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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 0-21074
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)
Registrant's telephone number, including area code: (805) 683-7646
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the
Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing sale price the Common Stock as reported on The
Nasdaq Stock Market(R) on February 16, 1999) was approximately $30,135,942. For
purposes of this determination, shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates of the
Registrant. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. The number of outstanding shares of
the Registrant's Common Stock as of the close of business on March 23, 1999 was
7,729,716.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10,11,12 and 13 of Part III incorporate information by reference from
the definitive proxy statement for the Registrant's Annual Meeting of
Stockholders to be held on June 2, 1999.
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PART I
ITEM 1. BUSINESS.
This "Item 1-Business" and other parts of this Report contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference are
discussed throughout "Item 1-Business" include, but are not limited to, under
the caption entitled "Factors Affecting Future Business Operations--Disclosure
Regarding Forward-Looking Statements", "Item 7- Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Fluctuations in
Periodic Results."
INTRODUCTION AND OVERVIEW
Superconductor Technologies Inc. ("STI" or the "Company") operates in a
single business segment to develop, manufacture and market products made from
superconducting materials and related cryogenics. High-temperature
superconductors ("HTS") are materials that have the ability to conduct
electrical energy with little or no resistance when cooled to "critical"
temperatures. STI believes that the growing worldwide wireless communications
market offers the most viable commercialization opportunities for its
superconducting products. To capitalize on these opportunities the Company
developed its SuperFilter(R) products, which combine specialized superconducting
filters with a proprietary cryogenic cooler and, in many cases, a low noise
amplifier ("LNA") in a highly compact system. The SuperFilter(R) products, when
incorporated into wireless base stations, offer significant advantages over
conventional filter products for wireless applications, including reduced size,
increased range and reduced interference.
In 1998, the Company completed the transition from its focus on research and
development by successfully manufacturing and delivering its SuperFilter(R)
TWO-Pak products. STI introduced the TWO-Pak SuperFilter(R) for application in
the AMPS/B segment of the cellular market in 1997 and introduced the AMPS/A
product in 1998. Recently, STI also introduced the SIX-Pak SuperFilter(R) for
both A Band and B Band in order to enhance coverage in urban areas. As a result
of these product introductions, the Company significantly expanded its sales and
marketing efforts. STI employs three Regional Sales Managers and a Director of
Sales to cover the United States and Latin America. Additionally, the Company
recently added a Senior Vice President of Sales and Marketing to bring focused
senior-level management experience to its sales and marketing efforts. The
Company's initial sales and marketing efforts were directed primarily at rural
and suburban cellular providers because the Company believed they were likely to
be early users of the product. The Company's products address the critical needs
of these service providers: range coverage and call quality. In addition, STI
now actively markets its new SIX-Pak SuperFilter(R) as a practical urban
application and expects that sales will increase significantly in this area.
The augmented SuperFilter(R) product line and increased sales activities
resulted in multiple product orders in 1998. The Company conducted field trials
of its products with more than thirty cellular service providers, including nine
of the top ten carriers in the country, resulting in orders for over 100
systems. The Company shipped eighty-three SuperFilter(R) systems in 1998 as a
result of these orders. In order to prove the economic benefits of the product,
the Company continues to actively conduct numerous demonstrations and field
trials in the United States and in Latin America.
In order to support the SuperFilter(R) product line, the Company built a new
18,000 square foot state of the art manufacturing facility in Santa Barbara,
which opened in 1998. Currently, this facility, along with the manufacturing
equipment and tooling procured in 1998, has the capacity to produce up to three
SuperFilter(R) products a day. Operating units within this facility are capable
of producing all the critical components of STI's products including
superconducting filters, cryogenic coolers, cryogenic packaging and final
enclosures, as well as system assembly and test, quality and material control
functions. Additionally, the Company doubled the number of manufacturing
personnel as production has increased.
In addition to strengthening its manufacturing capability, STI also
strengthened its management capability in 1998 by adding a Vice President of
Wireless Manufacturing, a Director of Marketing, by promoting a Regional Sales
Manager to Director of Sales and making the previous Vice President of
Operations the Vice President of Material Operations. The Company believes it
has the management structure to allow for its projected growth.
A critical component of all superconducting applications is the cryogenic
cooling system. STI developed a proprietary cryogenic cooler, which, in addition
to being integrated into its SuperFilter(R) systems, has the potential to be
used in other applications. These other applications include medical products,
cold computing to increase the processing speed of computers and components of
various kinds of instrumentation. The Company believes that the successful
commercialization of its cryogenic coolers as stand-alone products will assist
in its ability to achieve economies of scale associated with volume production.
Since its formation in 1987, the Company has received over $51 million
dollars in revenue from government research and development contracts, through
which it developed much of the technology used in its commercial products. STI
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continues to secure government contracts, primarily to fund its research and
development efforts, and to address potential wireless product opportunities in
the government sector.
STI'S STRATEGY
STI's objective is to establish commercial leadership by marketing its
SuperFilter(R) products to wireless service providers. Utilizing HTS thin-film
technology, the Company's products offer superior filter selectivity and
sensitivity, which produce enhanced range extension and minimize interference.
Wireless service providers are able to enhance their revenue through the use of
STI products.
Several years ago, the Company identified the wireless market as the most
viable path to commercialization of HTS because of the current and expected
rapid growth of the market and STI's ability to address the most critical needs
of the market with HTS. The worldwide wireless market is expected to grow at an
annual compounded growth rate of over 20% during the next five years. The United
States market for tower mount amplifiers and repeaters, products that also
extend coverage, is projected by World Information Technologies to grow at the
rate of 30% through 2001. The Company believes that market acceptance for its
products will increase, providing an opportunity to displace some of the other
coverage enhancement products in this segment. STI's approach to product
development is to harness the power of superconductivity with a high degree of
technology excellence, resulting in a product that meets the requirements of the
Company's customers effectively and efficiently. The Company provides the
wireless communications industry with a proprietary and integrated solution
incorporating superconducting materials, RF circuitry, and cryogenic cooling and
packaging - the key components of which are designed, developed and manufactured
in-house, which the Company believes provides strategic and cost advantages.
Through the use of proprietary computer simulation software developed
internally, STI designs advanced RF circuitry and prototypes using HTS
materials. The result is extremely small, high performance RF circuits that are
then integrated into STI's standard platform. The Company believes that this
approach will allow it to respond quickly to specific customer requirements. STI
believes that its standard platform is the smallest and most energy-efficient
superconducting filter system in the industry.
The Company believes the early market acceptance for its product will be
from wireless service providers because they are faced with resolving critical
performance issues within the wireless networks. In particular, cellular service
providers, who are encountering increasing competition from new Personal
Communication Services (PCS) providers, are most likely to test and use this
advanced technology to solve their performance problems. Service enhancements
such as coverage in "dead zones," increased range of the base station, reduction
in dropped calls and decreased static respond to some of the most common user
complaints, which give rise to customer churn among service providers. The
Company believes its SuperFilter(R) products provide effective and economical
solutions to these critical problems. In order to penetrate the wireless service
provider market, STI must appeal directly to the service providers and
effectively demonstrate the superior return on investment provided by its
products.
Due to the proprietary and technological nature of the Company's product and
in order to produce a high quality product, the Company decided to manufacture
the key components of its product internally. These key components include
superconducting filters, cryogenic coolers, cryogenic packaging and final
enclosures, as well as system assembly and test, quality and material control
functions. The Company believes that this will enable it to control its
manufacturing processes properly, achieve required cost reductions and to
produce a highly reliable and quality product.
In 1998, the Company began volume production of SuperFilter(R) systems
within its newly expanded manufacturing facility. Additional capital equipment
was acquired and the manufacturing employee base doubled to increase product
output. See "Limited Manufacturing Experience."
WIRELESS FILTER PRODUCTS
The Company principally targets the worldwide wireless market for its
commercial superconducting products. STI is initially marketing its
SuperFilter(R) systems primarily to wireless service providers and OEMs for
inclusion in base stations, which are the basic building blocks of wireless
networks. Base stations house the complex electronic equipment required to
receive and transmit radio waves for multiple real-time voice and data
communications. Base station systems generally include an antenna and a series
of transmitters, receivers, receiver filters and network interface electronics.
Base stations are manufactured by OEMs and are sold to service providers that
deliver wireless services to the public. The Company's products provide the
primary receiver filter after the antenna has captured the transmission from the
wireless hand set. The product is designed to improve the uplink transmission
path, which is a critical part of today's wireless technology.
THE WIRELESS MARKET
Several wireless industry analysts estimates the worldwide number of
wireless subscribers will double in less than 4 years from 257 million in 1998
to 550 million in 2002. To provide services to these customers it is estimated
that the number of installed base stations will increase from 200,000 in 1998 to
457,000 in 2002. The Company believes that this rapid growth represents a
significant market opportunity for the Company, as each newly deployed base
station must incorporate a wireless filter system. In addition, as increasing
levels of interference create a demand for higher performance filters, the
Company's
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high performance products could receive a wider range of use to resolve these
increasing problems.
The reasons for the anticipated rapid expansion of the base station market
are two-fold. First, the overall demand for wireless products is increasing both
in the United States and worldwide. As the cost of providing wireless
communications decreases and the number of service providers increases, consumer
access to wireless service will become more affordable and utilization will
increase. This is evidenced by the many different rate plans offered to users of
wireless telephones by the wireless service providers. In addition, in areas
without fully implemented communications systems, the cost of installing a
wireless communications system is significantly lower than the cost of
installing a traditional landline communications system. Accordingly, many
developing regions, including Latin America, are seeking to establish a wireless
infrastructure.
Second, a broader range of wireless services, such as e-mail, faxing and
Internet access, is now being offered, further burdening the already crowded
wireless frequencies. To accommodate the expanding need for wireless
communications, the FCC has auctioned PCS frequencies (around the 2 Ghz
frequency) domestically to wireless service providers. Auction winners are under
financial, regulatory and competitive pressures to deploy and operate wireless
services quickly in these new frequencies. As a result of the PCS frequency
auctions, the number of licensed wireless service providers in any given service
area has increased from two to as many as five, thereby increasing competition
and creating pressure for cellular and PCS service providers to provide the
highest quality services possible.
THE WIRELESS NETWORK AND RELATED CONSTRAINTS
The ability of wireless service providers to increase system utilization is
enhanced by their ability to increase base station coverage range, decrease
existing interference and minimize the physical size of base station components.
A wireless network consists of a number of adjoining cells that form a service
provider's geographic coverage area. Each cell has a base station, and the user
communicates through the closest base station on one of a limited number of RF
bands. The call is switched from base station to base station as the user moves
within the geographic area. Transmissions that pass through a base station are
filtered for unwanted signals to improve call clarity. The filtering process
improves the quality of the signals received and the range that the base station
can cover. Range is the distance at which a base station can continue to pick up
a wireless phone signal as the user travels away from the physical base station
site. Most base stations within the present cellular network were deployed at a
time when the typical cellular telephone unit was designed to transmit up to
three watts of RF power. Today, smaller portable telephones that transmit only
0.6 watts of power are increasingly replacing higher-power mobile units, thereby
decreasing the effective range of existing cellular base stations. This is
particularly a problem in rural and suburban networks. In the PCS arena,
wireless systems operate at a higher frequency than traditional cellular
systems, which reduces the range of signal transmission due to the larger path
losses. In urban settings, site location, site acquisition and special
environmental requirements can drive total base station implementation costs up
to $1 million per site. In addition, each site may be subject to additional or
unique regional and local regulatory processes and citizen demands that can
burden the deployment process. As a result, decreasing the number of base
stations that must be deployed can significantly reduce the service provider's
infrastructure costs.
Another issue is interference due to the imperfect RF channel selectivity of
filtering components. Interference, which occurs when two radio waves of the
same or similar frequency interact with one another to produce "in-band"
distortion, can cause dropped calls and cross talk, causing poor service to
wireless customers. This problem can also prevent a service provider from fully
utilizing the available RF spectrum, as some spectrum must be reserved to
protect against interference from another service provider's RF spectrum, which
in turn decreases the number of users a base station can process. Problems
caused by interference can be especially acute in urban areas, where caller
density is high. Because these symptoms of interference can dramatically degrade
service quality, a wireless filter system that reduces interference can provide
a meaningful advantage in this increasingly competitive market.
The physical size of the base station can also be a significant issue for
service providers. Because a conventional filter system can account for
approximately 30% of the total base station size (excluding the antenna) and a
smaller base station requires less real estate per site, reducing the size of
the filter system can provide significant cost savings to service providers. In
addition, when new sites are not available, base station utilization must be
increased by retrofitting electronics for additional channels in the same
physical space. In such cases, reducing component size is a viable alternative.
See "Competition."
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STI'S WIRELESS PRODUCT PERFORMANCE
The Company believes that its SuperFilter(R) systems offer solutions to some
of the most pressing constraints facing the wireless industry: range, size and
interference. Each SuperFilter(R) system is a self-contained unit that can be
retrofitted into existing base stations or incorporated into new base stations
regardless of the protocol used (including Advanced Mobile Phone Service
("AMPS"), Code Division Multiple Access ("CDMA"), Time Division Multiple Access
("TDMA") and Global Systems for Mobile Communications ("GSM"), among others)
with little or no modification to conventional design. Through extended use or
field trials, STI's customers observed the following results through the use of
the SuperFilter(R) product:
o Call Traffic increased by up to 101%
o Dropped call percentage decreased by up to 40%
o Calls achievable from previous "dead" spots
o Increase in average call duration by up to 33%
o Increased base station range by up to 30%
The above results are made possible by the following characteristics of the
SuperFilter(R) products:
o Range Extension. The Company's SuperFilter(R) systems incorporate an LNA
with a superconducting filter, both of which are then cryogenically cooled.
The filters and LNAs expand the receiving range of the base station by
reducing the electrical noise of the system, enabling each base station site
to cover a larger area. The Company believes that extending base station
range reduces the number of base stations that must be deployed in a given
service area, which can result in lower capital costs, more calls completed
per base station and higher revenue per base station.
o Reduction in Interference. STI has demonstrated that superconducting
thin-film materials are attractive for wireless communications base station
applications because the near-perfect conductivity of the superconductor
filters allows for greater control of RF signals. The Company believes that
its superconducting filter systems can insulate a desired frequency against
interference from unwanted frequency transmissions more selectively than
conventional copper filters, thereby reducing the number of dropped calls
and the amount of cross talk. While the exact number of dropped calls will
vary among base stations due to differences in call volume and geographic
location, a reduction in the number of dropped calls may increase revenues
to the service provider. STI believes that a decrease in interference also
can result in an increase in utilization of the service provider's allocated
frequency spectrum, which in turn can result in an increase in the volume of
calls processed.
o Low Power Consumption. The Company believes that an additional benefit to
its superconducting filter systems is that these systems consume less energy
than competing superconducting systems, because the power budget for some
base stations can be as low as 1500 watts. A higher power budget requires
high capacity back-up units, resulting in undesirable increases in base
station size. Currently, the most energy-efficient competing superconducting
system consumes more than 500 watts or more of power while the Company's
SuperFilter(R)system consumes only approximately 150 watts of power,
comparable to that of a household light bulb.
o Tower Mount and Reduced Size. The Company believes that as PCS and cellular
base stations are deployed, service providers and base station manufacturers
will seek to install filtering and LNA capabilities at the top of the
station's antenna tower, because such mounting substantially reduces the
significant signal losses associated with tower-to-ground cabling. The
Company believes tower mounting can also be a key component of extending the
range of base stations. Advanced thin-film superconductor materials and
designs allow STI to provide superconducting filters that are one
one-thousandth the size of the conventional filters most commonly used in
base stations. A complete SuperFilter(R) system is approximately 70% to 90%
smaller than a high-performance cellular conventional filter and can be
incorporated easily into a standard 19-inch component rack mount. This
significant reduction in physical size makes valuable space available for
other required electronic components, enabling service providers to enhance
the utilization of existing base stations instead of deploying additional
base stations. In addition, reduced size can decrease deployment costs for
new base stations, as less real estate is required to support a base
station. STI believes its SuperFilter(R)systems are the smallest systems
currently available in the industry.
ACCESSING THE WIRELESS MARKET
The Company markets its products to wireless service providers and OEMs
worldwide with a particular focus on domestic wireless service providers. In the
Company's experience, wireless service providers with rural base stations had
the most immediate need for the SuperFilter(R) system, particularly for range
extension. By targeting this segment of the market
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STI expects to create significant interest from these service providers for
solving their wireless infrastructure problems which will allow the Company to
demonstrate its product capabilities in the suburban and urban markets as well.
In addition, the Company expects the interest in its products to create a "pull
through" interest from industry OEMs by creating additional market demand for
the Company's products. The Company has been successful at receiving orders for
its products from wireless service providers in small quantities for field
trials and deployment. In the case of smaller wireless service providers, orders
have been received for deployment of 50% to 100% of the base stations within
their region. The Company has also established relationships with major wireless
service providers and OEMs from which STI expects to seek volume orders. See
"Factors Affecting Future Business Operations--Dependence on Sales to Service
Providers and OEMs."
At a major industry trade show in February 1998, the Company introduced the
SuperFilter(R) system for use in AMPS/A cellular networks. The AMPS/A product
offers range extension, with a diplexed filter for reduced interference. The
AMPS/A product offers the same advantages as the AMPS/B product, with filters
designed for the AMPS/A frequency. With the introduction of both systems, STI
has positioned itself to provide products to both major segments of the cellular
industry. In addition, the Company continues to develop product enhancements
that allow the customer more flexibility when installing and utilizing the
SuperFilter(R) product. In some cases, the Company's product can replace the
entire receiver filter system within a base station. STI has chosen to offer
these two core cellular products initially as the Company believes cellular
service providers utilizing AMPS networks are the most immediately receptive
customer base for its products. The Company believes that cellular service
providers will be receptive to its products due to the increasing competition
from PCS providers, which will cause cellular providers to enhance service in
order to retain customers. The Company has also demonstrated in prototypes the
ability to design products for use in PCS networks, as well as a variety of
digital protocols. STI expects to offer additional product offerings in these
areas as the Company's position in the wireless market increases. See "Factors
Affecting Future Business Operations--Early Stage of the Commercial
Superconductor Products Market: Market Acceptance and Reliability."
CRYOGENIC COOLER PRODUCTS
Superconducting materials require cooling to temperatures as low as 77
Kelvin (-196(Degree) C) to operate. In order to incorporate a compact, efficient
and reliable cooling system into its superconducting products, STI developed a
proprietary Stirling closed-cycle cryogenic cooler. About the size of a wine
bottle, the cooler utilizes helium gas as both the lubricant and coolant. This
eliminates the use of oils and grease, often used in other cryogenic cooling
systems, which requires scheduled maintenance. STI's cryogenic technology
requires approximately 150 watts of power, much less than other commonly used
cryogenic systems. The resulting product is energy-efficient and extremely
compact with the ability to generate very cold temperatures reliably.
The Company expects to market its cryogenic cooling technology as a
stand-alone product in addition to utilizing the product in its SuperFilter(R)
systems. The Company has focused on opportunities for cryogenic cooling products
in the high-speed computing and medical markets, as well as potential
opportunities in the research and development industry. The Company believes
that the successful commercialization of its cryogenic cooler as a stand-alone
product will assist in its ability to achieve economies of scale through higher
volumes, which will result in lower manufacturing costs.
GOVERNMENT CONTRACTS
The Company's strategy is to pursue government research and development
contract awards to supplement its funding of superconducting wireless and
cryogenic product development. Since inception, 92% of the Company's net
revenues have been from research and development contracts, sales directly with
the U.S. government or resellers to the U.S. government. Nearly all of such
revenues were paid under contracts between the Company and the Department of
Defense ("DoD"). STI extensively markets to various government agencies to
identify opportunities and actively solicits partners for product development
proposals. Since 1988, the Company has successfully obtained a number of
non-classified government contracts for superconductor research, including one
of the largest non-classified HTS awards from the DoD Advanced Research Projects
Agency ("DARPA") through the Office of Naval Research, under DARPA's original
superconductivity program. In addition to actively soliciting government
contracts, the Company participates in the Small Business Innovative Research
("SBIR") program. Since its inception, the Company has been awarded 32 Phase I
SBIR contracts, each of which typically generates from $70,000 to $100,000 of
revenues for the Company. The Company has been successful in converting eight of
these Phase I contracts into Phase II programs, each of which typically
generates $500,000 to $750,000 in revenues for the Company and one into a Phase
III program valued at $2.2 million dollars. Since the Company's inception,
government contracts have provided over $51 million dollars of revenue to the
Company.
PRODUCTS DEVELOPED UNDER GOVERNMENT CONTRACTS
STI pursues U.S. government research contracts that augment the Company's
internal development programs, particularly in the areas of HTS materials
production, RF filter design, and cryogenics. STI believes it has successfully
leveraged its government research in the development of commercial products for
the wireless industry. In addition, the
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Company believes it has developed products that can be marketed to the
government communications industry, with the potential for volume sales.
The Government is working with military communications equipment contractors
on government wireless programs. The focus is generally to improve the integrity
of digital communications links through the use of superconducting filters and
cryogenic low noise amplifiers. The Company also developed a proprietary
switched filter bank ("SFB") system in conjunction with Wright Laboratory at
Wright-Patterson Air Force Base ("WP-SFB") with funding from DARPA. The SFB
demonstrated an ability to mitigate the problem of signal interference, which
DARPA believes can increase aircraft and pilot survival rates. The Company is
currently working on a DARPA funded effort to develop rapid tuning of
superconducting filters. This capability will greatly increase the effectiveness
in blocking interference in both government and commercial applications.
CURRENT GOVERNMENT R&D CONTRACTS
At December 31, 1998, the Company was working with the U.S. government under
seven separate research and development contracts with a total award value of
$21 million dollars, of which $13.9 million dollars are funded under these
contracts and $56,000 remains unspent under the funded amount. Because all of
the Company's government contracts are terminable by the contracting agency at
its option, award amounts should not be used as a measure of future revenues.
See "Factors Affecting Future Business Operations--High Degree of Dependence on
Government Contracts" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
STI'S TECHNOLOGY
SUPERCONDUCTING TECHNOLOGY
Superconductors are materials that have the ability to conduct electrical
energy with little or no resistance when cooled to "critical" temperatures. In
contrast, electric currents that flow through ordinary materials encounter
resistance that consumes energy when electrical energy is converted into heat.
Substantial improvements in the performance characteristics of electrical
systems can be made with superconductors, including reduced power loss, lower
heat generation and decreased electrical noise. As these properties have been
applied to radio and microwave frequency applications, new products, such as
wireless filters, have been developed that can be extremely small, highly
sensitive and highly frequency selective.
The discovery of superconductors was made in 1911. However, a fundamental
understanding of the phenomenon of superconductivity eluded physicists until J.
Robert Schrieffer (a director of the Company and Chairman of its Technical
Advisory Board), John Bardeen (co-inventor of the transistor) and Leon Cooper
proposed a theory explaining superconductivity, for which they were awarded the
Nobel Prize in Physics in 1972. Until 1986, all superconductor utilization was
done at extremely low temperatures below 23K (-250(Degree)C). Superconductors
were not widely used in commercial applications because of the high cost and
complexities associated with reaching and maintaining such low temperatures. In
1986, high temperature superconductors with critical temperatures greater than
30K (-243(Degree)C) were discovered. In early 1987 yttrium barium copper oxide
("YBCO") was discovered, which has a critical temperature of 93K
(-180(Degree)C). Shortly thereafter, thallium barium calcium copper oxide
("TBCCO") was discovered, which has a critical temperature of 125K
(-148(Degree)C). These discoveries were important because these high temperature
superconductors allowed for operating temperatures higher than 77K
(-196(Degree)C), or the point at which nitrogen liquefies. These high critical
temperatures allow superconductors to be cooled using less expensive and more
conventional refrigeration processes. STI was formed following this discovery to
develop and commercialize high temperature superconductors.
STI'S TECHNOLOGY APPROACH
The Company has internally developed its key technologies from a standard
set of technology platforms. The Company utilizes a proprietary manufacturing
process for HTS thin-film production, the base material for the Company's
filtering products. An in-house design team develops the filters, which are
packaged into a vacuum-sealed container for thermal insulation. The filter
package is incorporated with the Company's cryogenic cooler, and then integrated
with the necessary control electronics into a complete system for simple
adaptation into new or existing wireless communications base stations. The
Company believes that its filter systems provide its targeted markets with the
smallest and most cost-effective products and that it is the only
superconducting company that develops and manufactures all of these key
components.
HTS Materials. A number of HTS materials have been discovered with
superconducting properties, but only a few have characteristics capable of
commercialization. The Company primarily utilizes TBCCO, which has one of the
highest known critical temperatures, allowing for reduced cooling needs in order
to achieve superconducting properties. The Company holds a worldwide exclusive
license, in all fields of use, to TBCCO formulations covered by patents held by
the University of Arkansas through a license agreement. The Company also
utilizes YBCO for some of its applications, including some manufacturing
processes for its RF components. Thin-film superconductors are the base
materials used by STI to produce RF components, such as wireless communications
filters. The Company has obtained nine patents for technologies related to
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thin-film production. The Company believes that the process technology it has
developed produces state of the art HTS thin- films of the highest quality.
RF Circuitry. The Company has devoted a significant portion of its
engineering resources to design and model the complex RF circuitry that is basic
to the Company's products. The Company's RF engineering team is led by Vice
President of Engineering Neal O. Fenzi, and includes Drs. Gregory Hey-Shipton
and George Matthaei, recognized leaders in RF filter design. In addition, Dr. J.
Robert Schrieffer, a Nobel laureate, is head of the Company's Technical Advisory
Board. The expertise of this highly qualified team has allowed the Company to
design and fabricate very precise individual components, such as RF signal
filters. STI has implemented computer simulation systems to design its products
and this RF circuitry design has allowed the Company to produce extremely small,
high-performance circuits. Some of the Company's design and engineering
innovations have been patented; others are the subjects of pending patent
applications. The Company believes that its RF engineering expertise provides
the Company with a competitive advantage.
Cryogenic Cooling Technology. The availability of a low-cost, highly
reliable, compact cooling technology is critical to the successful
commercialization of the Company's superconducting products. Although such
technology had been used successfully in military applications in the past, no
such cryogenic cooler was commercially available. As a result, the Company
developed a low-cost, low-power cooler designed to cool to 77K (-196(Degree)C)
with sufficient heat dissipation for its superconducting applications, and has a
target life of over 40,000 hours. Its development was based in part on patents
licensed by the Company from Sunpower, Inc. under a cross-licensing arrangement.
STI believes that its internally-developed cryogenics allow it to offer a cooler
that is both compact and reliable enough to meet wireless industry standards and
provides the Company with a significant competitive advantage. In addition, the
Company believes its cryogenic cooler can be marketed as a stand-alone product
to other industries. In high volume production, the Company believes that unit
costs for this cooler will be significantly less than currently available
cryogenic coolers. See "--Cryogenic Cooler Products."
Cryogenic Packaging. Cooling to cryogenic temperatures requires proper
insulation and packaging. Any superconducting or other cryogenically cooled
device must be maintained at its optimal operating temperature, and its
interaction with higher temperature components must be controlled. The Company
has developed several thermal insulation technologies to satisfy this
requirement.
MANUFACTURING
Since late 1997, the Company has been developing its manufacturing
infrastructure and organization. During 1998, STI continued to formalize its
manufacturing structure by hiring a Vice President of Wireless Manufacturing. He
oversees all operating units that support the production of critical components
including assembly of superconducting filters, cryogenic coolers, cryogenic
packaging and final enclosures, as well as quality and material control
functions. In addition, the Company also has a Vice President of Material
Operations. He oversees the production of the HTS material and production of the
RF circuitry, which are key building blocks of the product. In 1998, the Company
opened its new 18,000 state of the art manufacturing facility in Santa Barbara.
A portion of STI's manufacturing processes, including thin-film production, are
performed in "clean rooms." Other manufacturing stages, including system
assembly, are conducted in a standard manufacturing environment.
During 1998, STI began high volume production of its SuperFilter(R) product.
Capacity for production of TWO-Pak SuperFilter(R) products increased from 30
systems in each of the first two quarters of 1998, to 60 and 180 systems in the
third and fourth quarters, respectively. The number of manufacturing employees
doubled in 1998 in order to support this increased capacity.
Due to the proprietary and technical nature of the Company's products and
the need to produce high quality products, the Company has decided to produce
substantially the entire product in-house. The Company believes this will enable
it to control its manufacturing process and achieve required cost reductions.
The Company has demonstrated a proprietary manufacturing process for thin-film
TBCCO materials that the Company believes is scaleable for high volume
production. The Company has established a production operation, which the
Company uses to produce TBCCO thin films on wafers for wireless electronics
applications. The Company currently purchases wafers for growth of HTS thin
films from two primary outside suppliers. The RF circuitry utilized by STI is
designed and modeled by internal engineering resources. The Company has in-house
capabilities to pattern the superconducting material and all other aspects of RF
component production, including packaging the filters. STI has in-house
capabilities to manufacture its cryogenic coolers at a pace consistent with
current quantity requirements. The Company with its expansion has adequate
capabilities in order to perform the final system integration and test of the
SuperFilter(R) product to order to meet expected demand. See "--STI's
Technology--STI's Technology Approach", "Factors Affecting Future Business
Operations--Limited Manufacturing Experience."
MARKETING AND SALES
The Company pursues a marketing strategy aimed at service providers, OEMs
and government agencies with the goal of building long-term business
relationships that will lead to future volume orders for STI's products. STI
utilizes a direct sales
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force of three Regional Sales Managers, a Director of Sales and a Senior Vice
President of Sales and Marketing. Additionally, the Company has agreements with
six domestic and one international independent organizations that perform as
Sales Representatives for STI's products. The Company demonstrates STI products
at trade shows, participates in industry conferences, utilizes advertising and
direct mailings, and provides technical and application reports to recognized
trade journals. Product information in the form of brochures, data sheets,
application notes, trade journal reports, product photos and press releases are
updated as necessary. The Company has an internal sales and marketing support
staff with extensive experience in wireless marketing and sales, contracts and
sales administration and marketing communications. See "Factors Affecting
Business Operations--Dependence on Sales to Service Providers and OEMs."
INTELLECTUAL PROPERTY
The Company regards elements of its manufacturing processes, product design
and fabrication equipment as proprietary and seeks to protect its rights in them
through a combination of patent, trademark, trade secret and copyright law and
internal procedures and non-disclosure agreements. The Company also seeks
licenses from third parties for HTS materials and processes used by the Company,
which have been patented by other parties. The Company believes that its success
will depend, in part, on the protection of its proprietary information, patents
and the licensing of key technologies from third parties.
The Company has focused its development efforts on TBCCO and, to a lesser
extent, on YBCO materials. The Company has an exclusive worldwide license
(including the right to sublicense) under several U.S. patents which have been
issued to the University of Arkansas covering TBCCO, subject to the University
of Arkansas' right to conduct research related to the patents. The consideration
for the license included $250,000 in cash, prepaid royalties of $750,000 through
April 1995 and an aggregate of 200,000 shares of Common Stock. Since April 1995,
the Company has been obligated to pay royalties of 4% on sales of TBCCO-based
products, subject to a $100,000 annual minimum from and after April 1997, and
royalties of 35% of sublicense revenues received by the Company. In the event
that the Company fails to pay minimum annual royalties, the license
automatically becomes non-exclusive. The license terminates upon expiration of
the right to claim damages for infringement of all the patents covered. Under
the terms of its exclusive license, the Company has agreed to assume litigation
expenses for infringement actions, subject to a right of setoff against future
royalty obligations.
In January 1993, as part of its strategy to stimulate the development and
use of TBCCO, the Company granted DuPont a non-exclusive worldwide sublicense to
develop processes and market TBCCO thin-films. DuPont paid the Company $388,000
as partial consideration for the sublicense, a portion of which represents
prepaid royalties. Commencing in 1998, DuPont will pay royalties on sales of
TBCCO thin-films or devices containing TBCCO thin-films, subject to annual
minimums. In the event that the Company grants another sublicense to a third
party on more favorable terms, it will be obligated to extend those terms to
DuPont. The term of the sub-license is the same as the Company's license from
the University of Arkansas, but the sublicense is terminable by DuPont upon 30
days' notice to the Company. During early 1999, the Company ended its 1997
supply agreement with DuPont, but maintained its 1997 cross-licensing agreement
with DuPont. The related royalty payments revert back to the original licensing
agreement. In 1994, the Company granted a nonexclusive license for TBCCO to
Superconducting Core Technologies, Inc., currently in bankruptcy status and in
default under the license agreement, and in 1996, to Midwest Superconductivity,
Inc. on terms substantially similar to those of the 1993 DuPont agreement.
DuPont, Superconducting Core Technologies, Inc., Midwest Superconductivity,
Inc., and their customers are current or potential competitors of the Company,
and there can be no assurance that these sublicenses will not adversely affect
the Company's business, results of operations and financial condition.
The Company is also focusing development efforts on YBCO. YBCO is the other
significant material that the Company has used in the development of its
products. The Company believes that a number of patent applications are pending
that cover the composition of YBCO, including applications filed by IBM, AT&T
and other large potential competitors of the Company. STI believes that such
applications are the subject of interference proceedings currently pending in
the U.S. Patent and Trademark Office. The Company is not involved in any such
proceedings. Therefore, there is a substantial risk that one or more third
parties will be granted patents covering YBCO and that the Company's use of
these materials may require a license. The Company has received access to some
of the patents through its cross-licensing agreement with DuPont. In addition,
international patents have been issued for specific YBCO compounds. As with
other patents, the Company has no assurance that it will be able to obtain
licenses to any such patents for YBCO or that such licenses would be available
on commercially reasonable terms. The Company's efforts to develop products
based on YBCO would be substantially impaired by its failure to obtain any such
license for YBCO, and such failure could have a material adverse effect on the
Company's business, results of operations and financial condition.
As of December 31, 1998 the Company holds 17 U.S. patents. Nine of the
Company's patents are for technologies directed toward producing thin-film
materials, including its proprietary thin-film process for TBCCO production. In
addition, the Company currently holds six patents for circuit designs and two
patents covering cryogenics and packaging. As of December 31, 1998, the Company
has fifteen patents pending, including five related to materials, four covering
STI designs and six related to cryogenics and packaging. As the Company has
developed prototype products, it has increased the number of design patents
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applied for in an effort to protect all phases of product development. See
"Factors Affecting Future Business Operations-Uncertainty of Patents and
Proprietary Rights."
SuperFilter(R) is a registered trademark of Superconductor Technologies Inc.
All other marks herein are properties of their respective owners.
RESEARCH AND DEVELOPMENT
As part of STI's strategy to maintain its technological leadership, the
Company has focused its research and development activities on materials, RF
circuitry, and cryogenics design and product application. At December 31, 1998,
the Company's research and development department consisted of 51 individuals.
The Company's contract research and development expenses consist primarily of
labor, engineering, material and overhead costs incurred in connection with
research and development activities. For the fiscal years ended in 1996, 1997
and 1998, contract research and development expenses were approximately $5.7
million, $6.2 million and $4.7 million, respectively. The Company's revenues
from government-related contracts were approximately $7.1 million, $8.1 million,
and $6.0 million, respectively, during these same periods. These contracts
accounted for 96%, 97% and 76% of the Company's total revenues in the fiscal
years ended 1996, 1997 and 1998, respectively.
Since the Company's inception, it has received approximately $51million of
revenues from government contracts. The Company believes that it will continue
to rely largely on government research and development awards to fund a
significant portion of its research and development activities. See "Factors
Affecting Future Business Operations--High Degree of Dependence on Government
Contracts" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION
The markets for the Company's products are intensely competitive. The
Company faces competition in various aspects of its technology and product
development and in each of the markets targeted by the Company. The Company's
current and potential competitors include conventional RF filter manufacturers
and both established and newly-emerging companies developing similar or
competing superconducting technologies. The Company competes primarily with
Conductus, Inc. and Illinois Superconductor Corporation with respect to its
superconducting filter systems. The Company also competes with alternative means
of enhancing base stations' range and selectivity other than by superconducting
filter. The primary competition comes from tower mount and ground mount
amplifiers and "smart" antennas. Tower mount and ground mount amplifiers pass
the signal received by the antenna through a broad low level filter, which then
amplifies the signal. These units are produced by a number of companies, which
include most of the OEMs of base stations such as Motorola, Lucent, Nortel and
Nokia. Filter manufacturers including Allen Telecom and Celwave also produce
these units. The "smart" antennas allow the antennas to focus on the signal they
are trying to receive to enhance the ability to receive the signal. Among the
companies that produce these systems are Metawave and Arraycom.
In addition, the Company currently supplies components and licenses
technology to large companies and industry leaders that may decide to
manufacture or design their own superconducting components instead of purchasing
them or licensing the technology from the Company. The Company competes with
IBM, DuPont, Matsushita and Amtel, a Japanese consortium, among others, with
respect to its HTS materials. In the government sector, the Company competes
with universities, national laboratories and both large and small companies for
research and development contracts. The Company expects increased competition
both from existing competitors and a number of companies that may enter the
wireless communications market.
The Company also competes in the market for cryogenic coolers with companies
such as CTI Cryogenics, Leybold and Ricor. CTI Cryogenics uses a different
cooling method that is not as efficient as that which is employed by the
Company, and thus requires additional power. Leybold and Ricor have produced
similar units to those produced by the Company in limited or prototype
quantities. See "Intense Competition."
ENVIRONMENTAL ISSUES
The Company uses certain hazardous materials in its research, development
and manufacturing operations. As a result, the Company is subject to stringent
federal, state and local regulations governing the storage, use and disposal of
such materials. It is possible that current or future laws and regulations could
require the Company to make substantial expenditures for preventative or
remedial action, reduction of chemical exposure or waste treatment or disposal.
In addition, although the Company believes that its safety procedures for the
handling and disposing of such materials comply with the standards prescribed by
state and federal regulations, nevertheless there is the risk of accidental
contamination or injury from these materials. To date, the Company has not
incurred substantial expenditures for preventive action with respect to
hazardous materials or for remedial action with respect to any hazardous
materials accident, but the use and disposal of hazardous materials involves the
risk that the Company could incur substantial expenditures for such preventive
or remedial actions. If such an accident occurred, the Company could be held
liable for resulting damages. The liability in the event of
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an accident or the costs of such remedial actions could exceed the Company's
resources or otherwise have a material adverse effect on the Company's financial
condition and results of operations. See "Factors Affecting Future Business
Operations--Hazardous Materials; Environmental Regulations."
EMPLOYEES
As of December 31, 1998, the Company employed a total of 142 persons, 61 of
whom were employed in manufacturing and 51 in research and development. Ten of
the Company's employees have Ph.D.s and 30 others hold advanced degrees in
physics, materials science, electrical engineering and related fields. The
Company's employees are not represented by a labor union and the Company
believes that its employee relations are good.
The Company is highly dependent upon the efforts of its senior management.
Due to the specialized technical nature of the Company's business, the Company
is also highly dependent upon its ability to attract and retain qualified
technical personnel, primarily in the areas of wireless communications. The loss
of the services of one or more members of the senior management or technical
teams could impede STI's ability to achieve its product development and
commercialization objectives. There is intense competition for qualified
personnel in the areas of the Company's activities and there can be no assurance
that the Company will be able to continue to attract and retain qualified
personnel necessary for the development of its business.
FACTORS AFFECTING FUTURE BUSINESS OPERATIONS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K includes "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. All statements other than statements of historical fact
included in this Form 10-K, including, without limitation, the statements under
"Factors Affecting Future Business Operations", "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business" regarding: the Company's ability to design, develop,
manufacture and market products, including, without limitation, its
SuperFilter(R) systems and cryogenic coolers; the ability of the Company's
products to achieve anticipated benefits; the Company's ability to achieve
product commercialization; the anticipated growth of its target markets; its
ability to achieve profitability; and other matters regarding the Company's
expectations, beliefs, intentions or strategies regarding the future are
forward-looking statements. All forward-looking statements included herein are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable at this time, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations ("Cautionary
Statements") are set forth in these "Factors Affecting Future Business
Operations," as well as elsewhere in this Form 10-K.
FUTURE CAPITAL NEEDS
To support increased sales of its SuperFilter(R) product, the Company is
currently ramping up its manufacturing operations. 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 auditors, PricewaterhouseCoopers LLP, have
indicated in their report accompanying the Company's 1998 year end financial
statements that, based on generally accepted accounting principles, the
Company's viability as a going concern is in question. In addition, the
Company's inability to fully implement its business plan would have a material
adverse effect on the Company's business, operating results and financial
condition. 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. The
Company's success in this regard will depend upon a number of factors, including
successful product testing by its potential customers, the success of the
Company's sales and marketing efforts into the wireless communications market,
the ability of the Company's products to achieve its anticipated benefits, its
ability to attract and retain qualified personnel, successful and rapid scale-up
of the Company's manufacturing capacity, the establishment of satisfactory
vendor relationships to ensure continual supply of key components which are
sourced outside
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the company, reduction of manufacturing expenses in order to price products
competitively, continued product development to meet customer demands and
availability of financing on terms acceptable to the Company. While the
Company's products have been field tested by its customers and have passed
performance and reliability testing, there can be no assurance that the products
will continue to pass these tests or meet the customers' performance
expectations in the future. If such problems occur, the Company could experience
increased costs, delays, reductions or cancellations of orders and shipments,
and product returns and discounts. 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 and adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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. Failure
of service providers or OEMs to incorporate the Company's products into their
systems or failure of such systems including the SuperFilter(R) product to
achieve market acceptance would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--Wireless
Filter Products--Accessing the Wireless Market" and "--Marketing and Sales."
LIMITED MANUFACTURING EXPERIENCE
To date, the Company has sold products only in limited quantities, primarily
for 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 commercial
quantities of superconducting or cryogenic products at acceptable costs and on a
timely basis. For example, the Company is incurring significant ramp-up costs
and could incur significant ramp-up costs and unforeseen expenses and delays in
connection with attempts to manufacture commercial quantities of superconducting
and cryogenic products, which could have a material adverse effect on the
Company's business, results of operations, and financial condition. In addition,
a portion of the components of the SuperFilter(R) system will be manufactured
outside the Company. There can be no assurance that the Company will be able to
identify manufacturers of these components that will meet the Company's
requirements as to reliability, timeliness and cost-effectiveness. Any such
failure will limit the Company's ability to satisfy customer orders and would
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business--Manufacturing."
HIGH DEGREE OF DEPENDENCE ON GOVERNMENT CONTRACTS
Since inception, 92% of the Company's net revenues have been from research
and development contract sales directly to the government or to resellers to the
government. Nearly all of such revenues were earned under contracts between the
Company and the DoD. The Company uses these contracts to help fund its research
and development programs. 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. The DoD has been
reducing total expenditures over the past few years, and while to date DoD
research and development funding for electronics has been relatively stable
despite overall cutbacks, there can be no assurance that such funding will not
be reduced in the future. 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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
Virtually all of the Company's government contracts are terminable at any
time at the option of the government. Although the Company historically has
complied with applicable government regulations and contract provisions, there
can be no assurance as to such compliance in the future. Noncompliance with
government procurement regulations or contract provisions could result in
termination of government contracts, substantial monetary fines or damages,
suspension or debarment from doing business with the government and possible
civil or criminal liability. During the term of any
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suspension or debarment by a government agency, the Company could be prohibited
from competing for or being awarded any contract by any government agency. The
termination of the Company's significant government contracts, the imposition of
fines, damages, suspension or debarment, or the adoption of new or modified
procurement regulations or practices could have a material adverse effect on the
Company's business, results of operations and financial condition.
Inventions conceived or actually reduced to practice under a government
contract generally result in the government obtaining a royalty-free, paid-up,
non-exclusive license to practice the invention. Similarly, technologies
developed in whole or in part at government expense generally result in the
government obtaining unlimited rights to use, duplicate or disclose technical
data produced under the contract. There can be no assurance that such licenses
and rights will not result in a loss by the Company of potential revenues or the
disclosure of any of the Company's proprietary information, either of which
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Government Contracts."
INTENSE COMPETITION
The markets for the Company's products are intensely competitive. The
Company faces competition in various aspects of its technology and product
development and in each of the markets targeted by the Company. The Company's
current and potential competitors include conventional RF filter manufacturers
and both established and newly-emerging companies developing similar or
competing superconducting technologies. The Company competes primarily with
Conductus, Inc. and Illinois Superconductor Corporation, with respect to its
superconducting filter systems. The Company also competes with alternative means
of enhancing base stations' range and selectivity other than by superconducting
filter. The primary competition comes from tower mount and ground mount
amplifiers and "smart" antennas. Tower mount and ground mount amplifiers pass
the signal received by the antenna through a broad low level filter, which then
amplifies the signal. These units are produced by a number of companies, which
include most of the OEMs of base stations such as Motorola, Lucent, Nortel and
Nokia. These units are also produced by filter manufacturers including Allen
Telecom and Celwave. The "smart" antennas allow the antennas to focus on the
signal they are trying to receive to enhance the ability to receive the signal.
Among the companies that produce these systems are Metawave and Arraycom.
In addition, the Company currently supplies components and licenses
technology to large companies and industry leaders that may decide to
manufacture or design their own superconducting components instead of purchasing
them, or licensing the technology, from the Company. The Company competes with
IBM, DuPont, Matsushita and Amtel, a Japanese consortium, among others, with
respect to its HTS materials. In the government sector, the Company competes
with universities, national laboratories and both large and small companies for
research and development contracts. The Company expects increased competition
both from existing competitors and a number of companies that may enter the
wireless communications market.
The Company also competes in cryogenic coolers with companies such as CTI
Cryogenics, Leybold and Ricor. CTI Cryogenics uses a different cooling method
that is not as efficient as that which is employed by the Company, and thus
requires additional power. Leybold and Ricor have produced similar units to
those produced by the Company in limited or prototype quantities.
The Company believes that it competes on the basis of technological
sophistication, product performance, reliability, quality, cost-effectiveness
and product availability. Many of the Company's current and potential
competitors have significantly greater financial, technical, manufacturing and
marketing resources than the Company. The Company's ability to effectively
compete will require it to successfully manufacture and market its current
products at a sufficiently low cost to achieve commercial acceptance, develop
and maintain technologically advanced products, attract and retain highly
qualified personnel and obtain patent or other protection for its technology and
products. There can be no assurance that the Company will be able to compete
successfully in the future.
ACCUMULATED DEFICIT AND ANTICIPATED FUTURE LOSSES
The Company has incurred net losses each year since its inception and, as of
December 31, 1998, had an accumulated deficit of $36,215,000. The Company
expects to continue to incur significant operating losses over the next several
quarters as it continues to devote significant financial resources to the
commercialization of wireless and cryogenic products, the expansion of Company
operations and product development activities. The success of the Company in
this regard is dependent upon the Company's successful commercialization of its
HTS filter systems for the worldwide wireless communications market, and there
can be no assurance that the Company will be able to successfully commercialize
such products. As a result, the timing of when the Company will be profitable
and the amount of net losses until that time are uncertain.
DEPENDENCE OF KEY PERSONNEL
The Company is highly dependent upon the efforts of its technical workforce
and senior management. Due to the specialized technical nature of the Company's
business, the Company is also highly dependent upon its ability to attract and
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retain qualified technical personnel, primarily in the areas of wireless
communications and cryogenics. The loss of the services of one or more members
of the senior management or technical teams could impede the Company's ability
to achieve its product development and commercialization objectives. There is
intense competition for qualified personnel in the areas of the Company's
activities and there can be no assurance that the Company will be able to
continue to attract and retain qualified personnel necessary for the development
of its business.
LIMITED MARKETING AND SALES CAPABILITIES
In order for the Company to successfully reach full market acceptance in its
targeted markets, it must continue to develop appropriate marketing, sales,
technical, customer service and distribution capabilities, or it must enter into
agreements with third parties to provide such services. There can be no
assurance that the Company's continuing efforts in developing its marketing and
sales capabilities, including customer service and distribution, will be
successful. Furthermore, there can be no assurance that such third party
agreements can be obtained upon acceptable terms. Failure to develop such
capabilities or obtain such third party agreements could have a material adverse
effect on the acceptance of the Company's products in the commercial markets
and, as a result, 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 failure of the Company to protect its proprietary
information could have a material adverse effect on the Company's business,
results of operations and financial condition.
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. Under the terms of its exclusive license,
the Company has agreed to assume litigation expenses for infringement actions,
subject to a right of setoff against future royalty obligations. If the Company
is required to incur significant expenses under this agreement, the Company's
results of operations and financial condition could be materially and adversely
affected. In addition, the Company has granted each of DuPont and
Superconducting Core Technologies, Inc. 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 these sublicenses will not adversely affect the Company's
business, results of operations and financial condition.
The Company believes that a number of patent applications are pending that
cover the composition YBCO including applications filed by IBM, AT&T and other
large potential competitors of the Company. YBCO is an HTS material upon which
the Company also relies, although to a lesser extent than TBCCO. The Company
understands that such applications are the subject of interference proceedings
currently pending in the U.S. Patent and Trademark Office. The Company is not
involved in these proceedings. In addition, the Company has been issued patents
for specific compounds that it uses. The Company believes that a number of
international patents may be pending regarding other specific YBCO compounds.
There is a substantial risk that one or more third parties will be granted
patents covering YBCO and that the Company's use of these materials may require
a license. As with other patents, there can be no assurance that the Company
will be able to obtain licenses to any such patents for YBCO or other materials
or that such licenses would be available on commercially reasonable terms. The
Company's efforts to develop products based on YBCO would be substantially
impaired by its failure to obtain any such license for YBCO, and such failure
could have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company owns or has rights under a number of patents and pending patent
applications related to the processing of TBCCO and YBCO. There can be no
assurance that the patent applications filed by the Company will result in
patents being issued, that any patents issued will afford meaningful protection
against competitors with similar technology, or that any patents issued will not
be challenged by third parties. Since U.S. patent applications are maintained in
secrecy until patents are issued, and since publications of discoveries in the
scientific or patent literature tend to lag behind actual discoveries by several
months, the Company cannot be certain that it was the first creator of
inventions covered by issued patents or pending patent applications or that it
was the first to file patent applications for such inventions. Moreover, there
can be no assurance that other parties will not independently develop similar
technologies, duplicate the Company's technologies or, if patents are issued to
the Company or rights licensed by the Company, design around the patented
aspects of any technologies developed or licensed by the Company. The Company
may have to participate in interference proceedings declared by the U.S. Patent
14
<PAGE> 15
and Trademark Office to determine the priority of inventions, which could result
in substantial costs to the Company. Litigation may also be necessary to enforce
any patents held by or issued to the Company or to determine the scope and
validity of others' proprietary rights, which could result in substantial costs
to the Company.
The rapid rate of inventions and discoveries in the superconductivity field
has raised many patent issues that are not resolved at this time. The claims in
the granted patents often overlap and there are disputes involving rights to
inventions claimed in pending patent applications. As a result, the patent
situation in the HTS field is unusually complex. It is likely that there will be
patents held by third parties relating to the Company's products or technology.
Therefore, the Company may need to acquire licenses to design around or
successfully contest the validity or enforceability of such patents. The extent
to which the Company may be able to acquire necessary licenses is not known. It
is also possible that because of the number and scope of patents pending or
issued, the Company may be required to obtain multiple licenses in order to use
a single material. If the Company is required to obtain multiple licenses, the
cost to the Company of HTS materials will increase. Furthermore, there can be no
assurance that such licenses would be available on commercially reasonable terms
or at all. The likelihood of successfully contesting the validity or
enforceability of such patents is also uncertain; and, in any event, the Company
could incur substantial costs in defending the validity or scope of its patents
or challenging the patents of others. See "Business--Intellectual Property."
RAPID TECHNOLOGICAL CHANGE
The field of superconductivity is characterized by rapidly advancing
technology. The future success of the Company will depend in large part upon its
ability to keep pace with advancing superconductor technology, including
superconducting materials and processes and industry standards. The Company has
focused its development efforts on TBCCO and, to a lesser extent, YBCO. There
can be no assurance that either TBCCO or YBCO will ultimately prove commercially
competitive against other currently known materials or materials that may be
discovered in the future. The Company intends to continue to develop and
integrate advances in wireless filter and cryogenic cooling technologies in the
manufacture of commercial quantities of products. The Company will also need to
continue to develop and integrate advances in complementary technologies,
particularly in the wireless communication industry. There can be no assurance
that the Company's development efforts will not be rendered obsolete by research
efforts and technological advances made by others or that materials other than
those currently used by the Company will not prove more advantageous for the
commercialization of HTS products.
MATERIALS RISKS
To date, the Company has principally focused its development efforts on
TBCCO. Although TBCCO has one of the highest critical temperatures of any HTS
material verified by the scientific community to date, other HTS materials are
currently known to have advantages over TBCCO with respect to certain
applications. There can be no assurance that TBCCO will ultimately prove
commercially competitive against YBCO or against other currently known
materials. Moreover, there is no assurance that other materials will not be
discovered with higher critical temperatures or other superior qualities or that
the Company will be able to obtain the rights to any such superior material.
The Company currently purchases substrates for growth of HTS thin-films from
two primary suppliers because of the quality of the substrate provided by such
suppliers. There are additional components that the Company sources from a
single vendor due to the present volume. While the Company is aware of
alternative sources for its substrates, the establishment of relationships with
additional or replacement suppliers could be time consuming and result in a
supply interruption which would have a material adverse effect on the Company's
ability to manufacture its products in commercial quantities and,
correspondingly, upon its business, results of operations and financial
condition. See "Business--Manufacturing."
BUSINESS INTERRUPTIONS AND DEPENDENCE ON A SINGLE U.S. FACILITY
The Company's primary operations, including engineering, manufacturing,
customer service, distribution and general administration, are housed in a
single facility in Santa Barbara, California. Any material disruption in the
Company's operations, whether due to fire, natural disaster or otherwise, could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business--Manufacturing" and "--Properties."
HAZARDOUS MATERIALS; ENVIRONMENTAL REGULATIONS
The Company uses certain hazardous materials in its research, development
and manufacturing operations. As a result, the Company is subject to stringent
federal, state and local regulations governing the storage, use and disposal of
such materials. It is possible that current or future laws and regulations could
require the Company to make substantial expenditures for preventive or remedial
action, reduction of chemical exposure, or waste treatment or disposal. There
can be no assurance that the operations, business or assets of the Company will
not be materially and adversely affected by the interpretation and enforcement
of current or future environmental laws and regulations. In addition, although
the Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by state
15
<PAGE> 16
and federal regulations, nevertheless there is the risk of accidental
contamination or injury from these materials. To date, the Company has not
incurred substantial expenditures for preventive action with respect to
hazardous materials or for remedial action with respect to any hazardous
materials accident. If such an accident occurred, the Company could be held
liable for any resulting damages. Furthermore, the use and disposal of hazardous
materials involves the risk that the Company could be required to incur
substantial expenditures for such preventive or remedial actions. The liability
in the event of an accident or the costs of such actions could exceed the
Company's resources or otherwise have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business--Environmental Issues."
VOLATILITY OF COMMON STOCK PRICE
The market price of the Common Stock, like that of many other
high-technology companies, has fluctuated significantly and is likely to
continue to fluctuate in the future. Announcements by the Company or others
regarding the receipt of customer orders, quarterly variations in operating
results, additional equity financings, changes in recommendations of securities
analysts, results of customer field trials, scientific discoveries,
technological innovations, litigation, product developments, patent or
proprietary rights, government regulation and general market conditions may have
a significant impact on the market price of the Common Stock. In addition, the
securities markets have experienced volatility that is often unrelated to the
operating performance of particular companies. In the past, following a period
of volatility in the market price of a company's securities, securities class
action lawsuits have been instituted against some companies. If brought, the
costs of defending such litigation could have a material adverse effect on the
Company's business, results of operation and financial condition.
DILUTION AND DIVIDEND POLICY
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 and Series C 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 to be held on June 2, 1999 the
Company will seek stockholder approval of the elimination of current limitations
on conversions of the Company's Preferred Stock and exercises of warrants issued
in connection with the Preferred Stock financings and the Exchange Agreement.
Upon receipt of such approval the Series A-2, Series A-3, Series B-1 and Series
C 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. Similarly, after stockholder approval is obtained, 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 is
3,856,687 shares. This number of shares is subject to adjustment certain for
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 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, and Series C Preferred Stock are payable at the
rates of 6%, 6% and 7%, and 7% per annum, respectively. In the event that the
Company's stockholders do not approve the elimination of limitations placed on
Preferred Stock conversions and certain warrant exercises at the 1999 annual
stockholders meeting, the dividend rate on the Series A-2, Series A-3, Series
B-1 and Series C Preferred Stock shall increase to 20% per annum. The 20%
dividend shall apply retroactively and be deemed to have begun on March 26,
1998, August 11, 1998, September 2, 1998 and March 5, 1999 in the case of the
Series A-2, Series A-3, Series B-1 and Series C Preferred Stock, respectively.
While the Series A-2, Series A-3, Series B-1 and Series C Preferred Stock are
outstanding, the Company is limited in its ability to pay dividends on the
Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws, each as amended to
date, contain provisions that could delay, deter or prevent a merger, tender
offer or other business combination or change in control involving the Company
that some or a majority of the stockholders might consider to be in their best
interests, including offers or attempted takeovers that might otherwise result
in such stockholders receiving a premium over the market price of the Common
Stock. The Company's Certificate of Incorporation and Bylaws, among other
things, (i) restrict the ability of stockholders to call
16
<PAGE> 17
stockholders meetings by allowing only stockholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at such meetings to
call such meetings, (ii) eliminate such right to call stockholders meetings if
the shares of capital stock of the Company are (A) designated as qualified for
trading on the Nasdaq National Market and (B) the Company has at least 800
holders of shares of its capital stock, (iii) preclude stockholders from raising
new business for consideration at stockholders meetings unless the proponent has
provided notice to the company not less than 90 days prior to the meeting and
(iv) limit business which may be conducted at stockholders meetings to those
matters properly specified in notices to the Company. Moreover, the Company has
not opted out of Section 203 of the Delaware General Corporation Law, which
prohibits mergers, sales of material assets and certain self-dealing
transactions between the corporation and a holder of 15% or more of the
corporation's outstanding voting stock for a period of three years following the
date the stockholder became a 15% holder, subject to certain qualifications.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, in
approximately two years, computer systems and/or software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
compliance. 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. Nonetheless, there can be no assurance that coding errors
or other defects will not be discovered in the future and any Year 2000
compliance problem of the Company could result in a material adverse effect on
the Company's business, operating results and financial condition. The Company
currently does not expect the amounts required to be incurred to become Year
2000 compliant to have a material effect on its financial position or results of
operations. The above statements are Year 2000 Readiness Disclosure Statements
within the meaning of the Year 2000 Readiness Information and Disclosure Act.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 23, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn E. Penisten 67 Chairman of the Board of Directors
M. Peter Thomas 57 President, Chief Executive Officer and
Director
E. Ray Cotten 68 Senior Vice President, Sales and Marketing
and Director
Robert B. Hammond, Ph.D. 50 Senior Vice President and Chief Technical
Officer
James G. Evans, Jr. 47 Vice President and Chief Financial Officer
Benson Chin 50 Vice President, Wireless Manufacturing
Michael M. Eddy, Ph.D. 38 Vice President, Materials Operations
Neal O. Fenzi 38 Vice President, Engineering
Robert P. Caren, Ph.D. (1)(2) 66 Director
Dennis Horowitz (1)(2) 52 Director
John D. Lockton (1) (2) 61 Director
J. Robert Schrieffer, Ph.D. (1)(2) 67 Director
</TABLE>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
17
<PAGE> 18
Glenn E. Penisten has served as Chairman of the Board since May 1994. Mr.
Penisten is a founder of the Company and has served on its Board of Directors
since May 1987. He served as STI's Chief Executive Officer from August 1987 to
June 1988. He has been a General Partner of Alpha Partners, a venture capital
firm, since 1985. Mr. Penisten was Chairman of the American Electronics
Association in 1982, while he was Chairman of the Board of Directors and Chief
Executive Officer of American Microsystems Inc., a semiconductor company. Mr.
Penisten is a director of Bell Microproducts Inc., IKOS Systems, Inc., Network
Peripherals, Inc. and Pinnacle Systems. Mr. Penisten holds a B.S. in electrical
engineering from Oklahoma State University.
M. Peter Thomas joined the Company as President and Chief Executive Officer
and member of the Board of Directors of the Company in April 1997. Prior to
joining the Company, Mr. Thomas was President and Chief Executive Officer of
First Pacific Networks, Inc., a telecommunications company, from June 1995 to
January 1997, which company filed for bankruptcy in February 1997 under Chapter
11 of the U.S. Bankruptcy Code. From August 1991 to May 1995, Mr. Thomas engaged
in general business consulting in conjunction with the Stanbridge Group, a
consulting firm that he co-founded in 1989. From January 1990 to July 1991, he
was President and Chief Executive Officer of Data-Design Laboratories, Inc., an
electronics company, and from 1989 to 1990, he consulted for The Stanbridge
Group. Prior to 1989, Mr. Thomas also served as President and Chief Executive
Officer of Ericsson North America, Inc., the North American operating subsidiary
of Sweden's L.M. Ericsson, a telecommunications company, as President and Chief
Operating Officer of Telenova, Inc., a telecommunications company, and as
President of the Telecom Network Systems Division of ITT, Inc., a
telecommunications company. Mr. Thomas received his B.S.E. in Aerospace
Engineering from Princeton University and his M.B.A. from the Harvard Business
School.
E. Ray Cotten became Senior Vice President, Sales and Marketing in March
1999. He joined the Board of Directors in July 1996 and served as Vice Chairman
of the Board from August 1996 to February 1999. Since August 1994, he has served
as Chairman of the Board of Impulse Telecommunications Corporation, a wireless
communications consulting and engineering firm ("Impulse"). Prior to joining
Impulse, from December 1992 to August 1994, Mr. Cotten was President, Chief
Executive Officer and Chief Operating Officer of Scott Instruments Corporation,
a pioneer in voice recognition systems and from December 1990 to November 1992,
he was President and Chief Executive Officer of ACS Software Products Group, a
software company for the apparel industry. Prior to that, he also served as
Vice-Chairman and co-founder of NetAmerica, a digital networking company, held
vice-president positions at Microdynamics, Inc., a CAD/CAM company for the
apparel industry, Northern Telecom, Inc., a telecommunications company, Data
Transmission Corporation, a digital networking company, and Danray, a
communications switch manufacturing company, and spent nearly 10 years with
Texas Instruments, where he held various management positions. Mr. Cotten
received his B.A. in business from Oklahoma State University.
Robert B. Hammond, Ph.D. has served as Senior Vice President and Chief
Technical Officer of the Company since December 1992, having served as Vice
President, Technology, and Chief Technical Officer since August 1990. From May
1991 to December 1991 and July 1992 to December 1992, he served as Acting Chief
Operating Officer of the Company, and from December 1987 to August 1990, he
served as Program Manager of the Company. Dr. Hammond also serves on STI's
Technical Advisory Board. For over eleven years prior to joining the Company, he
was at Los Alamos National Laboratory, most recently as Deputy Group Leader of
Electronics Research and Development, a group that performs research,
development and pilot production of solid state electronics and optics. Dr.
Hammond received his Ph.D. and M.S. in applied physics and his B.S. in physics
from the California Institute of Technology.
James G. Evans, Jr. joined the Company in March 1995 as Vice President,
Chief Financial Officer and Secretary. Prior to joining the Company, from 1983
to 1995, Mr. Evans held several senior executive positions within finance and
operations at Applied Magnetics Corporation, a manufacturer of magnetic record
heads for hard disk drives, most recently as Customer Business Director and
Financial Director of Thin-Film Products, where he was responsible for the
design, off-shore manufacturing, pricing, planning and quality of the product
for one-third of that company's customers. Before joining Applied Magnetics
Corporation, Mr. Evans was Director of Financial Planning for Tiger
International, a transportation company. Mr. Evans has an M.B.A. in Accounting
from the University of Southern California and a B.A. in Business Economics from
the University of California at Santa Barbara. Mr. Evans is a certified public
accountant.
Benson Chin joined the Company as Vice President, Wireless Manufacturing in
August 1998. Prior to joining the Company, from October 1989 to July 1998, Mr.
Chin held a variety of managerial positions at Harman International Industries,
Inc., a worldwide manufacturer of audio products, most recently as Executive
Director of Manufacturing. From 1971 to 1983 Mr. Chin held managerial and
technical positions at Burroughs/UNISYS, Pertec Computer Corporation, Data
Products and GTE. Mr. Chin holds a M.B.A. from California Lutheran College and a
B.S. in industrial engineering from San Jose State University. Mr. Chin is also
a registered Professional Engineer in the state of California and is certified
in Production and Inventory Management (CPIM).
Michael M. Eddy, Ph.D., became Vice President, Operations in July 1997 and
Vice President of Materials Operations in August 1998. Dr. Eddy joined STI in
1988 and most recently held the position of Director of Materials. Prior to that
Dr. Eddy held research positions at Rutherford Appleton Laboratory in England
and the University of California at Santa Barbara. Dr. Eddy holds a Bsc in
chemistry from Sheffield University, a Ph.D. in chemistry from Oxford University
and an M.B.A. from Pepperdine University.
18
<PAGE> 19
Neal O. Fenzi became Vice President, Engineering in July 1997. Mr. Fenzi
joined STI in 1992 and most recently held the position of Director of RF
Engineering. From 1982 to 1992 Mr. Fenzi worked in various engineering and
management positions at Hughes Aircraft Company, Space and Communications Group
and Amplica, Inc., a developer of microwave amplifier and sub-assemblies. Mr.
Fenzi received his B.S.E.E. in 1982 from New Mexico State University.
Robert P. Caren, Ph.D., has served on both the Board of Directors and the
Technical Advisory Board of the Company since January 1988. From May 1997 until
September 1998, Dr. Caren was Chairman of the Board of Litex, Inc., an
automobile emissions technology company. From 1988 to 1995, when he retired, Dr.
Caren served as Corporate Vice President, Sciences and Engineering, for Lockheed
Martin Corporation. Dr. Caren is a fellow of the American Institute of
Aeronautics and Astronautics, American Astronautics Society and the American
Association for the Advancement of Science. He is a member of the National
Academy of Engineering, a member of the California Commission on Science and
Technology and past Chairman of the Research Division of the Defense
Preparedness Association. Dr. Caren received his Ph.D., M.S. and B.S. in physics
from Ohio State University.
Dennis Horowitz has served on the Board of Directors of the Company since
June 1990. Mr. Horowitz is currently President Chief Executive Officer and a
Director of Wolverine Tube, Inc., a manufacturer and distributor of copper and
copper alloy tubes and fabricated products. From September 1994 to April 1997,
he served as Corporate Vice President and President of the Americas, AMP
Incorporated, an interconnection device company. From October 1993 to August
1994, Mr. Horowitz served as President and Chief Executive Officer of Philips
Technologies, a Philips Electronics North America company. From April 1990 to
September 1993, Mr. Horowitz served as President and Chief Executive Officer of
Philips Components, Discrete Products Division. From 1988 to 1990, he served as
President and Chief Executive Officer of Magnavox CATV, and from 1980 to 1988 he
was involved in the general administration of North American Philips
Corporation. Philips Components and Magnavox CATV are divisions of North
American Philips Corporation. Mr. Horowitz is a director of Aerovox Corporation.
Mr. Horowitz holds an M.B.A and a B.A. in economics from St. John's University.
John Lockton joined the Board of Directors of the Company in December 1997.
Mr. Lockton is currently Chairman of IPWireless, Inc, a wireless internet access
and IP telephony service provider. From August 1991 to March 1998, he was
President, Chief Executive Officer and a Director of International Wireless
Communications, Inc. ("IWC"), an operator of cellular systems which filed for
bankruptcy in September 1998 under Chapter 11 of the U.S. Bankruptcy Code. He
was the Vice-Chairman and a director of IWC from March 1998 until June 1998 and
remained involved with the company until September 1998. From May 1990 to August
1991 he was Managing Partner of Corporate Technology Partners, a joint venture
with Bell Canada Enterprises. In 1988, Mr. Lockton founded Cellular Data, Inc.,
a cellular wireless data technology company, and Star Associates, Inc., a
cellular radio RSA company. He founded and was a director of Interactive
Network, Inc. a wireless-based television company, and was Chairman of the Board
of Directors until December 1994. From 1983 to 1987 Mr. Lockton was Executive
Vice President of Pacific Bell (now Pacific Telesis). From 1980 to 1983 he was
President of Warner Amex (now Time Warner) Cable Television, Inc. From 1968 to
1980 Mr. Lockton served in various capacities at Dun & Bradstreet. Mr. Lockton
is the primary inventor of a patented wireless technology for Personal
Communication Services (PCS). Mr. Lockton is a graduate of Yale University (Phi
Beta Kappa), Harvard Law School and received an Executive M.B.A. from Columbia
University.
J. Robert Schrieffer, Ph.D. founded the Technical Advisory Board of the
Company in August 1987 and has served as its Chairman since that time. He has
also served on the Board of Directors of the Company since October 1988. He
received the Nobel Prize in Physics in 1972 for work in superconductivity
theory, and he has received many other professional honors including the
National Medal of Science. Dr. Schrieffer is currently the President of the
American Physical Society. He is also the University Eminent Scholar of the
State of Florida University System and has been the Chief Scientist of the
National High Magnetic Field Laboratory since January 1992. Dr. Schrieffer was
Chancellor's Professor of Physics and Director of the Institute for Theoretical
Physics at the University of California, Santa Barbara from 1980 to 1991. Dr.
Schrieffer serves on a number of government and industrial committees and is a
Fellow of the Los Alamos National Laboratory, heading its Advanced Study Program
in High Temperature Superconductivity Theory from 1988 to 1993. Dr. Schrieffer
received his Ph.D. and M.S. in physics from the University of Illinois and his
B.S. in physics from the Massachusetts Institute of Technology.
19
<PAGE> 20
ITEM 2. PROPERTIES.
The Company's primary operations, including its manufacturing line, are
located in approximately 36,000 square feet of space in Santa Barbara,
California. The Company occupies approximately 33,000 square feet of this space
under a lease that expires on December 31, 2009. The remaining 3,000 square feet
is occupied under a lease that expires in January 2001. The Company also has
sales offices in Illinois, Texas and Massachusetts, which are occupied under
leases expiring in 1999 and 2000. The Company believes its facilities will be
adequate to meet its current and reasonably anticipated needs for the next year.
See "Factors Affecting Business Operations--Business Interruptions and
Dependence on a Single U.S. Facility."
ITEM 3. LEGAL PROCEEDINGS
There are currently no pending or threatened material legal actions against
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's stockholders during the
quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MARKET FOR COMMON STOCK
The Company's Common Stock is listed on The Nasdaq Stock Market(R) under the
symbol "SCON". The following table sets forth for the periods indicated the high
and low sales prices for the Common Stock as reported on The Nasdaq Stock
Market(R).
<TABLE>
<CAPTION>
HIGH LOW
------ ------
1996
<S> <C> <C>
Quarter ended March 30, 1996 ............... $ 9.50 $ 4.00
Quarter ended June 30, 1996 ................ $ 8.75 $ 6.53
Quarter ended September 29, 1996 ........... $ 8.34 $ 6.25
Quarter ended December 31, 1996 ............ $ 7.50 $ 3.38
1997
Quarter ended March 29, 1997 .............. $ 4.75 $ 3.38
Quarter ended June 28, 1997 ............... $ 4.13 $ 2.50
Quarter ended September 27, 1997........... $ 5.31 $ 2.00
Quarter ended December 31, 1997 ........... $ 4.25 $ 2.19
1998
Quarter ended March 28, 1998 .............. $ 3.75 $ 2.50
Quarter ended June 27, 1998 ............... $ 6.63 $ 3.41
Quarter ended September 26, 1998 .......... $ 6.56 $ 4.00
Quarter ended December 31, 1998 ........... $ 5.75 $ 3.25
1999
Quarter ended April 3, 1999 ............... $ 4.63 $ 3.31
(Through March 23, 1999)
</TABLE>
HOLDERS OF RECORD
As of March 23, 1999, there were approximately 180 holders of record of the
Common Stock.
DIVIDENDS
The Company has never paid cash dividends on its capital stock and does not
expect to pay any dividends in the foreseeable future. Furthermore, the
Company's equipment lease lines prohibit it from paying cash dividends. The
Company intends to retain future earnings, if any, for use in its business.
20
<PAGE> 21
RECENT SALES OF UNREGISTERED SECURITIES
Between March 26, 1998 and the filing date of this Form 10-K, the Company
raised a total of $11,875,000 through the sale of securities to an institutional
investor in private offerings (the "Financings") of Preferred Stock and warrants
for the purchase of Common Stock. The Company issued Series A, Series A-1 and
Series B Preferred Stock and related warrants that were exchanged for Series
A-2, Series A-3, Series B-1, and modified warrants, respectively, on February
26, 1999 (the "Exchange"). Following the Exchange, the Company, by action of its
Board of Directors, eliminated the Series A, Series A-1 and Series B Preferred
Stock. On March 5, 1999 the Company issued Series C Preferred Stock and related
warrants. The chart below reflects the private securities outstanding following
completion of the Financings and the Exchange:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Common Stock
Issuable Warrants for
Series of Number of upon Purchase of Total Date of
Preferred Shares Issued Conversion Common Consideration Issuance(3)
Stock(1) of Preferred Stock(2) Received
Shares
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series A-2 64,584 1,291,680 100,000 $3,875,000 February 26, 1999
- ---------------------------------------------------------------------------------------------------
Series A-3 12,500 250,000 66,667 $1,000,000 February 26, 1999
- ---------------------------------------------------------------------------------------------------
Series B-1 50,000 1,000,000 120,000 $4,000,000 February 26, 1999
- ---------------------------------------------------------------------------------------------------
Series C 41,667 833,340 120,000 $3,000,000 March 5, 1999
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) In the event that the Company's stockholders do not approve the
elimination of the Preferred Stock conversion limitation, as described
below, each share of Preferred Stock shall be entitled to a cumulative
dividend equal to 20% of the purchase price of the Preferred Stock. Such
dividends shall be deemed to have accrued daily from the date of the
issuance of the Preferred Stock as described in footnote 3 to this
table.
(2) The exercise prices and expiration dates of the warrants are as follows:
Series A-2, $4.00 per share, expiring March 26, 2003; Series A-3, $4.00
per share, expiring August 11, 2003; Series B-1, $5.70 per share,
expiring September 2, 2003; and Series C, $4.50 per share, expiring
March 5, 2004. In connection with the Exchange the Company issued
warrants for the purchase of up to 75,000 shares of Common Stock at a
purchase price of $7.00 per share, expiring February 26, 2004.
(3) The Exchange occurred on February 26, 1999. The Series A-2 Preferred
Stock was exchanged for 500,000 shares of Series A Preferred Stock
issued on March 26, 1998 and 145,833 shares of Series A Preferred Stock
issued on September 3, 1998. The Series A-3 Preferred Stock was
exchanged for Series A-1 Preferred Stock issued on August 11, 1998 and
the Series B-1 Preferred Stock was exchanged for Series B Preferred
Stock issued on September 2, 1998.
A maximum of 1,533,709 shares of Common Stock may be issued upon conversions
and exercises of the Preferred Stock and warrants described above until the
Company's stockholders approve the elimination of such limitations. All of the
Financings were effected pursuant to an exemption from federal registration
requirements provided under Rule 506 of federal Regulation D. The purchaser in
each case was an accredited investor. The Exchange was effected through an
exemption from registration for exchanges with existing security holders
provided under Section 3(a)(9) of the Securities Act of 1933, as amended (the
"Securities Act").
During the past three years the Company has also issued warrants in private
placements in connection with the Company's leasing and financing activities. On
December 21, 1998 the Company issued warrants to Silicon Valley Bank for the
purchase of 40,000 shares of Common Stock at a price of $4.00 per share. On
November 22, 1996 the Company issued warrants to Van Kasper & Company, the
underwriter of the Company's secondary offering, for the purchase of 150,000
shares of Common Stock at a price of $4.50 per share. In each case the
securities were issued pursuant to a private placement registration exemption
under Section 4(2) of the Securities Act. All of the warrant holders are
sophisticated institutional investors that obtained the warrants for investment
purposes.
ITEM 6. SELECTED FINANCIAL DATA. (IN THOUSANDS, EXCEPT PER SHARE DATA)
The information set forth below is not necessarily indicative of results of
future operations and should be read in conjunction with the Company's Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing in Item 14 of Part IV
of this Report.
21
<PAGE> 22
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues:
Government contract revenues ....... $ 4,979 $ 7,310 $ 7,104 $ 8,104 $ 6,029
Commercial product revenues ........ 450 300 250 175 1,954
Sublicense royalties ............... 75 0 38 38 0
-------- -------- -------- -------- --------
Total net revenues .............. 5,504 7,610 7,392 8,317 7,983
Costs and expenses:
Cost of commercial product revenues 0 0 0 0 5,873
Contract research and development .. 4,030 5,414 5,721 6,218 4,693
Other research and development ..... 2,085 2,397 2,260 1,809 1,161
Selling, general and administrative 2,928 2,871 2,967 4,076 5,435
-------- -------- -------- -------- --------
Total operating expenses ....... 9,043 10,682 10,948 12,103 17,162
-------- -------- -------- -------- --------
Loss from operations .................. (3,539) (3,072) (3,556) (3,786) (9,179)
Other income (expense), net ........... 280 253 85 245 17
-------- -------- -------- -------- --------
Net loss .............................. ($ 3,259) ($ 2,819) ($ 3,471) ($ 3,541) ($ 9,162)
======== ======== ======== ======== ========
Basic and diluted loss per share ...... ($ 0.55) ($ 0.47) ($ 0.57) ($ 0.46) ($ 1.22)
Weighted average number of shares
outstanding ........................... 5,971 6,026 6,117 7,701 7,725
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments ........................ $ 7,930 $ 5,244 $ 6,871 $ 3,537 $ 310
Working capital ....................... 8,242 5,695 7,178 3,500 1,349
Total assets .......................... 14,613 11,878 13,344 10,087 12,509
Long-term debt ........................ 724 453 77 13 932
Redeemable preferred stock ............ 0 0 0 0 8,982
Total stockholders' equity (deficit) .. 12,640 10,087 11,290 8,166 (1,197)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This "Item 7-Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other parts of this report contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed below and under the caption entitled "Factors
Affecting Future Business Operations."
Superconductor Technologies Inc. was founded in 1987 and is focused on the
commercialization and manufacture of its high temperature superconducting
("HTS") products, primarily targeted toward commercial applications in the
worldwide wireless communications market through its SuperFilter(R) product. The
Company also pursues communication products and related applications in the
government business sector. Historically, the Company had been principally
engaged in research and development activities related to advanced electronic
products that incorporate HTS materials. The Company continues to be involved as
either contractor or subcontractor on a number of contracts with the United
States government. These contracts have been and continue to provide a
significant source of revenues for the Company. Superconductor Technologies is a
development stage company and has incurred cumulative losses of $36,215,000 from
inception to December 31, 1998.
22
<PAGE> 23
RESULTS OF OPERATIONS
1998 AS COMPARED WITH 1997
Net revenues. Net revenues decreased by $334,000, or 4%, from $8.3 million
in 1997 to $8.0 million in 1998, due to a decrease in government contract
revenues and sublicense royalties offset by an increase in commercial product
revenues.
Government contract revenues decreased by $2.1 million, or 26% from $8.1
million in 1997 to $6.0 million in 1998, which is primarily attributable to the
completion of certain government programs and the transition period associated
with entering into new government contracts. Government contract revenues
constituted 97% and 76% of net revenues in 1997 and 1998, respectively.
Commercial product revenues from the sale of the Company's HTS wireless
products increased by $1.8 million, or 1017%, from $175,000 in 1997 to $2.0
million in 1998. This increase in commercial product revenues is the result of
the Company's increased sales of the SuperFilter(R) product. A substantial
portion of the increase results from the shipment of 83 SuperFilter(R) systems
in 1998 compared to 1 system in 1997.
Sublicense royalties were $38,000 in 1997. There were no sublicense
royalties in 1998, as the Company did not offer any new sublicense agreements on
its patents during this time period and collected only minimal amounts under
existing licenses.
Cost of commercial product revenues. The cost of commercial product revenues
was $5.9 million in 1998. Included in the cost of commercial product revenues
are all direct costs of manufacturing, manufacturing overhead and related
start-up costs, which substantially increased over 1997.
Contract research and development. Contract research and development
expenses decreased by $1.5 million, or 25%, from $6.2 million in 1997 to $4.7
million in 1998. This decrease is attributable to the decrease in government
contract revenue that is directly related to contract expenses.
Other research and development expenses. Other research and development
expenses decreased by $648,000, or 36%, from $1.8 million in 1997 to $1.2
million in 1998. This decrease is the result of the Company's continued focus on
commercial production and ramp-up of manufacturing capacity.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $1.3 million, or 33%, from $4.1 million in
1997 to $5.4 million in 1998. This increase is due to increased labor-related
expenses attributable to the expansion of the Company's sales force, as well as
increased efforts in the Company's marketing program which included advertising
and trade shows.
Other income (expense), net. Interest income decreased by $196,000, or 71%,
from $275,000 in 1997 to $79,000 in 1998, as a result of the reduction in the
interest-earning investment balances used to fund and expand operations.
Interest expense increased by $32,000, or 107%, from $30,000 in 1997 to $62,000
in 1998, as the Company entered into new financing agreements in 1998.
1997 AS COMPARED WITH 1996
Net revenues. Net revenues increased by $925,000, or 13%, from $7.4 million
in 1996 to $8.3 million in 1997, due to an increase in government contract
revenues.
Government contract revenues increased by $1,000,000, or 14%, from $7.1
million in 1996 to $8.1 million in 1997, which is primarily attributable to
revenues associated with a government contract which the Company was awarded in
the third quarter of 1996. Government contract revenues constituted 96% and 97%
of net revenues in 1996 and 1997, respectively.
Commercial sales of the Company's HTS products decreased by $75,000, or 30%,
from $250,000 in 1996 to $175,000 in 1997. This decrease in commercial revenues
is the result of the Company's continuing efforts to shift its emphasis towards
SuperFilter(R) products and cryogenic cooler sales and away from sales of
components such as films and development hardware.
Sublicense royalties were $38,000 in 1996 and 1997 and related to an initial
sublicensing agreement in 1996.
Contract research and development. Contract research and development
expenses increased by $497,000, or 9%, from $5.7 million in 1996 to $6.2 million
in 1997. This increase is attributable to the increase in government contract
revenue that is directly related to contract expenses as well as increased
research and development efforts that are allowable expenses under these
contracts.
Other research and development expenses. Other research and development
expenses decreased by $451,000, or 20%, from $2.3 million in 1996 to $1.8
million in 1997. This decrease is the result of the Company directing its
research and development efforts towards contract research and development
projects.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $1.1 million, or 37%, from $3.0 million in
1996 to $4.1 million in 1997. This increase is the result of the Company's
strategy to increase its sales and marketing efforts related to the
SuperFilter(R) product and to develop the appropriate manufacturing
infrastructure to support these efforts. During the second half of 1997, the
Company hired two additional sales and marketing professionals and embarked on
an advertising campaign to promote the awareness of its product among wireless
service providers. In addition, the Company
23
<PAGE> 24
appointed a Vice-President of Operations to establish the appropriate
manufacturing infrastructure in order to product the SuperFilter(R) product in
an efficient and cost-effective manner.
Other income (expense), net. Interest income increased by $119,000, or 76%,
from $156,000 in 1996 to $275,000 in 1997 as a result of an increase in the
interest-earning investment balances during this period due to the successful
completion of the Company's secondary offering in the fourth quarter of 1996.
Interest expense decreased by $41,000, or 58%, from $71,000 in 1996 to $30,000
in 1997 due to the reduction in the Company's long-term portion of note payable
and capitalized lease obligations.
FLUCTUATIONS IN PERIODIC RESULTS
A significant portion of the Company's revenues has historically consisted
of government research and development contract revenues. The Company expects
that government contract revenue will continue to account for a portion of total
net revenues over the next several quarters. Government contract revenues have
historically fluctuated from period to period. This variability is attributable
to government contract budgeting and funding patterns, as the government
procurement process is lengthy and may involve competing budget considerations,
making the timing of the Company's revenues difficult to predict. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Net Revenues" and "Item
1--Business--Government Contracts" and -- "Factors Affecting Future Business
Operations-High Degree of Dependence on Government Contracts."
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
revenue 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Net revenues" and "Item 1 -- Business --
Government Contracts."
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's cash and cash equivalents totaled
$310,000. The Company considers investments with original maturities of three
months or less to be cash equivalents. The Company did not have any short-term
investments at December 31, 1998. Cash and cash equivalents and short-term
investments decreased $3.2 million, or 91%, from $3.5 million at December 31,
1997 to $310,000 at December 31, 1998. The decrease is the result of funding
operating losses of $9.2 million and purchases of new equipment in the amount of
$3.4 million for the expansion of manufacturing operations and working capital
increases of $3.0 million (accounts receivable increase of $900,000 and
inventory increase of $2.1 million), offset by proceeds of $8.9 million from the
sale of preferred stock in private placements (before offering costs of
$164,000), capital lease financing of $1.1 million, a revolving line of credit
of $633,000 and an increase in accounts payable of $1.1 million.
The Company has financed its operations from inception through December 31,
1998 primarily from net proceeds of $12.7 million raised in its initial public
offering, $15.0 million raised in private placements prior to the initial public
offering, $4.6 million from net proceeds raised in its secondary offering, $8.9
million in private placements of preferred stock in 1998, $51.1 million in
government development contract revenues and $4.4 million in product and license
revenues. Operating activities used $2.4 million, $1.9 million and $10.3 million
of cash and cash equivalents in 1996, 1997 and 1998, respectively. Investing
activities used cash of $1.7 million in 1996, provided cash of $744,000 in 1997
and used cash of $1.3 million in 1998. Financing provided cash of $4.3 million
in 1996 (primarily from the proceeds of the secondary offering), used cash of
$6,000 in 1997 and provided cash of $10.4 million in 1998 (primarily from the
proceeds of the private placements and capital lease financing). The Company
expects to rely on external financing to meet its cash needs for the foreseeable
future.
The Company's principal resource commitments at December 31, 1998 consisted
of accounts payable and accrued employment compensation of $2.4 million and
$583,000, respectively, and approximately $1.7 million of obligations under
equipment financing commitments.
During December 1998, the Company amended its Loan and Security Agreement,
which includes a revolving line of credit maturing in December 1999. Pursuant to
this transaction, the Company issued warrants to purchase 40,000 shares of
Common Stock at $4.00 per share. The revolving line of credit is not to exceed
the lesser of (i) $1.5 million or (ii) 75% of eligible accounts receivable. The
revolving line of credit bears interest at the prime rate plus 1% (8.75% at
December 31, 1998). 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 December 31, 1998. At December 31,
1998, the Company had $633,000 outstanding under this agreement.
On March 26, 1998, the Company sold 500,000 shares of Series A Preferred
Stock in a private placement at a price of $6.00 per share. The Company sold an
additional 145,833 shares of Series A Preferred Stock on September 3, 1998 at a
price of $6.00 per share. On August 11, 1998 the Company sold 125,000 shares of
Series A-1 Preferred Stock at a price of $8.00 per share. In connection with
these financings, the Company issued warrants for the purchase of up to 166,667
shares
24
<PAGE> 25
of Common Stock at a price of $4.00 per share. Proceeds from the sale of Series
A and Series A-1 Preferred Stock totaled approximately $4.875 million. Each
share of Series A and Series A-1 Preferred Stock was initially convertible
without limitation into two shares of Common Stock, and had redemption features
either allowing or requiring the Company to redeem the stock at future points in
time. On February 26, 1999, the Company entered into an Exchange Agreement with
the holders of the Preferred Stock. In the Exchange all of the Series A and
Series A-1 Preferred Stock were exchanged for Series A-2 and Series A-3
Preferred Stock, respectively. The features of the Series A-2 and Series A-3
Preferred Stock are similar to the Series A and Series A-1 Preferred Stock,
except for convertibility, redemption and dividends. Unlike the Series A and
Series A-1 Preferred Stock, the Series A-2 and Series A-3 Preferred Stock are
not redeemable and may not be freely converted until the Company's stockholders
approve the removal of the conversion limitation. The Series A-2 and Series A-3
Preferred Stock each carry a cumulative dividend of 6% per annum but will be
entitled to dividends of 20% per annum if the Company's stockholders do not
approve the elimination of the conversion restrictions on the Series A-2 and
Series A-3 Preferred Stock. The warrants issued in connection with the Series A
and Series A-1 Preferred Stock financing were exchanged in the Exchange for
warrants with restrictions on exercise pending stockholder approval of
elimination of the exercise limitations but otherwise similar terms.
The Company raised $4 million in total proceeds on September 2, 1998 through
the private placement of 500,000 shares of Series B Preferred Stock at a price
of $8.00 per share. In connection with this financing the Company issued
warrants for the purchase of up to 120,000 shares of Common Stock at a price of
$5.70 per share. Under certain conditions, which were not met, the Company was
to have issued the Series B Preferred Stock purchaser additional warrants. Each
share of Series B Preferred Stock was initially convertible without limitation
into two shares of Common Stock, and had redemption features either allowing or
requiring the Company to redeem the stock at future points in time. On February
26, 1999, the Company entered into an Exchange Agreement with the holders of the
Preferred Stock. In the Exchange all of the Series B Preferred Stock was
exchanged for Series B-1 Preferred Stock which has features similar to the
Series B Preferred Stock, except for convertibility, redemption and dividends.
Unlike the Series B Preferred Stock, the Series B-1 Preferred Stock is not
redeemable and may not be freely converted until the Company stockholders
approve the removal of the conversion limitation. The Series B-1 Preferred Stock
bears a cumulative dividend of 7% per annum that will increase to 20% per annum
if the Company's stockholders do not approve the elimination of the conversion
restrictions on the Series B-1 Preferred Stock. The warrants issued in
connection with the Series B Preferred Stock financing were exchanged in the
Exchange for warrants with restrictions on exercise pending stockholder approval
of elimination of the exercise limitations but otherwise similar terms.
On March 5, 1999 the Company raised $3 million in total proceeds through the
private placement of 41,667 shares of Series C Preferred Stock at a price of
$72.00 per share and the issuance of warrants for purchase of up to 120,000
shares of Common Stock at a price of $4.50 per share. Each share of Series C
Preferred Stock is initially convertible into 20 shares of Common Stock. The
Series C Preferred Stock may not be freely converted until the Company's
stockholders approve the removal of the conversion limitation. The Series C
Preferred Stock bears a dividend of 7% per annum that increases to 20% per annum
if the Company's stockholders do not approve of the elimination of the Series C
Preferred Stock conversion restrictions.
Accretion of the redemption value of the Series A, Series A-1 and Series B
Preferred Stock was not material to the period ended December 31, 1998. None of
the Company's Preferred Stock is currently redeemable.
The Company invests available funds in short-term, investment grade
investments, including without limitation government obligations, corporate
commercial paper, certificates of deposit and money market funds. The Company
may also invest available funds in intermediate-term investment grade
securities.
To date, inflation has not had a material impact on the Company's financial
results.
In 1998, the Company entered into a $1.1 million capital lease financing
commitment with two different leasing companies. The lease financing carries an
implicit interest rate of approximately 14.8% for 60 months. At December 31,
1998, the amounts outstanding under these agreements were $961,000.
The Company has signed a master lease agreement for an additional $1.5
million in capital lease financing and expects to draw upon approximately
$900,000 during the next several months. In addition, the Company is also
exploring the expansion of its working capital lines of credit in order to
provide 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. The Company anticipates relying on external
sources of financing to meet its cash needs over the next 12 months. 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.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 will become effective for the
25
<PAGE> 26
Company in 2000. The adoption of SFAS 133 is not expected to have a material
effect on the Company's financial position, results of operations or cash flow.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
All information required by this item is included on pages 29 to 43 in Item
14 of Part IV of this Report and is incorporated into this item by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the executive officers and directors of the Company is
incorporated by reference to the information set forth under the caption
"Business--Executive Officers and Directors" and under the caption "Proposal
One: Election of Directors" in the Company's Proxy Statement for the Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of the Company's year ended December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated by reference to
the information set forth under the caption "Executive Compensation" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be filed
with the Commission within 120 days after the end of the Company's year ended
December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the information set forth under the
caption "Voting Securities of Principal Stockholders and Management" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be filed
with the Commission within 120 days after the end of the Company's year ended
December 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption
"Executive Compensation -Certain Transactions" in the Company's Proxy Statement
for the Annual Meeting of Stockholders to be filed with the Commission within
120 days after the end of the Company's year ended December 31, 1998.
26
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following financial statements of
the Company and the Report of PricewaterhouseCoopers LLP,
Independent Accountants, are included in Part IV of this
Report on the pages indicated:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants............................................... 29
Balance Sheet as of December 31, 1997 and 1998................................. 30
Statement of Operations for the years ended December 31, 1996, 1997 and 1998
and for the period May 11, 1987 (inception) to December 31, 1998................ 31
Statement of Stockholders' Equity for the period from May 11, 1987 (inception)
to December 31, 1998............................................................ 32
Statement of Cash Flows for the years ended December 31, 1996, 1997 and
1998 and for the period May 11, 1987 (inception) to December 31, 1998........... 33
Notes to Financial Statements................................................... 34
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto.
2. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Company
3.2(1) Bylaws of the Registrant
4.1(1) Form of Common Stock Certificate
4.2 Form of Series A-2 Preferred Stock Certificate
4.3 Form of Series A-3 Preferred Stock Certificate
4.4 Form of Series B-1 Preferred Stock Certificate
4.5 Form of Series C Preferred Stock Certificate
4.6(1) Form of Representative's Warrant Agreement
4.7(2) Form of warrant issued to Van Kasper & Company
4.8 Form of warrant issued to holders Series A-2 and Series A-3
Preferred Stock
4.9 Form of warrant issued to holders of Series B-1 Preferred Stock
4.10 Form of warrant issued to holders of Series C Preferred Stock
4.11 Form of warrant issued in connection with the Exchange
Agreement dated February 26, 1999
4.12 Form of warrant issued to Silicon Valley Bank dated December
21, 1998
4.13 Series C Preferred Stock Purchase Agreement dated March 5, 1999
4.14 Second Amended and Restated Stockholder Rights Agreement dated
February 26, 1999
4.15 Amended and Restated Registration Rights Agreement dated
February 26, 1999
4.16 Registration Rights Agreement with Silicon Valley Bank dated
December 21, 1998
10.1(1)* Technology Agreement between the Registrant and Lockheed
Corporation dated January 8, 1988
10.2(1) Technical Information Exchange Agreement between the Registrant
and Philips dated September 1989
10.3(1) Standard Industrial Lease between the Registrant and UML Real
Estate Partnership dated January 1, 1990 Sublease between
Registrant and Consolidated Packaging Machinery Company d.b.a.
Industrial Automation Corporation dated October 25, 1989
10.4(1) Form of Consulting Agreement
10.5(1) Form of Employee Proprietary Information Agreement
10.6(1) 1992 Director Option Plan
10.7(1) Form of Indemnification Agreement
10.8(1) License Agreement between the Registrant and the University of
Arkansas dated April 9, 1992, as amended
10.9(1) Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated May 17, 1991,as amended
10.10(1) 1992 Stock Option Plan
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.11(1) Proprietary Information & Patents Inventions Agreement among
the Registrant, E-Systems, Inc. and various other parties;
Purchase Order dated October 10, 1991
10.12(1)* Joint Venture Company (JVC) Agreement between the Registrant
and Sunpower Incorporated dated April 2, 1992
10.13(1) Government Contract issued to Registrant by the Defense
Advanced Research Projects Agency through the Office of Naval
Research dated September 4, 1991
10.14(2)* License Agreement between the Registrant and E.I. DuPont de
Nemours and Company dated December 1992
10.15(1) Note and Warrant Purchase Agreement dated December 28, 1992
10.16(3)* Superconductor Technologies Inc. Purchase Agreement
10.17(4) Loan and Security Agreement between Registrant and Silicon
Valley Bank dated August 26, 1994
10.18(4) Form of Distribution Agreement
10.19(4) Amended and Restated 1988 Stock Option Plan, as amended, with
form of stock option agreement
10.20(5) Loan and Security Agreement between Registrant and Silicon
Valley Bank dated June 27, 1995
10.21(6)* Joint Venture Agreement between Registrant and Alantac
Technologies (S) Pte Ltd., dated May 20, 1996
10.22(7) Employment Offer Letter to M. Peter Thomas dated April 3, 1997
10.23(8) Employment Agreement with E. Ray Cotten dated July 1, 1997
10.24 Amendment dated December 21, 1998 to the Loan and Security
Agreement between Registrant and Silicon Valley Bank dated
August 26, 1994.
23.1 Consent of Independent Accountants
24.1 Power of Attorney (included on signature page hereto)
</TABLE>
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-56714).
(2) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-56714).
(3) Incorporated by reference from the Registrant's Annual Report on Form 10-K
filed for the year ended December 31, 1993.
(4) Incorporated by reference from the Registrant's Annual Report on Form 10-K
filed for the year ended December 31, 1994.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
filed for the year ended December 31, 1995.
(6) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Reg. No. 333-10569).
(7) Incorporated by reference from the Registrant's Report on Form 10-Q filed
on May 8, 1997 for the quarter ended March 29,1997. The exhibit listed is
incorporated by reference to Exhibit 10.1 of Registrant's Report on Form
10-Q.
(8) Incorporated by reference from the Registrant's Annual Report on Form
10-K filed for the year ended December 31, 1997.
* Confidential treatment has been previously granted for certain
portions of these exhibits.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K
during the last quarter of the year ended December 31, 1998.
(c) Exhibits. See Item 14(a) above.
28
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Superconductor Technologies Inc. (a Development Stage Enterprise)
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Superconductor Technologies Inc. (a
Development Stage Enterprise) at December 31, 1997 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, and the period from May 11, 1987 (inception) to
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards that require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 11. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
February 19, 1999, except as to Note 12, which is as of March 26, 1999
29
<PAGE> 30
SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 1,438,000 $ 310,000
Short-term investments .................................. 2,099,000 0
Accounts receivable ..................................... 1,048,000 1,939,000
Inventory ............................................... 677,000 2,719,000
Prepaid expenses and other current assets ............... 146,000 173,000
------------ ------------
Total current assets ............................... 5,408,000 5,141,000
Property and equipment, net of accumulated depreciation
of $6,534,000 and $6,985,000, respectively ................. 2,456,000 5,114,000
Patents and licenses, net of accumulated amortization
of $1,057,000 and $1,285,000, respectively ................. 2,152,000 2,070,000
Other assets ................................................. 71,000 184,000
------------ ------------
Total assets ....................................... $ 10,087,000 $ 12,509,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 1,407,000 $ 2,396,000
Accrued compensation .................................... 437,000 583,000
Current portion of long-term debt and capitalized
lease obligations .................................... 64,000 813,000
------------ ------------
Total current liabilities .......................... 1,908,000 3,792,000
Long-term debt ............................................... 13,000 932,000
------------ ------------
Total liabilities .................................. 1,921,000 4,724,000
------------ ------------
Redeemable Preferred Stock, $.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 ............. 8,982,000
Commitments and contingencies
Stockholders' equity:
Common Stock, $.001 par value, 30,000,000 shares
authorized, 7,699,581 and 7,722,591 shares issued
and outstanding ...................................... 8,000 8,000
Capital in excess of par value .......................... 35,211,000 35,010,000
Deficit accumulated during development stage ............ (27,053,000) (36,215,000)
------------ ------------
Total stockholders' equity (deficit) ............... 8,166,000 (1,197,000)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 10,087,000 $ 12,509,000
============ ============
</TABLE>
See accompanying notes to the financial statements.
30
<PAGE> 31
SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, MAY 11, 1987
------------ (INCEPTION) TO
1996 1997 1998 DECEMBER 31, 1998
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Net Revenues:
Government contract revenues $ 7,104,000 $ 8,104,000 $ 6,029,000 $ 51,137,000
Commercial product revenues 250,000 175,000 1,954,000 3,852,000
Sublicense royalties 38,000 38,000 0 539,000
------------ ------------ ------------ ------------
Total net revenues 7,392,000 8,317,000 7,983,000 55,528,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of commercial product revenues 0 0 5,873,000 5,873,000
Contract research and development . 5,721,000 6,218,000 4,693,000 40,121,000
Other research and development 2,260,000 1,809,000 1,161,000 19,196,000
Selling, general and administrative 2,967,000 4,076,000 5,435,000 28,086,000
------------ ------------ ------------ ------------
Total costs and expenses 10,948,000 12,103,000 17,162,000 93,276,000
------------ ------------ ------------ ------------
Loss from operations (3,556,000) (3,786,000) (9,179,000) (37,748,000)
Interest income 156,000 275,000 79,000 2,969,000
Interest expense (71,000) (30,000) (62,000) (1,317,000)
Other income (expense), net 0 0 0 (119,000)
------------ ------------ ------------ ------------
Net loss ($ 3,471,000) ($ 3,541,000) ($ 9,162,000) ($36,215,000)
============ ============ ============ ============
Basic and diluted loss per share ($ 0.57) ($ 0.46) ($ 1.22)
============ ============ ============
Weighted average number of
shares outstanding 6,117,126 7,701,435 7,724,829
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
31
<PAGE> 32
SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
CAPITAL COMMON ACCUMULATED
COMMON STOCK CONVERTIBLE PREFERRED IN EXCESS STOCK DURING
---------------- --------------------- OF PAR SUBSCRIPTIONS DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT VALUE RECEIVABLE STAGE TOTAL
------ ------ ------ ------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issued to directors 310,000 $1,000 $ 99,000 $ 100,000
Issued for acquisition 250,000 25,000 25,000
Issued to employees
and consultants 772,542 1,000 222,000 ($ 176,000) 47,000
Issued for services 6,000 42,000 42,000
Payment received on
common stock sub-
scription receivable 3,000 3,000
Series A preferred
stock issued 615,000 $1,000 427,000 428,000
Series B preferred
stock issued 2,546,482 3,000 7,576,000 7,579,000
Repurchase of common
stock and elimination
of related sub-
scription receivable (42,301) (17,000) 23,000 6,000
Series D preferred
stock issued 2,394,288 2,000 8,268,000 8,270,000
Compensation expense 441,000 441,000
Initial public offering
of shares 1,500,000 1,000 12,730,000 12,731,000
Conversion of
preferred stock 2,777,885 3,000 (5,555,770) (6,000) 3,000
Exercise of
stock options 451,939 306,000 306,000
Repayment of
stockholder note 150,000 150,000
Unrealized loss on
available-for-sale
securities
Net loss from 5/11/87
(inception)
through 12/31/95 (20,041,000) (20,041,000)
--------- ------ ------- -------- ----------- ----------- ------------- ------------
Balance at 12/31/95 6,026,065 6,000 -- -- 30,122,000 -- (20,041,000) 10,087,000
Exercise of
stock options 48,248 74,000 74,000
Cashless exercise
of warrants 1,347
Secondary offering 1,500,000 2,000 4,582,000 4,584,000
Compensation expense 16,000 16,000
Net loss (3,471,000) (3,471,000)
--------- ------ ------- -------- ----------- ----------- ------------- ------------
Balance at 12/31/96 7,575,660 8,000 -- -- 34,794,000 -- (23,512,000) 11,290,000
Exercise of
stock options 123,921 417,000 417,000
Net loss (3,541,000) (3,541,000)
--------- ------ ------- -------- ----------- ----------- ------------- ------------
Balance at 12/31/97 7,699,581 8,000 -- -- 35,211,000 -- (27,053,000) 8,166,000
Exercise of
stock options 23,010 70,000 70,000
Dividends accrued
not paid (271,000) (271,000)
Net loss (9,162,000) (9,162,000)
--------- ------ ------- -------- ----------- ----------- ------------- ------------
Balance at 12/31/98 7,722,591 $8,000 $ -- $ -- $35,010,000 $ -- ($36,215,000) ($1,197,000)
========= ====== ======= ======== =========== =========== ============= ============
</TABLE>
See accompanying notes to the financial statements.
32
<PAGE> 33
SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(NOTE 10)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 11, 1987
DECEMBER 31, (INCEPTION) TO
------------------------------------------ DECEMBER 31,
1996 1997 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 3,471,000) ($ 3,541,000) ($ 9,162,000) ($36,215,000)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 1,101,000 995,000 941,000 8,772,000
Compensation expense associated with stock 16,000 0 0 457,000
options granted
Loss on disposal of property and equipment 0 0 0 89,000
Common stock issued for services 0 0 0 42,000
Changes in assets and liabilities:
Accounts receivable (286,000) 551,000 (891,000) (1,939,000)
Note receivable from related party 0 150,000 0 0
Inventory (274,000) (175,000) (2,042,000) (2,719,000)
Prepaid expenses and other current assets 65,000 37,000 (27,000) (173,000)
Patents and licenses (156,000) (171,000) (145,000) (1,913,000)
Other assets 1,000 (35,000) (113,000) (282,000)
Accounts payable and accrued expenses 515,000 596,000 1,135,000 2,923,000
Billings in excess of costs and earnings on
uncompleted contracts 106,000 (306,000) 0 0
------------ ------------ ------------ ------------
Net cash used in operating activities (2,383,000) (1,899,000) (10,304,000) (30,958,000)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale (purchases of) short-term investments (1,458,000) 2,173,000 2,099,000 0
Purchases of property and equipment (289,000) (1,429,000) (3,372,000) (10,112,000)
Proceeds from sale of property and equipment 0 0 0 922,000
------------ ------------ ------------ ------------
Net cash (used in) provided by investing activities (1,747,000) 744,000 (1,273,000) (9,190,000)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 57,000 0 1,786,000 3,702,000
Principal payments on long-term obligations (416,000) (423,000) (118,000) (4,797,000)
Net proceeds from sale of preferred and common stock 4,658,000 417,000 8,781,000 41,553,000
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 4,299,000 (6,000) 10,449,000 40,458,000
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 169,000 (1,161,000) (1,128,000) 310,000
Cash and cash equivalents at beginning of period 2,430,000 2,599,000 1,438,000 0
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 2,599,000 $ 1,438,000 $ 310,000 $ 310,000
============ ============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
33
<PAGE> 34
SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY
Superconductor Technologies Inc. (the "Company") was incorporated in
Delaware on May 11, 1987 and maintains its headquarters in Santa Barbara,
California. The Company, which operates in a single industry segment, is focused
on the commercialization and manufacture of its high temperature superconducting
("HTS") products, primarily targeted toward commercial applications in the
worldwide wireless communications market through its SuperFilter(R) product. The
Company also pursues communication products and related applications in the
government business sector. Historically, the Company had been principally
engaged in research and development activities related to advanced electronic
products that incorporate HTS materials. The Company continues to be involved as
either contractor or subcontractor on a number of contracts with the United
States government. These contracts have been and continue to provide a
significant source of revenues for the Company. For the years ended December 31,
1996, 1997 and 1998, government related contracts accounted for 96%, 97% and
76%, respectively, of the Company's revenues.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original
maturities of three months or less.
Short-Term Investments
Short-term investments consist of highly liquid investments with original
maturities in excess of three months. Such investments are stated at fair market
value. Management believes that the financial institutions and companies in
which it has made such short-term investments are financially sound and,
accordingly, minimal credit risk exists with respect to these investments.
Revenue Recognition
Contract revenues are principally generated under research and development
contracts. Contract revenues are recognized utilizing the
percentage-of-completion method measured by the relationship of costs incurred
to total estimated contract costs. If the current contract estimate were to
indicate a loss, utilizing the funded amount of the contract, a provision would
be made for the total anticipated loss. Revenues from research related
activities are derived primarily from contracts with agencies of the United
States Government. Credit risk related to accounts receivable arising from such
contracts is considered minimal. These contracts include cost-plus, fixed price
and cost sharing arrangements and are generally short-term in nature.
All payments to the Company for work performed on contracts with agencies of
the U.S. Government are subject to adjustment upon audit by the Defense Contract
Audit Agency. Based on historical experience and review of current projects in
process, management believes that the audits will not have a significant effect
on the financial position, results of operations or cash flows of the Company.
Commercial revenues are principally derived from the sale of the Company's
SuperFilter(R) product and are recognized upon shipment of the product to the
customer.
Research and Development Costs
Research and development costs are expensed as incurred. Research and
development costs incurred solely in connection with research and development
contracts are charged to contract research and development expense. Other
research and development costs are charged to research and development expense.
Inventories
Inventories are stated at the lower of cost or market, costs are being
primarily determined using standard costs, which approximate costs utilizing the
first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost. Property and equipment and
furniture and fixtures are depreciated using the straight-line method over their
estimated useful lives ranging from three to twelve years. Leasehold
improvements and assets financed under capital leases are amortized over the
shorter of their useful lives or the lease term. Expenditures for additions and
34
<PAGE> 35
major improvements are capitalized. Expenditures for repairs and maintenance and
minor improvements are charged to expense as incurred. When property or
equipment is retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts. Gains or losses from retirements and
disposals are recorded as other income or expense.
Patents and Licenses
Patents and licenses are recorded at cost and are amortized using the
straight-line method over their estimated useful lives or seventeen years,
whichever is shorter. The recoverability of carrying values of patents and
licenses is evaluated on a recurring basis.
Income Taxes
The Company accounts for taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." SFAS 109 utilizes an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, SFAS 109
generally considers all expected future events other than enactments of changes
in the tax law or rates.
Net Loss Per Share
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 stock for the period. 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.
Stock-based Compensation
The Company measures and records compensation expense relating to stock
options as the difference, if any, between the market value of shares on the
date of option grant and the exercise price of the option in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Such expense is accrued ratably over the period to be benefited.
Use of Estimates
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.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates fair value due to the short
term nature of these instruments. The Company estimates that the carrying amount
of the debt approximates fair value based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("SFAS 130").
SFAS 130 was effective for the Company during 1998. This statement divides
comprehensive income into net income and other comprehensive income. The Company
has no items of other comprehensive income in any period and is consequently not
required to report comprehensive income.
Segment Information
The Company operates in a single business segment, the research, development
and manufacture of high temperature superconducting products for the wireless
communications industry. Net revenues derived principally from government
research and development contracts are presented separately on the statement of
income for all periods presented. Management views its
35
<PAGE> 36
government research and development contracts as a supplementary source of
revenue to fund its development of high temperature superconducting products. No
other single customer accounted for more than 10% of net revenues. Asset
information by reportable segment is not reported, since the Company does not
produce such information internally.
NOTE 3--SHORT-TERM INVESTMENTS
The Company classifies investments in short-term debt securities as
"available-for-sale" and reports them at fair value on the balance sheet with
unrealized gains and losses charged or credited to a separate component of
stockholders' equity. Available-for-sale securities are those securities that
may be sold prior to maturity in response to liquidity or other factors. At
December 31, 1997, the aggregate fair market value of the debt securities was
$2,690,000, which approximated the aggregate cost. At December 31, 1998, the
Company had no investments in any securities.
NOTE 4--PATENTS AND LICENSES
The Company has focused its development efforts on thallium barium calcium
copper oxide ("TBCCO") materials and, to a lesser extent, on yttrium barium
copper oxide ("YBCO") materials. Several U.S. patents have been issued to the
University of Arkansas covering TBCCO, and the Company has an exclusive
worldwide license (including the right to sublicense) under these patents,
subject to the University of Arkansas' right to conduct research related to the
patents. The consideration for the license included $250,000 in cash, prepaid
royalties of $750,000 through April 1995 and an aggregate of 400,000 shares of
Series D preferred stock valued at $1,382,000 (such Series D shares were
subsequently converted into 200,000 shares of common stock). Since April 1995,
the Company has been obligated to pay royalties of 4% on sales of TBCCO-based
products, subject to a $100,000 annual minimum beginning after April 1997, and
royalties of 35% of sublicense revenues received by the Company. In the event
that the Company fails to pay minimum annual royalties, the license
automatically becomes non-exclusive. The license terminates upon expiration of
the right to claim damages for infringement of all the patents covered. The
license is being amortized over thirteen years, which represents the estimated
useful life of the patent and the underlying material (TBCCO). As the Company
places reliance on its exclusive license, total or partial loss of the license
could have a material adverse effect on manufacturing, sales or operating
results.
The Company sublicensed certain of its rights in 1993, 1994 and 1996 in
exchange for non-refundable payments and royalties based on future sales, if
any, by the sublicensor. The Company has no future obligations with respect to
such sublicenses.
NOTE 5-- DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revolving line of credit $ 64,000 $ 633,000
Capital lease obligations 13,000 1,112,000
---------- ----------
$ 77,000 $1,745,000
Less: current portion 64,000 813,000
========== ==========
$ 13,000 $ 932,000
========== ==========
</TABLE>
During December 1998, the Company amended its Loan and Security Agreement,
which includes a revolving line of credit maturing in December 1999. The
revolving line of credit is not to exceed the lesser of (i) $1.5 million or (ii)
75% of eligible accounts receivable. The revolving line of credit bears interest
at the prime rate plus 1% (8.75% at December 31, 1998). 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
December 31, 1998. At December 31, 1998, the Company had $633,000 outstanding
under this agreement.
NOTE 6--INCOME TAXES
The Company has incurred a net loss in each year of operation since inception
resulting in no current or deferred tax expense for the years ended December 31,
1996, 1997 and 1998.
36
<PAGE> 37
The significant components of deferred tax assets (liabilities) at December 31
are as follows:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Loss carryforwards $ 6,569,000 $ 9,709,000
Capitalized R&D 1,874,000 2,175,000
Depreciation 1,712,000 1,726,000
Tax credits 1,044,000 1,402,000
Inventory 37,000 56,000
Less: valuation allowance (11,236,000) (15,068,000)
------------ ------------
Net deferred tax asset $ 0 $ 0
============ ============
</TABLE>
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $26,993,000 and California net operating loss
carryforwards of approximately $9,728,000. The federal carryforwards will expire
during the years 1999 through 2018 and the California carryforwards will expire
during the years 1999 through 2003. As a result of research and development
activities to date, the Company has accumulated research and development credit
carryforwards of $761,000 and $324,000 for federal and California purposes,
respectively. These federal credit carryforwards will expire during the years
2002 through 2018, while the California credit has no expiration date.
Due to the uncertainty surrounding the realization of the favorable tax
attributes of such net operating loss carryforwards in future tax returns, the
Company has recorded a valuation allowance against its otherwise recognizable
deferred tax assets. Accordingly, no deferred tax asset has been recorded in the
accompanying balance sheet.
Under the provisions of the Tax Reform Act of 1986, when there has been a
change in an entity's ownership of fifty percent or greater, utilization of net
operating loss carryforwards may be limited. As a result of certain equity
transactions, the Company will be subject to such limitations. The annual
limitations have not been determined.
NOTE 7--STOCKHOLDERS' EQUITY
Public Offering
On November 27, 1996, the Company completed a secondary public offering for
1,500,000 shares of common stock resulting in approximately $4,584,000 of cash
proceeds to the Company, net of offering costs of $1,041,000. On January 9,
1997, the underwriter of the secondary offering exercised the option to purchase
additional 100,000 shares of common stock resulting in $345,000 of cash proceeds
to the Company, net of offering costs of $30,000.
Preferred Stock
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is authorized to issue up to 2,000,000 shares of Preferred Stock (par
value $.001 per share) in one or more series and to fix the rights, preferences,
privileges, and restrictions, including the dividend rights, conversion rights,
voting rights, redemption price or prices, liquidation preferences, and the
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change of
control of the Company without further action of the stockholders. The issuance
of Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others.
The Company completed a private placement of Series A and Series A-1 6%
Cumulative Convertible Preferred Stock, with three different closing dates, to a
certain investor over the first nine months of 1998. Each share of Preferred
Stock is convertible into two shares of Common Stock. The Preferred Stock
carries a cumulative dividend of 6% per annum and also has voting rights and
liquidation preferences. The Preferred Stock is not redeemable by the Company
prior to March 26, 2001. Thereafter, the Company may redeem the Preferred Stock
at 110% of the liquidation preference plus accrued dividends. Subsequent to
March 26, 2005, until fully redeemed, the holders of the Preferred Stock have
the option to cause the Company to redeem the Preferred Stock at their
liquidation preference plus accrued dividends. On March 26, 1998, the Company
raised approximately $3,000,000 from the sale of 500,000 shares of Series A
Preferred Stock at $6.00 per share, and issued warrants to purchase up to
100,000 shares of Common Stock at an exercise price of $4.00 per share. On
August 11, 1998, the Company raised approximately $1,000,000 from the sale of
125,000 shares of Series A-1 Preferred Stock at $8.00 per share with warrants to
purchase up to 66,667 shares of Common Stock at an exercise price of $4.00 per
share. On September 3, the Company raised approximately $875,000 from the sale
of 145,833 shares of Series A Preferred Stock at $6.00 per share with no
warrants.
37
<PAGE> 38
On September 2, 1998, the Company completed a private placement of 500,000
shares of Series B 7% Cumulative Convertible Preferred Stock to certain
investors at $8.00 per share. The proceeds of the offering, net of offering
expenses, totaled approximately $4 million. The Series B Preferred Stock is not
redeemable prior to September 2, 2001. Thereafter, the Company may redeem the
Series B Preferred Stock at 110% of the liquidation preference plus accrued
dividends. Subsequent to September 2, 2005, until fully redeemed, the holders of
the Series B Preferred Stock have the option to cause the Company to redeem the
Preferred Stock at their liquidation preference plus accrued dividends. The
Company also issued warrants to purchase up to 120,000 shares of Common Stock at
$5.70 per share.
Stock Options
The Company has three stock option plans, the 1992 Stock Option Plan, and the
nonstatutory 1992 Directors' and 1998 Stock Option Plans (collectively, the
"Stock Option Plans"). The 1988 Stock Option Plan expired October 1998. Stock
awards may be made to directors, key employees, consultants, and non-employee
directors of the Company under the Stock Option Plans at prices no less than
100% of the market value on the date of grant. The stock options become
exercisable in four equal installments beginning one year after the date of
grant, and expire not more than ten years from the date of grant, with the
exception of 10% or greater stockholders which may have options granted at
prices no less than 50% of the market value on the date of grant, and expire not
more than five years from the date of grant. At December 31, 1998, options for
859,642 shares of Common Stock were exercisable.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, ("SFAS 123"), "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
for the stock-based compensation other than for non-employees. If the Company
had elected to recognize compensation expense for employee awards based upon the
fair value at the grant date consistent with the methodology prescribed by SFAS
123, the Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net loss:
As reported ($ 3,471,000) ($ 3,541,000) ($ 9,162,000)
Pro forma ($ 4,300,000) ($ 4,268,000) ($ 9,963,000)
Loss per share:
As reported ($0.57) ($0.46) ($1.22)
Pro forma ($0.70) ($0.56) ($1.33)
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for the years ended December 31, 1996, 1997 and 1998, respectively:
dividend yields of zero percent each year; expected volatilities of 52, 51 and
50 percent; risk-free interest rates of 6.16, 6.12 and 5.31 percent; and
expected life of 3.38, 3.50 and 3.9 years. The weighted average fair value of
options granted for which the exercise price equals the market price on the
grant date was $2.97, $1.47 and $2.08, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
38
<PAGE> 39
At December 31, 1998, 219,858 shares of Common Stock were available for
future grants and 1,765,297 options had been granted but not yet exercised.
Option activity during the three years ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995 1,067,448 $ 4.959
Granted 565,034 $ 6.958
Canceled (84,933) $ 6.278
Exercised (48,248) $ 1.609
---------
Outstanding at December 31, 1996 1,499,301 $ 5.746
Granted 845,302 $ 3.524
Canceled (882,494) $ 6.048
Exercised (8,437) $ 0.800
---------
Outstanding at December 31, 1997 1,453,672 $ 4.333
Granted 450,950 $ 4.733
Canceled (124,315) $ 5.038
Exercised (15,010) $ 1.991
---------
Outstanding at December 31, 1998 1,765,297 $ 4.406
=========
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable stock options:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Number of Remaining Average Number Weighted
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices Options Life Price 12/31/98 Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.70-$3.125 378,426 7.00 $2.8175 216,679 $2.779
$3.25-$3.75 404,404 8.34 $3.656 167,805 $3.654
$3.875-$4.875 442,773 7.74 $4.557 280,052 $4.730
$4.938-$6.125 403,409 8.84 $5.487 94,578 $5.669
$6.25-$7.625 136,285 6.99 $7.346 100,528 $7.277
--------- ---- ------ ------- ------
$0.70-$7.625 1,765,297 7.91 $4.406 859,642 $4.429
</TABLE>
Based upon certain factors, the Company subsequently determined that options
granted during the period June 1991 through October 1992 were issued at exercise
prices which were less than fair market value. As such, the difference between
the fair market value of these options and their exercise price was charged
against results of operations as compensation expense over the options' vesting
period. Related compensation expense recorded was $92,000, $70,000 and $16,000
for the years ended December 31, 1994, 1995 and 1996, respectively. Deferred
compensation was fully amortized at December 31, 1996.
In October 1997, the Board of Directors approved a Stock Option Repricing
Program for all directors. The Repricing Program was offered on an optional
basis to reprice the outstanding options held by the directors to $3.125, the
closing price of the Company's Common Stock as quoted on The Nasdaq Stock
Market(R) on October 29, 1997. Three directors submitted 13 grants totaling
232,500 shares for repricing. The original grants were canceled and new options
were issued totaling 155,002 shares. There was no recognizable compensation
expense as a result of the Repricing Program.
Warrants
In May 1991, the Company entered into an equipment financing agreement with
certain lessors and entered into a new agreement with a bank. In connection with
these agreements, Series D warrants were granted to purchase 28,571 shares of
preferred stock at a price of $3.50 per share. These warrants were partially
exercised in 1996 and the remaining portion expired
39
<PAGE> 40
in 1996. In December 1992, certain investors committed to make a line of credit
available to the Company. For this commitment, warrants were issued to purchase
44,447 shares of common stock at a price of $9.00 per share. The Company never
drew upon the line of credit. The warrants expired in 1997.
In March 1993, in conjunction with the Company's initial public offering,
the Company issued to the underwriter a warrant to purchase up to 120,750 shares
of Common Stock at an exercise price equal to 120% of the offering price. The
Underwriter's Warrant is exercisable for a four-year period beginning March 9,
1994. These warrants expired in 1998. Also in connection with the Company's
initial public offering all series of preferred stock warrants were
automatically converted into common stock warrants at a rate of two shares to
one. In November 1996, in conjunction with the Company's secondary offering, the
Company issued to the underwriter a warrant to purchase up to 150,000 shares of
common stock at an exercise price equal to 120% of the offering price. The
Underwriter's Warrant is exercisable for a four-year period beginning November
22, 1997.
On March 26, 1998, August 11, 1998, and September 2, 1998, in conjunction
with the Company's private placements, the Company issued warrants to purchase
up to 100,000 shares, 66,667 shares and 120,000 shares, respectively, at an
exercise price of $4.00, $4.00 and $5.70 per share, respectively. These warrants
are exercisable for a five-year period beginning March 26, 1998, August 11,
1998, and September 2, 1998, respectively.
In December 1998, the Company amended its Loan and Security Agreement to
include a revolving line of credit. For this commitment, the Company issued
warrants to purchase 40,000 shares of commons stock at a price of $4.00 per
share. These warrants are exercisable for a five-year period beginning December
21, 1998.
The following table summarizes warrant activity through December 31, 1998:
<TABLE>
<CAPTION>
COMMON STOCK
---------
<S> <C>
Outstanding at December 31, 1996 315,197
Expired (44,447)
---------
Outstanding at December 31, 1997 270,750
Granted 326,667
Expired (120,750)
---------
Outstanding at December 31, 1998 476,667
---------
NOTE 8--EMPLOYEE SAVINGS PLAN
In December 1989, the Board of Directors approved a 401(k) savings plan (the
"401(k) Plan") for the employees of the Company that became effective in 1990.
Eligible employees may elect to make contributions under the terms of the 401(k)
Plan; however, contributions by the Company are made at the discretion of
management. The Company has made no contributions to the Plan.
NOTE 9--COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its facilities under non-cancelable operating leases that
contain escalation clauses for increases in annual rent. The escalation clause
for the Company's primary facility in Santa Barbara is based upon increases in
the Los Angeles area consumer price index. Lease expiration dates range from May
1999 to December 2009. Future minimum payments required under the operating
lease commitments are as follows:
YEAR ENDING OPERATING
DECEMBER 31, LEASES
------------ ---------
<S> <C>
1999 $489,000
2000 468,000
2001 427,000
2002 430,000
2003 441,000
Thereafter 2,888,000
---------
Total minimum payments $5,143,000
==========
</TABLE>
For the years ended December 31, 1996, 1997 and 1998, rent expense was $266,000,
$318,000, and $499,000, respectively.
Capital Leases
The Company leases certain property and equipment under capital lease
arrangements that expire at various dates through
40
<PAGE> 41
2003. The leases bear interest at various rates ranging from 14.27% to 18.84%.
The minimum lease payments under these capital lease obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL
DECEMBER 31, LEASES
------------ ----------
<S> <C>
1999 $ 334,000
2000 331,000
2001 327,000
2002 327,000
2003 231,000
----------
1,550,000
Less: amount representing interest (438,000)
----------
Present value of net minimum lease payments $1,112,000
==========
</TABLE>
Other Matters
In the normal course of business, the Company, from time to time, is a
defendant on certain litigation, claims and inquiries. In addition, the Company
makes various commitments and can incur contingent liabilities. While it is not
feasible to predict the outcomes of these matters, the Company is not presently
aware of nor expects that any sum it may be required to pay in connection with
these matters would have a material effect on its financial position or results
of operation.
NOTE 10--DETAILS OF CERTAIN FINANCIAL COMPONENTS AND SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION AND NON-CASH ACTIVITIES
Balance sheet data:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998
------------ ------------
<S> <C> <C>
Accounts receivable:
Accounts receivable-trade $ 0 $ 1,043,000
U.S. government accounts receivable-billed 621,000 926,000
U.S. government accounts receivable-unbilled 427,000 0
Less: allowance for doubtful accounts 0 (30,000)
------------ ------------
$ 1,048,000 $ 1,939,000
============ ============
Inventories:
Raw materials $ 336,000 $ 817,000
Work-in-process 302,000 1,666,000
Finished goods 39,000 236,000
------------ ------------
$ 677,000 $ 2,719,000
============ ============
Property and equipment:
Equipment $ 7,319,000 $ 10,099,000
Leasehold improvements 1,591,000 1,915,000
Furniture and fixtures 80,000 85,000
------------ ------------
8,990,000 12,099,000
Less: accumulated depreciation and amortization (6,534,000) (6,985,000)
------------ ------------
$ 2,456,000 $ 5,114,000
============ ============
</TABLE>
Unbilled accounts receivable represent costs and profits in excess of billed
amounts on contracts-in-progress at year-end. Such amounts are billed based upon
the terms of the contractual agreements. Such amounts are substantially
collected within
41
<PAGE> 42
one year.
At December 31, 1997 and 1998, property and equipment includes $7,000 and
$1,018,000 of assets financed under capital lease arrangements, net of $66,000
and $158,000 of accumulated amortization, respectively. Depreciation expense
amounted to $863,000, $772,000 and $713,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
December 31,
------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Cash paid for interest $71,000 $30,000 $ 62,000
Non-cash investing and financing activities:
Dividends accrued not paid -- -- $271,000
Disposal of fully depreciated property and equipment -- -- $277,000
</TABLE>
NOTE 11--FINANCIAL CONDITION
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has recurring losses from
operations and a net capital deficiency which raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include adjustments that might result from this uncertainty. Management
believes that despite the funding uncertainties presently facing the Company,
it has in place a business plan that will be successfully funded and executed,
and will enable the Company to continue operations in the normal course.
In order to penetrate the market for its SuperFilter(R) products, during
1998 the Company undertook significant efforts in both the marketing and
manufacturing of its product. The Company performed trials with over 30 wireless
service providers, including 9 out of the top 10 domestic wireless service
providers. In order to support the market interest in its product, the Company
also established a manufacturing infrastructure, which previously had not been
in place. During 1998, the Company manufactured over 100 SuperFilter(R) units
and shipped over 80 units which it recognized as sales. The successful product
introductions in 1998 are indicative of the beginning of commercial viability
and acceptance of the Company's products. While significant
progress has been made during the past year in gaining market presence and
establishing manufacturing capability, the Company continued to incur a net
loss amounting to $9.2 million for the year ended December 31, 1998.
The Company believes that it will continue to generate interest in the
SuperFilter(R) product, which will lead to substantial orders. The recent
prospect for additional orders have been positive as the Company has started to
receive orders from one of the top ten service providers and believes that
another large service provider will follow shortly. Despite the positive market
response, through March 1999 the Company has continued to incur an operating
loss and the potential exists to incur operating losses for the remainder of the
year. Thus, capital formation continues to be an integral part of the Company's
business plans.
Despite its negative cash flow, the Company has continued to secure
financing to support its growth and implement its business plan. In 1998, the
Company successfully completed private placements of preferred stock raising
$8.9 million. In addition, the Company secured $1.1 million in capital lease
financing and a revolving line of credit of up to $1.5 million (based on
eligible accounts receivable). Through March 1999, the Company has raised $3
million from the additional private placement of Preferred Stock, has executed a
master lease agreement for an additional $1.5 million in capital lease financing
and expects to draw upon $0.9 million of such financing in the next several
months. In order to fund working capital requirements and to fully implement its
business plan, the Company will however, require additional financing. In this
regard, the Company is negotiating another private placement of preferred stock
with an investor group expected to raise an additional $3 million and is
negotiating a $1 million working capital line of credit with another bank. The
Company also plans to explore alternative sources of financing, which include
among others, raising additional equity or debt financing, expanding working
capital financing and continuing to obtain lease financing for manufacturing
equipment. The Company believes that this financing along with currently
available cash balances and other sources of liquidity, will be sufficient to
meet the Company's projected working capital requirements through at least the
end of 1999.
42
<PAGE> 43
NOTE 12--SUBSEQUENT EVENTS
On February 26, 1999, the Company completed an Exchange Agreement with the
prior holders of Preferred Stock. The Exchange Agreement limits the holder of
the preferred stock to convert the shares into common stock of the Company at
19.9% of the current outstanding shares, requires the Company to seek
shareholders approval for removing the limitations on convertibility and
eliminates the holder's ability to redeem the shares. In exchange for the
elimination of the redemption feature the Company issued 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.
43
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 30th day of March
1999.
SUPERCONDUCTOR TECHNOLOGIES INC.
By: /s/ M. Peter Thomas
--------------------------------------
M. Peter Thomas
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints M. Peter Thomas and James G. Evans, Jr.
and each of them, jointly and severally, his attorneys-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ M. Peter Thomas President, Chief Executive Officer and March 30, 1999
- ------------------------- Director (Principal Executive Officer)
M. Peter Thomas
/s/ James G. Evans, Jr. Vice President, Chief Financial Officer and March 30, 1999
- ------------------------- Secretary (Principal Financial and Accounting
James G. Evans, Jr. Officer)
/s/ Glenn E. Penisten Chairman of the Board March 30, 1999
- -------------------------
Glenn E. Penisten
/s/ E. Ray Cotten Senior Vice President, Sales and Marketing March 30, 1999
- ------------------------- and Director
E. Ray Cotten
/s/ Robert P. Caren Director March 30, 1999
- -------------------------
Robert P. Caren
/s/ Dennis Horowitz Director March 30, 1999
- -------------------------
Dennis Horowitz
/s/ John D. Lockton Director March 30, 1999
- -------------------------
John D. Lockton
/s/ J. Robert Schrieffer Director March 30, 1999
- -------------------------
J. Robert Schrieffer
</TABLE>
43
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Company
3.2(1) Bylaws of the Registrant
4.1(1) Form of Common Stock Certificate
4.2 Form of Series A-2 Preferred Stock Certificate
4.3 Form of Series A-3 Preferred Stock Certificate
4.4 Form of Series B-1 Preferred Stock Certificate
4.5 Form of Series C Preferred Stock Certificate
4.6(1) Form of Representative's Warrant Agreement
4.7(2) Form of warrant issued to Van Kasper & Company
4.8 Form of warrant issued to holders Series A-2 and Series A-3
Preferred Stock
4.9 Form of warrant issued to holders of Series B-1 Preferred Stock
4.10 Form of warrant issued to holders of Series C Preferred Stock
4.11 Form of warrant issued in connection with the Exchange
Agreement dated February 26, 1999
4.12 Form of warrant issued to Silicon Valley Bank dated December
21, 1998
4.13 Series C Preferred Stock Purchase Agreement dated March 5, 1999
4.14 Second Amended and Restated Stockholder Rights Agreement dated
February 26, 1999
4.15 Amended and Restated Registration Rights Agreement dated
February 26, 1999
4.16 Registration Rights Agreement with Silicon Valley Bank dated
December 21, 1998
10.1(1)* Technology Agreement between the Registrant and Lockheed
Corporation dated January 8, 1988
10.2(1) Technical Information Exchange Agreement between the Registrant
and Philips dated September 1989
10.3(1) Standard Industrial Lease between the Registrant and UML Real
Estate Partnership dated January 1, 1990 Sublease between
Registrant and Consolidated Packaging Machinery Company d.b.a.
Industrial Automation Corporation dated October 25, 1989
10.4(1) Form of Consulting Agreement
10.5(1) Form of Employee Proprietary Information Agreement
10.6(1) 1992 Director Option Plan
10.7(1) Form of Indemnification Agreement
10.8(1) License Agreement between the Registrant and the University of
Arkansas dated April 9, 1992, as amended
10.9(1) Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated May 17, 1991,as amended
10.10(1) 1992 Stock Option Plan
</TABLE>
<PAGE> 46
<TABLE>
<S> <C>
10.11(1) Proprietary Information & Patents Inventions Agreement among
the Registrant, E-Systems, Inc. and various other parties;
Purchase Order dated October 10, 1991
10.12(1)* Joint Venture Company (JVC) Agreement between the Registrant
and Sunpower Incorporated dated April 2, 1992
10.13(1) Government Contract issued to Registrant by the Defense
Advanced Research Projects Agency through the Office of Naval
Research dated September 4, 1991
10.14(2)* License Agreement between the Registrant and E.I. DuPont de
Nemours and Company dated December 1992
10.15(1) Note and Warrant Purchase Agreement dated December 28, 1992
10.16(3)* Superconductor Technologies Inc. Purchase Agreement
10.17(4) Loan and Security Agreement between Registrant and Silicon
Valley Bank dated August 26, 1994 10.18(4) Form of Distribution
Agreement
10.19(4) Amended and Restated 1988 Stock Option Plan, as amended, with
form of stock option agreement
10.20(5) Loan and Security Agreement between Registrant and Silicon
Valley Bank dated June 27, 1995
10.21(6)* Joint Venture Agreement between Registrant and Alantac
Technologies (S) Pte Ltd., dated May 20, 1996
10.22(7) Employment Offer Letter to M. Peter Thomas dated April 3, 1997
10.23(8) Employment Agreement with E. Ray Cotten dated July 1, 1997
10.24 Amendment dated December 21, 1998 to the Loan and Security
Agreement between Registrant and Silicon Valley Bank dated
August 26, 1994.
23.1 Consent of Independent Accountants
24.1 Power of Attorney (included on signature page hereto)
</TABLE>
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-56714).
(2) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-56714).
(3) Incorporated by reference from the Registrant's Annual Report on Form 10-K
filed for the year ended December 31, 1993.
(4) Incorporated by reference from the Registrant's Annual Report on Form 10-K
filed for the year ended December 31, 1994.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
filed for the year ended December 31, 1995.
(6) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Reg. No. 333-10569).
(7) Incorporated by reference from the Registrant's Report on Form 10-Q filed
on May 8, 1997 for the quarter ended March 29,1997. The exhibit listed is
incorporated by reference to Exhibit 10.1 of Registrant's Report on Form
10-Q.
(8) Incorporated by reference from the Registrant's Annual Report on Form
10-K filed for the year ended December 31, 1997.
* Confidential treatment has been previously granted for certain
portions of these exhibits.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUPERCONDUCTOR TECHNOLOGIES INC.
Superconductor Technologies Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), does hereby certify
that:
1. The name of the Corporation is Superconductor Technologies Inc. The
Corporation was originally incorporated under that name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on May 11, 1987.
2. Pursuant to Section 245 of the Code, this Amended and Restated
Certificate of Incorporation restates and integrates the provisions of the
Certificate of Incorporation of the Corporation as approved by the Company's
Board of Directors and does not further amend the provisions of such
Certificate of Incorporation.
3. The text of the Amended and Restated Certificate of Incorporation as
previously amended or supplemented is hereby restated to read in its entirety
as follows:
"ARTICLE I
The name of this corporation is "SUPERCONDUCTOR TECHNOLOGIES INC."
<PAGE> 2
ARTICLE II
The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State
Delaware.
ARTICLE IV
Section 1. Designation and Amount. The Corporation is authorized to
issue two classes of stock to be designated, respectively, Common Stock and
Preferred Stock. The total number of shares of Common Stock which the
Corporation shall have authority to issue is 30,000,000, par value $0.001 per
share, and the total number of shares of Preferred Stock this Corporation shall
have authority to issue is 2,000,000, par value $0.001 per share. Of the
Preferred Stock, 64,584 shares shall be designated Series A-2 Preferred Stock
(the "Series A-2 Preferred"), 12,500 shares shall be designated Series A-3
Preferred Stock (the "Series A-3 Preferred"), 50,000 shares shall be designated
Series B-1 Preferred Stock (the "Series B-1 Preferred") and 41,667 shares shall
be designated Series C Preferred Stock (the "Series C Preferred").
The undesignated 1,831,249 shares of Preferred Stock may be issued from
time to time in one or more series. The Board of Directors of the Corporation is
authorized to determine or alter the powers, designations, preferences and
rights and the qualifications, limitations or restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock, and within the limitations
or restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issuance
of shares of that series, to determine the designation of any series, and to fix
the number of shares of any series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
The Corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
2
<PAGE> 3
The rights, preferences, privileges and restrictions granted to or
imposed on the Common Stock and Preferred Stock are as follows:
Section 2. Rank. Except as provided in Article IV, Section 8, the Series
A-2, Series A-3, Series B-1 and Series C Preferred shall rank (i) prior to the
Common Stock; (ii) pari passu with each other, and 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 A-2, Series A-3, Series B-1 and
Series C Preferred; and (iii) junior to any class or series of capital stock of
the Corporation hereafter created specifically ranking, by its terms, senior to
the Series A-2, Series A-3, Series B-1 and Series C Preferred, 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 A-2, Series A-3,
Series B-1 and Series C Preferred shall be entitled to receive dividends, out of
funds legally available therefor, payable in preference and priority to any
payment of any dividend on Common Stock of the Corpora tion, at the rates of
$3.60, $4.80, $5.60 and $5.04 per share (adjusted for any recapitalization,
stock combinations, stock dividends, stock splits and the like (a
"Recapitalization")) per annum, respectively, provided, however, that in the
event Stockholder Approval (as defined in Article IV, Section 6(h)) is not
obtained, then effective as of March 26, 1998, August 11, 1998, September 2,
1998 and March 5, 1999, for the Series A-2, Series A-3, Series B-1 and Series C
Preferred, respectively, the $3.60, $4.80, $5.60 and $5.04 dividends shall be
increased to $12.00, $16.00, $16.00 and $14.40 per share, respectively (as
adjusted for Recapitalizations). Such dividends shall be cumulative, accrue
daily (beginning March 26, 1998, August 11, 1998, September 2, 1998 and March 5,
1999, for the Series A-2, Series A-3, Series B-1 and Series C Preferred,
respectively) and be paid quarterly in cash or as an addition to the Liquidation
Preferences of the Series A-2, Series A- 3, Series B-1 and Series C,
respectively (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 A-2, Series A-3, Series B-1 and Series
C Preferred shall be entitled to receive, on a pari passu basis with each other
holder of Series A-2, Series A-3, Series B-1 and Series C Preferred and any
series of Preferred Stock ranked pari passu with the Series A-2, Series A-3,
Series B-1 and Series C Preferred, but prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of any series of Preferred Stock ranked junior to the Series A-2, Series
A-3, Series B-1 or Series C Preferred or holders of Common Stock by reason of
their ownership of such stock, an amount per share equal to the sum (the
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"Liquidation Preference") of (1) $60.00, $80.00, $80.00 and $72.00 for each
share of Series A-2, Series A-3, Series B-1 and Series C Preferred,
respectively, then held by them, adjusted for any Recapitalization with respect
to such shares, and, (2) an amount equal to all unpaid dividends on the Series
A-2, Series A-3, Series B-1 and Series C Preferred held by them; provided,
however, in the event of a Liquidation Event pursuant to Article IV, Section
4(b) below that is consummated on or before March 26, 2001 in the case of the
Series A-2 or Series A-3 Preferred, or on or before March 5, 2002 in the case of
the Series C Preferred, the Liquidation Preference shall be (i) for the Series
A-2 Preferred, the greater of (1) $72.00 or (2) $60.00 plus all accrued
dividends for each share of Series A-2 Preferred, (ii) for the Series A-3
Preferred, the greater or (1) $96.00 or (2) $80.00 plus all accrued dividends
for each share of Series A-3 Preferred, and (iii) for the Series C Preferred,
the greater of (1) $86.40 or (2) $72.00 plus all accrued dividends for each
share of Series C Preferred, adjusted for any Recapitalizations with respect to
such shares. If the assets and funds thus distrib uted among the holders of the
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Preferred Stock on a pari passu basis in proportion to
the aggregate preferential amount of shares of Preferred Stock outstanding as of
the date of the distribution upon the occurrence of such event. After payment
has been made to the holders of the Preferred Stock of the full 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 Article IV, 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 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
Amended and Restated Certificate of Incorporation or Bylaws of the Corporation,
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 Preferred Stock could be converted, subject to the limits set forth in
Article IV, Section 6(h) below, at the record date for determination of the
stockholders entitled to vote on such
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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 A-2, Series A-3, Series
B-1 and Series C Preferred have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Subject to the limits set forth in Article
IV, Section 6(h) below, each share of Preferred Stock 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 Preferred
Stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined:
(1) in the case of the Series A-2 Preferred, by dividing
$60.00 by the Series A-2 Conversion Price, determined as hereinafter provided,
(2) in the case of the Series A-3 Preferred, by dividing
$80.00 by the Series A-3 Conversion Price, determined as hereinafter provided,
(3) in the case of the Series B-1 Preferred, by dividing
$80.00 by the Series B-1 Conversion Price, determined as hereinafter provided,
and
(4) in the case of the Series C Preferred, by dividing
$72.00 by the Series C Conversion Price, determined as hereinafter provided, in
effect at the time of their respective conversions.
The price at which shares of Common Stock shall be deliverable upon
conversion of shares of Series A-2, Series A-3, Series B-1 and Series C
Preferred shall initially be $3.00, $4.00, $4.00 and $3.60 with respect to each
share of Series A-2, Series A-3, Series B-1 and Series C Preferred, respectively
(the "Series A-2 Conversion Price", "Series A-3 Conversion Price", "Series B-1
Conversion Price", and "Series C Conversion Price", respectively). The term
"Conversion Price," as used herein shall refer to the respective Conversion
Price of each series of Preferred Stock. The initial Conversion Price shall be
subject to adjustment as hereinafter provided.
(b) Automatic Conversion. Subject to the limits set forth in
Article IV, Section 6(h) below, each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price for such series upon the election of holders of at least a
majority of the then outstanding shares of Preferred Stock.
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(c) Mechanics of Conversion. The mechanics of conversion set
forth in this Article IV, Section 6(c) are subject to the limits set forth in
Article IV, Section 6(h) below. No fractional shares of Common Stock shall be
issued upon conversion of Preferred Stock. 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 Conversion Price. Before
any holder of Preferred Stock 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 Preferred Stock, 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 Article IV, Section 6(b), the outstanding shares of
Preferred Stock 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 Preferred Stock 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
connec tion 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
Preferred Stock, 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 Preferred Stock 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 Preferred Stock, 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 Preferred Stock. The
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 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 Conversion Price then in effect
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased.
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(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 deter mination of holders of Common Stock
entitled to receive any distribution (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 Article IV, Section 6 or as provided in Article IV, Section 3,
then and in each such event, the holders of Preferred Stock 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 Preferred Stock been
converted into Common Stock on the date of such event.
(iii) Adjustments for Reclassification, Exchange
and Substitution. Except as provided in Article IV, Section 4, upon any
liquidation, dissolution or winding up of the Corporation, if the Common Stock
issuable upon conversion of the Preferred Stock 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
Preferred Stock 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
Preferred Stock shall have been entitled upon such reorganization or
reclassification.
(2) Adjustments of Conversion Price for Diluting Issues.
In addition to the adjustment of the Conversion Price provided in Article IV,
Section 6(d)(1) above, the Conversion Price shall be subject to further
adjustment from time to time as follows:
(i) Special Definitions. For purposes of this
Article IV, 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 March
26, 1998, August 11, 1998, September 2, 1998 and March 5, 1999, for the Series
A-2, Series A-3, Series B-1 and Series C Preferred, respectively.
(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 Article IV,
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:
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(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;
(C) as a dividend or other
distribution on the Preferred Stock or pursuant to clause (i), (ii) or (iii) of
Article IV, 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, including, without
limitation, the following warrants: the warrant, dated as of November 22, 1997,
the warrant dated as of December 21, 1998, the warrants issued or issuable
pursuant to the Letter Agreement between the Company and Tanner Unman
Securities, Inc., dated as August 10, 1998, the warrants issued or issuable
pursuant to the Exchange Agreement, any additional warrants to be issued
pursuant to the Securities Purchase Agreement dated as of September 2, 1998, and
any Preferred Stock purchase agreement entered into before Stockholder Approval
(as defined below);
(G) with the written approval of the
holders of a majority of the outstanding Series A-2, Series A-3, Series B-1 or
Series C Preferred, respectively, in the event that an issuance would otherwise
trigger an anti-dilution adjustment for such Series A-2, Series A-3, Series B-1
or Series C Preferred under Article IV, Section 6(d)(2), 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 Conversion Price. No
adjustment in the Conversion Price of a particular share of Preferred Stock
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 Conversion
Price in effect on the date of, and immediately prior to such issue, for such
share of Preferred Stock.
(iii) Deemed Issue of Additional Shares of Common
Stock.
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(1) Options and Convertible Securities.
Except as otherwise provided in Article IV, 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 Article IV, Section
6(d)(2)(v) below) of such Additional Shares of Common Stock would be less than
the 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:
(A) no further adjustment in the
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 consid eration 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 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 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 addi tional consideration, if
any, actually received by the Corporation upon such conversion or exchange, and
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(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 Conversion Price
to an amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the 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
(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 Conversion Price shall be made until the
expiration or exercise of all such Options.
(iv) Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Article IV, Section 6(d)(2)(iii), but excluding
stock dividends, subdivisions or split-ups that are the subject of adjustment
pursuant to Article IV, Section 6(d)(i)) without consideration or for a
consideration per share less than the Conversion Price, in effect on the date
of, and immediately prior to such issue, then and in such event, such Conversion
Price shall be reduced, concurrently with such issue, to a price (calculated to
the nearest cent) determined by multiplying such 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
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 Article IV, Section 6(d)(2)(iv), 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 Article IV,
Section 6(d)(2)(iii), such Additional Shares of Common Stock shall be deemed to
be outstanding.
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(v) Determination of Consideration. For purposes of
this Article IV, 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 Article IV, 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 Article IV, Section 8,
the Corporation will not, by amendment of its Amended and Restated Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in
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the carrying out of all the provisions of this Article IV, Section 6 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Article IV,
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 Preferred Stock 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 Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the 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 Preferred Stock.
(g) Notices of Record Date. In the event that the Corporation
shall propose at any time:
(1) 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;
(2) to effect any reclassification or capitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(3) 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 Preferred Stock:
(i) 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 (2) and (3) above; and
(ii) in the case of the matters referred to in (2)
and (3) above, at least 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 Preferred Stock at
the address for each such holder as shown
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on the books of the Corporation. The above written notice requirement may be
waived for any series of Preferred Stock by the holders of a majority of the
then outstanding shares of that respective series of Preferred Stock.
(h) Limits on Conversion. Notwithstanding anything herein to the
contrary, the Series A-2, Series A-3, Series B-1 and Series C Preferred of the
Corporation and any additional shares of Preferred Stock issued by the
Corporation prior to Stockholder Approval (as defined below), and the
outstanding warrants to purchase Common Stock of the Corporation (issued or
issuable to holders of such shares of Preferred Stock pursuant to agreements
outstanding as of February 26, 1999 or entered into prior to Stockholder
Approval) (collectively, the "Securities") shall not be convertible into or
exercisable for (as the case may be) shares of Common Stock in excess of
1,533,709 shares (as adjusted for Recapitalizations and the like) (the "19.9%
Cap" or the "Allowed Conversion Shares"), unless the Corporation has received
stockholder approval to eliminate such 19.9% Cap at a duly held meeting of the
stockholders in calendar 1999 (the "Stockholder Approval"). Until Stockholder
Approval has been obtained (or, if Stockholder Approval is not obtained, then
continuing thereafter) the 19.9% Cap shall apply and each holder of Securities
(each a "Holder") shall have the right to convert its Preferred Stock or
exercise its warrants only up to its pro rata portion of the Allowed Conversion
Shares. A Holder may waive in writing its right to convert or exercise (or
transfer to another Holder) its pro rata portion of the Allowed Conversion
Shares. In the event that a Holder converts or exercises its Securities, then
the number of Allowed Conversion Shares will be reduced by such amount.
Section 7. Status of Converted Stock. In case any shares of Preferred
Stock shall be repurchased or converted pursuant to Article IV, Section 6, the
shares so repurchased or converted shall be cancelled and shall not be issued by
the Corporation and this Amended and Restated Certificate of Incorporation shall
be appropriately amended to effect the corresponding reduction in the
Corporation's authorized Preferred Stock.
Section 8. Covenants. In addition to any other rights provided by law,
so long as at least twenty-five percent (25%) of the shares of any authorized
series of Preferred Stock shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority of the outstanding shares of that respective series
of Preferred Stock:
(a) amend or repeal any provision of the Corporation's Amended
and 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 affected series of Preferred Stock; or
(b) 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 affected series of Preferred
Stock.
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ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
Except as otherwise provided in this Amended and Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend or rescind any or all of the Bylaws of the Corporation.
ARTICLE VII
Section 1. The number of directors of the Corporation shall be fixed
from time to time by a Bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
Section 2. Vacancies occurring on the Board of Directors for any reason
may be filled by vote of a majority of the remaining members of the Board of
Directors, although less than a quorum, at a meeting of the Board of Directors.
A person so elected by the Board of Directors to fill a vacancy shall hold
office until the next succeeding annual meeting of stockholders of the
Corporation and until his or her successor shall have been duly elected and
qualified.
ARTICLE VIII
Elections of directors at an annual or special meeting need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
14
<PAGE> 15
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
on stockholders herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by the General Corporation Law of the
State of Delaware, a director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Neither any amendment nor repeal of this Article,
nor the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article shall eliminate or reduce the
effect of this Article in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
THE UNDERSIGNED, being the President and Chief Executive Officer of the
Corporation, does make this certificate, hereby declaring and certifying that
this is his act and deed and the facts herein stated are true, and accordingly,
has hereunto set his hand this 30th day of March, 1999.
SUPERCONDUCTOR TECHNOLOGIES INC.
/s/ M. Peter Thomas
----------------------------------------
M. Peter Thomas, President and Chief
Executive Officer
15
<PAGE> 1
EXHIBIT 4.2
Number _______ SUPERCONDUCTOR TECHNOLOGIES INC. _______ Shares
A Delaware Corporation Series A-2 Preferred Stock
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 ****_________________________________**** is the record
holder of _________________ fully paid and nonassessable shares of Series A-2
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 on 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 signatures of its duly
authorized officers this ____ day of __________, _____.
______________________________ ____________________________________
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_____________,______
IN PRESENCE OF____________________ ____________________________________
(Witness) (Stockholder)
____________________________________
(Stockholder)
<PAGE> 1
EXHIBIT 4.3
Number _______ SUPERCONDUCTOR TECHNOLOGIES INC. _______ Shares
A Delaware Corporation Series A-3 Preferred Stock
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 ****_________________________________**** is the record
holder of _________________ fully paid and nonassessable shares of Series A-3
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 on 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 signatures of its duly
authorized officers this ____ day of __________, _____.
______________________________ ____________________________________
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_____________,______
IN PRESENCE OF____________________ ____________________________________
(Witness) (Stockholder)
____________________________________
(Stockholder)
<PAGE> 1
EXHIBIT 4.4
Number _______ SUPERCONDUCTOR TECHNOLOGIES INC. _______ Shares
A Delaware Corporation Series B-1 Preferred Stock
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 ****_________________________________**** is the record
holder of _________________ fully paid and nonassessable shares of Series B-1
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 on 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 signatures of its duly
authorized officers this ____ day of __________, _____.
______________________________ ____________________________________
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_____________,______
IN PRESENCE OF____________________ ____________________________________
(Witness) (Stockholder)
____________________________________
(Stockholder)
<PAGE> 1
EXHIBIT 4.5
Number _______ SUPERCONDUCTOR TECHNOLOGIES INC. _______ Shares
A Delaware Corporation Series C Preferred Stock
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 ****_________________________________**** is the record
holder of _________________ fully paid and nonassessable shares of Series C
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 on 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 signatures of its duly
authorized officers this ____ day of __________, _____.
_______________________________ ___________________________________
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_____________,______
IN PRESENCE OF____________________ ____________________________________
(Witness) (Stockholder)
____________________________________
(Stockholder)
<PAGE> 1
EXHIBIT 4.8
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.-_______ Right to Purchase _______
[Date] Shares of Common Stock
Void After [Date]
SUPERCONDUCTOR TECHNOLOGIES INC.
WARRANT
THIS CERTIFIES THAT, subject to the terms of this agreement, WILMINGTON
SECURITIES, INC. (the "Warrantholder") 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 an Exchange Agreement dated as of
February 26, 1999 between the Company and the stockholders named therein (the
"Exchange Agreement") in exchange for a warrant issued pursuant to the Series
____ Preferred Stock Purchase Agreement dated _______, 1998 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 C-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:
(i) 5:00 p.m., Pacific Standard Time, ____________; or
(ii) 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 Trans action 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 clauses (i)
through (ii) above, this Warrant, to the extent not exercised, shall terminate.
2. Warrant Price. The exercise price of this Warrant (the "Warrant
Price") shall equal $______ per share.
3. Payment by Warrant Conversion. Subject to the other limitations set
forth in this Warrant, the Warrantholder 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 C-A. In such
event, the Company shall deliver to the Warrantholder (without payment by the
Warrantholder 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 exchange
-2-
<PAGE> 3
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, by the Board of
Directors of the Company in good faith.
4. Adjustment of Purchase Price and Number of Shares.
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(ii) 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.
(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
-3-
<PAGE> 4
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. Limitations on Exercise. Notwithstanding anything herein to the
contrary, the Series A-2, Series A-3, Series B-1 and Series C Preferred Stock of
the Company and any additional shares of Preferred Stock issued by the Company
prior to Stockholder Approval (as defined below), and the outstanding warrants
to purchase Common Stock of the Company (issued or issuable to holders of such
shares of Preferred Stock pursuant to agreements outstanding as of February 26,
1999 or entered into prior to Stockholder Approval) (collectively, the
"Securities") shall not be convertible into or exercisable for (as the case may
be) shares of Common Stock in excess of 1,533,709 shares (as adjusted for any
recapitalization, stock combinations, stock dividends, stock splits and the
like) (the "19.9% Cap" or the "Allowed Conversion Shares"), unless the Company
has received stockholder approval to eliminate such 19.9% Cap at a duly held
meeting of the stockholders in calendar 1999 (the "Stockholder Approval"). Until
Stockholder Approval has been obtained (or, if Stockholder Approval is not
obtained, then continuing thereafter) the 19.9% Cap shall apply and each holder
of Securities (each a "Holder") shall have the right to convert its Preferred
Stock or exercise its warrants only up to its pro rata portion of the Allowed
Conversion Shares. A Holder may waive in writing its right to convert or
exercise (or transfer to another Holder) its pro rata portion of the Allowed
Conversion Shares. In the event that a Holder converts or exercises its
Securities, then the number of Allowed Conversion Shares will be reduced by such
amount.
6. 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 Warrantholder 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 Warrantholder at the address as shown on the
books of the Company for the Warrantholder.
7. Investment Letter. Upon exercise or conversion of this Warrant in
accordance with the provisions hereof, the Warrantholder 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
-4-
<PAGE> 5
of counsel for the Warrantholder 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").
8. 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 Warrantholder as provided for in
Section 1 of that certain Second Amended Stockholder Rights Agreement dated
February 26, 1999 between the Company and the purchasers named in the Purchase
Agreement.
9. 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 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."
(b) Any legend required to be placed thereon by any applicable
state securities laws.
10. Compliance with Act. The Warrantholder, 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.
11. 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.
-5-
<PAGE> 6
(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 Amended and
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.
(f) This Warrant shall be nontransferable, other than pursuant
to a distribution without consideration of the Warrant by the Warrantholder to
any of its partners or retired partners.
(g) This Warrant or any provision hereof may be amended, waived,
discharged or terminated only by an instrument in writing signed by either (i)
the Company and the holders of warrants representing a majority of the Common
Stock issuable upon exercise of all Warrants issued pursuant to the Exchange
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 Exchange
Agreement.
(h) This Warrant shall be governed by the laws of the State of
Delaware.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: February 26, 1999
SUPERCONDUCTOR TECHNOLOGIES INC.
/s/ M. Peter Thomas
---------------------------------
Peter Thomas, Chief Executive
Officer
-7-
<PAGE> 8
EXHIBIT C-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 Warrantholder
------------------------------------
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
-8-
<PAGE> 9
EXHIBIT A
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 Second Amended and Restated Stockholder Rights Agreement
dated February 26, 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
<PAGE> 10
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.
(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:
-------------------------------
-2-
<PAGE> 1
EXHIBIT 4.9
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES AND NOT WITH A PRESENT VIEW
TO THE DISTRIBUTION THEREOF. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN
A SECURITIES PURCHASE AGREEMENT DATED AS OF SEPTEMBER 2, 1998, NEITHER
THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, OFFERED FOR SALE,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
No. B-1-___ Right to
Purchase
February 26, 1999 ________
Shares of
Void After September 2, 2003 Common
Stock, par
value $.001
per share
SUPERCONDUCTOR TECHNOLOGIES INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, __________________________ or
its registered assigns (the "Warrant Holder"), is entitled to purchase from
Superconductor Technologies Inc., a Delaware corporation (the "Company"), at any
time or from time to time during the period specified in Paragraph 2 hereof,
___________________ fully paid and nonassessable shares of the Company's Common
Stock, par value $.001 per share (the "Common Stock"), at an exercise price of
$5.70 per share (the "Exercise Price"). The term "Warrant Shares," as used
herein, refers to the shares of Common Stock purchasable hereunder. The Warrant
Shares and the Exercise Price are subject to adjustment as provided in Paragraph
4 hereof. The term Warrants means this Warrant and the other warrants issued
pursuant to that certain Exchange Agreement dated as of February 26,1999 between
the Company and the stockholders named therein (the "Exchange Agreement") in
replacement of warrants issued pursuant to that certain Securities Purchase
Agreement, dated September 2,
<PAGE> 2
1998, by and among the Company and the Buyers listed on the execution page
thereof (the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto as Exhibit A, (the
"Exercise Agreement") to the Company during normal business hours on any
business day at the Company's principal executive offices (or such other office
or agency of the Company as it may designate by notice to the holder hereof),
and upon (i) payment to the Company in cash, by certified or official bank check
or by wire transfer for the account of the Company of the Exercise Price for the
Warrant Shares specified in the Exercise Agreement or (ii) if the resale of the
Warrant Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment shall have been made for such shares as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder. If this Warrant shall have been
exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised.
In no event shall the Holder of this Warrant be entitled to exercise a
number of Warrants (or portions thereof) in excess of the number of Warrants (or
portions thereof) upon exercise of which the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unexercised Warrants and unconverted shares of Series B
Preferred Stock (as defined in the Securities Purchase Agreement) and (ii) the
number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, (a) notwithstanding anything in
this Warrant to the contrary, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(i) hereof
2
<PAGE> 3
and (b) notwithstanding anything in this Warrant to the contrary, the holder of
this Warrant may waive the limitations set forth therein by written notice to
the Company upon not less than sixty-one (61) days prior notice (with such
waiver taking effect only upon the expiration of such 61-day notice period).
(B) LIMITATIONS ON EXERCISE. Notwithstanding anything herein to the
contrary, the Series A-2, Series A-3, Series B-1 and Series C Preferred Stock of
the Company and any additional shares of Preferred Stock issued by the Company
prior to Stockholder Approval (as defined below), and the outstanding warrants
to purchase Common Stock of the Company (issued or issuable to holders of such
shares of Preferred Stock pursuant to agreements outstanding as of February 26,
1999 or entered into prior to Stockholder Approval) (collectively, the
"Securities") shall not be convertible into or exercisable for (as the case may
be) 1,533,709 shares (as adjusted for any recapitalization, stock combinations,
stock dividends, stock splits and the like) (the "19.9% Cap"or the "Allowed
Conversion Shares"), unless the Company has received stockholder approval to
eliminate such 19.9% Cap at a duly held meeting of the stockholders in calendar
1999 (the "Stockholder Approval"). Until Stockholder Approval has been obtained
(or, if Stockholder Approval is not obtained, then continuing thereafter) the
19.9% Cap shall apply and each holder of Securities (each a "Holder") shall have
the right to convert its Preferred Stock or exercise its warrants only up to its
pro rata portion of the Allowed Conversion Shares. A Holder may waive in writing
its right to convert or exercise (or transfer to another Holder) its pro rata
portion of the Allowed Conversion Shares. In the event that a Holder converts or
exercises its Securities, then number of Allowed Conversion Shares will be
reduced by such amount.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement until the first to
occur of the following events (the "Exercise Period"):
(i) 5:00 p.m., Pacific Standard Time, September 2, 2003; or
(ii) 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 the consummation of the Transaction (a "Change of
Control"); provided, however, that each Buyer shall receive written notice from
the Company of any Change of Control at least ten (10) business days prior to
the consummation of such Change of Control and the Buyer shall be permitted to
exercise this Warrant in full or in part during such ten (10) day period.
Upon the occurrence of any of the events described in clause (i)
through (ii) above, this Warrant, to the extent not exercised, shall terminate.
3
<PAGE> 4
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed by it hereunder, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may reasonably be requested by the holder of this Warrant in order to
protect the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number and kind of securities purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.
4
<PAGE> 5
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Paragraphs 4(c) and
4(e) hereof, if and whenever on or after the date of issuance of this Warrant,
the Company issues or sells, or in accordance with Paragraph 4(b) hereof is
deemed to have issued or sold, any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable expenses or
commissions or underwriting discounts or allowances in connection therewith)
less than the Market Price (as hereinafter defined) on the date of issuance (a
"Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Exercise
Price will be reduced to a price determined by multiplying the Exercise Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Paragraph 4(b) hereof, received by the Company upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, after the date of the closing of the Company's Series C
Preferred Stock financing to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (x) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (y) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
5
<PAGE> 6
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance,
then the maximum total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For the
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by dividing (x) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof at the time such Convertible Securities
first become convertible or exchangeable, by (y) the maximum total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price will be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If
there is a change at any time in (x) the amount of additional consideration
payable to the Company upon the exercise of any Options; (y) the amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange of any Convertible Securities; or (z) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the
6
<PAGE> 7
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the issuance of securities offered to the public generally
in an underwritten offering pursuant to a registration statement under the
Securities Act; (iv) upon the issuance of securities pursuant to the acquisition
of another corporation by the Company by merger, purchase of all or
substantially all of the assets or other reorganization; (v) upon the issuance
of securities to the Company"s employees, officers, directors, and consultants
pursuant to any arrangement approved by the Board of Directors of the Company;
or (vi) upon the issuance of securities to research or development collaborators
or 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).
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced and the number of
shares receivable upon exercise of the Warrant will be proportionately
increased. If the Company at any time combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a smaller number of shares, then, after
the date of record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of shares receivable upon exercise of the Warrant will be proportionately
decreased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the
7
<PAGE> 8
number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
(e) 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 of the Company with, or merger of
the Company into any other corporation, then as a condition of such
reclassification, consolidation or merger, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of this Warrant had such reclassification,
consolidation or merger not taken place. In any such case, the Company will make
appropriate provision to insure that the provisions of this Paragraph 4 hereof
will thereafter be applicable as nearly as may be in relation to any shares of
stock or securities thereafter deliverable upon the exercise of this Warrant.
The Company will not effect any reclassification, consolidation or merger unless
prior to the consummation thereof, the successor corporation (if other than the
Company) assumes by written instrument the obligations under this Paragraph 4
and the obligations to deliver to the holder of this Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire. The provisions of this subsection (e) shall
similarly apply to successive reclassifications, changes, consolidations and
mergers.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment
8
<PAGE> 9
which, together with any adjustments so carried forward, shall amount to not
less than 1% of such Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) CERTAIN DEFINITIONS.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) pursuant to
Paragraph 4(b)(i) hereof, the maximum total
9
<PAGE> 10
number of shares of Common Stock issuable upon the exercise of Options, as of
the date of such issuance or grant of such Options, if any, and (y) pursuant to
Paragraph 4(b)(ii) hereof, the maximum total number of shares of Common Stock
issuable upon conversion or exchange of Convertible Securities, as of the date
of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (x) means the
average of the last reported sale prices for the shares of Common Stock on the
Nasdaq National Market ("Nasdaq") for the five (5) trading days immediately
preceding such date as reported by Bloomberg, L.P. ("Bloomberg"), or (y) if
Nasdaq is not the principal trading market for the shares of Common Stock, the
average of the last reported sale prices on the principal trading market for the
Common Stock during the same period as reported by Bloomberg, or (z) if market
value cannot be calculated as of such date on any of the foregoing bases, the
Market Price shall be the fair market value as reasonably determined in good
faith by the Board of Directors of the Corporation. The manner of determining
the Market Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a determination as
to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4,
includes the Common Stock, par value $.001 per share, and any additional class
of stock of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.001 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
6. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights granted
to the holder hereof are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the form attached
hereto as Exhibit B, at the office or agency of the Company referred to in
Paragraph 6(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 6(f) hereof and to the
applicable provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 7 are assignable only in accordance
with
10
<PAGE> 11
the provisions of that certain Amended and Restated Registration Rights
Agreement, dated as of February 26, 1999, by and among the Company and the other
signatories thereto (the "Registration Rights Agreement"). Certificates
representing any of the Warrant Shares acquired pursuant to the provisions of
this Warrant shall have endorsed thereon legends substantially in the following
form, as appropriate:
(i) Unless such Warrant Shares 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 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."
(ii) Any legend required to be placed thereon by any
applicable state securities laws.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Paragraph 6(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. 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 destruction, 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 this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 6, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Paragraph 6.
11
<PAGE> 12
(e) REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
the Securities Act and under applicable state securities or blue sky laws, (ii)
that the holder or transferee execute and deliver to the Company an investment
letter the form attached as Exhibit C and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The holder of this Warrant, by acceptance hereof, agrees that
this Warrant and the Warrant Shares 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
Warrant Shares 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.
7. REGISTRATION RIGHTS. The holder of this Warrant is entitled to the
benefit of such registration rights in respect of the Warrant Shares as are set
forth in Section 2 of the Registration Rights Agreement.
8. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 460 Ward Drive, Suite F,
Santa Barbara, California 93111-2310, Attention: Chief Executive Officer, or at
such other address as shall have been furnished to the holder of this Warrant by
notice from the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as
12
<PAGE> 13
provided above. All notices, requests, and other communications shall be deemed
to have been given either at the time of the receipt thereof by the person
entitled to receive such notice at the address of such person for purposes of
this Paragraph 8, or, if mailed by registered or certified mail or with a
recognized overnight mail courier upon deposit with the United States Post
Office or such overnight mail courier, if postage is prepaid and the mailing is
properly addressed, as the case may be.
9. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
10. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provisions hereof may be
amended, waived, discharged or terminated only be an instrument in writing
signed by either (i) the Company and the holders of warrants representing a
majority of the Common Stock issuable upon exercise of all Warrants issued
pursuant to the Exchange 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 Exchange Agreement.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder"s intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
(d) SUCCESSORS AND ASSIGNS. The terms of the Warrant shall be
binding upon and shall inure to the benefit of any successor or assigns of the
Company and of the holder or holders hereof and the Warrant Shares issued or
issuable upon the exercise hereof.
(e) NO STOCKHOLDER RIGHTS. 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
13
<PAGE> 14
purpose nor shall anything contained in this Warrant be construed to confer upon
the holder of this Warrant, as such, any rights of 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.
(f) ACCEPTANCE OF TERMS. Receipt of this Warrant by the holder
hereof shall constitute acceptance of and agreement to the foregoing terms and
conditions.
(g) SERIES C FINANCING EXCLUSION. Notwithstanding anything to
the contrary contained in the Warrant, the Warrant Holder acknowledges and
agrees that the securities issued or issuable pursuant Series C Financing will
be excluded from the antidilution provisions of Section 4 (e).
[Signature Page Follows]
14
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
SUPERCONDUCTOR TECHNOLOGIES INC.
By: /s/ M. Peter Thomas
---------------------------------
M. Peter Thomas
Chief Executive Officer
Dated as of February 26, 1999
15
<PAGE> 16
EXHIBIT A
SUPERCONDUCTOR TECHNOLOGIES, INC.
EXERCISE AGREEMENT
Dated: ________, ____.
To: Superconductor Technologies Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: ___________________________
Signature: ______________________
Address: ________________________
________________________
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
The above signatory represents that the aforesaid shares of Common Stock
are being acquired for the account of the signatory 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 signatory has executed the Investment
Representation Statement attached hereto as Exhibit C.
A-1
<PAGE> 17
EXHIBIT B
SUPERCONDUCTOR TECHNOLOGIES, INC.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
<TABLE>
<CAPTION>
Name of Assignee Address No of Shares
- ---------------- ------- ------------
<S> <C> <C>
</TABLE>
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____
In the presence of
__________________
Name: ___________________________
Signature: ______________________
Title of Signing Officer or
Agent (if any):
_________________________________
Address: ________________________
________________________
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
B-1
<PAGE> 18
EXHIBIT C
SUPERCONDUCTOR TECHNOLOGIES INC.
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, represents 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 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 Amended and Restated Registration Rights Agreement dated February 26,
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
C-1
<PAGE> 19
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.]
(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:_______________________________
C-2
<PAGE> 1
EXHIBIT 4.10
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. C-1 Right to Purchase 120,000
March 5, 1999 Shares of Common Stock
Void After March 5, 2004
SUPERCONDUCTOR TECHNOLOGIES INC.
WARRANT
THIS CERTIFIES THAT, subject to the terms of this agreement, Wilmington
Securities, Inc. (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, One Hundred Twenty Thousand (120,000)
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 and subject to the
limits set forth in Section 4(d) below.
This Warrant is issued pursuant to a Series C Preferred Stock Purchase
Agreement dated March 5, 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, March __, 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 clauses (a)
through (b) above, this Warrant, to the extent not exercised, shall terminate.
2. Warrant Price. The exercise price of this Warrant (the "WARRANT
PRICE") shall equal $4.50 per share.
3. Payment by Warrant Conversion. Subject to the other limitations set
forth in this Warrant, 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 exchange on which the share is listed or
admitted to trading for the ten (10) consecutive trading days prior to such
date;
2
<PAGE> 3
(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, by the Board of
Directors of the Company in good faith.
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.
(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
3
<PAGE> 4
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.
(d) Limitation on Exercise. Notwithstanding anything to the
contrary, the Series A-2, Series A-3, Series B-1 and Series C Preferred Stock of
the Company and any additional shares of Preferred Stock issued by the Company
prior to Stockholder Approval (as defined below), and the outstanding warrants
(including this Warrant) to purchase Common Stock of the Company (issued or
issuable to holders of such shares of Preferred Stock pursuant to agreements
outstanding as of February 26, 1999 or entered into prior to Stockholder
Approval) (collectively, the "SECURITIES") shall not be convertible into or
exercisable for (as the case may be) shares of Common Stock in excess of
1,533,709 shares (as adjusted for any recapitalization, stock combinations,
stock dividends, stock splits and the like) (the "19.9% CAP" or the "ALLOWED
CONVERSION SHARES"), unless the Company has received stockholder approval to
eliminate such 19.9% Cap at a duly held meeting of the stockholders in calendar
1999 (the "STOCKHOLDER APPROVAL"). Until Stockholder Approval has been obtained
(or, if Stockholder Approval is not obtained, then continuing thereafter) the
19.9% Cap shall apply and each holder of Securities (each a "SECURITY HOLDER")
shall have the right to convert its Preferred Stock or exercise its warrants
only up to its pro rata portion of the Allowed Conversion Shares. A Security
Holder may waive in writing its right to convert or exercise (or transfer to
another Holder) its pro rata portion of the Allowed Conversion Shares. In the
event that a Security Holder converts or exercises its Securities, then the
number of Allowed Conversion Shares will be reduced by such amount.
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
4
<PAGE> 5
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 Second Amended and Restated Stockholder Rights Agreement dated as of
February 26, 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 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."
(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
5
<PAGE> 6
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 Amended and
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.
(f) This Warrant shall be nontransferable, other than pursuant
to a distribution without consideration of the Warrant by the Holder to any of
its partners or retired partners.
(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 a majority
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]
6
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated:_______________________, 1999
SUPERCONDUCTOR TECHNOLOGIES INC.
/s/ M. Peter Thomas
---------------------------------
Peter Thomas, Chief Executive
Officer
7
<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:_______________________________
<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 Amended and Restated Stockholder Rights Agreement dated
August 11, 1998 between the Company and certain purchasers referred to therein,
I understand that the Company is under no obligation to register
9
<PAGE> 10
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.
(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:_______________________________
10
<PAGE> 1
EXHIBIT 4.11
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, 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. _____ Right to Purchase ________
February 26, 1999 Shares of Common Stock
Void After February 26, 2004
SUPERCONDUCTOR TECHNOLOGIES INC.
WARRANT
THIS CERTIFIES THAT, subject to the terms of this agreement,
____________________ (the "Warrantholder") 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 an Exchange Agreement dated February
26, 1999 between the Company and the parties named therein (the "Exchange
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.
This Warrant is subject to the following terms and conditions:
<PAGE> 2
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:
(i) 5:00 p.m., Pacific Standard Time, February 26, 2004; or
(ii) 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 clauses (i)
through (ii) above, this Warrant, to the extent not exercised, shall terminate.
2. Warrant Price. The exercise price of this Warrant (the "Warrant Price") shall
equal $7.00 per share, subject to adjustment as provided in Section 4 below.
3. Payment by Warrant Conversion. Subject to the other limitations set forth in
this Warrant, the Warrantholder 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 Warrantholder (without payment by the Warrantholder 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 exchange on which the share is listed or
admitted to trading for the ten (10) consecutive trading days prior to such
date;
-2-
<PAGE> 3
(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, by the Board of
Directors of the Company in good faith.
4. Adjustment of Purchase Price and Number of Shares.
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(ii) 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.
(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.
-3-
<PAGE> 4
(d) Limitation on Exercise. Notwithstanding anything to the
contrary, the Series A-2, Series A-3, Series B-1 and Series C Preferred Stock of
the Company and the outstanding warrants to purchase Common Stock of the Company
(issued or issuable to such holders pursuant to agreements outstanding as of
March 5, 1999) (collectively, the "Securities") shall not be convertible into or
exercisable for (as the case may be) shares of Common Stock in excess of
1,533,709 shares (the "19.9% Cap" or the "Allowed Conversion Shares"), unless
the Company has received stockholder approval to eliminate such 19.9% Cap at a
duly held meeting of the stockholders in calendar 1999 (the "Stockholder
Approval"). Until Stockholder Approval has been obtained (or, if Stockholder
Approval is not obtained, then continuing thereafter) the 19.9% Cap shall apply
and each holder of Securities (each a "Holder") shall have the right to convert
or exercise its Securities only up to its pro rata portion of the Allowed
Conversion Shares. In the event that a Holder converts or exercises its
Securities, then the number of Allowed Conversion Shares will be reduced by such
amount.
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 Warrantholder 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 Warrantholder at the address as shown on the
books of the Company for the Warrantholder.
6. Investment Letter. Upon exercise or conversion of this Warrant in
accordance with the provisions hereof, the Warrantholder shall either (i)
execute and deliver to the Company an investment letter in the form attached
hereto as Exhibit B or (ii) deliver to the Company an opinion of counsel for the
Warrantholder 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 Warrantholder as provided for in
Section 2 of that certain Registration Rights Agreement dated September 2, 1998
between the Company and the investors named thereto.
-4-
<PAGE> 5
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 SECURITIES
ACT OF 1933, AS AMENDED. 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 Warrantholder, 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.
-5-
<PAGE> 6
(d) The Company will not, by amendment of its Amended and
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.
(f) This Warrant shall be nontransferable, other than pursuant
to a distribution without consideration of the Warrant by the Warrantholder to
any of its partners or retired partners.
(g) This Warrant or any provision of this Warrant may be
amended, waived, discharged or terminated only by a statement in writing signed
by either (i) the Company and the holders of warrants representing a majority of
the Common Stock issuable upon exercise of all Warrants issued pursuant to the
Exchange 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 Exchange Agreement.
(h) This Warrant shall be governed by the laws of the State of
Delaware.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: February 26, 1999
SUPERCONDUCTOR TECHNOLOGIES INC.
/s/ M. Peter Thomas
---------------------------------
Peter Thomas, Chief Executive
Officer
-7-
<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 B.
Signature of Warrantholder
____________________________________
By:_________________________________
Title:______________________________
Date:_______________________________
-8-
<PAGE> 9
EXHIBIT B
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 Amended and Restated Registration Rights Agreement dated
February 26, 1999 between the Company and the purchaser referred to therein, and
that certain Second Amended and Restated Stockholders Rights Agreement dated as
of February 26, 1999 between the Company and the purchasers referred to therein,
I understand that the Company is under no obligation to register
-1-
<PAGE> 10
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.
(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:_______________________________
-2-
<PAGE> 1
EXHIBIT 4.12
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
--------------------------------------------------------
WARRANT TO PURCHASE STOCK
WARRANT TO PURCHASE 40,000 ISSUE DATE: DECEMBER 21, 1998
SHARES OF THE COMMON EXPIRATION DATE: DECEMBER 21, 2003
STOCK OF SUPERCONDUCTOR INITIAL EXERCISE PRICE: $4.00 PER SHARE
TECHNOLOGIES INC.
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to
purchase the number of fully paid and non-assessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the
fair market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.4 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 *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.
* 10 CONSECUTIVE TRADING DAYS
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.7.1 "ACQUISITION". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of
the assets of the Company, or any reorganization, consolidation, or merger of
the Company where the holders of the Company's securities before the
transaction beneficially own less than 50% of the outstanding voting securities
of the surviving entity after the transaction.
1.7.2 ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of
this Warrant as if such Shares
-1-
<PAGE> 2
WARRANT TO PURCHASE STOCK
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 Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series
as the Shares to common stock pursuant to the terms of the Company's Articles
of Incorporation upon the closing of a registered public offering of the
Company's common stock. The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property. The new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A in the event of Diluting Issuances (as defined on
Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions
of this Article 2 and in taking all such action as may be necessary or
appropriate to protect Holder's rights under this Article against impairment.
If the Company takes any action affecting the Shares or its common stock other
than as described above that adversely affects Holder's rights under this
Warrant, the Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a
manner that the aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish Holder a certificate
setting forth the Warrant Price in effect upon the date thereof and the series
of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
-2-
<PAGE> 3
WARRANT TO PURCHASE STOCK
- --------------------------------------------------------------------------------
All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company
shall * give Holder (1) at least 20 days prior written notice of the date on
which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event);
and (3) in the case of the matter referred to in (e) above, the same notice as
is given to the holders of such registration rights.**
* USE COMMERCIALLY REASONABLE EFFORTS TO
** THIS SECTION 3.2 PROVIDES FOR THE COMPANY TO GIVE THE HOLDER SUCH
NOTICE AS IS PROVIDED FOR HEREIN, AND SHALL NOT CONFER ANY OTHER RIGHTS ON THE
HOLDER.
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.*
* AND (b) SUCH QUARTERLY AND ANNUAL FINANCIAL STATEMENTS AS AND WHEN
PROVIDED FOR IN THE LOAN AND SECURITY AGREEMENT BETWEEN SILICON VALLEY BANK AND
THE COMPANY, AS MODIFIED FROM TIME TO TIME, PROVIDED THAT IF, AFTER THE DATE
HEREOF, SUCH LOAN AND SECURITY AGREEMENT IS TERMINATED OR OTHERWISE IS NO
LONGER EFFECTIVE, COMPANY SHALL NEVERTHELESS CONTINUE SUPPLYING SUCH FINANCIAL
STATEMENTS TO THE HOLDER IN ACCORDANCE WITH THE PROVISIONS RELATING THERETO AS
MOST RECENTLY PREVIOUSLY IN EFFECT IN SUCH LOAN AND SECURITY AGREEMENT,
PROVIDED, FURTHER, THE OBLIGATION OF THE COMPANY UNDER THIS WARRANT REGARDING
DELIVERY OF THE FINANCIAL STATEMENTS SHALL EXTEND ONLY TO THE DELIVERY OF SUCH
QUARTERLY AND ANNUAL FINANCIAL STATEMENTS AND SHALL NOT ENCOMPASS COMPLIANCE
WITH ANY FINANCIAL COVENANT OR ANY OTHER TERM, PROVISION OR COVENANT OF SUCH
AGREEMENT.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if
reasonably requested by the
-3-
<PAGE> 4
WARRANT TO PURCHASE STOCK
- --------------------------------------------------------------------------------
Company). The Company shall not require Holder to provide an opinion of counsel
if the transfer is to an affiliate of Holder. 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 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise
of this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion
of the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
SUPERCONDUCTOR TECHNOLOGIES, INC.
BY /s/ M. Peter Thomas
-----------------------------------
CHAIRMAN OF THE BOARD, PRESIDENT OR
VICE PRESIDENT
BY /s/ James G. Evans, Jr.
-----------------------------------
SECRETARY OR ASS'T SECRETARY
-4-
<PAGE> 5
WARRANT TO PURCHASE STOCK
- --------------------------------------------------------------------------------
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common/Series ______ Preferred [strike one] Stock of ________ pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to ________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
---------------------------------
(NAME)
---------------------------------
---------------------------------
(ADDRESS)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
- ---------------------------------
(Signature)
- ---------------------------------
(Date)
-5-
<PAGE> 6
WARRANT TO PURCHASE STOCK
- --------------------------------------------------------------------------------
EXHIBIT A
NOT APPLICABLE
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion
of the Shares, shall be deemed "registrable securities" or otherwise entitled
to "piggy back" registration rights in accordance with the terms of the
following agreement (the "Agreement") between the Company and its investor(s):
Not Applicable.
If no Agreement exists or is not applicable, then the Company and the
Holder shall enter into Holder's standard form of Registration Rights Agreement
as in effect on the Issue Date of the Warrant.
-6-
<PAGE> 1
EXHIBIT 4.13
SUPERCONDUCTOR TECHNOLOGIES INC.
460 WARD DRIVE
SUITE F
SANTA BARBARA, CALIFORNIA 93111
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
MARCH 5, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1 Authorization and Sale of Preferred Stock; Issuance of Warrants.........1
1.1 Authorization......................................................1
1.2 Sale of Shares; Issuance of Warrants...............................1
Section 2 Closing Dates; Delivery.................................................1
2.1 Closing............................................................1
2.2 Delivery...........................................................1
Section 3 Representations and Warranties of the Company...........................2
3.1 Organization and Standing; Certificate and Bylaws..................2
3.2 Corporate Power....................................................2
3.3 Subsidiaries.......................................................2
3.4 Capitalization.....................................................2
3.5 Authorization......................................................3
3.6 Financial Statements...............................................4
3.7 Changes............................................................4
3.8 Material Obligations...............................................4
3.9 Material Contracts and Commitments.................................5
3.10 Intellectual Property, Trademarks, etc.............................5
3.11 Title to Properties and Assets; Liens, etc.........................5
3.12 Compliance with Other Instruments, None Burdensome, etc............5
3.13 Litigation, etc....................................................5
3.14 Registration Rights................................................5
3.15 Governmental Consent, etc..........................................6
3.16 Offering...........................................................6
3.17 Brokers or Finders.................................................6
3.18 Tax Returns and Payments...........................................6
3.19 Employee Matters...................................................6
3.20 Disclosure.........................................................6
Section 4 Representations and Warranties of the Purchaser.........................7
4.1 Experience; Speculative Nature of Investment.......................7
4.2 Investment.........................................................7
4.3 Rule 144...........................................................7
4.4 No Public Market...................................................7
4.5 Access to Data.....................................................7
4.6 Authorization......................................................8
4.7 Brokers or Finders.................................................8
4.8 Tax Liability......................................................8
Section 5 Conditions to Purchaser's Obligations to Close..........................8
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
5.1 Representations and Warranties Correct.............................8
5.2 Covenants..........................................................8
5.3 Blue Sky...........................................................8
5.4 Certificate of Designation.........................................9
5.5 Rights Agreement...................................................9
5.6 Compliance Certificate.............................................9
5.7 Compliance with Law................................................9
5.8 Opinion of Company's Counsel.......................................9
Section 6 Conditions to Company's Obligations to Close............................9
6.1 Representations....................................................9
6.2 Covenants..........................................................9
6.3 Blue Sky...........................................................9
6.4 Certificate of Designation.........................................9
6.5 Rights Agreement...................................................9
6.6 Compliance with Law................................................9
6.7 Surrender of Promissory Notes.....................................10
Section 7 Covenants..............................................................10
7.1 Board of Directors................................................10
7.2 Stockholder Approval..............................................10
Section 8 Confidential Information...............................................10
8.1 Confidential Business Information.................................10
Section 9 Miscellaneous..........................................................11
9.1 Governing Law.....................................................11
9.2 Survival..........................................................11
9.3 Successors and Assigns............................................11
9.4 Entire Agreement; Amendment.......................................11
9.5 Notices, etc......................................................11
9.6 Delays or Omissions...............................................12
9.7 California Corporate Securities Law...............................12
9.8 Counterparts......................................................12
9.9 Severability......................................................12
9.10 Titles and Subtitles..............................................12
9.11 Expenses..........................................................13
</TABLE>
-ii-
<PAGE> 4
EXHIBITS
A Certificate of Designation
B Warrant
C Second Amended and Restated Stockholder Rights Agreement
D Compliance Certificate
E Opinion of Counsel
<PAGE> 5
SUPERCONDUCTOR TECHNOLOGIES, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
made as of March 5, 1999 by and among Superconductor Technologies Inc., a
Delaware corporation (the "COMPANY"), and Wilmington Securities, Inc. (the
"PURCHASER").
SECTION 1
AUTHORIZATION AND SALE OF PREFERRED STOCK; ISSUANCE OF WARRANTS
1.1 Authorization. The Company will, prior to the Closing (as defined
below), authorize the sale and issuance of (i) 41,667 shares (the "SHARES") of
the Company's Series C Preferred Stock ("SERIES C PREFERRED"), having the
rights, privileges and preferences as set forth in the Series C Preferred Stock
Certificate of Designation (the "CERTIFICATE") in the form attached to this
Agreement as EXHIBIT A and (ii) the Warrants (as defined below) to purchase up
to 120,000 shares of the Common Stock (as defined below) at a price of $4.50 per
share.
1.2 SALE OF SHARES; ISSUANCE OF WARRANTS. Subject to the terms and
conditions of this Agreement, the Purchaser agrees to purchase and the Company
agrees to sell and issue to the Purchaser:
(a) 41,667 Shares, at a cash price of $72.00 per share; and
(b) a warrant or warrants in the form attached to this Agreement
as EXHIBIT B (the "WARRANTS") which shall permit the Purchaser to initially
purchase 120,000 shares of Company Common Stock, at an exercise price of $4.50
per share.
SECTION 2
CLOSING DATES; DELIVERY
2.1 CLOSING. The closing (the "Closing") for the purchase and sale of
the Shares and the issuance of the Warrants hereunder shall take place on March
5, 1999. The Closing shall be held at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California, or at such other time and
place upon which the Company and the Purchaser shall agree.
2.2 DELIVERY. At the Closing, the Company will deliver to the Purchaser
a certificate registered in the Purchaser's name representing the number of
Shares that the Purchaser is purchasing against payment of $3,000,000 (the
"Purchase Price") by cashier's or certified check payable to the Company or wire
transfer of immediately available funds per the Company's instructions. Partial
payment of the Purchase Price shall be made by surrender of the Demand
Promissory Notes issued by the Company to the Purchaser dated February 17, 1999
and February
<PAGE> 6
25, 1999 (the "Promissory Notes"). At the Closing, the Company will deliver to
the Purchaser a Warrant evidencing the right to purchase 120,000 shares of
Company Common Stock in the form attached as Exhibit B.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on Schedule of Exceptions provided to the Purchaser,
the Company represents and warrants to the Purchaser as of the date of this
Agreement as follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of Delaware and is in good standing under such laws. The Company has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business. The Company is presently qualified to do
business as a foreign corporation in each jurisdiction where the failure to be
so qualified would have a material adverse effect on the Company's business,
operating results or financial condition (a "Material Adverse Effect").
3.2 CORPORATE POWER. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement and that certain
Second Amended and Restated Stockholder Rights Agreement substantially in the
form attached hereto as Exhibit C (the "Rights Agreement"), to sell and issue
the Warrants and Shares hereunder, to issue the shares of the common stock of
the Company (the "Common Stock") issuable upon conversion of the Shares, to
issue the Common Stock issuable on exercise of the Warrants and to carry out and
perform its obligations under the terms of this Agreement and the Rights
Agreement (together the "Agreements").
3.3 SUBSIDIARIES. Except for Cryo-Asia Pte Ltd., a joint venture with
Alantac in Singapore, the Company has no subsidiaries and does not otherwise own
or control, directly or indirectly, any equity interest in any corporation,
association or business entity.
3.4 CAPITALIZATION. (a) The authorized capital stock of the Company
consists or will, upon the filing prior to the Closing of the Certificate,
consist of (i) 30,000,000 shares of Common Stock, par value $0.001 per share, of
which 7,724,841 shares are issued and outstanding as of March 5, 1999, and (ii)
2,000,000 shares of Preferred Stock, of which (1) 645,833 shares have been
designated "Series A Preferred," none of which are issued and outstanding, (2)
125,000 shares have been designated "Series A-1 Preferred," none of which are
issued and outstanding, (3) 64,584 shares have been designated "Series A-2
Preferred," all of which are issued and outstanding, (4) 12,500 shares have been
designated "Series A-3 Preferred," all of which are issued and outstanding, (5)
1,000,000 shares have been designated "Series B Preferred", none of which are
issued and outstanding, (6) 50,000 shares have been designated "Series B-1
Preferred", all of which are issued and outstanding, and (7) 41,667 shares have
been designated "Series C Preferred," none of which were issued and outstanding
prior to the Closing. The Company by action of its Board of Directors will
eliminate the series of Preferred Stock designated "Series A Preferred Stock,"
"Series A-1 Preferred Stock," and "Series B Preferred Stock" and all shares of
Preferred Stock so designated
-2-
<PAGE> 7
shall revert to authorized and undesignated shares of Company Preferred Stock.
The outstanding shares have been duly authorized and validly issued in
compliance with applicable laws, and are fully paid and nonassessable.
(b) As of the date of the Closing, the Company has reserved (i)
41,667 shares of Series C Preferred Stock for issuance hereunder, (ii) 3,375,020
shares of Common Stock for issuance upon conversion of all shares of Company
Preferred Stock to be issued and outstanding following the Closing, consisting
of (1) 1,291,680 shares for issuance upon conversion of Series A-2 Preferred
Stock, (2) 250,000 shares for issuance upon conversion of Series A-3 Preferred
Stock, (3) 1,000,000 shares for issuance upon conversion of Series B-1 Preferred
Stock, and (4) 833,340 shares for issuance upon conversion of Series C Preferred
Stock, (iii) 166,667 shares of Common Stock for issuance upon exercise of
warrants issued in connection with the Series A Preferred Stock financings, (iv)
120,000 shares of Common Stock for issuance upon exercise of the Warrants issued
in connection with the Series B Preferred Stock financing, (v) 120,000 shares of
Common Stock for issuance upon exercise of the Warrants, (vi) 75,000 shares of
Common Stock for issuance upon exercise of Warrants issued in connection with
the Exchange Agreement (the "EXCHANGE AGREEMENT") entered into between the
Company and holders of Company Preferred Stock as of February 26, 1999, (vii)
1,969,690 shares of its Common Stock for issuance to employees, consultants or
directors pursuant to its 1992 Director Option Plan, 1992 Stock Option Plan,
Amended and Restated 1988 Stock Option Plan and 1998 Nonstatutory Option Plan,
of which options to purchase 1,868,248 shares are issued and outstanding and
(viii) a total of 150,000 shares of Common Stock for issuance upon exercise of
certain outstanding warrants as identified in the Schedule of Exceptions.
(c) The Common Stock, the Series A-2, Series A-3, Series B-1 and
Series C Preferred shall have the rights, preferences, privileges and
restrictions set forth in the Company's Amended and Restated Certificate of
Incorporation (the "CERTIFICATE OF INCORPORATION"), a copy of which was provided
to the Purchaser in connection with the Company's Series B Preferred Stock
financing, the Certificate and the Certificates of Designations filed in
connection with the Exchange Agreement. Except as set forth above, and in the
Schedule of Exceptions, there are no options, warrants, or other rights to
purchase any of the Company's authorized and unissued capital stock.
3.5 AUTHORIZATION. All corporate action on the part of the Company and
its directors necessary for the authorization, execution, delivery and
performance of the Agreements by the Company, the authorization, sale, issuance
and delivery of the Warrants, Shares and the Common Stock issuable upon
conversion of the Shares and upon exercise of the Warrants, and the performance
of all of the Company's obligations under the Agreements has been taken or will
be taken prior to the Closing. The Agreements, when executed and delivered by
the Company, shall constitute valid and binding obligations of the Company,
enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies, except that the indemnification provisions of Section 1.10
of the Rights Agreement may further be limited by principles of public policy.
The Warrants and Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, will be fully paid and nonassessable, and
will have the rights, preferences and privileges described in the certificate
representing the Warrants and the Certificate; the Common Stock issuable upon
conversion of the Shares and upon exercise of the
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<PAGE> 8
Warrants has been duly and validly reserved and, when issued in compliance with
the provisions of this Agreement, the Certificate of Incorporation of the
Company, the Certificate and the certificate representing the Warrants will be
validly issued, and will be fully paid and nonassessable; and the Shares and the
Common Stock issued upon conversion of the Shares and upon exercise of the
Warrants, will be free of any liens or encumbrances, other than any liens or
encumbrances created by or imposed upon the Purchaser; provided, however, that
the Shares, and the Common Stock issuable upon conversion of the Shares and upon
exercise of the Warrants, are subject to restrictions on transfer under state
and/or federal securities laws as set forth herein and in the Rights Agreement.
3.6 FINANCIAL STATEMENTS. The Company has delivered to the Purchaser
copies of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 28, 1998, June 27, 1998, and September 26, 1998 (the "Reports"). The
financial statements included within the Reports are complete and correct in all
material respects and accurately set out and describe the financial condition
and operating results of the Company as of the dates and during the periods
indicated therein, subject only, in the case of financial statements included in
the Quarterly Reports, to footnotes and normal year-end adjustments.
3.7 CHANGES. Since the date of the Company's last Quarterly Report on
Form 10-Q, there has not been:
(a) Any change in the assets, liabilities, financial condition,
or operations of the Company except changes in the ordinary course of business
which have not been in any case materially adverse;
(b) Any damage, destruction, or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Company;
(c) Any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) Any loans made by the Company to its employees, officers or
directors other than travel advances made in the ordinary course of business;
(e) Any declaration or payment of any dividend or other
distribution by the Company; or
(f) To the best of the Company's knowledge, any other event or
condition of any character which has materially and adversely affected the
business operations, assets or financial condition of the Company.
3.8 MATERIAL OBLIGATIONS. The Company has no material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
(i) the liabilities and obligations set forth in the Reports, and (ii)
liabilities and obligations which have been incurred subsequent to September 26,
1998, in the ordinary course of business which have not been, either in any case
or in the aggregate, material.
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<PAGE> 9
3.9 MATERIAL CONTRACTS AND COMMITMENTS. To the best of the Company's
knowledge, all of the contracts, agreements and instruments to which the Company
is a party and which are set forth or incorporated by reference in the Reports
(the "Material Agreements") are valid, binding and in full force and effect in
all material respects, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.10 INTELLECTUAL PROPERTY, TRADEMARKS, ETC. The Company has the right
to use, free and clear of all liens, charges, claims and restrictions, all
intellectual property, patents, trademarks, service marks, trade names,
copyrights, licenses and rights necessary to the business of the Company as
presently conducted, except to the extent that a Material Adverse Effect could
not reasonably be expected to result. To the Company's knowledge, the Company is
not infringing upon or otherwise acting adversely to the right or claimed right
of any other person under or with respect to any such intellectual property,
patents, trademarks, service marks, trade names, copyrights, licenses or rights.
3.11 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen otherwise than
in the ordinary course of business.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in violation of any term of the Certificate of Incorporation or
Bylaws, each as amended to date, or in any material respect of any term or
provision of any Material Agreement, judgment, decree, order, statute, rule or
regulation applicable to the Company in any respect that could reasonably be
expected to have a Material Adverse Effect. The execution, delivery and
performance of this Agreement, and the issuance of the Warrants, Shares and the
Common Stock issuable upon conversion of the Shares and upon exercise of the
Warrants, have not resulted and will not result in any material violation of, or
conflict with, or constitute a material default under, the Certificate of
Incorporation or Bylaws, as amended, nor any of the Material Agreements, nor
result in the creation of, any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company.
3.13 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to the best of the Company's knowledge, is there any
reasonable basis therefor or threat thereof) which, if adversely determined,
would have a Material Adverse Effect. The Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality.
3.14 REGISTRATION RIGHTS. Except as set forth in the Rights Agreement
attached hereto as Exhibit C, and the Amended and Restated Registration Rights
Agreement entered into between the Company and the holders of Company Series B-1
Preferred Stock, the Company is not under any contractual obligation to register
(as defined in Section 1.2 of the Rights Agreement) any of its presently
outstanding securities or any of its securities which may hereafter be issued.
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<PAGE> 10
3.15 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of the Agreements, or the offer, sale or issuance of the Warrants,
Shares and the Common Stock issuable upon conversion of the Shares and upon
exercise of the Warrants, or the consummation of any other transaction
contemplated hereby or thereby, except (a) filing of the Certificate in the
office of the Delaware Secretary of State, and (b) qualification (or taking such
action as may be necessary to secure an exemption from qualification, if
available) of the offer, sale and issuance of the Warrants and Shares (and the
Common Stock issuable upon conversion of the Shares and upon exercise of the
Warrants) under the California Corporate Securities Law of 1968, as amended, and
other applicable Blue Sky laws, which filings and qualifications, if required,
will be accomplished in a timely manner.
3.16 OFFERING. Subject to the accuracy of the Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the
Warrants and Shares to be issued in conformity with the terms of this Agreement,
and the issuance of the Common Stock to be issued upon conversion of the Shares
and upon exercise of the Warrants, constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the "Securities Act").
3.17 BROKERS OR FINDERS. Except as disclosed in the Disclosure Schedule,
the Company has not engaged any brokers, finders or agents, and the Purchaser
has not incurred, and will not incur, directly or indirectly, as a result of any
action taken by the Company, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with the Agreements.
3.18 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the date hereof have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
3.19 EMPLOYEE MATTERS. The Company does not have any collective
bargaining agreements with any of its employees and no labor union organizing
activity is pending or threatened with respect to the Company.
3.20 DISCLOSURE. To the best of the Company's knowledge, this Agreement
(including the Exhibits hereto) does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained herein not misleading in light of the circumstances under
which they were made.
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<PAGE> 11
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company with respect
to the purchase of Shares by and the issuance of the Warrants to such Purchaser,
as follows:
4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. The Purchaser (or its
principals or advisors) has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Purchaser acknowledges that its investment in the Company is highly speculative
and entails a substantial degree of risk and the Purchaser is in a position to
lose the entire amount of such investment.
4.2 INVESTMENT. The Purchaser is acquiring the Warrants, Shares and the
underlying Common Stock for investment for its own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. The Purchaser understands that the Warrants and Series C
Preferred to be purchased hereby and the underlying Common Stock have not been,
and will not be, registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser is an "accredited investor" within the meaning
of Regulation D, Rule 501(a), promulgated by the Securities and Exchange
Commission.
4.3 RULE 144. The Purchaser acknowledges that the Warrants, Shares and
the underlying Common Stock must be held indefinitely unless subsequently
registered under the Securities Act or unless an exemption from such
registration is available. The Purchaser is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
Company, the resale occurring not less than one year after a party has purchased
and paid for the security to be sold, the sale being effected through a
"broker's transaction" or in transactions directly with a "market maker" and the
number of shares being sold during any three-month period not exceeding
specified limitations. The Purchaser understands that the certificates
evidencing the Warrants and Shares will be imprinted with a legend that
prohibits the transfer of such securities unless they are registered or such
registration is not required.
4.4 NO PUBLIC MARKET. The Purchaser understands that no public market
now exists for the Warrants and the Series C Preferred to be issued by the
Company and that the Company has made no assurances that a public market will
ever exist for the Warrants and the Series C Preferred.
4.5 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
Company's business, management and financial affairs with its management. The
Purchaser has also had an opportunity to ask questions of officers of the
Company, which questions were answered to its satisfaction. The Purchaser
understands that such discussions, as well as any written information
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<PAGE> 12
issued by the Company, were intended to describe certain aspects of the
Company's business and prospects but were not a thorough or exhaustive
description.
4.6 AUTHORIZATION. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except as the
indemnification provisions of Section 1.10 of the Rights Agreement may be
limited by principles of public policy, and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.7 BROKERS OR FINDERS. The Purchaser has not engaged any brokers,
finders or agents, and the Company has not, and will not, incur, directly or
indirectly, as a result of any action taken by Purchaser, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreements. In the event that the preceding sentence is in
any way inaccurate, such Purchaser agrees to indemnify and hold harmless the
Company and each other Purchaser from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability) for which the Company, any other Purchaser, or
any of their officers, directors, employees or representatives, is responsible.
4.8 TAX LIABILITY. The Purchaser has reviewed with its own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by the Agreements. With respect to such matters,
the Purchaser relies solely on such advisors and not on any statements or
representations of the Company or any of its agents other than the
representations and warranties set forth herein. The Purchaser understands that
it (and not the Company) shall be responsible for its own tax liability that may
arise as a result of this investment or the transactions contemplated by the
Agreements.
SECTION 5
CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE
The Purchaser's obligations to purchase the Shares at the Closing are,
unless waived by the Purchaser, subject to the fulfillment of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the Closing Date.
5.2 COVENANTS. All covenants, agreements and conditions contained in the
Agreements to be performed by the Company on or prior to the Closing shall have
been performed or complied with in all material respects.
5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the issuance of the Warrants, offer and sale of the
Shares and the Common Stock issuable upon conversion of the Shares and upon
exercise of the Warrants.
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<PAGE> 13
5.4 CERTIFICATE OF DESIGNATION. The Certificate shall have been duly
authorized, executed and filed with the Secretary of State of the State of
Delaware.
5.5 RIGHTS AGREEMENT. The Company and the Purchaser shall have executed
and delivered the Rights Agreement.
5.6 COMPLIANCE CERTIFICATE. The Chief Executive Officer of the Company
shall have executed a Compliance Certificate, in the form of Exhibit D hereto,
certifying the satisfaction of the conditions to closing listed in Sections 5.1
and 5.2 hereof.
5.7 COMPLIANCE WITH LAW. No provision of any applicable law or
regulation and no judgment, injunction, order or decree shall prohibit the sale
and issuance of the Warrants, Shares and the Common Stock issuable upon
conversion of the Shares and upon exercise of the Warrants and the consummation
of the transactions contemplated hereby.
5.8 OPINION OF COMPANY'S COUNSEL. Purchaser shall have received from
Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion addressed
to the Purchaser, dated the Closing Date and in substantially the form attached
as Exhibit E.
SECTION 6
CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE
The Company's obligation to sell and issue the Shares at the Closing is,
unless waived by the Company, subject to the fulfillment of the following
conditions:
6.1 REPRESENTATIONS. The representations and warranties made by the
Purchaser in Section 4 hereof shall be true and correct as of the Closing Date.
6.2 COVENANTS. All covenants, agreements and conditions contained in the
Agreements to be performed by Purchaser on or prior to the Closing Date shall
have been performed or complied with in all material respects.
6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the issuance of the Warrants, offer and sale of the
Shares and the Common Stock issuable upon conversion of the Shares and upon
exercise of the Warrants.
6.4 CERTIFICATE OF DESIGNATION. The Certificate shall have been duly
authorized, executed and filed with the Secretary of State of the State of
Delaware.
6.5 RIGHTS AGREEMENT. The Company and the Purchaser shall have executed
and delivered the Rights Agreement.
6.6 COMPLIANCE WITH LAW. No provision of any applicable law or
regulation and no judgment, injunction, order or decree shall prohibit the sale
and issuance of the Warrants, Shares and
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<PAGE> 14
the Common Stock issuable upon conversion of the Shares and upon exercise of the
Warrants and the consummation of the transactions contemplated hereby.
6.7 SURRENDER OF PROMISSORY NOTES. The Purchaser shall surrender the
Promissory Notes upon its terms as partial payment of the Purchase Price.
SECTION 7
COVENANTS
7.1 BOARD OF DIRECTORS. The Company agrees that, provided that the
Company has received Stockholder Approval (as defined in Section 6(h) of the
Certificate), at the first meeting of the Company's Board of Directors following
the 1999 Annual Meeting of Stockholders, the Board of Directors shall expand its
size by two directors and appoint Joseph C. Manzinger and Richard M. Johnston
(or such other designees of the Purchaser who shall be reasonably acceptable to
the Company) (the "PURCHASER DESIGNEES") to fill the vacancies created by such
expansion. The Company further agrees, provided the Company has received
Stockholder Approval and provided that the Purchaser then holds at least 33,750
shares of Preferred Stock of the Company, that the Company shall, subject to
applicable law, use its reasonable best efforts to obtain the election of the
Purchaser Designees at the next Annual Stockholder Meeting of the Company to
serve until such person's successor has been duly appointed. In connection with
their service on the Company's Board of Directors, the Purchaser Designees shall
be subject to and comply with the confidentiality provisions of the Purchaser
under Section 8 of this Agreement. The Purchaser Designees shall also be subject
to the same general conflicts-of-interest rules applicable to all other members
of the Board of Directors and under such rules their access to information and
participation in discussions may be reasonably restricted where a majority of
non-interested directors deem a conflict or potential conflict to exist. At any
time the Purchaser is no longer entitled to Board representation pursuant to
this Section 7.1, then at the request of the Company, the Purchaser Designees
shall immediately resign and shall immediately cease attending any meetings of
the Board of Directors.
7.2 STOCKHOLDER APPROVAL. The Company shall use its best efforts to
obtain Stockholder Approval (as defined Section 6(h) of the Certificate) and to
obtain approval by the Company's stockholders of the obligations of the Company
under Section 7.1 of this Agreement at the Company's 1999 Annual Meeting of
Stockholders to be held on or before June 2, 1999.
SECTION 8
CONFIDENTIAL INFORMATION
8.1 CONFIDENTIAL BUSINESS INFORMATION. The Purchaser covenants and
agrees that it shall maintain the confidentiality of all non-public information
related to the business of the Company made available to it and/or any of its
representatives by the Company ("Confidential Business Information") and shall
not utilize any Confidential Business Information in connection with purchases
or sales of the Company's securities except in compliance with applicable state
and
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<PAGE> 15
federal anti-fraud statutes. The Purchaser further covenants and agrees that it
shall not disclose any Confidential Business Information to any person or entity
without the prior written consent of the Company. The term "Purchaser" as used
in this Section 8.1 includes all partners, officers, directors, affiliates,
employees, attorneys, accountants and other agents and representatives of the
Purchaser. Notwithstanding the above, Confidential Business Information shall
not include (i) information known to the public generally, (ii) information
known to the Purchaser from an independent source prior to the receipt of such
information from the Company and (iii) information required to be disclosed by
the Purchaser by court order or otherwise required by law, provided, however,
that in the event of a required disclosure pursuant to this clause (iii), the
Purchaser shall give the Company prompt written notice of any such requirement
so that the Company may seek a protective order or other appropriate remedy. The
Purchaser agrees that violation of this Section 8.1 would cause immediate and
irreparable damage to the business of the Company, and consent to the entry of
immediate and permanent injunctive relief for any violation hereof.
SECTION 9
MISCELLANEOUS
9.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of Delaware.
9.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby.
9.3 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;
provided, however, that the rights of the Purchaser to purchase the Shares and
obtain the Warrants on such purchase shall not be assignable without the prior
written consent of the Company.
9.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto at each Closing 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. 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 the Purchaser may, with the Company's prior written
consent, waive, modify, or amend any provision hereof.
9.5 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 delivered by hand or by messenger,
addressed (a) if to the Purchaser, at such Purchaser's address, on the signature
page of the Agreement, or at such other address as the Purchaser shall have
furnished
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<PAGE> 16
to the Company in writing, or (b) if to any other holder of any Shares, 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 Shares 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 Purchaser.
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.
9.6 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 non-defaulting 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 party 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.
9.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
9.8 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.
9.9 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.
9.10 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.
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<PAGE> 17
9.11 EXPENSES. The Company and the Purchaser shall each bear their own
fees, costs and expenses incurred on their behalf with respect to the agreement
and the transactions contemplated hereby and any amendments or waiver thereto.
[Signature Page Follows]
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<PAGE> 18
The foregoing Agreement is hereby executed as of the date first above
written.
"COMPANY"
SUPERCONDUCTOR TECHNOLOGIES INC.
a Delaware corporation
By: /s/ Peter Thomas
-----------------------------------
Name: Peter Thomas
Title: Chief Executive Officer
"PURCHASER"
WILMINGTON SECURITIES, INC.
By: /s/ Andrew H. McQuarrie
-----------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
Wilmington Securities, Inc.
824 Market Street, Suite 900
Wilmington, DE 19801
Attn: Andrew H. McQuarrie
[SIGNATURE PAGE TO PURCHASE AGREEMENT]
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<PAGE> 1
EXHIBIT 4.14
SUPERCONDUCTOR TECHNOLOGIES INC.
SECOND AMENDED AND RESTATED
STOCKHOLDER RIGHTS AGREEMENT
This Second Amended and Restated Stockholder Rights Agreement (the
"Agreement") is made as of February 26, 1999 between Superconductor Technologies
Inc., a Delaware corporation (the "Company"), the holders of the Company's
Series A and A-1 Preferred Stock (the "Series A and A-1 Holders"), the holders
of the Company's Series A-2 and A-3 Preferred Stock pursuant to the Exchange
Agreement, dated as of February 26, 1999, (the "Exchange Agreement") and, upon
the consummation of the Series C Preferred Stock financing, the holders of the
Company's Series C Preferred Stock. The holders of the Company's Series A-2 and
A-3 Preferred Stock, together with the purchasers of the Company's Series C
Preferred Stock after the Closing (as defined in the Series C Preferred Stock
Purchase Agreement) are, collectively, the "New Holders."
RECITALS
A. The Company and the Series A and A-1 Holders entered into that
certain Amended and Restated Stockholder Rights Agreement, dated as of August
11, 1998 (the "Existing Agreement"), which established certain terms and
conditions upon which the Company's Series A and A-1 Preferred Stock and certain
warrants are held by such holders, as set forth more particularly in the
Existing Agreement.
B. In connection with the Exchange Agreement, the Company and the Series
A and A-1 Holders have agreed, upon the terms and subject to the conditions
contained therein, to exchange their shares of the Company's Series A and A-1
Preferred Stock and related warrants held by the Holders for shares of the
Company's Series A-2 and A-3 Convertible Preferred Stock and related warrants
that are convertible into the Conversion Stock (as defined below), upon the
terms and subject to the limitations and conditions set forth in the
Certificates of Designations, Rights, Preferences, Privileges and Restrictions
with respect to the Series A-2 and A-3 Preferred Stock (the "Certificates of
Designation").
C. To induce the Series A and A-1 Holders to execute and deliver the
Exchange Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statue (collectively, the "1933
Act"), and applicable state securities laws.
D. Because the Company anticipates consummating an equity financing in
the future with a proposed new Series C Preferred Stock, the Company desires to
provide a further inducement to the potential purchasers to purchase the Series
C Preferred Stock by establishing certain terms and
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conditions upon which such Series C Preferred Stock and related warrants would
be held by such purchasers.
E. The Company and the Series A and A-1 Holders desire to amend and
restate the Existing Agreement in its entirety, as set forth herein, to make the
New Holders party thereto.
NOW, THEREFORE, the parties amend and restate the Existing Agreement in
its entirety to read as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS
1.1 RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock, the Conversion
Stock (as defined below) and the Warrants (as defined below) 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 (as defined below). 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.
1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Closing Date" shall mean, (i) as to the holders of Series A-2
and A-3 Preferred Stock, the date of the Exchange Agreement and (ii) as to the
holders of Series C Preferred Stock, the date of the first purchase and sale of
Series C Preferred Stock and issuance of warrants pursuant to the Series C Stock
Purchase Agreement.
"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 New Holder 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 New Holders in the aggregate of
greater than 50% of the Registrable Securities.
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"Preferred Stock" shall, collectively, mean the Series A-2 and
A-3 Preferred Stock issued pursuant to the Exchange Agreement and, after the
Closing (as defined in the Series C Preferred Stock Purchase Agreement), the
Series C Preferred Stock issued pursuant to the Series C Preferred Stock
Purchase 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
and 1.6 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.
"Warrants" shall mean, collectively, the warrants issued
pursuant to the Exchange Agreement and the Series C Preferred Stock Purchase
Agreement.
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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 New Holder and 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, (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, 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 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
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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;
(B) Prior to September 26, 1999;
(C) 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;
(D) After the Company has effected one (1) such
registration
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pursuant to this subparagraph 1.5(a), and such registration has been declared or
ordered effective;
(E) 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 (E), 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 among all 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. 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.
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.
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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 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 among all the Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holder at the time of filing the Registration Statement.
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. 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.
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1.7 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
Closing Date, 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 (i) such new registration rights, including
standoff obligations, are on a pari passu basis with those rights of the Holders
hereunder, or (ii) such new registration rights, including standoff obligations,
are subordinate to the registration rights granted Holders hereunder.
1.8 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, 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.
1.9 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;
(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 under writer of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
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1.10 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers
and directors 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 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
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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
1.10 (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 1.10 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).
1.11 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 1.11.
1.12 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
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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.
1.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities granted Holders under Sections 1.5 and 1.6 may be assigned
to a transferee or assignee 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 assignee or
transferee acquires at least 100,000 shares of Registrable Securities.
1.14 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 under written 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 also agree to such restrictions.
1.15 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 Purchaser 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 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
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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 Purchaser 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 Purchaser 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 Purchaser 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 Purchaser 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 partnership
or corporation or to a partner or retired partner of such S Purchaser or
affiliated partnership or corporation.
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:
(i) if a Purchaser at any time holds less than 500,000
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 Purchaser;
(ii) if a Purchaser converts or has at any time
converted all of the Preferred Stock owned by such Purchaser, the right of first
refusal shall terminate as to such Purchaser;
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<PAGE> 13
(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 Series A Agreement,
the Series A-1 Agreement and the other documents delivered pursuant hereto on
the Closing Date for each of the Series A Agreement and the Series A-1 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. 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 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 delivered by hand or by messenger,
addressed (a) if to a Purchaser, at such Purchaser's address, as shown on the
stock records of the Company, or at such other address as such Purchaser 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.
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<PAGE> 14
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.
[Signature Pages Follow]
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<PAGE> 15
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
SUPERCONDUCTOR TECHNOLOGIES INC.
a Delaware corporation
By: /s/ M. Peter Thomas
---------------------------------
Name: M. Peter Thomas,
Title: Chief Executive Officer
"SERIES A HOLDER"
WILMINGTON SECURITIES, INC.
By: /s/ Andrew H. McQuarrie
---------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
"SERIES A-1 HOLDER"
WILMINGTON SECURITIES, INC.
By: /s/ Andrew H. McQuarrie
---------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
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<PAGE> 16
"SERIES A-2 HOLDER"
WILMINGTON SECURITIES, INC.
By: /s/ Andrew H. McQuarrie
---------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
"SERIES A-3 HOLDER"
WILMINGTON SECURITIES, INC.
By: /s/ Andrew H. McQuarrie
---------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
"SERIES C HOLDER"
By: /s/ Andrew H. McQuarrie
---------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
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<PAGE> 1
EXHIBIT 4.15
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement ("AGREEMENT"),
dated as of February 26, 1999, by and among Superconductor Technologies Inc., a
Delaware corporation, with its headquarters located at 460 Ward Drive, Suite F,
Santa Barbara, California 93111-2310 (the "COMPANY"), and each of the
undersigned (together with their respective affiliates and any assignee or
transferee of all of their respective rights hereunder, the "INITIAL INVESTORS")
pursuant to the Exchange Agreement by and among the parties hereto and the
holders of the Company's Series A-2 and Series A-3 Preferred Stock of even date
herewith (the "EXCHANGE Agreement").
BACKGROUND
A. The Company and the Initial Investors entered into that certain
Registration Rights Agreement dated as of September 2, 1998 (the "EXISTING
AGREEMENT"), which established certain terms and conditions upon which the
Company's Series B Preferred Stock and certain warrants are held by the Initial
Investors, as set forth more particularly in the Existing Agreement.
B. In connection with the Exchange Agreement, the Company and the
Initial Investors have agreed, upon the terms and subject to the conditions
contained therein, to exchange the shares of the Company's Series B Convertible
Preferred Stock and related warrants held by the Initial Investors for shares of
the Company's Series B-1 Convertible Preferred Stock (the "Preferred Stock") and
related warrants that are convertible into shares (the "CONVERSION Shares") of
the Company's common stock, par value $.001 per share (the "COMMON STOCK"), upon
the terms and subject to the limitations and conditions set forth in the
Certificate of Designations, Rights, Preferences, Privileges and Restrictions
with respect to the Preferred Stock (the "CERTIFICATE OF DESIGNATION").
C. To induce the Initial Investors to execute and deliver the Exchange
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws;
D. The Company and the Initial Investors desire to amend and restate the
Existing Agreement in its entirety, as set forth herein, to make the holders of
the Company's Series B-1 Preferred Stock party thereto.
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NOW, THEREFORE, the parties amend and restate the Existing Agreement in
its entirety to read as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferee or assignee who becomes bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion
Shares (including any additional shares that may be issued pursuant to the
Certificate of Designation) and Warrant Shares issued or issuable and any shares
of capital stock issued or issuable as a dividend on or in exchange for or
otherwise with respect to any of the foregoing, provided, however, that such
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 1933 Act so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation such sale.
(iv) "REGISTRATION STATEMENT" means a registration
statement of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement (the "SECURITIES PURCHASE AGREEMENT") dated as of September 2, 1999
entered into between the Company and the purchasers identified therein.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or
prior to the date which is sixty (60) days after the date of the Closing under
and as defined in the Exchange Agreement (the "CLOSING DATE"), file with the SEC
a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of the Registrable Securities) covering the resale of the
Registrable Securities
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<PAGE> 3
underlying the Preferred Stock and Warrants issued or issuable pursuant to the
Securities Purchase Agreement, which Registration Statement, to the extent
allowable under the 1933 Act and the Rules promulgated thereunder (including
Rule 416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Stock and exercise of the Warrants (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Conversion Price of the
Preferred Stock in accordance with the terms thereof or the exercise price of
the Warrants in accordance with the terms thereof. The number of shares of
Common Stock initially included in such Registration Statement shall be no less
than the sum of the number of Conversion Shares and Warrant Shares that are then
issuable upon conversion of the Preferred Stock and the exercise of the
Warrants, without regard to any limitation on the Investor's ability to convert
the Preferred Stock or exercise the Warrants. The Company acknowledges that the
number of shares initially included in the Registration Statement represents a
good faith estimate of the maximum number of shares issuable upon conversion of
the Preferred Stock and exercise of the Warrants.
b. Payments by the Company. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
practicable. If (i) the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not filed within sixty (60) days after the Closing Date or declared effective
by the SEC within one hundred twenty (120) days after the Closing Date or if,
after the Registration Statement has been declared effective by the SEC, sales
cannot be made pursuant to the Registration Statement (except as a result of an
Allowed Delay (as defined in section 3(f)), or (ii) the Common Stock is not
listed or included for quotation on the Nasdaq National Market ("NASDAQ"), the
Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange (the
"NYSE") or the American Stock Exchange (the "AMEX") after being so listed or
included for quotation, then the Company will make payments to the Investors in
such amounts and at such times as shall be determined pursuant to this Section
2(b) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity). The Company shall not have any obligation to pay to the Investors any
amounts provided for in this Section 2(b) during an Allowed Delay. The Company
shall pay to each holder of the Preferred Stock or Registerable Securities an
amount equal to the Purchase Price under and as defined in the Securities
Purchase Agreement paid in respect of such Preferred Stock (and, in the case of
holders of Registerable Securities, the purchase price for the Preferred Stock
from which such Registerable Securities were converted) ("AGGREGATE SHARE
PRICE") multiplied by the Applicable Percentage (as defined below) multiplied by
the number of months (without duplication), prorated for partial months during
(1) which the events described in clauses (i) or (ii) above have occurred and
are continuing, (2) sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement, but excluding any days during an Allowed Delay (as
defined in Section 3(f)), or (3) that the Common Stock is not listed or included
for quotation on the Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading
thereon is halted after the Registration Statement has been declared effective.
The term "APPLICABLE PERCENTAGE" means 2 hundredths (.02). Such amounts shall be
paid in cash or,
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at the Company"s option, paid in shares of Preferred Stock, calculated based on
the Purchase Price applicable to such shares and thereafter be convertible into
Common Stock at the "CONVERSION PRICE" (as defined in the Certificate of
Designation) in accordance with the terms of the Preferred Stock. Any shares of
Common Stock issued upon conversion of such amounts shall be Registrable
Securities. Payments of cash pursuant hereto shall be made within ten (10) days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, interim payments
shall be made for each such thirty (30) day period.
c. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(c), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(c) written notice of such determination
and, if within twenty (20) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(c) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(c) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(c) shall only be
available in the event the Company fails to timely file, obtain effectiveness or
maintain effectiveness of the Registration Statement to be filed pursuant to
Section 2(a) in accordance with the terms of this Agreement.
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d. Eligibility for Form S-3. The Company represents and warrants
that it meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investors and any
other Investors of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC not
later than sixty (60) days after the Closing Date, a Registration Statement with
respect to the number of Registrable Securities provided in Section 2(a), and
thereafter use its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective as soon as possible after the filing
thereof, and keep the Registration Statement effective pursuant to Rule 415 at
all times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors) may be
immediately sold without restriction (including without limitation as to volume
by each holder thereof) without registration under the 1933 Act (the
"REGISTRATION PERIOD").
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover all of the Registrable Securities issued or issuable
upon conversion of the Preferred Stock and exercise of the Warrants, the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefore, if applicable), or both, so as to cover all
of the Registrable Securities, in each case, as soon as practicable, but in any
event within twenty (20) business days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its
commercially reasonable efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. The provisions of Section 2(c) above shall be applicable with respect
to such obligation, with the sixty (60) or one hundred twenty (120) days running
from the day after the date on which the Company reasonably first determines (or
reasonably should have determined) the need therefor.
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c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement (i) promptly after the
same is prepared and publicly distributed, filed with the SEC, or received by
the Company, one copy of the Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor. The Company will
immediately notify each Investor by facsimile of the effectiveness of the
Registration Statement or any post-effective amendment. The Company will
promptly file an acceleration request as soon as practicable following the
resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that the Registration Statement or any amendment thereto
will not be subject to review.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws.
e. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of (x) the issuance by the SEC of
a stop order suspending the effectiveness of the Registration Statement, (y) the
happening of any event, of which the Company has knowledge, as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (z) the occurrence or existence of any pending corporate
development that, in the reasonable discretion of the Company, makes it
appropriate to suspend the availability of the Registration Statement and use
its best efforts promptly to prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission, and deliver
such number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request; provided that, for not more
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than twenty (20) consecutive trading days (or a total of not more than thirty
(30) trading days in any twelve (12) month period) (or 60 trading days in any 12
month period, in the case of an event described in clause (z) above that arises
from an acquisition or a probable acquisition or financing, recapitalization,
business combination or other similar transaction), the Company may delay the
disclosure of material non-public information concerning the Company (as well as
prospectus or Registration Statement updating) the disclosure of which at the
time is not, in the good faith opinion of the Company, the best interests of the
Company (an "Allowed Delay"); provided, further, that the Company shall promptly
(i) notify the Investors in writing of the existence of (but in no event,
without the prior written consent of an Investor, shall the Company disclose to
such investor any of the facts or circumstances regarding) material non-public
information giving rise to an Allowed Delay and (ii) advise the Investors in
writing to cease all sales under the Registration Statement until the end of the
Allowed Delay. Upon expiration of the Allowed Delay, the Company shall again be
bound by the first sentence of this Section 3(f) with respect to the information
giving rise thereto, and shall be obligated to pay to the Investors any amounts
provided for in Section 2(b).
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. The Company shall permit a single firm of counsel designated
by the Initial Investors to review the Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the Registration Statement without
prior notice to such counsel. The sections of the Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on
the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form
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and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors.
k. The Company shall make available for inspection during normal
business hours by (i) any Investor and (ii) one firm of attorneys and one firm
of accountants or other agents retained by the Initial Investors, (collectively,
the "INSPECTORS") all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "RECORDS"),
as shall be reasonably deemed necessary by each Inspector to enable each
Inspector to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; provided, however,
that each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
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quotation, of all the Registrable Securities covered by the Registration
Statement on the Nasdaq or, if not eligible for the Nasdaq on the Nasdaq
SmallCap and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within five (5)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2.
p. Except for registration rights previously disclosed to the
Buyers prior to the execution of this Agreement, from and after the date of this
Agreement, the Company shall not, and shall not agree to, allow the holders of
any securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or supplement
thereto under Section 3(b) hereof without the consent of the holders of a
majority-in-interest of the Registrable Securities.
q. The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
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<PAGE> 10
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof shall be borne by the Company.
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<PAGE> 11
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation
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<PAGE> 12
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The
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<PAGE> 13
indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Investors holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (with the approval of a majority-in-interest of the Initial Investors),
if the Investors are entitled to indemnification hereunder, or the Company, if
the Company is entitled to indemnification hereunder, as applicable. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is actually prejudiced in
its ability to defend such action. The indemnification required by this Section
6 shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a copy of the most recent
annual or quarterly report of the Company and such other
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<PAGE> 14
reports and documents so filed by the Company, and (ii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, and
Investors who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Superconductor Technologies Inc.
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<PAGE> 15
460 Ward Drive
Suite F
Santa Barbara, California 93111-2310
Attention: Chief Executive Officer
Facsimile: (805) 967-0342
With copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: John V. Roos, Esq.
Facsimile: (650) 493-6811
If to an Investor: to the address set forth immediately below such
Investor's name on the signature pages to the Securities Purchase Agreement.
Each party shall provide notice to the other party of any change of its address.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in Delaware with
respect to any dispute arising under this Agreement or the transactions
contemplated hereby.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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<PAGE> 16
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock then outstanding have been
converted into for Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
[Signature Pages Follow]
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<PAGE> 17
IN WITNESS WHEREOF, the Company and the undersigned Initial
Investors have caused this Agreement to be duly executed as of the date first
above written.
SUPERCONDUCTOR TECHNOLOGIES INC.
By: /s/ M. Peter Thomas
------------------------------------
Name: M. Peter Thomas
Title: Chief Executive Officer
WILMINGTON SECURITIES, INC.
By: /s/ Andrew H. McQuarrie
------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
Henry L. Hillman Trust Under Agreement of
Trust dated November 18, 1985
By: /s/ C.G. Grefenstette
------------------------------------
C.G. Grefenstette, Trustee
Juliet Lea Hillman Simonds Trust under Agreement
of Trust dated December 30, 1976 for Children of Juliet
Lea Hillman Simonds
By: /s/ Thomas G. Bigley
------------------------------------
Thomas G. Bigley, Trustee
By: /s/ C.G. Grefenstette
------------------------------------
C.G. Grefenstette, Trustee
Audrey Hillman Fisher Trust under Agreement of
Trust dated December 30, 1976 for Children of
Audrey Hillman Fisher
By: /s/ Thomas G. Bigley
------------------------------------
Thomas G. Bigley, Trustee
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<PAGE> 18
By: /s/ C.G. Grefenstette
------------------------------------
C.G. Grefenstette, Trustee
Henry Lea Hillman, Jr. Trust under Agreement of
Trust dated December 30, 1976 for Children of
Henry Lea Hillman, Jr.
By: /s/ Thomas G. Bigley
------------------------------------
Thomas G. Bigley, Trustee
By: /s/ C.G. Grefenstette
------------------------------------
C.G. Grefenstette, Trustee
William Talbott Hillman Trust under Agreement of
Trust dated December 30, 1976 for Children of
William Talbott Hillman
By: /s/ Thomas G. Bigley
------------------------------------
Thomas G. Bigley, Trustee
By: /s/ C.G. Grefenstette
------------------------------------
C.G. Grefenstette, Trustee
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<PAGE> 1
EXHIBIT 4.16
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT
ISSUER: SUPERCONDUCTOR TECHNOLOGIES, INC.
ADDRESS: 460 WARD DRIVE, SUITE F
SANTA BARBARA, CA 93111
DATE: DECEMBER 21, 1998
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the above date by and
between SILICON VALLEY BANK ("Purchaser"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and the above Company, whose address is set forth
above.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant")
pursuant to which Purchaser has the right to acquire from the Company the
Shares (as defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth the
registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document.
(b) The term "Registrable Securities" means (i) the Shares (if Common
Stock) or all shares of Common Stock of the Company issuable or issued upon
conversion of the Shares and (ii) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, any stock referred to in (i).
(c) The term "Holder" or "Holders" means the Purchaser or qualifying
transferees under subsection 1.8 hereof who hold Registrable Securities.
(d) The term "SEC" means the Securities and Exchange Commission.
1.2 COMPANY REGISTRATION.
(a) Registration. If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the account
of any of its shareholders, other than a registration on Form S-1 or S-8
relating solely to employee stock option or purchase plans, or a registration
on Form S-4 relating solely to an SEC Rule 145 transaction, or a registration
on any other form (other than Form S-1, S-2, S-3 or S-18, or their successor
forms) or any successor to such forms, which does not include substantially the
same information as would be required to be included in a registration
statement covering the sale of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other state securities
laws); and
(ii) include in such registration (and compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 30 days after receipt of such written
notice from the Company, by any Holder or Holders, except as set forth in
subsection 1.2(b) below.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to
subsection 1.2(a)(i). In such event the right of any Holder to registration
pursuant to this subsection 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
-1-
<PAGE> 2
All Holders proposing to distribute their securities through such underwriting
shall (together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company.
Notwithstanding any other provision hereof, if the managing underwriter for
such underwriting 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 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 among all the holders proposed
to be participating in such registration in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by each
such holder at the time of filing the registration statement relating thereto.
To facilitate the allocation of shares in accordance with the above provisions,
the Company may round the number of shares allocated to any holder to the
nearest 100 shares. If any holder disapproves of the terms of any such
underwriting, such holder 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.
1.3 EXPENSES OF REGISTRATION. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Section 1
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company except the Company shall not be required to pay
underwriters' fees, discounts or commissions, relating to Registrable
Securities. All expenses of any registered offering not otherwise borne by the
Company shall be borne pro rata among the Holders participating in the offering
and the Company.
1.4 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.3, at its expense the Company will:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) The Company shall have the right to terminate or withdraw any proposed
registration whether or not Holder has elected to include securities in such
registration.
1.5 INDEMNIFICATION.
(a) The Company will indemnify each Holder of Registrable Securities and
each of its officers, directors and partners, and each person controlling such
Holder, with respect to which such registration, qualification or compliance has
been effected pursuant to this Rights Agreement, and each underwriter, if any,
and each person who controls any underwriter of the Registrable Securities held
by or issuable to such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other
-2-
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
- --------------------------------------------------------------------------------
document (including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statement therein not misleading,
or any violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating
to action or inaction required of the Company in connection with any such
registration, qualification of compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such
underwriter, within a reasonable amount of time after incurred for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 1.5(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld); and provided further, that the Company will not be liable in any
such case to the extent that any such claim, loss, damage or liability arises
out of or is based on any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or issuable to
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld); and provided further, that
the total amount for which any Holder shall be liable under this subsection
1.5(b) shall not in any event exceed the aggregate proceeds received by such
Holder from the sale of Registrable Securities held by such Holder in such
registration.
(c) Each party entitled to indemnification under this subsection 1.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.6 INFORMATION BY HOLDER. Any Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 RULE 144 REPORTING. With a view to making available to Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees at all times to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144,
-3-
<PAGE> 4
REGISTRATION RIGHTS AGREEMENT
after 90 days after the effective date of the first registration filed by the
Company for an offering of its securities to the general public;
(b) * file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
* USE ITS BEST EFFORTS TO
(c) so long as a Holder owns any Registrable Securities, to furnish
to such Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as the Holder may reasonably request in complying with any rule
or regulation of the SEC allowing the Holder to sell any such securities
without registration.
1.8 TRANSFER OF REGISTRATION RIGHTS. Holders' rights to cause the
Company to register their securities and keep information available, granted to
them by the Company under subsections 1.2 and 1.7 may be assigned to a
transferee or assignee of a Holder's Registrable Securities not sold to the
public, provided, that the Company is given written notice by such Holder at
the time of or within a reasonable time after said transfer, stating the name
and address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The Company may
prohibit the transfer of any Holders' rights under this subsection 1.8 to any
proposed transferee or assignee who the Company reasonably believes is a
competitor of the Company.
1.9 TERMINATION. Registration rights hereunder terminate at such time
as Holder, in the opinion of counsel to Company, which opinion shall be
reasonably acceptable to Holder, is permitted to sell Registrable Securities
within a three month period under Rule 144 or any other exemption of similar
scope and effect.
1.10 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 also agree
to such restrictions.
2. GENERAL.
2.1 WAIVERS AND AMENDMENTS. With the written consent of the record or
beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by a resolution of its Board of Directors, may enter
into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities. Upon the effectuation of
each such waiver, consent, agreement of amendment or modification, the Company
shall promptly give written notice thereof to the record holders of the
Registrable Securities who have not previously consented thereto in writing.
This Agreement or any provision hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, except
to the extent provided in this subsection 2.1.
2.2 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
2.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
2.4 ENTIRE AGREEMENT. Except as set forth below, this Agreement and
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class
mail, postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth in the
heading to this Agreement, or at such other address as such Holder shall have
furnished to the Company in writing, or (b) if to the Company, at the Company's
address set forth in the heading to this Agreement, or at such other address as
the Company shall have furnished to the Holder in writing.
2.6 SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, the validity, legality and enforceability
of the remaining provisions of this Agreement or any provision of the other
Agreements shall not in any way be affected or impaired thereby.
-4-
<PAGE> 5
REGISTRATION RIGHTS AGREEMENT
- --------------------------------------------------------------------------------
2.7 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
COMPANY:
SUPERCONDUCTOR TECHNOLOGIES,
INC.
By /s/ M. Peter Thomas
----------------------------
President or Vice President
By /s/ James G. Evans, Jr.
----------------------------
Secretary or Ass't Secretary
Purchaser:
SILICON VALLEY BANK
By /s/ Karl R. Brier
-----------------------------
Title Vice President
---------------------------
-5-
<PAGE> 1
EXHIBIT 10.24
SILICON VALLEY BANK
AMENDMENT TO LOAN AND SECURITY
AGREEMENT
BORROWER: SUPERCONDUCTOR TECHNOLOGIES INC.
ADDRESS: 460 WARD DRIVE, SUITE F
SANTA BARBARA, CA 93111
DATE: DECEMBER 21, 1998
THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT is entered into between
SILICON VALLEY BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated August 26, 1994, as amended by that certain Amendment to Loan Agreement
dated December 20, 1994, as amended by that certain Amendment to Loan Agreement
dated June 27, 1995, and as otherwise amended from time to time (the "Loan
Agreement"), as follows, effective as of the date hereof. (Capitalized terms
used but not defined in this Amendment, shall have the meanings set forth in
the Loan Agreement.)
1. AMENDED SCHEDULE. The Schedule to Loan Agreement is amended
effective on the date hereof, to read as set forth on the Amended Schedule to
Loan and Security Agreement attached hereto.
2. LIMITED WAIVER. Silicon hereby agrees to waive the existing Events
of Default arising from the Borrower's failure to comply with the financial
covenant obligations in effect prior to the date hereof. Nothing herein is
intended to mean or imply that Silicon agrees or will agree to waive any
subsequent Events of Default whether relating to financial covenant violations
or otherwise.
3. FACILITY FEE. The Borrower shall pay Silicon concurrently herewith a
facility fee of $15,000, of which $5,000 has already been paid by the Borrower.
Said facility fee shall be in addition to all interest and other sums payable
to Silicon, and shall not be refundable.
4. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties in the Loan Agreement continue to be
true and correct.
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements
between Silicon
-1-
<PAGE> 2
SILICON VALLEY BANK AMENDMENT TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
and the Borrower shall continue in full force and effect and the same are
hereby ratified and confirmed.
BORROWER: SILICON:
SUPERCONDUCTOR SILICON VALLEY BANK
TECHNOLOGIES, INC.
BY: /s/ M. Peter Thomas BY: /s/ Karl R. Brier
------------------------------- ---------------------------------
PRESIDENT OR VICE PRESIDENT TITLE: VICE PRESIDENT
BY: /s/ James G. Evans, Jr.
-------------------------------
SECRETARY OR ASS'T SECRETARY
-2-
<PAGE> 3
SILICON VALLEY BANK
AMENDED SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: SUPERCONDUCTOR TECHNOLOGIES, INC.
ADDRESS: 460 WARD DRIVE, SUITE F
SANTA BARBARA, CALIFORNIA 93111
DATE: DECEMBER 21, 1998
CREDIT LIMIT (Section 1.1): An amount (each advance being an "Account Loan"
and collectively all of such advances being
referred to herein as the "Accounts Loans") up
to the lesser of: (A) $1,500,000 at any one time
outstanding; or (B) 75% of the Net Amount of
Borrower's accounts, which Silicon in its
discretion deems eligible for borrowing.
Borrower has an existing term loan outstanding
(the "Existing Term Loan"). Upon the
effectiveness of the Amendment to Loan Agreement
dated December 21, 1998 (the "December 1998
Amendment"), the Existing Term Loan, all accrued
and unpaid interest thereon and all Obligations
relating thereto shall be repaid in full with
the proceeds of an Accounts Loan, and Borrower
hereby requests that Silicon advance such an
Accounts Loan concurrently with the closing of
the December 1998 Amendment and related
transactions.
With respect to the Accounts Loans, and without
limiting the fact that the determination of
which accounts are eligible for borrowing is a
matter of Silicon's discretion, the following
will not be deemed eligible for borrowing: (a)
accounts outstanding for more than 90 days from
the invoice date; (b) accounts subject to any
contingencies, or arising from a consignment,
guaranteed sale, bill and hold, sale on approval
or other transaction in which payment by the
account debtor is conditional; (c) accounts
owing from the United States or any department,
agency or instrumentality of the United States
or any state, city or municipality, other than
with respect to up to $500,000 in an aggregate
amount owing to Borrower from any account debtor
with respect to such obligors on such accounts,
provided, however, on and after June 30, 1999
such $500,000 amount shall be reduced to $0
unless Borrower otherwise complies the United
States Assignment of Claims Act; (d) accounts
owing from an account debtor whose chief
executive office or principal place of business
is outside the United States (unless the account
is pre-approved by Silicon in its discretion, or
backed by a letter of credit satisfactory to
Silicon, or FCIA insured satisfactory to
Silicon, or the account arises from goods
shipped or services rendered to a branch or
office of the account debtor in the United
States); (e) accounts owing from one account
debtor to the extent they exceed 25% of the
total eligible accounts outstanding; (f)
accounts owing from an affiliate of Borrower;
(g) accounts owing
-1-
<PAGE> 4
SILICON VALLEY BANK AMENDED SCHEDULE TO LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
from an account debtor to whom Borrower is or
may be liable for goods purchased from, or
services received from, such account debtor or
otherwise (to the extent of the amount owing
to such account debtor); and (h) accounts owing
from account debtors for the purchase of goods
relating to which such account debtors has more
than 30 days from the relating invoice date to
return such goods. In addition, if more than
50% of the accounts owing from an account
debtor are outstanding more than 90 days from
the invoice date or are otherwise not eligible
for borrowing, then all accounts owing from
that account debtor will be deemed ineligible
for borrowing.
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus 1% per annum. Interest shall
be calculated on the basis of a 360-day year
for the actual number of days elapsed. "Prime
Rate" means the rate announced from time to
time by Silicon as its "prime rate;" it is a
base rate upon which other rates are available
at Silicon. The interest rate applicable to the
Obligations shall change on each date there is
a change in the Prime Rate.
LOAN ORIGINATION FEE
(Section 1.3): See Amendment to Loan and Security Agreement of
even date.
MATURITY DATE
(Section 5.1): DECEMBER 20, 1999.
PRIOR NAMES OF BORROWER
(Section 3.2): NONE
TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): NONE
MATERIAL ADVERSE LITIGATION
(Section 3.10): NONE
NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): NONE
FINANCIAL COVENANTS
(Section 4.1): Borrower shall comply with all of the following
covenants. Compliance shall be based on all
Loans and shall be determined as of the end of
each month, except as otherwise specifically
provided below:
QUICK ASSET RATIO: Borrower shall maintain a ratio of "Quick
Assets" to current liabilities of not less than
.85 to 1.
TANGIBLE NET WORTH: Borrower shall maintain a tangible net worth of
not less than $5,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Borrower shall maintain a ratio of total
liabilities to tangible net worth of not more
than 1.50 to 1.
PROFITABILITY: Borrower shall not incur a loss (after taxes) in
excess of $3,000,000 for the quarter ending
December 31, 1998. With respect to the period
-2-
<PAGE> 5
SILICON VALLEY BANK AMENDED SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
beginning with the quarter end period of March 31,
1999, and ending with and including the quarter end
period of September 30, 1999, Borrower shall not incur
a cumulative loss (after taxes) in excess of
$3,500,000. Thereafter, Borrower shall not incur a loss
(after taxes) in any fiscal quarter.
DEFINITIONS: "Current assets," and "current liabilities" shall have
the meanings ascribed to them in accordance with
generally accepted accounting principles.
"Tangible net worth" means the excess of total assets
over total liabilities, determined in accordance with
generally accepted accounting principles, excluding
however all assets which would be classified as
intangible assets under generally accepted accounting
principles, including without limitation goodwill,
licenses, patents, trademarks, trade names,
copyrights, capitalized software and organizational
costs, licenses and franchises.
"Quick Assets" means cash on hand or on deposit in
banks, readily marketable securities issued by the
United States, readily marketable commercial paper
rated "A-1" by Standard Poor's Corporation (or a
similar rating by a similar rating organization),
certificates of deposit and banker's acceptances, and
accounts receivable (net of allowance for doubtful
accounts).
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing covenants
do not include indebtedness which is subordinated to
the indebtedness to Silicon under a subordination
agreement in form specified by Silicon or by language
in the instrument evidencing the indebtedness which is
acceptable to Silicon.
OTHER COVENANTS
(Section 4.1): Borrower shall at all times comply with all of the
following additional covenants:
1. BANKING RELATIONSHIP. Borrower shall at all times
maintain its primary banking relationship with Silicon.
2. WARRANTS. Borrower shall concurrently herewith
provide Lender with warrants to purchase 40,000 shares
of Common stock of the Borrower, at an initial
exercise price of $4.00 per share, and subject further
to the terms and conditions set forth in the Warrant
to Purchase Stock and related documents being executed
concurrently with this Agreement.
3. BORROWING BASE CERTIFICATE; AGINGS. Within 20 days
after the last day of each month, Borrower shall
deliver to Silicon a borrowing base certificate signed
by a Responsible Officer in form acceptable to
Silicon, together with an aged listings of accounts
receivable.
4. PERMITTED SALE/LEASEBACK. On and after the date
hereof, Borrower shall be permitted to enter into a
sale/leaseback transaction with a third party lender
in an aggregate transactional amount of up to
$1,200,000, provided that the liens of such lender are
limited to the
-3-
<PAGE> 6
SILICON VALLEY BANK AMENDED SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
equipment that is the subject of such
transaction and proceeds thereof, and Silicon
agrees to subordinate its liens on such
equipment in accordance with documentation
reasonably acceptable to Silicon.
BORROWER:
SUPERCONDUCTOR TECHNOLOGIES, INC.
BY /s/ M. Peter Thomas
-----------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ James G. Evans, Jr.
-----------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY /s/ Karl R. Brier
----------------------------
TITLE Vice President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-50137) pertaining to the Amended and Restated
1988 Stock Option Plan and the 1992 Director Option Plan of Superconductor
Technologies Inc. of our report dated February 19, 1999 appearing on page 29 of
the Annual Report on Form 10-K for the year ended December 31, 1998.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 310,000
<SECURITIES> 0
<RECEIVABLES> 1,969,000
<ALLOWANCES> (30,000)
<INVENTORY> 2,719,000
<CURRENT-ASSETS> 5,141,000
<PP&E> 12,099,000
<DEPRECIATION> 6,985,000
<TOTAL-ASSETS> 12,509,000
<CURRENT-LIABILITIES> 3,792,000
<BONDS> 0
0
8,982,000
<COMMON> 8,000
<OTHER-SE> 35,010,000
<TOTAL-LIABILITY-AND-EQUITY> 12,509,000
<SALES> 1,954,000
<TOTAL-REVENUES> 7,983,000
<CGS> 5,873,000
<TOTAL-COSTS> 16,001,000
<OTHER-EXPENSES> 1,161,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,000
<INCOME-PRETAX> (9,162,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,215,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,162,000)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>
