
the following rules of construction shall apply to this Agreement and each of
the other Loan Documents:
1.2.1 Number; Inclusion.
References to the plural include the singular, the plural, the
part and the whole; "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation";
1.2.2 Documents Taken as a Whole.
The words "hereof," "herein," "hereunder," "hereto" and similar
terms in this Agreement or any other Loan Document refer to this Agreement or
such other Loan Document as a whole and not to any particular provision of this
Agreement or such other Loan Document;
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1.2.3 Headings.
The section and other headings contained in this Agreement or
such other Loan Document and the Table of Contents (if any), preceding this
Agreement or such other Loan Document are for reference purposes only and shall
not control or affect the construction of this Agreement or such other Loan
Document or the interpretation thereof in any respect;
1.2.4 Implied References to this Agreement.
Article, section, subsection, clause, schedule and exhibit
references are to this Agreement or other Loan Document, as the case may be,
unless otherwise specified;
1.2.5 Persons.
Reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are permitted by
this Agreement or such other Loan Document, as the case may be, and reference to
a Person in a particular capacity excludes such Person in any other capacity;
1.2.6 Modifications to Documents.
Reference to any agreement (including this Agreement and any
other Loan Document together with the schedules and exhibits hereto or thereto),
document or instrument means such agreement, document or instrument as amended,
modified, replaced, substituted for, superseded or restated;
1.2.7 From, To and Through.
Relative to the determination of any period of time, "from"
means "from and including," "to" means "to but excluding," and "through" means
"through and including"; and
1.2.8 Shall; Will.
References to "shall" and "will" are intended to have the same
meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all computations
and determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP; provided, however, that all accounting terms
used in Section 7.2 [Negative Covenants] (and all defined terms used in the
definition of any accounting term used in Section 7.2 shall have the meaning
given to such terms (and defined terms) under GAAP as in effect on the date
hereof applied on a basis consistent with those used in preparing the Annual
Statements referred to in Section 5.1.8.1 [Historical Statements]. In the event
of any change after the date hereof in GAAP, and if such change would result in
the inability to determine compliance with the financial covenants set forth in
Section 7.2 based upon Borrower's regularly prepared financial statements by
reason of the preceding sentence, then the parties hereto agree to endeavor, in
good faith, to agree upon an amendment to this Agreement that would adjust such
financial covenants in a manner that would not affect the substance thereof, but
would allow compliance therewith to be determined in accordance with Borrower's
financial statements at that time.
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2. REVOLVING CREDIT FACILITY
2.1 Revolving Credit Commitment.
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, Bank agrees to make Revolving
Credit Loans to Borrower at any time or from time to time on or after the date
hereof to the Expiration Date in an aggregate outstanding amount not to exceed
the Commitment or the Borrowing Base, whichever is less. Within such limits of
time and amount and subject to the other provisions of this Agreement, Borrower
may borrow, repay and reborrow pursuant to this Section 2.1.
2.2 Commitment Fees.
Accruing from the date hereof until the Expiration Date,
Borrower agrees to pay to Bank, as consideration for such Bank's Commitment
hereunder, a nonrefundable commitment fee (the "Commitment Fee") equal to 0.625%
per annum (computed on the basis of a year of 360 days) on the average daily
difference between the amount of (i) the Commitment and the (ii) the sum of
Revolving Credit Loans outstanding. All Commitment Fees shall be payable in
arrears on the first Business Day of each quarter after the date hereof and on
the Expiration Date or upon acceleration of the Note.
2.3 Revolving Credit Loan Requests.
Except as otherwise provided herein, Borrower may from time to
time prior to the Expiration Date request Bank to make Revolving Credit Loans,
by delivering to Bank, not later than 10:00 a.m., Pittsburgh time, one (1)
Business Day prior to the proposed Borrowing Date a duly completed request
therefor substantially in the form of Exhibit E or a request by telephone
immediately confirmed in writing by letter, facsimile or telex in such form
(each, a "Loan Request"), it being understood that Bank may rely on the
authority of any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Loan Request shall be
irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the
aggregate amount of the proposed Revolving Credit Loans, which shall be in
integral multiples of $100,000.
2.4 Revolving Credit Note.
The Obligation of Borrower to repay the aggregate unpaid
principal amount of the Revolving Credit Loans made to it by Bank, together with
interest thereon, shall be evidenced by a Revolving Credit Note dated the
Closing Date payable to the order of Bank in a face amount equal to the
Commitment.
2.5 Use of Proceeds.
The proceeds of the Revolving Credit Loans shall be used for
general and corporate working capital purposes and in accordance with Section
7.1.10 [Use of Proceeds].
3. INTEREST RATE, PAYMENT
3.1 Interest Rate.
Except as set forth in Section 3.2.1, Revolving Credit Loans
shall bear interest, on the average daily balance thereof, at a fluctuating rate
per annum (computed on the basis of a year of 360 days) equal to the Base Rate
plus 1%, such interest rate to change automatically from time to time effective
as of the effective date of each change in the Base Rate.
3.2 Interest After Default.
To the extent permitted by Law, upon the occurrence of an Event
of Default and until such time such Event of Default shall have been cured or
waived:
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3.2.1 Obligations.
Each Obligation hereunder if not paid when due shall bear
interest at a rate per annum equal to the sum of the rate of interest applicable
under the Revolving Credit Loans plus an additional 3% per annum from the time
such Obligation becomes due and payable and until it is paid in full.
3.2.2 Acknowledgment.
The Borrower acknowledges that the increase in rates referred to
in this Section 3.2 reflects, among other things, the fact that such Revolving
Credit Loans or other amounts have become a substantially greater risk given
their default status and that Bank is entitled to additional compensation for
such risk; and all such interest shall be payable by Borrower upon demand by
Bank.
4. PAYMENTS
4.1 Payments.
All payments and prepayments to be made in respect of principal,
interest, Commitment Fees or other fees or amounts due from Borrower hereunder
shall be payable prior to 11:00 a.m., Pittsburgh time, on the date when due
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by Borrower, and without set-off, counterclaim or other
deduction of any nature, and an action therefor shall immediately accrue. Such
payments shall be made to Bank at the Principal Office in U.S. Dollars and in
immediately available funds. The Bank's statement of account, ledger or other
relevant record shall, in the absence of manifest error, be conclusive as the
statement of the amount of principal of and interest on the Revolving Credit
Loans and other amounts owing under this Agreement and shall be deemed an
"account stated."
4.2 Interest Payment Dates.
Interest on Revolving Credit Loans shall be due and payable in
arrears on the first Business Day of each month after the date hereof and on the
Expiration Date or upon acceleration of the Note. Interest on the principal
amount of each Revolving Credit Loan or other monetary Obligation shall be due
and payable on demand after such principal amount or other monetary Obligation
becomes due and payable (whether on the stated maturity date, upon acceleration
or otherwise).
4.3 Voluntary Prepayments.
4.3.1 Right to Prepay.
The Borrower shall have the right at its option from time to
time to prepay the Revolving Credit Loans in whole or part without premium or
penalty.
Whenever Borrower desires to prepay any part of the Revolving
Credit Loans, it shall provide a prepayment notice to Bank by 1:00 p.m. at least
one (1) Business Day prior to the date of prepayment of Revolving Credit Loans
setting forth the following information:
(a) the date, which shall be a Business Day, on which the
proposed prepayment is to be made;
(b) the total principal amount of such prepayment, which shall
not be less than $100,000.
All prepayment notices shall be irrevocable. The principal
amount of the Revolving Credit Loans for which a prepayment notice is given,
together with interest on such principal amount, shall be due and payable on the
date specified in such prepayment notice as the date on which the proposed
prepayment is to be made.
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5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties.
Borrower represents and warrants to Bank as follows:
5.1.1 Organization and Qualification.
Borrower is a corporation duly organized, validly existing and
in good standing under the laws of Delaware. Borrower has the lawful power to
own or lease its properties and to engage in the business it presently conducts
or proposes to conduct. Borrower is duly licensed or qualified and in good
standing in each jurisdiction listed on Schedule 5.1.1 and in all other
jurisdictions where the property owned or leased by it or the nature of the
business transacted by it or both makes such licensing or qualification
necessary.
5.1.2 Capitalization and Ownership.
The authorized capital stock of Borrower consists of 30,000,000
shares of common stock and 2,000,000 of preferred stock of which 7,737,216
shares of common stock and 168,751 shares of Preferred Stock are issued and
outstanding and are owned as indicated on Schedule 5.1.2. All of the outstanding
shares have been validly issued and are fully paid and nonassessable. There are
no options, warrants or other rights outstanding to purchase any such shares
except as indicated on Schedule 5.1.2.
5.1.3 Power and Authority.
Borrower has full power to enter into, execute, deliver and
carry out this Agreement and the other Loan Documents to which it is a party, to
incur the Indebtedness contemplated by the Loan Documents and to perform its
Obligations under the Loan Documents to which it is a party, and all such
actions have been duly authorized by all necessary proceedings on its part.
5.1.4 Validity and Binding Effect.
This Agreement has been duly and validly executed and delivered
by Borrower, and each other Loan Document which Borrower is required to execute
and deliver on or after the date hereof will have been duly executed and
delivered by Borrower on the required date of delivery of such Loan Document.
This Agreement and each other Loan Document constitutes, or will constitute,
legal, valid and binding obligations of Borrower which is or will be a party
thereto on and after its date of delivery thereof, enforceable against Borrower
in accordance with its terms, except to the extent that enforceability of any of
such Loan Document may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforceability of creditors'
rights generally or limiting the right of specific performance.
5.1.5 No Conflict.
Other than as set forth on Schedule 5.1.5, neither the execution
and delivery of this Agreement or the other Loan Documents by Borrower nor the
consummation of the transactions herein or therein contemplated or compliance
with the terms and provisions hereof or thereof by any of them will conflict
with, constitute a default under or result in any breach of (i) the terms and
conditions of the certificate of incorporation, bylaws or other organizational
documents of Borrower or (ii) any Law or any material agreement or instrument or
order, writ, judgment, injunction or decree to which Borrower is a party or by
which it is bound or to which it is subject, or result in the creation or
enforcement of any Lien, charge or encumbrance whatsoever upon any property (now
or hereafter acquired) of Borrower (other than Liens granted under the Loan
Documents).
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5.1.6 Litigation.
There are no actions, suits, proceedings or investigations
pending or, to the knowledge of Borrower, threatened against Borrower at law or
equity before any Official Body which individually or in the aggregate could
reasonably be expected to result in any Material Adverse Change. Borrower is not
in violation of any order, writ, injunction or any decree of any Official Body
which could reasonably be expected to result in any Material Adverse Change.
5.1.7 Title to Properties.
The real property owned or leased by Borrower is described on
Schedule 5.1.7. Borrower has good and marketable title to or valid leasehold
interest in all properties, assets and other rights which it purports to own or
lease or which are reflected as owned or leased on its books and records, free
and clear of all Liens and encumbrances except Permitted Liens, and subject to
the terms and conditions of the applicable leases. All leases of property are in
full force and effect without the necessity for any consent which has not
previously been obtained upon consummation of the transactions contemplated
hereby.
5.1.8 Financial Statements.
5.1.8.1 Historical Statements. The Borrower has
delivered to Bank copies of its audited year-end financial statements for and as
of the end of the fiscal year ended December 31, 1998 (the "Annual Statements").
In addition, Borrower has delivered to Bank copies of its unaudited interim
financial statements for the fiscal year to date and as of the end of the fiscal
quarter ended March 31, 1999 (the "Interim Statements") (the Annual and Interim
Statements being collectively referred to as the "Historical Statements"). The
Historical Statements were compiled from the books and records maintained by
Borrower's management, are correct and complete and fairly represent the
consolidated financial condition of Borrower as of their dates and the results
of operations for the fiscal periods then ended and have been prepared in
accordance with GAAP consistently applied, subject (in the case of the Interim
Statements) to normal year-end audit adjustments.
5.1.8.2 Financial Projections. The Borrower has
delivered to Bank financial projections of Borrower for the period of calendar
year 1999 derived from various assumptions of Borrower's management (the
"Financial Projections"). The Financial Projections represent a reasonable range
of possible results in light of the history of the business, present and
foreseeable conditions and the intentions of Borrower's management. The
Financial Projections accurately reflect the liabilities of Borrower upon
consummation of the transactions contemplated hereby as of the Closing Date.
5.1.8.3 Accuracy of Financial Statements. Borrower does
not have any liabilities, contingent or otherwise, or forward or long-term
commitments that are not disclosed in the Historical Statements or in the notes
thereto, and except as disclosed therein there are no unrealized or anticipated
losses from any commitments of Borrower which could reasonably be expected to
cause a Material Adverse Change. Since December 31, 1998, no Material Adverse
Change has occurred.
5.1.9 Use of Proceeds; Margin Stock; Section 20 Subsidiaries.
5.1.9.1 General.
Borrower intends to use the proceeds of the Revolving Credit
Loans in accordance with Section 2.5.
5.1.9.2 Margin Stock.
Borrower does not engage or intend to engage principally, or as
one of its important activities, in the business of extending credit for the
purpose, immediately, incidentally or ultimately, of purchasing or carrying
margin stock (within the meaning of Regulation U). No part of the proceeds of
any Revolving Credit Loan has been or will be used, immediately, incidentally or
ultimately, to purchase or carry any margin stock or to extend credit to
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others for the purpose of purchasing or carrying any margin stock or to refund
Indebtedness originally incurred for such purpose, or for any purpose which
entails a violation of or which is inconsistent with the provisions of the
regulations of the Board of Governors of the Federal Reserve System. Borrower
does not hold or intend to hold margin stock in such amounts that more than 25%
of the reasonable value of the assets of Borrower is or will be represented by
margin stock.
5.1.9.3 Section 20 Subsidiaries.
Borrower does not intend to use and shall not use any portion of
the proceeds of the Revolving Credit Loans, directly or indirectly (i) knowingly
to purchase any Ineligible Securities from a Section 20 Subsidiary during any
period in which such Section 20 Subsidiary makes a market in such Ineligible
Securities, (ii) knowingly to purchase during the underwriting or placement
period Ineligible Securities being underwritten or privately placed by a Section
20 Subsidiary, or (iii) to make payments of principal or interest on Ineligible
Securities underwritten or privately placed by a Section 20 Subsidiary and
issued by or for the benefit of Borrower or any Affiliate of Borrower.
5.1.10 Full Disclosure.
Neither this Agreement nor any other Loan Document, nor any
certificate, statement, agreement or other documents furnished to Bank in
connection herewith or therewith, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which they
were made, not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower are not to be viewed as facts and that actual
results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results). There is no fact
known to Borrower which materially adversely affects the business, property,
assets, financial condition, results of operations or prospects of Borrower
which has not been set forth in this Agreement or in the certificates,
statements, agreements or other documents furnished in writing to Bank prior to
or at the date hereof in connection with the transactions contemplated hereby.
5.1.11 Taxes.
All federal, state, local and other tax returns required to have
been filed with respect to Borrower have been filed, and payment or adequate
provision has been made for the payment of all taxes, fees, assessments and
other governmental charges which have or may become due pursuant to said returns
or to assessments received, except to the extent that such taxes, fees,
assessments and other charges are being contested in good faith by appropriate
proceedings diligently conducted and for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made. There are no agreements or waivers extending the statutory period of
limitations applicable to any federal income tax return of Borrower for any
period.
5.1.12 Consents and Approvals.
Except for the filing of financing statements in the state and
county filing offices, no consent, approval, exemption, order or authorization
of, or a registration or filing with, any Official Body or any other Person is
required by any Law or any agreement in connection with the execution, delivery
and carrying out of this Agreement and the other Loan Documents by Borrower.
5.1.13 No Event of Default; Compliance with Instruments.
No event has occurred and is continuing and no condition exists
or will exist after giving effect to the borrowings or other extensions of
credit to be made on the Closing Date under or pursuant to the Loan Documents
which constitutes an Event of Default or Potential Default. Other than as set
forth in Schedule 5.1.13, Borrower is not in violation of (i) any term of its
certificate of incorporation, bylaws, or other organizational documents or (ii)
any material agreement or instrument to which it is a party or by which it or
any of its properties may be subject or bound where such violation could
reasonably be expected to constitute a Material Adverse Change.
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5.1.14 Patents, Trademarks, Copyrights, Licenses, Etc.
Borrower owns or possesses all the material patents, trademarks,
service marks, trade names, copyrights, licenses, registrations, franchises,
permits and rights necessary to own and operate its properties and to carry on
its business as presently conducted and planned to be conducted by Borrower,
without known possible, alleged or actual conflict with the rights of others.
All material patents, trademarks, service marks, trade names, copyrights,
licenses, registrations, franchises and permits of Borrower are listed and
described in the Intellectual Property Security Agreement.
5.1.15 Security Interests.
The Liens and security interests granted to Bank pursuant to the
Intellectual Property Security Agreement, and the Security Agreement in the
Collateral constitute and will continue to constitute Prior Security Interests
under the Uniform Commercial Code as in effect in each applicable jurisdiction
(the "Uniform Commercial Code") or other applicable Law entitled to all the
rights, benefits and priorities provided by the Uniform Commercial Code or such
Law. Upon the filing of financing statements relating to said security interests
in each office and in each jurisdiction where required in order to perfect the
security interests described above, and recordation of the Intellectual Property
Security Agreement in the United States Patent and Trademark Office and United
States Copyright Office, as applicable, all such action as is necessary or
advisable to establish such rights of Bank will have been taken, and there will
be upon execution and delivery, the Intellectual Property Security Agreement,
and the Security Agreement, such filings and such taking of possession, no
necessity for any further action in order to preserve, protect and continue such
rights, except the filing of continuation statements with respect to such
financing statements within six months prior to each five-year anniversary of
the filing of such financing statements. All filing fees and other reasonable
expenses in connection with each such action have been or will be paid by
Borrower.
5.1.16 Insurance.
All insurance policies and other bonds to which Borrower is a
party are valid and in full force and effect. No notice has been given or claim
made and no grounds exist to cancel or avoid any of such policies or bonds or to
reduce the coverage provided thereby. Such policies and bonds provide adequate
coverage from reputable and financially sound insurers in amounts sufficient to
insure the assets and risks of Borrower in accordance with prudent business
practice in the industry of Borrower.
5.1.17 Compliance with Laws.
Borrower are in compliance in all material respects with all
applicable Laws (other than Environmental Laws which are specifically addressed
in Section 5.1.22 Environmental Matters) in all jurisdictions in which Borrower
is presently or will be doing business except where the failure to do so could
reasonably be expected to constitute a Material Adverse Change.
5.1.18 Material Contracts; Burdensome Restrictions.
Other than as set forth on Schedule 5.1.18, all material
contracts of Borrower are valid, binding and enforceable upon Borrower and each
of the other parties thereto in accordance with their respective terms, and
there is no default thereunder, to Borrower's knowledge, with respect to parties
other than Borrower. Borrower is not bound by any contractual obligation, or
subject to any restriction in any organization document, or any requirement of
Law which could result in a Material Adverse Change.
5.1.19 Investment Companies; Regulated Entities.
Borrower is not an "investment company" registered or required
to be registered under the Investment Company Act of 1940 or under the "control"
of an "investment company" as such terms are defined in the Investment Company
Act of 1940 and shall not become such an "investment company" or under such
"control."
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Borrower is not subject to any other Federal state statute or regulation
limiting its ability to incur Indebtedness for borrowed money.
5.1.20 Intentionally Omitted.
5.1.21 Employment Matters.
Borrower is in compliance with the Labor Contracts and all
applicable federal, state and local labor and employment Laws including those
related to equal employment opportunity and affirmative action, labor relations,
minimum wage, overtime, child labor, medical insurance continuation, worker
adjustment and relocation notices, immigration controls and worker and
unemployment compensation, where the failure to comply would constitute a
Material Adverse Change. To Borrower's knowledge, there are no outstanding
grievances, arbitration awards or appeals therefrom arising out of the Labor
Contracts or current or threatened strikes, picketing, handbilling or other work
stoppages or slowdowns at facilities of Borrower which in any case would
constitute a Material Adverse Change.
5.1.22 Environmental Matters.
(a) Borrower has not received any Environmental Complaint from
any Official Body or private Person alleging that Borrower or any prior or
subsequent owner of any of the Property is a potentially responsible party under
the Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C.
Section 9601, et seq., and Borrower has no reason to believe that such an
Environmental Complaint might be received. There are no pending or, to
Borrower's knowledge, threatened Environmental Complaints relating to Borrower
or, to any Borrower's knowledge, any prior or subsequent owner of any of the
Property pertaining to, or arising out of, any Environmental Conditions.
(b) There are no circumstances at, on or under any of the
Property that constitute a breach of or non-compliance in any material respect
with any of the Environmental Laws, and there are no past or present
Environmental Conditions at, on or under any of the Property or, to Borrower's
knowledge, at, on or under adjacent property, that prevent compliance in any
material respect with the Environmental Laws at any of the Property.
(c) Neither any of the Property nor any structures,
improvements, equipment, fixtures, activities or facilities thereon or
thereunder contain or use Regulated Substances except in compliance in all
material respects with Environmental Laws. There are no processes, facilities,
operations, equipment or other activities at, on or under any of the Property,
or, to Borrower's knowledge, at, on or under adjacent property, that currently
result in the release or threatened release of Regulated Substances onto any of
the Property, except to the extent that such releases or threatened releases are
not a material breach of or otherwise not a violation of the Environmental Laws.
(d) There are no aboveground storage tanks, underground storage
tanks or underground piping associated with such tanks, used for the management
of Regulated Substances at, on or under any of the Property that (a) do not
have, to the extent required by Environmental Laws, a full operational secondary
containment system in place, and (b) are not otherwise in compliance with all
Environmental Laws. To Borrower's knowledge, there are no abandoned underground
storage tanks or underground piping associated with such tanks, previously used
for the management of Regulated Substances at, on or under any of the Property
that have not either been closed in place in accordance with Environmental Laws
or removed in compliance with all applicable Environmental Laws and no
contamination associated with the use of such tanks exists on any of the
Property that is not in compliance with Environmental Laws.
(e) Borrower has all material permits, licenses, authorizations,
plans and approvals necessary under the Environmental Laws for the conduct of
its business as presently conducted. Borrower has submitted all material
notices, reports and other filings required by the Environmental Laws to be
submitted to an Official Body which pertain to past and current operations on
any of the Property.
(f) All past and present on-site generation, storage,
processing, treatment, recycling, reclamation, disposal or other use or
management of Regulated Substances at, on, or under any of the Property and
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all off-site transportation, storage, processing, treatment, recycling,
reclamation, disposal or other use or management of Regulated Substances have
been done in accordance, in all material respects with the Environmental Laws.
5.1.22 Year 2000. Borrower has reviewed the areas within its
business and operations which could be adversely affected by, and has developed
or is developing a program to address on a timely basis, the risk that certain
computer applications used by Borrower may be unable to recognize and perform
properly date-sensitive functions involving dates prior to and after December
31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem will not result in any
Material Adverse Change.
5.1.23 ERISA. Borrower does not have any employee benefit
arrangements subject to the provisions of ERISA and has not in the past, nor
does it currently have set up for the benefit of Borrower's employees, any Plan.
6. CONDITIONS OF LENDING
The obligation of Bank to make Revolving Credit Loans hereunder is
subject to the performance by Borrower of its Obligations to be performed
hereunder at or prior to the making of any such Revolving Credit Loans and to
the satisfaction of the following further conditions:
6.1 First Loans.
On the Closing Date:
6.1.1 Officer's Certificate.
The representations and warranties of Borrower contained in
Section 5 and in each of the other Loan Documents shall be true and accurate on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of such date (except representations and
warranties which relate solely to an earlier date or time, which representations
and warranties shall be true and correct on and as of the specific dates or
times referred to therein), and Borrower shall have performed and complied with
all covenants and conditions hereof and thereof, no Event of Default or
Potential Default shall have occurred and be continuing or shall exist; and
there shall be delivered to Bank a certificate of Borrower, dated the Closing
Date and signed by the Chief Executive Officer, President or Chief Financial
Officer of Borrower, to each such effect.
6.1.2 Secretary's Certificate.
There shall be delivered to Bank a certificate dated the Closing
Date and signed by the Secretary or an Assistant Secretary of Borrower,
certifying as appropriate as to:
(a) all action taken by Borrower in connection with this
Agreement and the other Loan Documents;
(b) the names of the officer or officers authorized to sign this
Agreement and the other Loan Documents and the true signatures of such officer
or officers and specifying the Authorized Officers permitted to act on behalf of
Borrower for purposes of this Agreement and the true signatures of such
officers, on which Bank may conclusively rely; and
(c) copies of its organizational documents, including its
certificate of incorporation and bylaws, as in effect on the Closing Date
certified by the appropriate state official where such documents are filed in a
state office together with certificates from the appropriate state officials as
to the continued existence and good standing of Borrower in each state where
organized or qualified to do business and a bring-down certificate by facsimile
dated the Closing Date.
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6.1.3 Delivery of Loan Documents.
The Note, the Intellectual Property Security Agreement, and the
Security Agreement shall have been duly executed and delivered to Bank, together
with all appropriate financing statements and appropriate stock powers and
certificates evidencing the Shares.
6.1.4 Opinion of Counsel.
There shall be delivered to Bank a written opinion of Wilson,
Sonsini, Goodrich and Rosati, counsel for Borrower (who may rely on the opinions
of such other counsel as may be acceptable to Bank), dated the Closing Date and
in form and substance satisfactory to Bank and its counsel:
(a) as to the matters set forth in Exhibit I; and
(b) as to such other matters incident to the transactions
contemplated herein as Bank may reasonably request.
6.1.5 Legal Details.
All legal details and proceedings in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be in form and substance satisfactory to Bank and counsel for Bank, and Bank
shall have received all such other counterpart originals or certified or other
copies of such documents and proceedings in connection with such transactions,
in form and substance satisfactory to Bank and said counsel, as Bank or said
counsel may reasonably request.
6.1.6 Payment of Fees.
The Borrower shall have paid or caused to be paid to Bank to the
extent not previously paid all commitment and other fees accrued through the
Closing Date and the costs and expenses for which Bank are entitled to be
reimbursed.
6.1.7 Officer's Certificate Regarding MACs.
Since December 31, 1998, no Material Adverse Change shall have
occurred; prior to the Closing Date, there shall have been no material change in
the management of Borrower; and there shall have been delivered to Bank a
certificate dated the Closing Date and signed by the Chief Executive Officer,
President or Chief Financial Officer of Borrower to each such effect.
6.1.8 No Violation of Laws.
The making of the Revolving Credit Loans shall not contravene
any Law applicable to Borrower or Bank.
6.1.9 No Actions or Proceedings.
No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or which, in
Bank's sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents.
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6.1.10 Insurance Policies; Certificates of Insurance;
Endorsements.
Borrower shall have delivered evidence acceptable to Bank that
adequate insurance in compliance with Section 7.1.3 [Maintenance of Insurance]
is in full force and effect and that all premiums then due thereon have been
paid, together with a certified copy of Borrower's casualty insurance policy or
policies evidencing coverage satisfactory to Bank, with additional insured,
mortgagee and lender loss payable special endorsements attached thereto in form
and substance satisfactory to Bank and its counsel naming Bank as additional
insured, mortgagee and lender loss payee.
6.1.11 Filing Receipts.
Bank shall have received (1) copies of all filing receipts and
acknowledgments issued by any governmental authority to evidence any recordation
or filing necessary to perfect the Lien of Bank on the Collateral or other
satisfactory evidence of such recordation and filing and (2) evidence in a form
acceptable to Bank that such Lien constitutes a Prior Security Interest in favor
of Bank and a valid and perfected first priority Lien.
6.1.12 Landlord's Waiver.
Borrower shall have delivered, or undertaken its best efforts to
deliver, an executed Landlord's Waiver in substantially the form of Exhibit F
from the lessor for each leased Collateral location, as listed on Schedule A to
the Security Agreement.
6.1.13 Warrant.
Bank shall have received the Warrant, duly executed by Borrower;
6.1.14 Amendment
Bank shall have received a duly executed amendment to the
current investor/registration rights agreement providing Bank with registration
rights for the shares issuable upon exercise of the Warrant.
6.1.15 Equity Funding
Bank shall have received all documents it may reasonably request
evidencing the equity funding to be closed prior to, concurrently with, or soon
after the Closing Date.
6.2 Each Additional Revolving Credit Loan.
At the time of making any Revolving Credit Loans other than
Revolving Credit Loans on the Closing Date and after giving effect to the
proposed extensions of credit: the representations and warranties of Borrower
contained in Section 5 and in the other Loan Documents shall be true on and as
of the date of such additional Revolving Credit Loan with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which expressly relate solely to an
earlier date or time, which representations and warranties shall be true and
correct on and as of the specific dates or times referred to therein) and
Borrower shall have performed and complied with all covenants and conditions
hereof; no Event of Default or Potential Default shall have occurred and be
continuing or shall exist; the making of the Revolving Credit Loans shall not
contravene any Law applicable to Borrower or Bank; and Borrower shall have
delivered to Bank a duly executed and completed Loan Request as the case may be.
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7. COVENANTS
7.1 Affirmative Covenants.
Borrower covenants and agrees that until payment in full of the
Revolving Credit Loans, and interest thereon, satisfaction of all of Borrower's
other Obligations under the Loan Documents and termination of the Commitments,
Borrower shall comply at all times with the following affirmative covenants:
7.1.1 Preservation of Existence, Etc.
Borrower shall maintain its legal existence as a corporation and
its license or qualification and good standing in each jurisdiction in which its
ownership or lease of property or the nature of its business makes such license
or qualification necessary, except as otherwise expressly permitted in Section
7.2.6 [Liquidations, Mergers, Etc.] and where the failure to do so could not
reasonably expected to result in a Material Adverse Change.
7.1.2 Payment of Liabilities, Including Taxes, Etc.
Borrower shall duly pay and discharge all liabilities to which
it is subject or which are asserted against it, promptly as and when the same
shall become due and payable, including all taxes, assessments and governmental
charges upon it or any of its properties, assets, income or profits, prior to
the date on which penalties attach thereto, except to the extent that such
liabilities, including taxes, assessments or charges, are being contested in
good faith and by appropriate and lawful proceedings diligently conducted and
for which such reserve or other appropriate provisions, if any, as shall be
required by GAAP shall have been made, but only to the extent that failure to
discharge any such liabilities would not result in any additional liability
which would adversely affect to a material extent the financial condition of
Borrower or which would affect the Collateral, provided that Borrower will pay
all such liabilities forthwith upon the commencement of proceedings to foreclose
any Lien which may have attached as security therefor.
7.1.3 Maintenance of Insurance.
Borrower shall insure its properties and assets against loss or
damage by fire and such other insurable hazards as such assets are commonly
insured (including fire, extended coverage, property damage, workers'
compensation, public liability and business interruption insurance) and against
other risks (including errors and omissions) in such amounts as similar
properties and assets are insured by prudent companies in similar circumstances
carrying on similar businesses, and with reputable and financially sound
insurers, including self-insurance to the extent customary, all as reasonably
determined by Bank. At the request of Bank, Borrower shall deliver to Bank (x)
on the Closing Date and annually thereafter an original certificate of insurance
signed by Borrower's independent insurance broker describing and certifying as
to the existence of the insurance on the Collateral required to be maintained by
this Agreement and the other Loan Documents, together with a copy of the
endorsement described in the next sentence attached to such certificate and (y)
from time to time a summary schedule indicating all insurance then in force with
respect to Borrower. Such policies of insurance shall contain special
endorsements, in form and substance acceptable to Bank, which shall (i) specify
Bank as an additional insured, mortgagee and lender loss payee as its interests
may appear, with the understanding that any obligation imposed upon the insured
(including the liability to pay premiums) shall be the sole obligation of
Borrower and not that of the insured, (ii) provide that the interest of Bank
shall be insured regardless of any breach or violation by Borrower of any
warranties, declarations or conditions contained in such policies or any action
or inaction of Borrower or others insured under such policies, (iii) provide a
waiver of any right of the insurers to set off or counterclaim or any other
deduction, whether by attachment or otherwise, (iv) provide that any and all
rights of subrogation which the insurers may have or acquire shall be, at all
times and in all respects, junior and subordinate to the prior payment in full
of the Indebtedness hereunder and that no insurer shall exercise or assert any
right of subrogation until such time as the Indebtedness hereunder has been paid
in full and the Commitments have terminated, (v) provide, except in the case of
public liability insurance and workmen's compensation insurance, that all
insurance proceeds for losses of less than $500,000 shall be adjusted with and
payable to Borrower and that all insurance proceeds for losses of $500,000 or
more shall be adjusted with and payable to Bank, (vi) include effective waivers
by the insurer of all claims for insurance premiums against Bank, (vii) provide
that no cancellation of such
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policies for any reason (including non-payment of premium) nor any change
therein shall be effective until at least thirty (30) days after receipt by Bank
of written notice of such cancellation or change, (viii) be primary without
right of contribution of any other insurance carried by or on behalf of any
additional insureds with respect to their respective interests in the
Collateral, and (ix) provide that inasmuch as the policy covers more than one
insured, all terms, conditions, insuring agreements and endorsements (except
limits of liability) shall operate as if there were a separate policy covering
each insured. Borrower shall notify Bank promptly of any occurrence causing a
material loss or decline in value of the Collateral and the estimated (or
actual, if available) amount of such loss or decline. Any monies received by
Bank constituting insurance proceeds or condemnation proceeds may, at the option
of Bank, (i) be applied by Bank to the payment of the Revolving Credit Loans in
such manner as Bank may reasonably determine, or (ii) be disbursed to Borrower
on such terms as are deemed appropriate by Bank for the repair, restoration
and/or replacement of property in respect of which such proceeds were received.
7.1.4 Maintenance of Properties and Leases.
Borrower shall maintain in good repair, working order and
condition (ordinary wear and tear excepted) in accordance with the general
practice of other businesses of similar character and size, all of those
properties useful or necessary to its business, and from time to time, Borrower
will make or cause to be made all appropriate repairs, renewals or replacements
thereof.
7.1.5 Maintenance of Intellectual Property Collateral.
Borrower shall maintain in full force and effect all patents,
trademarks, service marks, trade names, copyrights, licenses, franchises,
permits and other authorizations necessary for the ownership and operation of
its properties and business in accordance with prudent business practices as
determined by Borrower and if the failure so to maintain the same would
constitute a Material Adverse Change.
7.1.6 Visitation Rights.
Subject to Borrower's reasonable security and confidentiality
requirements, Borrower shall permit any of the officers or authorized employees
or representatives of Bank to visit and inspect any of its properties and to
examine and make excerpts from its books and records and discuss its business
affairs, finances and accounts with its officers, all in such detail and at such
times and as often as Bank may reasonably request, provided that Bank shall
provide Borrower with reasonable notice prior to any visit or inspection,
provided, further that such inspections shall be limited to twice per fiscal
year so long as no Event of Default has occurred.
7.1.7 Keeping of Records and Books of Account.
Borrower shall maintain and keep proper books of record and
account which enable Borrower to issue financial statements in accordance with
GAAP and as otherwise required by applicable Laws of any Official Body having
jurisdiction over Borrower, and in which full, true and correct entries shall be
made in all material respects of all its dealings and business and financial
affairs.
7.1.8 Intentionally Omitted.
7.1.9 Compliance with Laws.
Borrower shall comply with all applicable Laws, including all
Environmental Laws, in all respects, provided that it shall not be deemed to be
a violation of this Section 7.1.9 if any failure to comply with any Law would
not result in fines, penalties, remediation costs, other similar liabilities or
injunctive relief which in the aggregate would constitute a Material Adverse
Change.
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7.1.10 Use of Proceeds.
The Loan Parties will use the proceeds of the Revolving Credit
Loans only for (i) general corporate purposes and for working capital, (ii) to
finance Permitted Acquisitions, or (iii) to repay and terminate Indebtedness
outstanding under that certain credit facility with Silicon Valley Bank.
7.1.11 Further Assurances.
Borrower shall, from time to time, at its reasonable expense,
faithfully preserve and protect Bank's Lien on and Prior Security Interest in
the Collateral as a continuing first priority perfected Lien, subject only to
Permitted Liens, and shall do such other acts and things as Bank in its sole
discretion may deem necessary or advisable from time to time in order to
preserve, perfect and protect the Liens granted under the Loan Documents and to
exercise and enforce its rights and remedies thereunder with respect to the
Collateral.
7.1.12 Principal Depository. After the Closing Date, Borrower
shall maintain its principal operating accounts with Bank. There shall be no
minimum balance requirements. Borrower shall set up a lock box arrangement with
Bank for the receipt of Accounts and Borrower agrees to execute all
documentation required by Bank for that purpose.
7.1.13 New Equity. Borrower shall receive a new equity infusion
[from the issuance of Series D Preferred Stock] of not less than $2,000,000 on
or before August 1, 1999.
7.2 Negative Covenants.
Borrower covenants and agrees that until payment in full of the
Revolving Credit Loans and interest thereon, satisfaction of all of Borrower's
other Obligations hereunder and termination of the Commitments, Borrower shall
comply with the following negative covenants:
7.2.1 Indebtedness.
Borrower shall not at any time create, incur, assume or suffer
to exist any Indebtedness, except the following ("Permitted Indebtedness"):
(a) Indebtedness under the Loan Documents;
(b) Existing Indebtedness as set forth on Schedule 7.2.1
(including any extensions or renewals thereof, provided there is no increase in
the amount thereof or other significant change in the terms thereof unless
otherwise specified on Schedule 7.2.1;
(c) Capitalized and operating leases as and to the extent
permitted under Section 7.2.15 [Capital Expenditures and Leases];
(d) Indebtedness secured by Purchase Money Security Interests
and for the purchase of certain equipment (with the consent of Bank) not
exceeding $3,500,000 including amounts allowed under (b) and (c) above;
(e) Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of business;
(f) Indebtedness secured by Permitted Liens;
(g) Other Indebtedness not otherwise permitted hereunder not
exceeding $250,000 in the aggregate outstanding at any time; and
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(h) Extensions, modifications, amendments, refinancings and
restatements of any of the Permitted Indebtedness listed above, provided that
the principal amount thereof is not increased or the terms thereof are not
modified to impose more burdensome terms upon Borrower.
7.2.2 Liens.
Borrower shall not at any time create, incur, assume or suffer
to exist any Lien on any of its property or assets, tangible or intangible, now
owned or hereafter acquired, or agree or become liable to do so, except
Permitted Liens.
7.2.3 Guaranties.
Borrower shall not at any time, directly or indirectly, become
or be liable in respect of any Guaranty, or assume, guarantee, become surety
for, endorse or otherwise agree, become or remain directly or contingently
liable upon or with respect to any obligation or liability of any other Person.
7.2.4 Loans and Investments.
Borrower shall not at any time make or suffer to remain
outstanding any loan or advance to, or purchase, acquire or own any stock,
bonds, notes or securities of, or any partnership interest (whether general or
limited) or limited liability company interest in, or any other investment or
interest in, or make any capital contribution to, any other Person, or agree,
become or remain liable to do any of the foregoing, except:
(a) trade credit extended on usual and customary terms in the
ordinary course of business;
(b) advances to employees to meet expenses incurred by such
employees in the ordinary course of business and loans to employees, officers
and directors relating to the purchase of equity securities of Borrower pursuant
to its employee stock purchase plan or agreements approved by Borrower's Board
of Directors, but not in excess of an aggregate total of $250,000;
(c) Permitted Investments; and
(d) loans and investments, other than those set forth in (i)
through (iii) above which in the aggregate do not exceed $500,000 per annum.
7.2.5 Dividends and Related Distributions.
Other than dividend obligations to holders of preferred stock,
Borrower shall not make or pay, or agree to become or remain liable to make or
pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares of
capital stock, partnership interests or limited liability company interests on
account of the purchase, redemption, retirement or acquisition of its shares of
capital stock (or warrants, options or rights therefor), partnership interests
or limited liability company interests. Borrower may pay cash dividends so long
as an Event of Default does not exist after giving effect to such payment.
7.2.6 Liquidations, Mergers, Consolidations, Acquisitions.
Borrower shall not dissolve, liquidate or wind-up its affairs,
or become a party to any merger or consolidation, or acquire by purchase, lease
or otherwise all or substantially all of the assets or capital stock of any
other Person, provided that
Borrower may acquire, whether by purchase or by merger, (A) all
of the ownership interests of another Person or (B) substantially all of assets
of another Person or of a business or division of another Person (each an
"Permitted Acquisition") up to an aggregate amount of $1,000,000, provided that
each of the following requirements is met:
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(a) if Borrower is acquiring the ownership interests in such
Person, such Person shall execute such documentation as Bank may reasonably
require to join this Agreement on or before the date of such Permitted
Acquisition;
(b) Borrower, such Person and its owners, as applicable, shall
grant Liens in the assets of or acquired from and stock or other ownership
interests in such Person and execute such documentation as Bank may reasonably
require on or before the date of such Permitted Acquisition;
(c) the board of directors or other equivalent governing body of
such Person shall have approved such Permitted Acquisition and, if Borrower
shall use any portion of the Revolving Credit Loans to fund such Permitted
Acquisition, Borrower also shall have delivered to Bank written evidence of the
approval of the board of directors (or equivalent body) of such Person for such
Permitted Acquisition,
(d) the business acquired, or the business conducted by the
Person whose ownership interests are being acquired, as applicable, shall be
substantially the same as one or more line or lines of business conducted by
Borrower or reasonably related thereto and shall comply with Section 7.2.10
[Continuation of or Change in Business],
(e) no Potential Default or Event of Default shall exist
immediately prior to and after giving effect to such Permitted Acquisition,
(f) Borrower shall demonstrate that it shall be in compliance
with the covenants contained in Sections 7.2.16, 7.2.17, 7.2.18 and 7.2.19 after
giving effect to such Permitted Acquisition (including in such computation
Indebtedness or other liabilities assumed or incurred in connection with such
Permitted Acquisition but excluding income earned or expenses incurred by the
Person, business or assets to be acquired prior to the date of such Permitted
Acquisition) by delivering at least five (5) Business Days prior to such
Permitted Acquisition a certificate in the form of Exhibit G evidencing such
compliance.
(g) the Consideration paid by Borrower for all Permitted
Acquisitions made during the current fiscal year Borrower shall not exceed
$1,000,000 and the aggregate of the Consideration paid by Borrower for such
Permitted Acquisition and all other Permitted Acquisitions made between the
Closing Date and the date of such Permitted Acquisition shall not exceed
$1,000,000; and
(h) Borrower shall deliver to Bank at least five (5) Business
Days after such Permitted Acquisition copies of any agreements entered into or
proposed to be entered into by Borrower in connection with such Permitted
Acquisition and shall deliver to Bank such other information about such Person
or its assets as Borrower may reasonably require.
(i) for Permitted Acquisitions in excess of $1,000,000, Borrower
must obtain the prior written consent of Bank.
7.2.7 Dispositions of Assets or Subsidiaries.
Borrower shall not sell, convey, assign, lease, abandon or
otherwise transfer or dispose of, voluntarily or involuntarily, any of its
properties or assets, tangible or intangible (including sale, assignment,
discount or other disposition of accounts, contract rights, chattel paper,
equipment or general intangibles with or without recourse or of capital stock,
shares of beneficial interest, partnership interests or limited liability
company interests), except:
(a) transactions involving the sale of inventory in the ordinary
course of business;
(b) any sale, transfer or lease of assets in the ordinary course
of business which are no longer necessary or required in the conduct of
Borrower's business;
(c) any sale, transfer or lease of assets in the ordinary course
of business which are replaced by substitute assets acquired or leased within
the parameters of Section 7.2.15 [Capital Expenditures and Leases],
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<PAGE> 25
provided such substitute assets are subject to Bank's Prior Security Interest;
(d) any sales, transfers or leases of assets, other than those
specifically excepted pursuant to clauses (a) through (c) above, which in the
aggregate do not exceed $500,000 per year and any other sales or leases of
assets which are approved by Bank; or
(e) transfers of nonexclusive licenses of Borrower in the
ordinary course of business if such transfer does not result in Bank's
reasonable opinion, in a material reduction in the value of Bank's Intellectual
Property Collateral and such transfer does not cause a Material Adverse Change.
Notwithstanding the foregoing, Borrower shall not transfer its nonexclusive
licenses to Illinois Superconductor, Conductis, SCT or SSI without Bank's prior
written consent.
7.2.8 Affiliate Transactions.
Borrower shall not enter into or carry out any material
transaction (including purchasing property or services from or selling property
or services to any Affiliate of Borrower or other Person) unless such
transaction is not otherwise prohibited by this Agreement, is entered into in
the ordinary course of business upon fair and reasonable arm's-length terms and
conditions which are fully disclosed to Bank and is in accordance with all
applicable Law.
7.2.9 Subsidiaries, Partnerships and Joint Ventures.
Borrower shall not own or create directly or indirectly any
Subsidiaries other than (i) any Subsidiary which has joined this Agreement as
Guarantor on the Closing Date; and (ii) any Subsidiary formed after the Closing
Date which joins this Agreement as a Guarantor, provided that Bank shall have
consented to such formation and joinder and that such Subsidiary and Borrower,
as applicable, shall grant and cause to be perfected first priority Liens to
Bank for the benefit of Bank in the assets held by, and stock of or other
ownership interests in, such Subsidiary. Borrower shall not become or agree to
(1) become a general or limited partner in any general or limited partnership,
(2) become a member or manager of, or hold a limited liability company interest
in, a limited liability company.
7.2.10 Continuation of or Change in Business.
Borrower shall not engage in any business other than the
manufacture and marketing of wireless component products and HTS related
products or a business reasonably related thereto, substantially as conducted
and operated by Borrower during the present fiscal year, and Borrower shall not
permit any material change in such business.
7.2.11 Intentionally Omitted.
7.2.12 Fiscal Year.
Borrower shall not change its fiscal year from its current
fiscal year without giving Bank prior written notice.
7.2.13 Intentionally omitted
7.2.14 Changes in Organizational Documents.
Borrower shall not amend in any respect its certificate of
incorporation (including any provisions or resolutions relating to capital
stock), by-laws or other organizational documents without providing at least ten
(10) calendar days' prior written notice to Bank and, in the event such change
would cause a Material Adverse Change, obtaining the prior written consent of
Bank.
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<PAGE> 26
7.2.15 Capital Expenditures and Leases.
Borrower shall not make any payments exceeding $2,500,000 in the
aggregate in any fiscal year on account of the purchase or lease of any assets
which if purchased would constitute fixed assets or which if leased would
constitute a capitalized lease, or any payments exceeding $333,000 in the
aggregate in any fiscal year on account of the rental or lease of real or
personal property of any other Person which does not constitute a capitalized
lease, and all such capital expenditures and leases shall be made under usual
and customary terms and in the ordinary course of business.
7.2.16 Maximum Leverage Ratio.
Borrower shall not at any time permit the ratio of total
liabilities of Borrower to Tangible Net Worth to exceed 0.75:1 at all times.
7.2.17 Maximum Loss and Minimum Profitability.
Borrower shall not permit the loss for any one quarter to exceed
the amount set forth for the period specified below:
<TABLE>
<CAPTION>
Quarter Ending Loss Amount
-------------- -----------
<S> <C>
March 31, 1999 ($2,700,000)
June 30, 1999 ($2,450,000)
September 30, 1999 ($1,850,000)
December 31, 1999 ($850,000)
</TABLE>
Thereafter, Borrower shall not permit any two consecutive quarter losses.
7.2.18 Minimum Tangible Net Worth.
The Borrower shall not at any time permit Tangible Net Worth to
be less than the following amounts during the following periods:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Closing Date through June 29, 1999 $5,800,000
June 30, 1999 - September 29, 1999 $6,550,000
September 30, 1999 - December 30, 1999 $5,200,000
December 31, 1999 - March 30, 1999 $4,800,000
Thereafter $4,800,000 plus 100% of new
equity and 75% of net income
</TABLE>
The above requirements shall automatically increase by 100% of any new equity
raised prior to December 31, 1999 in excess of $3,000,000. The covenant includes
the equity infusion of $2,900,000 which occurred prior to the Closing Date.
7.2.19 Minimum Quick Ratio.
Borrower shall not at any time permit the ratio of Quick Assets
to current liabilities to be less than 0.60:1.0, from the Closing Date through
June 29, 1999; 0.95:1 from June 30, 1999 through September 29, 1999; 0.90:1 from
September 30, 1999 through December 30, 1999; 0.80:1 from December 31, 1999
through March 30, 2000 and 1.00:1 thereafter.
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<PAGE> 27
7.3 Reporting Requirements.
Borrower covenants and agrees that until payment in full of the
Loans and interest thereon, satisfaction of all of Borrower's other Obligations
hereunder and under the other Loan Documents and termination of the Commitments,
Borrower will furnish or cause to be furnished to Bank:
7.3.1 Monthly Financial Statements.
As soon as available and in any event within twenty (20)
calendar days after the end of each calendar month, Borrower's financial
statements, consisting of a balance sheet as of the end of such month and
related statements of income, stockholders' equity and cash flows for the month
then ended and the fiscal year through that date, all in reasonable detail and
certified (subject to normal year-end adjustments) by the Chief Executive
Officer, President or Chief Financial Officer of Borrower as having been
prepared in accordance with GAAP, consistently applied, and setting forth in
comparative form the respective financial statements for the corresponding date
and period in the previous fiscal year.
7.3.2 Quarterly Financial Statements.
As soon as available and in any event within forty-five (45)
calendar days after the end of each of the first three fiscal quarters in each
fiscal year, financial statements of Borrower, consisting of a balance sheet as
of the end of such fiscal quarter and related statements of income,
stockholders' equity and cash flows for the fiscal quarter then ended and the
fiscal year through that date, all in reasonable detail and certified (subject
to normal year-end audit adjustments) by the Chief Executive Officer, President
or Chief Financial Officer of Borrower as having been prepared in accordance
with GAAP, consistently applied, and setting forth in comparative form the
respective financial statements for the corresponding date and period in the
previous fiscal year and Borrower shall also deliver all reports filed on form
10-Q filed with the Securities and Exchange Commission.
7.3.3 Annual Financial Statements.
As soon as available and in any event within ninety (90) days
after the end of each fiscal year of Borrower, financial statements of Borrower
consisting of a balance sheet as of the end of such fiscal year, and related
statements of income, stockholders' equity and cash flows for the fiscal year
then ended, all in reasonable detail and setting forth in comparative form the
financial statements as of the end of and for the preceding fiscal year, and
certified by independent certified public accountants of nationally recognized
standing satisfactory to Bank and Borrower shall deliver all reports filed on
Form 10-K with the Securities and Exchange Commission. The certificate or report
of accountants shall be free of qualifications (other than any consistency
qualification that may result from a change in the method used to prepare the
financial statements as to which such accountants concur) and shall not indicate
the occurrence or existence of any event, condition or contingency which would
materially impair the prospect of payment or performance of any covenant,
agreement or duty of Borrower under any of the Loan Documents. Borrower shall
deliver with such financial statements and certification by its accountants a
letter of such accountants to Bank substantially (i) to the effect that, based
upon their ordinary and customary examination of the affairs of Borrower,
performed in connection with the preparation of such consolidated financial
statements, and in accordance with generally accepted auditing standards, they
are not aware of the existence of any condition or event which constitutes an
Event of Default or Potential Default or, if they are aware of such condition or
event, stating the nature thereof and confirming Borrower's calculations with
respect to the certificate to be delivered pursuant to Section 7.3.4
[Certificate of Borrower] with respect to such financial statements and (ii) to
the effect that Bank is intended to rely upon such accountant's certification of
the annual financial statements and that such accountants authorize Borrower to
deliver such reports and certificate to Bank on such accountants' behalf.
7.3.4 Certificate of Borrower.
Concurrently with the financial statements of Borrower furnished
to Bank pursuant to Sections 7.3.2 [Quarterly Financial Statements] and 7.3.3
[Annual Financial Statements], a certificate of Borrower signed by the Chief
Executive Officer, President or Chief Financial Officer of Borrower, in the form
of Exhibit G, to the effect that, except as described pursuant to Section 7.3.5
[Notice of Default], (i) the representations and
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<PAGE> 28
warranties of Borrower contained in Section 5 and in the other Loan Documents
are true on and as of the date of such certificate with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which expressly relate solely to an
earlier date or time) and Borrower have performed and complied with all
covenants and conditions hereof, (ii) no Event of Default or Potential Default
exists and is continuing on the date of such certificate and (iii) containing
calculations in sufficient detail to demonstrate compliance as of the date of
such financial statements with all financial covenants contained in Section 7.2
[Negative Covenants].
7.3.5 Notice of Default.
Promptly after any officer of Borrower has learned of the
occurrence of an Event of Default or Potential Default, a certificate signed by
the Chief Executive Officer, President or Chief Financial Officer of Borrower
setting forth the details of such Event of Default or Potential Default and the
action which Borrower proposes to take with respect thereto.
7.3.6 Notice of Litigation.
Promptly after the commencement thereof, notice of all actions,
suits, proceedings or investigations before or by any Official Body or any other
Person against Borrower which relate to the Collateral, involve a claim or
series of claims in excess of $250,000 or which if adversely determined would
constitute a Material Adverse Change.
7.3.7 Certain Events.
Written notice to Bank:
(a) at least thirty (30) calendar days prior thereto, with
respect to any proposed sale or transfer of assets pursuant to Section 7.2.7(d),
(b) within the time limits set forth in Section 7.2.14 [Changes
in Organizational Documents], any amendment to the organizational documents of
Borrower; and
(c) at least thirty (30) calendar days prior thereto, with
respect to any change in Borrower's locations from the locations set forth in
Schedule 1 to the Security Agreement.
7.3.8 Budgets, Forecasts, Other Reports and Information.
Promptly upon their becoming available to Borrower:
(a) the annual budget and any forecasts or projections of
Borrower, to be supplied not later than thirty (30) days prior to commencement
of the fiscal year to which any of the foregoing may be applicable,
(b) any reports including management letters submitted to
Borrower by independent accountants in connection with any annual, interim or
special audit,
(c) any reports, notices or proxy statements generally
distributed by Borrower to its stockholders on a date no later than the date
supplied to such stockholders,
(d) regular or periodic reports, including Forms 10-K, 10-Q and
8-K, registration statements and prospectuses, filed by Borrower with the
Securities and Exchange Commission,
(e) a copy of any order in any proceeding to which Borrower is a
party issued by any Official Body, and
(f) such other reports and information as Bank may from time to
time reasonably request.
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<PAGE> 29
The Borrower shall also notify Bank promptly of the enactment or adoption of any
Law which may result in a Material Adverse Change.
7.3.9 Borrowing Base Certificate. Within twenty (20) days after
the last day of each month, Borrower shall deliver to Bank a Borrowing Base
Certificate signed by a responsible officer in substantially the form of Exhibit
H hereto together with aged listings of accounts receivable and accounts
payable.
8. DEFAULT
8.1 Events of Default.
An Event of Default shall mean the occurrence or existence of
any one or more of the following events or conditions (whatever the reason
therefor and whether voluntary, involuntary or effected by operation of Law):
8.1.1 Payments Under Loan Documents.
The Borrower shall fail to pay any principal of any Revolving
Credit Loan (including scheduled installments, mandatory prepayments or the
payment due at maturity), or shall fail to pay any interest on any Revolving
Credit Loan or any other amount owing hereunder or under the other Loan
Documents after such principal, interest or other amount becomes due in
accordance with the terms hereof or thereof;
8.1.2 Breach of Warranty.
Any representation or warranty made at any time by Borrower
herein or by Borrower in any other Loan Document, or in any certificate, other
instrument or statement furnished pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading in any material respect as of the
time it was made or furnished;
8.1.3 Breach of Negative Covenants or Visitation Rights.
Borrower shall default in the observance or performance of any
covenant contained in Section 7.1.6 [Visitation Rights] or Section 7.2 [Negative
Covenants];
8.1.4 Breach of Other Covenants.
Borrower shall default in the observance or performance of any
other covenant, condition or provision hereof or of any other Loan Document and
such default shall continue unremedied for a period of ten (10) Business Days
after any officer of Borrower becomes aware of the occurrence thereof (such
grace period to be applicable only in the event such default can be remedied by
corrective action of Borrower as determined by Bank in its sole discretion);
8.1.5 Defaults in Other Agreements or Indebtedness.
A default or event of default shall occur at any time under the
terms of any other agreement involving borrowed money or the extension of credit
or any other Indebtedness under which Borrower may be obligated as a borrower or
guarantor in excess of $250,000 in the aggregate, and such breach, default or
event of default consists of the failure to pay (beyond any period of grace
permitted with respect thereto, whether waived or not) any indebtedness when due
(whether at stated maturity, by acceleration or otherwise) or if such breach or
default permits or causes the acceleration of any indebtedness (whether or not
such right shall have been waived) or the termination of any commitment to lend;
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<PAGE> 30
8.1.6 Final Judgments or Orders.
Any final judgments or orders for the payment of money in excess
of $250,000 in the aggregate shall be entered against Borrower by a court having
jurisdiction in the premises, which judgment is not discharged, vacated, bonded
or stayed pending appeal within a period of thirty (30) days from the date of
entry;
8.1.7 Loan Document Unenforceable.
Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged or contested or cease to give or
provide the respective Liens, security interests, rights, titles, interests,
remedies, powers or privileges intended to be created thereby;
8.1.8 Uninsured Losses; Proceedings Against Assets.
There shall occur any material uninsured damage to or loss,
theft or destruction of any of the Collateral in excess of $250,000 or the
Collateral or Borrower's assets are attached, seized, levied upon or subjected
to a writ or distress warrant; or such come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors and the
same is not cured within thirty (30) days thereafter;
8.1.9 Notice of Lien or Assessment.
A notice of Lien or assessment in excess of $250,000 which is
not a Permitted Lien is filed of record with respect to all or any part of
Borrower's assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, or any taxes or debts owing at any time or times hereafter
to any one of these becomes payable and the same is not paid within thirty (30)
days after the same becomes payable;
8.1.10 Insolvency.
Borrower ceases to be solvent or admits in writing its inability
to pay its debts as they mature;
8.1.11 Intentionally Omitted.
8.1.12 Cessation of Business.
Borrower ceases to conduct its business as contemplated, except
as expressly permitted under Section 7.2.6 [Liquidations, Mergers, Etc.] or
7.2.7 or 7.2.10, or Borrower is enjoined, restrained or in any way prevented by
court order from conducting all or any material part of its business and such
injunction, restraint or other preventive order is not dismissed within thirty
(30) days after the entry thereof;
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<PAGE> 31
8.1.13 Change of Control.
(a) Any person or group of persons (within the meaning of
Sections 13(d) or 14(a) of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership of (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act) 30% or
more of the voting capital stock of Borrower (with the exception of the Hillman
Company and Wilmington Securities); or (ii) within a period of twelve (12)
consecutive calendar months, individuals who were directors of Borrower on the
first day of such period shall cease to constitute a majority of the board of
directors of Borrower;
8.1.14 Involuntary Proceedings.
A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, or for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of Borrower for any substantial
part of its property, or for the winding-up or liquidation of its affairs, and
such proceeding shall remain undismissed or unstayed and in effect for a period
of thirty (30) consecutive days or such court shall enter a decree or order
granting any of the relief sought in such proceeding; or
8.1.15 Voluntary Proceedings.
Borrower shall commence a voluntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or other similar official) of itself or for any substantial part of its
property or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take any
action in furtherance of any of the foregoing.
8.2 Consequences of Event of Default.
8.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings.
If an Event of Default specified under Sections 8.1.1 through
8.1.13 shall occur and be continuing, Bank shall be under no further obligation
to make Revolving Credit Loans and Bank may, by written notice to Borrower,
declare the unpaid principal amount of the Notes then outstanding and all
interest accrued thereon, any unpaid fees and all other Indebtedness of Borrower
to Bank hereunder and thereunder to be forthwith due and payable, and the same
shall thereupon become and be immediately due and payable to Bank for the
benefit of Bank without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived.
8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.
If an Event of Default specified under Section 8.1.14
[Involuntary Proceedings] or 8.1.15 [Voluntary Proceedings] shall occur, Bank
shall be under no further obligations to make Revolving Credit Loans hereunder
and the unpaid principal amount of the Revolving Credit Loans then outstanding
and all interest accrued thereon, any unpaid fees and all other Indebtedness of
Borrower to Bank hereunder and thereunder shall be immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived; and
8.2.3 Suits, Actions, Proceedings.
If an Event of Default shall occur and be continuing, and
whether or not Bank shall have accelerated the maturity of Revolving Credit
Loans pursuant to any of the foregoing provisions of this Section 8.2, Bank, if
owed any amount with respect to the Revolving Credit Loans, may proceed to
protect and enforce its rights by suit in equity, action at law and/or other
appropriate proceeding, whether for the specific performance of any
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<PAGE> 32
covenant or agreement contained in this Agreement or the other Loan Documents,
including as permitted by applicable Law the obtaining of the ex parte
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of Bank; and
8.2.4 Application of Proceeds.
From and after the date on which Bank has taken any action
pursuant to this Section 8.2 and until all Obligations of Borrower have been
paid in full, any and all proceeds received by Bank from any sale or other
disposition of the Collateral, or any part thereof, or the exercise of any other
remedy by Bank, shall be applied as follows:
(a) first, to reimburse Bank for out-of-pocket costs, expenses
and disbursements, including reasonable attorneys' and paralegals' fees and
legal expenses, incurred by Bank in connection with realizing on the Collateral
or collection of any Obligations of any of Borrower under any of the Loan
Documents, including advances made by Bank or any one of them or Bank for the
reasonable maintenance, preservation, protection or enforcement of, or
realization upon, the Collateral, including advances for taxes, insurance,
repairs and the like and reasonable expenses incurred to sell or otherwise
realize on, or prepare for sale or other realization on, any of the Collateral;
(b) second, to the repayment of all Indebtedness then due and
unpaid of Borrower to Bank incurred under this Agreement or any of the other
Loan Documents, whether of principal, interest, fees, expenses or otherwise, in
such manner as Bank may determine in its discretion; and
(c) the balance, if any, as required by Law.
8.2.5 Other Rights and Remedies.
In addition to all of the rights and remedies contained in this
Agreement or in any of the other Loan Documents Bank shall have all of the
rights and remedies of a secured party under the Uniform Commercial Code or
other applicable Law, all of which rights and remedies shall be cumulative and
non-exclusive, to the extent permitted by Law. Bank may exercise all
post-default rights granted to Bank under the Loan Documents or applicable Law.
8.3 Notice of Sale.
Any notice required to be given by Bank of a sale, lease, or
other disposition of the Collateral or any other intended action by Bank, if
given ten (10) days prior to such proposed action, shall constitute commercially
reasonable and fair notice thereof to Borrower.
8.4 No Implied Waivers; Cumulative Remedies; Writing Required.
No course of dealing and no delay or failure of Bank in
exercising any right, power, remedy or privilege under this Agreement or any
other Loan Document shall affect any other or future exercise thereof or operate
as a waiver thereof, nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy or
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights and remedies of Bank under this Agreement and
any other Loan Documents are cumulative and not exclusive of any rights or
remedies which they would otherwise have. Any waiver, permit, consent or
approval of any kind or character on the part of Bank of any breach or default
under this Agreement or any such waiver of any provision or condition of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing.
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<PAGE> 33
8.5 Reimbursement and Indemnification of Bank by Borrower; Taxes.
The Borrower agrees unconditionally upon demand to pay or
reimburse to Bank and to save Bank harmless against (i) liability for the
payment of all reasonable out-of-pocket costs, expenses and disbursements
(including fees and expenses of counsel (including allocated costs of staff
counsel) for Bank except with respect to (a) and (b) below), incurred by Bank
(a) in connection with the administration and interpretation of this Agreement,
and other instruments and documents to be delivered hereunder, (b) relating to
any amendments, waivers or consents pursuant to the provisions hereof, (c) in
connection with the enforcement of this Agreement or any other Loan Document, or
collection of amounts due hereunder or thereunder or the proof and allowability
of any claim arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against Bank, in its capacity as such, in any way relating to or arising out of
this Agreement or any other Loan Documents or any action taken or omitted by
Bank hereunder or thereunder, provided that Borrower shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (A) if the same results from
Bank's gross negligence or willful misconduct, or (B) if Borrower was not given
notice of the subject claim and the opportunity to participate in the defense
thereof, at its expense (except that Borrower shall remain liable to the extent
such failure to give notice does not result in a loss to Borrower), or (C) if
the same results from a compromise or settlement agreement entered into without
the consent of Borrower, which shall not be unreasonably withheld. Borrower
agrees unconditionally to pay all stamp, document, transfer, recording or filing
taxes or fees and similar impositions now or hereafter determined by Bank to be
payable in connection with this Agreement or any other Loan Document, and
Borrower agrees unconditionally to save Banks harmless from and against any and
all present or future claims, liabilities or losses with respect to or resulting
from any omission to pay or delay in paying any such taxes, fees or impositions.
8.6 Holidays.
Whenever payment of a Revolving Credit Loan to be made or taken
hereunder shall be due on a day which is not a Business Day such payment shall
be due on the next Business Day and such extension of time shall be included in
computing interest and fees, except that the Loans shall be due on the Business
Day preceding the Expiration Date if the Expiration Date is not a Business Day.
Whenever any payment or action to be made or taken hereunder (other than payment
of the Loans) shall be stated to be due on a day which is not a Business Day,
such payment or action shall be made or taken on the next following Business Day
and such extension of time shall not be included in computing interest or fees,
if any, in connection with such payment or action.
8.7 Notices.
All notices, requests, demands, directions and other
communications (as used in this Section 8.7, collectively referred to as
"notices") given to or made upon any party hereto under the provisions of this
Agreement shall be by telephone or in writing (including telex or facsimile
communication) unless otherwise expressly permitted hereunder and shall be
delivered or sent by telex or facsimile to the respective parties at the
addresses and numbers set forth under their respective names on Schedule 8.7
hereof or in accordance with any subsequent unrevoked written direction from any
party to the others. All notices shall, except as otherwise expressly herein
provided, be effective (a) in the case of telex or facsimile, when received, (b)
in the case of hand-delivered notice, when hand-delivered, (c) in the case of
telephone, when telephoned, provided, however, that in order to be effective,
telephonic notices must be confirmed in writing no later than the next day by
letter, facsimile or telex, (d) if given by mail, four (4) days after such
communication is deposited in the mail with first-class postage prepaid, return
receipt requested, and (e) if given by any other means (including by air
courier), when delivered; provided, that notices to Bank shall not be effective
until received.
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8.8 Severability.
The provisions of this Agreement are intended to be severable. If
any provision of this Agreement shall be held invalid or unenforceable in whole
or in part in any jurisdiction, such provision shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without in
any manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
8.9 Governing Law.
This Agreement shall be deemed to be a contract under the Laws
of the Commonwealth of Pennsylvania and for all purposes shall be governed by
and construed and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.
8.10 Prior Understanding.
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments.
8.11 Duration; Survival.
All representations and warranties of Borrower contained herein
or made in connection herewith shall survive the making of Revolving Credit
Loans and shall not be waived by the execution and delivery of this Agreement,
any investigation by Bank, the making of Loans, or payment in full of the Loans.
All covenants and agreements of the Borrower contained in Sections 7.1
[Affirmative Covenants], 7.2 [Negative Covenants] and 7.3 [Reporting
Requirements] herein shall continue in full force and effect from and after the
date hereof and until termination of the Commitments and payment in full of the
Loans. All covenants and agreements of Borrower contained herein relating to the
payment of principal, interest, premiums, additional compensation or expenses
and indemnification, including those set forth in the Notes, Section 4
[Payments] and 8.5 [Reimbursement of Bank by Borrower; Etc.], shall survive
payment in full of the Loans and termination of Commitment.
8.12 Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to the
benefit of Bank, Borrower and their respective successors and assigns, except
that Borrower may assign or transfer any of its rights and Obligations hereunder
or any interest herein. Bank may make assignments of or sell participations in
all or any part of the Revolving Credit Loans made by it to one or more banks or
other entities.
8.13 Exceptions.
The representations, warranties and covenants contained herein
shall be independent of each other, and no exception to any representation,
warranty or covenant shall be deemed to be an exception to any other
representation, warranty or covenant contained herein unless expressly provided,
nor shall any such exceptions be deemed to permit any action or omission that
would be in contravention of applicable Law.
8.14 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH
PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 8.7 AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH PARTY
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<PAGE> 35
WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST
IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. BORROWER AND BANK HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT
PERMITTED BY LAW.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
<TABLE>
<CAPTION>
ATTEST: SUPERCONDUCTOR TECHNOLOGIES, INC.
<S> <C>
/s/ James G. Evans, Jr. By: /s/ M. Peter Thomas
Secretary Title: President, Chief Executive Officer
Superconductor Technologies, Inc
[Seal]
PNC BANK, NATIONAL ASSOCIATION
By: Gregory Cote
Title: Vice President
</TABLE>
35
<PAGE> 36
EXHIBIT A
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement (the "Agreement") is made
as of June 18, 1999 by and between Superconductor Technologies, Inc., a Delaware
corporation ("Grantor"), and PNC Bank, National Association, a national banking
association ("Secured Party").
RECITALS
A. Secured Party has agreed to lend to Grantor certain funds (the
"Loan"), and Grantor desires to borrow such funds from Secured Party pursuant to
the terms of a Credit Agreement dated as of the date hereof, between Grantor and
Secured Party (the "Credit Agreement").
B. In order to induce Secured Party to make the Loan, Grantor has agreed
to grant a first priority security interest in certain intangible property to
Secured Party for the benefit of Secured Party for purposes of securing the
obligations of Grantor to Secured Party.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Grant of Security Interest. As collateral security for the prompt and
complete payment and performance of all of Grantor's obligations and liabilities
of every nature, now or hereafter existing, under or arising out of or in
connection with the Credit Agreement or otherwise, and all extensions or
renewals thereof, whether for principal, interest, fees, expenses, indemnities
or otherwise, whether voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Secured Party as a preference,
fraudulent transfer or otherwise (all such obligations and liabilities being the
"Underlying Debt"), and all obligations of every nature of Grantor now or
hereafter existing under this Agreement (all such obligations, together with the
Underlying Debt, being the "Secured Obligations"), Grantor hereby assigns,
transfers, conveys and grants to Secured Party, a first priority security
interest, as security, in and to Grantor's entire right, title and interest in,
to and under the following (all of which shall collectively be called the
"Intellectual Property Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof that is created by Grantor, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held, including without limitation
those set forth on Exhibit A attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Grantor
now or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications set forth on Exhibit B attached
hereto (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Grantor connected with
and symbolized by such trademarks, including without limitation those set forth
on Exhibit C attached hereto (collectively, the "Trademarks");
<PAGE> 37
(f) Right to the proceeds (excluding attorneys' and other
professional and expert fees and expenses) arising from any and all claims for
damages by way of past, present and future infringement of any of the rights
included above, with the right, but not the obligation, to sue on behalf of and
collect such damages for said use or infringement of the intellectual property
rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
Notwithstanding the foregoing, the security interest herein
shall not extend to and the term "Intellectual Property Collateral" shall not
include any contracts, permits or licenses to the extent the granting of a
security interest therein (i) would be contrary to applicable law or (ii) any
contracts or licenses of Borrower, or any permits of Borrower, if and to the
extent such contract, license or permit contains restrictions on assignments and
the creation of any liens, or under which such an assignment or lien would cause
a default to occur under such contract, license or permit (other than to the
extent that any such term would be rendered ineffective pursuant to Section
9-318(4) of the Uniform Commercial Code of any relevant jurisdiction or any
other applicable law, including the Bankruptcy Code, or principles of equity);
provided that immediately upon the ineffectiveness, lapse or termination of any
such provision, the Intellectual Property Collateral shall include, and Borrower
shall be deemed to have granted a security interest in, all such rights and
interests as if such provision had never been in effect; provided further in all
cases that the Intellectual Property Collateral shall include any proceeds of
the foregoing.
2. Authorization and Request. Grantor authorizes and requests that
the Register of Copyrights and the Commissioner of Patents and
Trademarks record this security agreement.
3. Covenants and Warranties. Grantor represents, warrants,
covenants and agrees as follows:
(a) Grantor is now the sole owner of the Intellectual Property
Collateral, except for non-exclusive licenses granted by Grantor to its
customers in the ordinary course of business;
(b) Other than as set forth in schedule 3 hereto, performance of
this Agreement does not conflict with or result in a breach of any agreement to
which Grantor is party or by which Grantor is bound.
(c) During the term of this Agreement, Grantor will not transfer
or otherwise encumber any interest in the Intellectual Property Collateral,
except for non-exclusive licenses as permitted under Section 7.2.7(e) of the
Credit Agreement;
(d) Each of the Patents is valid and enforceable, and no part of
the Intellectual Property Collateral has been judged invalid or unenforceable,
in whole or in part, and no claim has been made that any part of the
Intellectual Property Collateral violates the rights of any third party;
(e) Grantor shall promptly advise Secured Party of any change in
the composition of the Intellectual Property Collateral, including but not
limited to any subsequent ownership right of the Grantor in or to any Trademark,
Patent or Copyright not specified in this Agreement;
(f) In accordance with its prudent business judgment, Grantor
shall (i) protect, defend and maintain the validity and enforceability of the
Trademarks, Patents and Copyrights, (ii) use its best efforts to detect
infringements of the Trademarks, Patents and Copyrights and promptly advise
Secured Party in writing of material infringements detected and (iii) not allow
any Trademarks, Patents or Copyrights to be abandoned, forfeited or
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dedicated to the public without the written consent of Secured Party, which
shall not be unreasonably withheld.
(g) Grantor shall promptly register with the United States
Copyright Office (i) any software material to the business of Grantor developed
or acquired by Grantor hereafter from time to time in connection with any
product developed or acquired for sale or licensing and (ii) any major revisions
or upgrades to such software, if not so already registered, and shall, from time
to time, execute and file such other instruments, and take such further actions
as Secured Party may reasonably request from time to time to perfect or continue
the perfection of Secured Party's interest in the Intellectual Property
Collateral;
(h) This Agreement creates in favor of Secured Party a valid
security interest in the Intellectual Property Collateral in the United States
listed on the Exhibits hereto securing the payment and performance of the
obligations evidenced by the Credit Agreement and the Notes, and upon the filing
of the UCC financing statements in the appropriate jurisdictions and making the
filings referred to in clause (i) below, a perfected first priority security
interest in such collateral;
(i) Except for, and upon, the filing with the United States
Patent and Trademark office with respect to the Patents and Trademarks and the
Register of Copyrights with respect to the Copyrights necessary to perfect the
security interests created hereunder, and except for the filing of the UCC
financing statements, and except as has been already made or obtained, no
authorization, approval or other action by, and no notice to or filing with, any
U.S. governmental authority or U.S. regulatory body is required either (i) for
the grant by Grantor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by Grantor in the U.S. or
(ii) for the perfection in the United States or the exercise by Secured Party of
its rights and remedies hereunder;
(j) All information heretofore, herein or hereafter supplied to
Secured Party by or on behalf of Grantor with respect to the Intellectual
Property Collateral is accurate and complete in all material respects.
(k) Grantor shall not enter into any agreement that would impair
or conflict with Grantor's obligations hereunder without Secured Party's prior
written consent, which consent shall not be unreasonably withheld. Grantor shall
not permit the inclusion in any contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Grantor's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts, except that certain contracts may contain anti-assignment provisions
that could in effect prohibit the creation of a security interest in such
contracts, and except that Grantor shall not be prohibited from granting
non-exclusive licenses, or entering into marketing and distribution agreements
in the normal course of its business.
(l) Upon any executive officer of Grantor obtaining actual
knowledge thereof, Grantor will promptly notify Secured Party in writing of any
event that materially adversely affects the value of the Intellectual Property
Collateral, the ability of Grantor to dispose of any Intellectual Property
Collateral or the rights and remedies of Secured Party in relation thereto,
including the levy of any legal process against any of the Intellectual Property
Collateral.
4. Secured Party's Rights. Secured Party shall have the right, but not
the obligation, to take, at Grantor's sole expense, any actions that Grantor is
required under this Agreement to take but which Grantor fails to take, after
fifteen (15) days' notice to Grantor. Grantor shall reimburse and indemnify
Secured Party for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 4.
5. Inspection Rights. Subject to the Grantor's reasonable security and
confidentiality requirements, Grantor hereby grants to Secured Party and its
employees, representatives and agents the right to visit, during reasonable
hours, any of Grantor's plants and facilities that manufacture, install or store
products (or that have done so during the prior six-month period) that are sold
utilizing any of the Intellectual Property Collateral, and to inspect the
products and quality control records relating thereto as often as may be
reasonably requested, but not more than once in each calendar quarter if no
Event of Default has occurred.
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6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Grantor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as reasonably requested by Secured Party, to perfect Secured Party's security
interest in all Copyrights, Patents and Trademarks and otherwise to carry out
the intent and purposes of this Agreement, or for assuring and confirming to
Secured Party the grant or perfection of a security interest in all Intellectual
Property Collateral.
(b) Grantor hereby irrevocably appoints Secured Party as
Grantor's attorney-in-fact, with full authority in the place and stead of
Grantor and in the name of Grantor, from time to time in Secured Party's
discretion, to take any action and to execute any instrument which Secured Party
may deem necessary or advisable to accomplish the purposes of this Agreement,
including:
(i) To modify, in its sole discretion, this Agreement
without first obtaining Grantor's approval of or signature to such modification
by amending Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to
include reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Grantor after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Grantor no longer has or claims any right, title or
interest; and
(ii) To file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Intellectual Property Collateral without the signature of Grantor where
permitted by law.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under this Agreement:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Grantor breaches any warranty or agreement made by Grantor
in this Agreement and, as to any breach that is capable of cure, Grantor fails
to cure such breach within ten (10) days of the occurrence of such breach.
8. Remedies. Upon the occurrence and continuance of an Event of Default,
Secured Party shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Grantor to assemble the Intellectual Property Collateral
and any tangible property in which Secured Party has a security interest and to
make it available to Secured Party at a place designated by Secured Party.
Secured Party shall have a nonexclusive, royalty free license to use the
Copyrights, Patents and Trademarks to the extent reasonably necessary to permit
Secured Party to exercise its rights and remedies upon the occurrence and during
the continuation of an Event of Default. Grantor will pay any reasonable
expenses (including reasonable attorneys' fees) incurred by Secured Party in
connection with the exercise of any of Secured Party's rights hereunder,
including without limitation any expense incurred in disposing of the
Intellectual Property Collateral. All of Secured Party's rights and remedies
with respect to the Intellectual Property Collateral shall be cumulative.
9. Indemnity. Grantor agrees to defend, indemnify and hold harmless
Secured Party, each of its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement, and
(b) all losses or reasonable expenses in any way suffered, incurred, or paid by
Secured Party as a result of or in any way arising out of, following or
consequential to transactions between Secured Party and Grantor, whether under
this Agreement or otherwise (including without limitation reasonable attorneys'
fees and reasonable expenses), except for losses
39
<PAGE> 40
arising from or out of Secured Party's gross negligence or willful misconduct.
10. Reassignment. At such time as Grantor shall completely satisfy all
of the Secured Obligations, Secured Party shall execute and deliver to Grantor
all deeds, assignments and other instruments as may be necessary or proper to
revest in Grantor full title to the property assigned hereunder, subject to any
disposition thereof which may have been made by Secured Party pursuant hereto.
11. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Amendments. This Agreement may be amended only by a written
instrument signed by both parties hereto.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
14. Governing Law and Jurisdiction. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania, without regard for choice of law
provisions. Grantor and Secured Party consent to the exclusive jurisdiction of
any state court located in Allegheny County or federal court located in the
Western District of Pennsylvania.
15. Waiver of Jury Trial. Each party hereto hereby agrees to waive its
respective rights to a jury trial of any claim or cause of action based upon or
arising out of this agreement. The scope of this waiver is intended to be all
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Each party hereto acknowledges that this waiver is a
material inducement for each such party to enter into a business relationship
that each such party has already relied on this waiver in entering into this
agreement ant that each such party will continue to rely on this waiver in their
related future dealings. Each party hereto further warrants and represents that
each such party has reviewed this waiver with its legal counsel, and that each
such party knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. This waiver is irrevocable, meaning that it may
not be modified either orally or in writing, and this waiver shall apply to any
subsequent amendments, renewals, supplements or modifications to this agreement.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
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<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
<TABLE>
<CAPTION>
Address of Grantor: Grantor:
<S> <C>
460 Ward Drive, Suite F SUPERCONDUCTOR TECHNOLOGIES, INC.
Santa Barbara, CA 93111
By: /s/ M. Peter Thomas
Attn: James G. Evans
Title: President, Chief Executive Officer
Address of Secured Party: Secured Party:
1000 Westlakes Drive, Suite 200 PNC BANK, NATIONAL ASSOCIATION
Berwyn, PA 19312
Attn: Gregory M. Cote By: Gregory Cote
Title: Vice President
</TABLE>
41
<PAGE> 42
EXHIBIT B
REVOLVING CREDIT NOTE
$ 2,500,000 Pittsburgh, Pennsylvania
June 18, 1999
FOR VALUE RECEIVED, the undersigned, SUPERCONDUCTOR TECHNOLOGIES, INC.,
a Delaware corporation (herein called the "Borrower"), hereby promises to pay to
the order of PNC BANK, NATIONAL ASSOCIATION (the "Bank") the lesser of (i) the
principal sum of Two Million Five Hundred Thousand U.S. Dollars (U.S. $
2,500,000), or (ii) the aggregate unpaid principal balance of all Revolving
Credit Loans made by the Bank to the Borrower pursuant to Section 2.1 of the
Credit Agreement dated as of June 18, 1999, between the Borrower, and Bank (the
"Credit Agreement"), whichever is less, payable on the Expiration Date.
The Borrower shall pay interest on the unpaid principal balance hereof
from time to time outstanding from the date hereof at the rate or rates per
annum specified by the Borrower as provided in the Credit Agreement.
Upon the occurrence and during the continuation of an Event of Default,
the Borrower shall pay interest on the entire principal amount of the then
outstanding Revolving Credit Loans evidenced by this Revolving Credit Note at a
rate per annum equal to 300 hundred basis points (3% per annum) above the rate
of interest otherwise applicable with respect to such loans. Such interest rate
will accrue before and after any judgment has been entered.
Interest on this Revolving Credit Note will be payable at the times
which shall be determined in accordance with the provisions of the Credit
Agreement.
If any payment or action to be made or taken hereunder shall be stated
to be or become due on a day which is not a Business Day, such payment or action
shall be made or taken on the next following Business Day and such extension of
time shall be included in computing interest or fees, if any, in connection with
such payment or action.
Subject to the provisions of the Credit Agreement, payments of both
principal and interest shall be made without setoff, counterclaim or other
deduction of any nature at the office of the Bank located at 249 Fifth Avenue,
Pittsburgh, Pennsylvania 15222-2707, in lawful money of the United States of
America in immediately available funds.
This Note is the Revolving Credit Note referred to in, and is entitled
to the benefits of, the Credit Agreement and other Loan Documents, including the
representations, warranties, covenants, conditions, security interests or Liens
contained or granted therein. The Credit Agreement among other things contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayment, in certain circumstances, on account of
principal hereof prior to maturity upon the terms and conditions therein
specified.
All capitalized terms used herein shall, unless otherwise defined
herein, have the same meanings given to such terms in the Credit Agreement.
Except as otherwise provided in the Credit Agreement, the Borrower
waives presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Credit Agreement.
This Note shall bind the Borrower and its successors and assigns, and
the benefits hereof shall inure to the benefit of the Bank and its successors
and assigns. All references herein to the "Borrower" and the "Bank" shall be
deemed to apply to the Borrower and the Bank, respectively, and their respective
successors and assigns.
This Note and any other documents delivered in connection herewith and
the rights and obligations of the parties hereto and thereto shall for all
purposes be governed by and construed and enforced in accordance with the
internal laws of the State of Pennsylvania without giving effect to its
conflicts of law principles.
<PAGE> 43
IN WITNESS WHEREOF, the undersigned has executed this Note by its duly
authorized officers with the intention that it constitute a sealed instrument.
SUPERCONDUCTOR TECHNOLOGIES, INC.
By: /s/ M. Peter Thomas
Title: President, Chief Executive
Officer
[Seal]
<PAGE> 44
EXHIBIT C
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into as of June
18, 1999, by and between Superconductor Technologies, Inc., a Delaware
corporation (the "Borrower"), and PNC Bank, National Association (the "Bank").
PRELIMINARY STATEMENTS
A. Borrower and Bank have entered into a Credit Agreement of even date
herewith (said Credit Agreement, as it may hereafter be amended from time to
time, being the "Credit Agreement," the terms defined therein and not otherwise
defined herein being used herein as therein defined), pursuant to which Bank has
made certain commitments, subject to the terms and conditions set forth in the
Credit Agreement, to extend certain credit facilities to Borrower.
B. It is a condition precedent to the initial extensions of credit by
Bank under the Credit Agreement that Borrower shall have granted the security
interests and undertaken the obligations contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Bank to make the Loans under the Credit Agreement and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower hereby agrees with Bank as follows:
1. Grant of Security. Borrower hereby assigns to the Bank and hereby
grants to Bank, a security interest in all of Borrower's right, title and
interest in and to the property described on Exhibit A attached hereto, whether
now or hereafter existing or in which Borrower now has or hereafter acquires an
interest and wherever the same may be located (the "Collateral"); provided,
however, that the security interest herein shall not extend to and shall not
include any contracts, permits or licenses to the extent the granting of a
security interest therein (i) would be contrary to applicable law or (ii) any
contracts or licenses of Borrower, or any permits of Borrower, if and to the
extent such contract, license or permit contains restrictions on assignments and
the creation of any liens, or under which such an assignment or lien would cause
a default to occur under such contract, license or permit (other than to the
extent that any such term would be rendered ineffective pursuant to Section
9-318(4) of the Uniform Commercial Code of any relevant jurisdiction or any
other applicable law, including the Bankruptcy Code, or principles of equity);
provided that immediately upon the ineffectiveness, lapse or termination of any
such provision, the Collateral shall include, and Borrower shall be deemed to
have granted a security interest in, all such rights and interests as if such
provision had never been in effect; provided further in all cases that the
Intellectual Property Collateral shall include any proceeds of the foregoing.
2. Security for Obligations. This Agreement secures, and the Collateral
is collateral security for, the prompt payment or performance in full when due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise, of all obligations and liabilities of every nature of
Borrower to Bank, now or hereafter existing, under or arising out of or in
connection with the Credit Agreement or any other Loan Documents, and all
extensions or renewals thereof, whether for principal, interest, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Bank as a preference,
fraudulent transfer or otherwise (all such obligations and liabilities being the
"Underlying Debt"), and all obligations of every nature of Borrower now or
hereafter existing under this Agreement (all such obligations, together with the
Underlying Debt, being the "Secured Obligations").
3. Borrower Remains Liable. Anything contained herein to the contrary
notwithstanding, (a)
<PAGE> 45
Borrower shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Bank of any of its rights hereunder shall not
release Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) Bank shall not have any
obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Bank be obligated to perform
any of the obligations or duties of Borrower thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
4. Representations and Warranties. Borrower represents and warrants as
follows:
(a) Ownership of Collateral. Except as set forth in Schedule 4
hereto and except for the security interest created by this Agreement and the
Permitted Liens, Borrower owns the Collateral free and clear of any lien,
mortgage, security interest, legal or equitable charge, pledge, deed of trust or
other encumbrance. Except as set forth in Schedule 4 hereto and except such as
may have been filed in favor of Bank relating to this Agreement and the
Permitted Liens, no effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any filing or
recording office.
(b) Location of Equipment and Inventory. All of the Equipment
and Inventory is, as of the date hereof, located at the places specified in
Schedule 1 annexed hereto.
(c) Office Locations. The chief place of business, the chief
executive office and the office where Borrower keeps its records regarding its
Accounts is, and has been for the four month period preceding the date hereof,
located at 460 Ward Drive, Suite F, Santa Barbara, CA 93111-2310.
(d) Fictitious Names. Borrower does not do any business under
any trade-name or fictitious business name.
(e) Governmental Authorizations. No authorization, approval or
other action by, and no notice to or filing with any governmental authority or
regulatory body is required for either (i) the grant by Borrower of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Borrower or (ii) the perfection of or the exercise by Bank of its
rights and remedies hereunder, other than such actions and filings as have
already been taken.
(f) Enforceability. Except for and upon the filing of the
financing statements required to perfect the Bank's security interest hereunder,
and except for and upon the filings contemplated by the Intellectual Property
Security Agreement, to the extent such perfection can be effected by such
filings, all actions necessary to ensure the validity and enforceability of
Bank's Lien on the Collateral, including as against any bona fide purchaser for
value, have been duly taken.
(g) Other Information. All information heretofore, herein or
hereafter supplied to Bank by or on behalf of Borrower with respect to the
Collateral is (or, as to hereafter supplied information, will be) accurate and
complete in all material respects, and with respect to such information prepared
by a third party, to the best knowledge of Borrower, such information is
accurate and complete in all material respects.
5. Further Assurances.
(a) Borrower agrees that from time to time, at its expense,
Borrower will promptly execute and deliver all further instruments and
documents, and take all further action that may be reasonably necessary in order
to perfect and protect any security interest granted or purported to be granted
hereby or to enable Bank to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Borrower will: (i) if any Account shall be evidenced by a promissory
note or other instrument (excluding checks), having a face value in excess of
Fifty Thousand Dollars ($50,000) deliver and pledge to Bank hereunder such note
or instrument, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Bank; (ii)
execute and file such financing or continuation statements, or amendments
thereto, or such other instruments or notices, as may be necessary or desirable,
or as Bank may request, in order to perfect and preserve the security interests
granted or purported to be granted hereby;
<PAGE> 46
(iii) at any reasonable time subject to Borrower's reasonable security and
confidentiality requirements, exhibit the Collateral to and allow inspection of
the Collateral by Bank, or persons designated by Bank in accordance with the
terms of the Credit Agreement but not more than once in each calendar quarter if
no Event of Default has occurred; and (iv) at Bank's request, appear in and
defend any action or proceeding that may affect Borrower's title to or Bank's
security interest in all or any part of the Collateral.
(b) Borrower hereby authorizes Bank to file, register or record
such documents as may be appropriate to protect Bank's security interest in the
Collateral, relative to all or any part of the Collateral without the signature
of Borrower. Borrower agrees that a carbon, photographic or other reproduction
of this Agreement or of a financing statement signed by Borrower shall be
sufficient as a financing statement and may be filed as a financing statement in
any and all jurisdictions.
(c) Borrower will furnish to Bank from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Bank may reasonably request, all in
reasonable detail.
6. Covenants of Borrower. Borrower shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral where
violation is reasonably likely to have a material adverse effect on Bank's
rights in the Collateral or the value of the Collateral or Bank's ability to
foreclose on the Collateral;
(b) notify Bank of any change in Borrower's name, identity or
corporate structure within 15 days of such change;
(c) give Bank 30 days' prior written notice of any change in
Borrower's chief place of business, chief executive office or residence;
(d) if Bank gives value to enable Borrower to acquire rights in
or the use of any Collateral (as specified in writing by Bank to Borrower at the
time of the giving of such value), use such value for such purposes; and
(e) pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Collateral,
except to the extent the validity thereof is being contested in good faith or
failure to make payment thereof would not materially adversely affect Bank's
rights in the Collateral; provided that Borrower shall in any event pay such
taxes, assessments, charges, levies or claims not later than five days prior to
the date of any proposed sale under any judgment, writ or warrant of attachment
entered or filed against Borrower or any of the Collateral as a result of the
failure to make such payment.
7. Special Covenants With Respect to Equipment and Inventory. Borrower
shall:
(a) other than "mobile goods" (as defined in the Pennsylvania
Uniform Commercial Code) keep the Equipment and Inventory at the places
specified on Schedule 1 annexed hereto or, upon 30 days' prior written notice to
Bank, at such other places in jurisdictions where all action that may be
reasonably necessary in order to perfect and protect any security interest
granted or purported to be granted hereby, or to enable Bank to exercise and
enforce its rights and remedies hereunder, with respect to such Equipment and
Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in good
condition, repair and working order, ordinary wear and tear excepted, and in
accordance with any manufacturer's manual, and shall forthwith, or, in the case
of any loss or damage to any of the Equipment when subsection (c) of Section 8
is not applicable, as quickly as practicable after the occurrence thereof, make
or cause to be made all repairs, replacements and other improvements in
connection therewith that are necessary or desirable to such end except to the
extent Borrower has determined that such Equipment is not materially important
to the conduct of its business. Borrower
<PAGE> 47
shall promptly furnish to Bank a statement respecting any material loss or
damage to any of the Equipment;
(c) keep correct and accurate records of the Inventory, in
accordance with good business practices, including itemizing Borrower's cost
therefor and (where applicable) the current list prices for the Inventory; and
(d) f any Inventory is in possession or control of any of
Borrower's agents or processors, upon the occurrence of an Event of Default,
instruct such agent or processor to hold all such Inventory for the account of
Bank and subject to the instructions of Bank.
8. Insurance.
(a) Borrower shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory in which it has an interest in such
amounts, against such risks, in such form and with such insurers as is customary
for similarly situated businesses. Such insurance shall include, without
limitation, property damage insurance and liability insurance. Each policy shall
in addition name the Borrower and Bank as insured parties thereunder (without
any representation or warranty by or obligation upon Bank) as their interests
may appear and have attached thereto a loss payable clause reasonably acceptable
to Bank that shall (i) contain an agreement by the insurer that if an Event of
Default has occurred, any loss thereunder shall be payable to Bank
notwithstanding any action, inaction or breach of representation or warranty by
Borrower, (ii) provide that there shall be no recourse against Bank for payment
of premiums or other amounts with respect thereto, and (iii) provide that at
least 30 days' prior written notice of cancellation or of lapse shall be given
to Bank by the insurer. Borrower shall, if so requested by Bank, deliver to Bank
original or duplicate policies of such insurance and, as often as Bank may
reasonably request (but no more frequently than once per year, unless there is a
change in the policy or the insurer), a report of a reputable insurance broker
with respect to such insurance. Further, Borrower shall, at the request of Bank,
duly execute and deliver instruments of assignment of such insurance policies to
comply with the requirements of Section 5(a) and cause the respective insurers
to acknowledge notice of such assignment.
(b) Payments for claims issued by any liability insurance
maintained by Borrower pursuant to this Section 8 may be paid directly to the
Person who shall have incurred liability covered by such insurance. In case of
any loss involving damage to Equipment or Inventory when subsection (c) of this
Section 8 is not applicable, Borrower shall make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds of insurance maintained by Borrower pursuant to this Section 8 shall be
paid to Borrower as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuation of any
Event of Default or (ii) the actual or constructive loss (in excess of $100,000
per occurrence) of any Equipment or Inventory, all insurance payments in respect
of such Equipment or Inventory shall be paid to and applied by Bank as specified
in Section 18.
9. Special Covenants with respect to Accounts and Related Contracts.
(a) Borrower shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts and Related Contracts at the location specified in Section 4 or, upon
30 days' prior written notice to Bank, at such other location in a jurisdiction
where all action that may be reasonably necessary in order to perfect and
protect any security interest granted or purported to be granted hereby, or to
enable Bank to exercise and enforce its rights and remedies hereunder, with
respect to such Accounts and Related Contracts shall have been taken. Borrower
will hold and preserve such records and, subject to the terms of the Credit
Agreement, will permit representatives of Bank, during normal business hours and
subject to reasonable prior notice and Borrower's reasonable security and
confidentiality requirements, to inspect and make abstracts from such records,
and Borrower agrees to render to Bank, at Borrower's reasonable cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto; provided that such inspections shall take place no more than
once in each calendar quarter, so long as no Event of Default has occurred.
Promptly upon the request of Bank, Borrower shall deliver to Bank complete and
correct copies of each Related Contract.
(b) Borrower shall, for not less than 3 years from the date on
which such Account arose, maintain (i) complete records of each Account,
including records of all payments received, credits granted and
<PAGE> 48
merchandise returned, and (ii) all material documentation relating thereto.
(c) Except as otherwise provided in this subsection (c),
Borrower shall continue to collect, at its own expense, all amounts due or to
become due Borrower under the Accounts and Related Contracts. In connection with
such collections, Borrower may take such action as Borrower or Bank may deem
necessary or advisable to enforce collection of amounts due or to become due
under the Accounts; provided, however, that Bank shall have the right at any
time, upon the occurrence and during the continuation of an Event of Default, to
notify the Account Debtors or obligors under any Accounts of the assignment of
such Accounts to Bank, and to direct such Account Debtors or obligors to make
payment of all amounts due or to become due to Borrower thereunder directly to
Bank, to notify each person maintaining a lockbox or similar arrangement to
which Account Debtors or obligors under any Accounts have been directed to make
payment to remit all amounts representing collections on checks and other
payment items from time to time sent to or deposited in such lock box or other
arrangement directly to Bank and, upon such notification and at the expense of
Borrower, to enforce collection of any such Accounts and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as Borrower might have done. After receipt by Borrower of the notice from
Bank referred to in the proviso to the preceding sentence, (i) all amounts and
proceeds (including checks and other instruments) received by Borrower in
respect of the Accounts and the Related Contracts shall be received in trust for
the benefit of Bank hereunder, shall be segregated from other funds of Borrower
and shall be forthwith paid over or delivered to Bank in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section 18, and (ii) Borrower shall not adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly any
Account Debtor or obligor thereof, or allow any credit or discount thereon. If
the Event of Default giving rise to the exercise of such remedies by Bank shall
be cured or waived, then Bank shall reinstate the Borrower's collection rights
with respect to such Accounts.
10. Reserved.
11. Reserved.
12. License of Patents, Trademarks, Copyrights, etc. Borrower hereby
assigns, transfers and conveys to Bank, for the benefit of Bank, effective upon
the occurrence of any Event of Default, the irrevocable, nonexclusive right and
license to use all trademarks, trade names, copyrights, patents or technical
processes owned or used (to the extent that Borrower has the right to assign
such property not owned by it) by Borrower that relate to the Collateral and any
other collateral granted by Borrower as security for the Secured Obligations,
together with any goodwill associated therewith, all to the extent necessary to
enable Bank to use, possess and realize on the Collateral for the benefit of
Bank and to enable any successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the benefit of all successors,
assigns and transferees of Bank and its successors, assigns and transferees,
whether by voluntary conveyance, operation of law, assignment, transfer,
foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is
granted free of charge, without requirement that any monetary payment whatsoever
be made to Borrower.
13. Transfers and Other Liens. Borrower shall not:
(a) except to the extent permitted in the Credit Agreement,
sell, assign (by operation of law or otherwise) or otherwise dispose of any of
the Collateral; or
(b) except for the security interest created by this Agreement,
and except to the extent permitted in the Credit Agreement, create or suffer to
exist any Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any Person.
15. Bank Appointed Attorney-in-Fact. Borrower hereby irrevocably
appoints Bank as Borrower's attorney-in-fact, with full authority in the place
and stead of Borrower and in the name of Borrower, Bank or otherwise, from time
to time in Bank's discretion to take any action and to execute any instrument
that Bank may reasonably deem necessary to accomplish the purposes of this
Agreement, including, without limitation: (a) to sign and file on behalf of
Borrower any financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral; (b) to receive, endorse and
collect any drafts or instruments; (c) upon the occurrence and during the
continuation of an Event of Default, to obtain and adjust insurance required to
be
<PAGE> 49
maintained by Borrower or paid to Bank pursuant to Section 8; (d) upon the
occurrence and during the continuation of an Event of Default, to ask, demand,
collect, sue for, recover, compound, receive and give acquittance and receipts
for monies due and to become due under or in respect of any of the Collateral;
(e) upon the occurrence and during the continuation of an Event of Default, to
receive, endorse and collect any documents and chattel paper in connection with
clauses (a) and (c) above; (f) upon the occurrence and during the continuation
of an Event of Default, to file any claims or take any action or institute any
proceedings that Bank may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of Bank with respect to any
of the Collateral; (g) upon the occurrence and during the continuation of an
Event of Default, to pay or discharge taxes or liens levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Bank in its
reasonable discretion, any such payments made by Bank to become obligations of
Borrower to Bank, due and payable immediately without demand; (h) upon the
occurrence and during the continuation of an Event of Default, to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts and other documents relating to the
Collateral; and (i) upon the occurrence and during the continuation of an Event
of Default, generally to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though Bank were the absolute owner thereof for all purposes, and to do, at
Bank's option and Borrower' expense, at any time or from time to time, all acts
and things that Bank reasonably deems necessary to protect, preserve or realize
upon the Collateral and Bank's security interest therein in order to effect the
intent of this Agreement, all as fully and effectively as Borrower might do.
15. Bank May Perform. If Borrower fails to perform any agreement
contained herein, Bank may itself perform, or cause performance of, such
agreement, and the reasonable expenses of Bank incurred in connection therewith
shall be payable by Borrower under Section 19.
16. Standard of Care. The powers conferred on Bank hereunder are solely
to protect its interest and the interest of Banks in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the exercise
of reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, and other non-waivable
duties imposed by applicable law, Bank shall have no duty as to any Collateral
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. Bank shall be deemed
to have exercised reasonable care in the custody and preservation of Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which Bank accords its own property.
17. Remedies. If any Event of Default shall have occurred and be
continuing, Bank may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "Code") (whether
or not the Code applies to the affected Collateral), and also may (a) require
Borrower to, and Borrower hereby agrees that it will at its expense and upon
request of Bank forthwith, assemble all or part of the Collateral as directed by
Bank and make it available to Bank at a place to be designated by Bank that is
reasonably convenient to both parties, (b) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (c) prior to the disposition of the Collateral, store, process, repair
or recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Bank deems appropriate, (d) take
possession of Borrower's premises or place custodians in exclusive control
thereof, remain on such premises and use the same and any of Borrower's
equipment for the purpose of completing any work in process, taking any actions
described in the preceding clause (c) and collecting any Secured Obligation, and
(e) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Bank's
offices or elsewhere, for cash, on credit or for future delivery, at such time
or times and at such price or prices and upon such other terms as Bank may deem
commercially reasonable. Bank may be the purchaser of any or all of the
Collateral at any such sale and Bank shall be entitled, for the purpose of
bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such public sale, to use and apply any of
the Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Bank at such sale. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
Borrower, and Borrower hereby waives (to the extent permitted by applicable law)
all rights of redemption, stay and/or appraisal which it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. Borrower agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to Borrower of (i) the time and place
of any public sale or (ii) the time after
<PAGE> 50
which any private sale is to be made shall constitute reasonable notification.
Bank shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Bank may adjourn any public or private sale from time
to time by announcement at the time and place fixed there for, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Borrower hereby waives any claims against Bank arising by reason of
the fact that the price at which any Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if Bank accepts the first offer received and does not offer such
Collateral to more than one offeree, provided Bank acted in a commercially
reasonable manner. If the proceeds of any sale or other disposition of the
Collateral are insufficient to pay all the Secured Obligations, Borrower shall
be liable to the maximum extent permitted by applicable law for the deficiency
and the fees of any attorneys employed by Bank to collect such deficiency.
18. Application of Proceeds. Except as expressly provided elsewhere in
this Agreement, all proceeds received by Bank in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral may
in the discretion of Bank, be held by Bank for the benefit of Bank as Collateral
for, and/or then, or at any other time thereafter, applied in full or in part by
Bank against, the Secured Obligations in the following order of priority:
FIRST: To the payment of all reasonable costs and expenses of such sale,
collection or other realization, including reasonable compensation to Bank and
its agents and counsel, and all other expenses, liabilities and advances made or
incurred by Bank in connection therewith, and all amounts for which Bank is
entitled to indemnification hereunder and all advances made by Bank hereunder
for the account of Borrower, and to the payment of all reasonable costs and
expenses paid or incurred by Bank in connection with the exercise of any right
or remedy hereunder, all in accordance with Section 19;
SECOND: To the payment of all other Secured Obligations (for the ratable
benefit of the holders thereof) in such order as Bank shall elect; and
THIRD: To the payment to or upon the order of Borrower, or to whosoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
19. Indemnity and Expenses.
(a) Borrower agrees to indemnify Bank and Banks from and against
any and all claims, losses and liabilities in any way relating to, growing out
of or resulting from this Agreement and the transactions contemplated hereby
(including, without limitation, enforcement of this Agreement), except to the
extent such claims, losses or liabilities result solely from Bank's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Borrower will pay to Bank upon demand the amount of any and
all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Bank may incur in connection with
(i) the administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of Bank
hereunder, or (iv) the failure by Borrower to perform or observe any of the
provisions hereof.
20. Amendments, etc. No amendment or waiver of any provision of this
Agreement, or consent to any departure by Borrower here from, shall in any event
be effective unless the same shall be in writing and signed by Bank, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
21. Notices. All notices and other communications provided for hereunder
shall be in writing (including telegraph, telex or facsimile communication) and
mailed or telegraphed or telexed or sent by facsimile or delivered, if to
Borrower or Bank, at its address set forth on the signature pages hereof; or, as
to each party, at such other address as shall be designated by such party in a
written notice to the other parties. All such notices and communications shall
be effective three (3) Business Days after deposit in the U.S. mail, postage
prepaid, when sent by telex or sent by facsimile, or when delivered,
respectively.
<PAGE> 51
22. Failure or Indulgence Not Waiver. Remedies Cumulative. No failure or
delay on the part of Bank in the exercise of any power, right or privilege
hereunder shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude any other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
23. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
24. Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
25. Governing Law; Terms. This Agreement shall be governed by and shall
be construed and enforced in accordance with the internal laws of the State of
Pennsylvania, except as required by mandatory provision of law and except to the
extent that the validity or perfection of the security interest hereunder or
remedies hereunder in respect of any particular collateral are governed by the
laws of a jurisdiction other than that State of Pennsylvania. Unless otherwise
defined herein or in the Credit Agreement, terms used in Division 9 of the
Pennsylvania Uniform Commercial Code are used herein as therein defined.
26. Consent to Jurisdiction. All judicial proceedings brought against
any party hereto arising out of or relating to this agreement shall be brought
in any state court in Allegheny County or federal court of competent
jurisdiction in the Western District of the State of Pennsylvania, and by
execution and delivery of this agreement each such party accepts for itself and
in connection with its properties, generally and unconditionally, the exclusive
jurisdiction of the aforesaid courts and waives any defense of forum non
conveniens and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this agreement.
27. Waiver of Jury Trial. Each party hereto hereby waives its respective
rights to a jury trial of any claim or cause of action based upon or arising out
of this Agreement. The scope of this waiver is intended to be all encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Each party hereto acknowledges that this waiver is a material
inducement for each such party to enter into a business relationship, that each
such party has already relied on this waiver in its related future dealings.
Each party hereto further warrants and represents that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. this waiver is
irrevocable, meaning that it may not be modified either orally or in writing,
and this waiver shall apply to any subsequent amendments, renewals, supplements
or modifications to this Agreement. In the event of litigation, this Agreement
may be filed as a written consent to a trial by the court.
28. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached
<PAGE> 52
from multiple separate counterparts and attached to a single counterpart so that
all signature pages are physically attached to the same document.
IN WITNESS WHEREOF, Borrower and Bank have caused this Agreement to be
duly executed and delivered by their respective officers there unto duly
authorized as of the date first written above.
SUPERCONDUCTOR TECHNOLOGIES, INC.
By: /s/ M. Peter Thomas
Title: President, Chief Executive
Officer
Notice Address:
460 Ward Drive, Suite F
Santa Barbara, CA 93111
Telephone: (805) 683-7646
Facsimile: (805) 967-0342
Attention: James G. Evans
BANK:
PNC BANK, NATIONAL ASSOCIATION
By: Gregory Cote
Title: Vice President
Notice Address:
1000 Westlakes Drive, Suite 200
Berwyn, PA 19312
Telephone: (610) 725-5714
Facsimile: (610) 725-5799
Attention: Gregory M. Cote
<PAGE> 53
EXHIBIT A
SECURITY AGREEMENT
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located (any and all such
equipment, parts and accessions being the "Equipment");
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above (all such
inventory, accessions and products being the "Inventory");
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, tax
refunds, payments of insurance, rights to receive dividends, distributions,
cash, instruments and other property in respect of or exchange for pledged
shares or other equity interests, and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's books
relating to any of the foregoing (any and all such accounts, contract rights,
royalties, license rights and other forms of obligations being the "Accounts,"
and any and all such credit insurance, guaranties and security agreements being
the "Related Contracts");
(e) All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Borrower's books relating to any of the foregoing, and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
Notwithstanding the foregoing, the security interest herein shall not
extend to and shall not include any contracts, permits or licenses to the extent
the granting of a security interest therein (i) would be contrary to applicable
law or (ii) any contracts or licenses of Borrower, or any permits of Borrower,
if and to the extent such contract, license or permit contains restrictions on
assignments and the creation of any liens, or under which such an assignment or
lien would cause a default to occur under such contract, license or permit
(other than to the extent that any such term would be rendered ineffective
pursuant to Section 9-318(4) of the Uniform Commercial Code of any relevant
jurisdiction or any other applicable law, including the Bankruptcy Code, or
principles of equity); provided that immediately upon the ineffectiveness, lapse
or termination of any such provision, the Collateral shall include, and Borrower
shall be deemed to have granted a security interest in, all such rights and
interests as if such provision
<PAGE> 54
had never been in effect; provided further in all cases that the Intellectual
Property Collateral shall include any proceeds of the foregoing.
<PAGE> 55
EXHIBIT D
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: SUPERCONDUCTOR TECHNOLOGIES, INC.,
a Delaware corporation
Number of Shares: 62,500
Class of Stock: Common
Initial Exercise Price: $3.00
Issue Date: June 18, 1999
Expiration Date: June 18, 2004
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, PNC BANK, NATIONAL ASSOCIATION ("Holder")
is entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth herein
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 0, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 0, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 0.
1.3 No Rights As Shareholder. This Warrant does not entitle Holder to
any voting rights as a shareholder of the Company prior to the exercise hereof.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
<PAGE> 56
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at Holder's expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 Assumption of Warrant. Upon the closing of any Acquisition
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3 Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and the Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warranty shall be deemed to have been automatically converted pursuant
to Section 1.2 and thereafter the Holder shall participate in the Acquisition on
the same terms as other holders of the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 0
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the
<PAGE> 57
provisions of this Article 2 and in taking all such action as may be necessary
or appropriate to protect Holder's rights under this Article against impairment.
If the Company takes any action affecting the Shares or its common stock other
than as described above that adversely affects Holder's rights under this
Warrant, the Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a manner
that the aggregate Warrant Price of this Warrant is unchanged.
2.5 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall use
commercially reasonable efforts to give Holder (1) at least 20 days prior
written notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in
the case of the matters referred to in (c) and (d) above at least 20 days prior
written notice of the date when the same will take place (and specifying the
date on which the holders of common stock will be entitled to exchange their
common stock for securities or other property deliverable upon the occurrence of
such event); and (3) in the case of the matter referred to in (e) above, the
same notice as is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit A, if attached.
ARTICLE 4. MISCELLANEOUS.
<PAGE> 58
4.1 Term; Notice of Expiration. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 0, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to its
principles regarding conflicts of law.
<PAGE> 59
"COMPANY"
SUPERCONDUCTOR TECHNOLOGIES, INC.
By: /s/ M. Peter Thomas
---------------------------------
Name: M. Peter Thomas
-------------------------------
Title: President, Chief Executive
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-03-1999
<CASH> 2,136,000
<SECURITIES> 0
<RECEIVABLES> 1,784,000
<ALLOWANCES> 0
<INVENTORY> 3,793,000
<CURRENT-ASSETS> 7,941,000
<PP&E> 12,225,000
<DEPRECIATION> 7,559,000
<TOTAL-ASSETS> 14,779,000
<CURRENT-LIABILITIES> 4,383,000
<BONDS> 0
0
14,561,000
<COMMON> 8,000
<OTHER-SE> 37,350,000
<TOTAL-LIABILITY-AND-EQUITY> 14,779,000
<SALES> 676,000
<TOTAL-REVENUES> 2,969,000
<CGS> 2,630,000
<TOTAL-COSTS> 6,948,000
<OTHER-EXPENSES> 932,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,000
<INCOME-PRETAX> (5,028,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,438,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,028,000)
<EPS-BASIC> (0.65)
<EPS-DILUTED> (0.65)
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