<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 0-21074
SUPERCONDUCTOR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0158076
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
460 WARD DRIVE,
SANTA BARBARA, CALIFORNIA 93111-2310
(Address of principal executive offices & zip code)
(805) 683-7646
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No [ ]
As of November 11, 1999 there were 7,739,068 shares of the Registrant's Common
Stock outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
OCT. 2, 1999 SEPT. 26, 1998 OCT. 2, 1999 SEPT. 26, 1998
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Net revenues:
Government contract revenues $ 1,381,000 $ 1,502,000 $ 3,674,000 $ 5,178,000
Commercial product revenues, net
of non-cash sales discount of $70,000 for 1999 589,000 563,000 1,265,000 1,031,000
------------ ------------ ------------ ------------
Total net revenues 1,970,000 2,065,000 4,939,000 6,209,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of commercial product revenues 1,881,000 1,747,000 4,512,000 4,266,000
Contract research and development 897,000 1,175,000 2,424,000 3,575,000
Other research and development 392,000 244,000 1,323,000 892,000
Selling, general and administrative 1,614,000 1,395,000 4,404,000 4,035,000
------------ ------------ ------------ ------------
Total costs and expenses 4,784,000 4,561,000 12,663,000 12,768,000
------------ ------------ ------------ ------------
Loss from operations (2,814,000) (2,496,000) (7,724,000) (6,559,000)
Interest (expense) income, net (47,000) (5,000) (164,000) 39,000
------------ ------------ ------------ ------------
Net loss (2,861,000) (2,501,000) (7,888,000) (6,520,000)
------------ ------------ ------------ ------------
Deemed distribution for accounting purposes (90,000) 0 (456,000) 0
------------ ------------ ------------ ------------
Net loss available for common stockholders $ (2,951,000) $ (2,501,000) $ (8,344,000) $ (6,520,000)
============ ============ ============ ============
Basic and diluted loss per share:
Net loss $ (0.37) $ (0.34) $ (1.02) $ (0.87)
Deemed distribution (0.01) 0.00 (0.06) 0.00
------------ ------------ ------------ ------------
Net loss available to common stockholders $ (0.38) $ (0.34) $ (1.08) $ (0.87)
============ ============ ============ ============
Weighted average number of shares outstanding 7,750,749 7,730,668 7,741,425 7,723,340
============ ============ ============ ============
</TABLE>
(See accompanying notes)
2
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SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
ASSETS OCT. 2, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,064,000 $ 310,000
Short-term investments 0 0
Accounts receivable 1,529,000 1,939,000
Inventory 3,364,000 2,719,000
Prepaid expenses and other current assets 276,000 173,000
------------ ------------
Total current assets 6,233,000 5,141,000
Property and equipment, net of accumulated depreciation
of $7,840,000 and $6,985,000, respectively 4,415,000 5,114,000
Patents and licenses, net of accumulated amortization
of $1,460,000 and $1,285,000, respectively 1,951,000 2,070,000
Other assets 209,000 184,000
------------ ------------
Total assets $ 12,808,000 $ 12,509,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,552,000 $ 2,396,000
Accrued compensation 767,000 583,000
Current portion of long-term debt and capitalized lease obligations 1,378,000 813,000
------------ ------------
Total current liabilities 3,697,000 3,792,000
Long-term debt 809,000 932,000
------------ ------------
Total liabilities 4,506,000 4,724,000
------------ ------------
Redeemable Preferred, $.001 par value, 2,000,000 shares Authorized; Series A,
645,833 shares issued and outstanding; Series A-1, 125,000 shares issued and
outstanding; Series B, 500,000 shares issued and outstanding 0 8,982,000
Commitments and contingencies
Stockholders' equity:
Convertible Preferred Shares, $.001 par value, 2,000,000 shares Authorized;
Series A-2, 64,584 shares issued and outstanding; Series A-3,12,500 shares
issued and outstanding; Series B-1, 50,000 shares issued and outstanding;
Series C, 41,667 shares issued and outstanding;
Series D, 106,000 shares issued and outstanding 15,903,000 0
Common Stock, $.001 par value, 30,000,000 shares authorized,
7,739,068 and 7,722,591 shares issued and outstanding 8,000 8,000
Capital in excess of par value 36,950,000 35,010,000
Deficit accumulated during development stage (44,559,000) (36,215,000)
------------ ------------
Total stockholders' equity (deficit) 8,302,000 (1,197,000)
------------ ------------
Total liabilities and stockholders' equity $ 12,808,000 $ 12,509,000
============ ============
</TABLE>
(See accompanying notes)
3
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SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
OCT. 2, SEPT. 26,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before deemed distribution for accounting purposes $(7,888,000) $(6,520,000)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 1,000,000 763,000
Warrants treated as non-cash sales discount 70,000
Fair value of warrants and options issued for goods and services 97,000
Changes in assets and liabilities:
Accounts receivable 410,000 (292,000)
Inventory (645,000) (1,101,000)
Prepaid expenses and other current assets (5,000) (35,000)
Patents and licenses (57,000) (81,000)
Other assets 4,000 (54,000)
Accounts payable and accrued expenses (660,000) 936,000
----------- -----------
Net cash used in operating activities (7,674,000) (6,384,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 0 2,099,000
Purchases of property and equipment (990,000) (2,783,000)
Proceeds from sale/leaseback of property and equipment 900,000 0
----------- -----------
Net cash (used for) provided by investing activities (90,000) (684,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings, net 587,000 776,000
Principal payments on long-term obligations (144,000) (41,000)
Proceeds from sale of preferred and common stock 8,075,000 8,858,000
----------- -----------
Net cash provided by financing activities 8,518,000 9,593,000
----------- -----------
Net increase in cash and cash equivalents 754,000 2,525,000
Cash and cash equivalents at beginning of period 310,000 1,438,000
----------- -----------
Cash and cash equivalents at end of period $ 1,064,000 $ 3,963,000
=========== ===========
</TABLE>
(See accompanying notes)
4
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SUPERCONDUCTOR TECHNOLOGIES INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
A. GENERAL
The unaudited financial information furnished herein has been prepared
in accordance with generally accepted accounting principles and reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management, are necessary to fairly state the Company's financial
position, the results of its operations and its cash flows for the periods
presented.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements. This quarterly report
on Form 10-Q should be read in conjunction with the Company's Form 10-K for the
year ended December 31, 1998, including but not limited to the caption entitled
"Factors Affecting Future Business Operations." The results of operations for
the three months and nine months ended October 2, 1999 are not necessarily
indicative of results for the entire fiscal year ending December 31, 1999.
The Company reports on a 13-week quarter period ending on the Saturday nearest
the calendar quarter end. The Company's fiscal year-end is December 31.
B. INVENTORIES
Inventories are stated at the lower of cost (first-in, first out) or market and
consist of the following:
<TABLE>
<CAPTION>
OCTOBER 2, 1999 DECEMBER 31, 1998
--------------- -----------------
<S> <C> <C>
Raw Materials $ 521,000 $ 817,000
Work-in-Progress 2,247,000 1,666,000
Finished Goods 596,000 236,000
---------- ----------
Total Inventory $3,364,000 $2,719,000
========== ==========
</TABLE>
C. PER SHARE INFORMATION
Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of common shares outstanding
in each year. Net loss available to common stockholders is computed by deducting
earned dividends accumulated on cumulative preferred stock and accretion of
redemption value on redeemable preferred shares while outstanding. Diluted net
loss per share is computed by dividing loss available to common stockholders
plus income associated with dilutive securities by the weighted average number
of common shares outstanding plus any potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock in each year. Potential Common Stock issuable upon exercise of
options and warrants to purchase shares of the Company's Common Stock and
conversion of the outstanding Preferred Stock to Common Stock is not included as
the result would have been antidilutive considering the Company's reported net
loss from operations for all periods presented.
The Company has reflected an accounting deemed distribution in the three
months and nine months ended October 2, 1999 relating to the issuance of Series
C and Series D Preferred Stock which, at issuance, is convertible at a discount
from the market price for the Company's common stock. This accounting deemed
dividend was a non-cash accounting entry for determining net loss available to
common stockholders and the related net loss per share.
D. PRIVATE PLACEMENT
On June 23, 1999, the Company entered into a private equity financing
agreement providing for the sale of securities in two tranches with gross
proceeds of up to $6.5 million. Under the first transaction, which took place
June 23, 1999, the Company sold 77,296 shares of Series D 6% Cumulative
Convertible Preferred Stock to certain investors at $50.00 per share which
resulted in gross proceeds of approximately $3.8 million. Under the second
transaction, which took place on August 17, 1999, the Company sold 28,704 shares
of Series D 6% Cumulative Convertible Preferred Stock to certain investors at
$50.00 per share which resulted in gross proceeds of approximately $1.4 million.
Each share of Preferred Stock is initially convertible into twenty shares of
Common Stock at $2.50 per share and carries a cumulative dividend of 6% per
annum. The Preferred Stock also has voting rights and liquidation preferences.
In connection with the Series D financing, the Company also issued warrants for
the purchase of up to 212,000 shares of Common Stock at a price of $3.00 per
share. The Company granted the Series D investors registration rights with
respect to the Common Stock underlying the Series D Preferred Stock and related
warrants.
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The issuance of the Series D Preferred Stock resulted in an antidilution
adjustment to the Company's Series A-2, A-3, B-1 and C Preferred Stock.
Following completion of the Series D financing the total number of shares
issuable upon conversion of the Company's outstanding Preferred Stock is as
follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
Series of Preferred Shares of Preferred Common Stock Issuable Upon Conversion Stock
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
Series A-2 64,584 1,322,539
- - ------------------------------------------------------------------------------------------------
Series A-3 12,500 263,852
- - ------------------------------------------------------------------------------------------------
Series B-1 50,000 1,055,409
- - ------------------------------------------------------------------------------------------------
Series C 41,667 872,100
- - ------------------------------------------------------------------------------------------------
Series D 106,000 2,120,000
- - ------------------------------------------------------------------------------------------------
Total 5,633,900
- - ------------------------------------------------------------------------------------------------
</TABLE>
The Series D Preferred Stock financing, together with the issuance of
warrants to U.S. Cellular Corporation, resulted in an adjustment to warrants
issued in connection with the Company's Series B Preferred Stock financing (the
Series B Preferred Stock was converted into Series B-1 Preferred Stock in
February 1999). The total number of shares issuable upon exercise of such
warrants increased from 120,000 to 129,057 as a result of such adjustments and
the exercise price of the warrants was reduced from $5.70 per share to $5.30 per
share.
E. LONG-TERM SALES AGREEMENT
On August 27, 1999, the Company signed a five-year agreement with United
States Cellular Corporation ("U.S. Cellular"), one of the nation's ten largest
cellular service providers. Under the terms of the agreement, U.S. Cellular will
purchase a minimum of 100 SuperFilter(R) systems by December 31, 2000 and
anticipates purchasing a minimum of an additional 400 SuperFilter(R) systems by
August 27, 2004. As part of the agreement the Company issued a warrant to U.S.
Cellular providing for the purchase of up to one million shares of common stock
at a price of $4.00 per share, under which one share vests for every $25 worth
of SuperFilter(R) system purchases made by U.S. Cellular. In each period in
which the warrant shares are earned, a non-cash sales discount will be recorded.
The amount of the non-cash sales discount will be the fair value of the warrant
shares that are earned in the period. Fair value of the warrant shares will be
calculated by using the Black-Scholes option pricing model. The amount of
warrant shares earned during the three-month and nine-month periods ended
October 2, 1999 was $70,000. At October 2, 1999, there remain 966,800 shares of
common stock available under the warrant that may result in future charges as
each warrant is earned.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, as amended. These statements are in
"Results of Operations for the three-month and nine-month periods ended
September 26, 1998 and October 2, 1999" and "Liquidity and Capital Resources."
These statements represent the Company's expectations or beliefs concerning
future events and include statements, among others, regarding commercial
revenues and the Company's financial resources. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors, a portion of which is set forth herein under the caption
"Factors Affecting Future Business Operations." Investors are strongly
encouraged to review the section entitled "Factors Affecting Future Business
Operations" in the Company's Form 10-K for a full discussion of the risk factors
that could affect future performance.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 26, 1998 AND
OCTOBER 2, 1999
Total net revenues decreased by $95,000, or 5%, from $2,065,000 in the
third quarter of 1998 to $1,970,000 in the third quarter of 1999. Net revenues
decreased by $1,270,000 or 20%, from $6,209,000 in the first nine months of 1998
to $4,939,000 in the first nine months of 1999. These changes are due to a
decrease in government contract revenue offset in part by increases in
commercial revenue and sublicense royalties.
Government contract revenue decreased by $121,000, or 8%, from
$1,502,000 in the third quarter of 1998 to $1,381,000 in the third quarter of
1999. Government contract revenue decreased by $1,504,000 or 29%, from
$5,178,000 in the first nine months of 1998 to $3,674,000 in the first nine
months of 1999. These decreases are attributable to the completion of certain
government programs and the transition period associated with entering into new
government contracts. The Company recently announced the notification of award
from Defense Advanced Research Projects Agency (DARPA) under the Agency's Broad
Agency Announcement (BAA) #99-24, "Totally Agile RF Sensor Systems" (TASS).
Commercial product revenue increased by $26,000 or 5%, from $563,000 in
the third quarter of 1998 to $589,000 in the third quarter of 1999. Commercial
product revenue increased by $234,000 or 23%, from $1,031,000 in the first nine
months of 1998 to $1,265,000 in the first nine months of 1999. These increases
are the result of the Company's
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increased sales of the SuperFilter(R) product, including shipments under a
five-year agreement with U.S. Cellular Corporation (see Note E.), and are net of
a non-cash sales discount of $70,000 relating to warrants issued to U.S.
Cellular in connection with the agreement.
Sublicense royalties were $10,000 in the first nine months of 1999.
There were no sublicense royalties in the first nine months of 1998.
As the Company continues to focus on its commercial products, commercial
revenues are expected to increase as a percentage of revenues over the next
several quarters; however, there can be no assurance that such commercial
revenues will increase. Furthermore, as the Company attempts to achieve
commercialization of products, it could encounter seasonality or other currently
unforeseen factors causing additional variability in its results.
The cost of commercial product revenues increased by $134,000 or 8%,
from $1,747,000 for the third quarter of 1998 to $1,881,000 in the third quarter
of 1999. The cost of commercial product revenues increased by $246,000 or 6%,
from $4,266,000 for the first nine months of 1998 to $4,512,000 in the first
nine months of 1999. These increases are due to the increase in sales of
commercial products offset by product cost reductions.
Contract research and development expenses decreased by $278,000 or 24%,
from $1,175,000 in the third quarter of 1998 to $897,000 in the third quarter of
1999. Contract research and development expenses decreased by $1,151,000 or 32%,
from $3,575,000 in the first nine months of 1998 to $2,424,000 in the first nine
months of 1999. These decreases are attributable to the decrease in contract
activity.
Other research and development expenses increased by $148,000 or 61%,
from $244,000 in the third quarter of 1998 to $392,000 in the third quarter of
1999. Other research and development expenses increased by $431,000 or 48%, from
$892,000 in the first nine months of 1998 to $1,323,000 in the first nine months
of 1999. This increase is due to the Company's efforts in expanding market
opportunities through product line enhancement and development.
Selling, general and administrative expenses increased by $219,000 or
16%, from $1,395,000 in the third quarter of 1998 as compared to $1,614,000 in
the third quarter of 1999. Selling, general and administrative expenses
increased by $369,000 or 9%, from $4,035,000 in the first nine months of 1998 to
$4,404,000 in the first nine months of 1999. These increases reflect increased
expenses attributable to the Company's sales and marketing efforts for the
Company's SuperFilter(R) product as well as the write-off of unamortized loan
fees of $78,000 and the amortization of the fair value of warrants of $36,000
capitalized as deferred debt issue in connection with the Company's master lease
agreement and new credit agreement.
Interest income increased by approximately $4,000 or 50%, from $8,000 in
the third quarter of 1998 to $12,000 in the third quarter of 1999 as a result of
an increase in the interest-earning investment balance due to the successful
completion of a private equity financing in June and August of 1999. Interest
income decreased by $46,000 or 78%, from $59,000 in the first nine months of
1998 to $13,000 in the first nine months of 1999 primarily due to the withdrawal
of interest-earning investment balances by the Company to fund and expand
operations.
Interest expense increased by $46,000 or 354%, from $13,000 in the third
quarter of 1998 to $59,000 in the third quarter of 1999. Interest expense
increased by $156,000 or 780%, from $20,000 in the first nine months of 1998 to
$176,000 in the first nine months of 1999. These increases occurred as the
Company entered into new working capital financing agreements and borrowed for
working capital needs in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $754,000 or 243%, from $310,000
on December 31, 1998 to $1,064,000 on October 2, 1999. The increase is the
result of two private placements of $3 million and $5.3 million, respectively, a
sale/leaseback of equipment of $900,000, and net borrowings from bank lines of
$587,000 offset by operating losses of $7.9 million, working capital increases
of $235,000 (accounts receivable decrease of $410,000 offset by inventory
increase of $645,000) and purchases of new equipment in the amount of $990,000
for expansion of manufacturing operations. The net increase in inventory is due
to the Company's strategy of creating capacity and products to quickly respond
to anticipated demand.
The Company's principal resource commitments at October 2, 1999 consist
of accounts payable and accrued employee compensation of $1,552,000 and
$767,000, respectively, and approximately $2.2 million of obligations under
financing commitments.
On February 26, 1999, the Company entered into an Exchange Agreement
with the holders of all of the Company's then outstanding redeemable Preferred
Stock to remove redemption provisions and to place limits on Preferred Stock
conversions and warrant exercises by the holders of the Preferred Stock pending
approval by the Company's stockholders of the removal of such limitations. The
Company's stockholders approved the elimination of conversion and exercise
limitations at the Company's 1999 Annual Meeting of Stockholders. In partial
exchange for the elimination of the redemption feature the Company issued the
holders exchanging Preferred Stock warrants to purchase up to 75,000 shares of
common stock at $7.00.
On March 5, 1999, the Company completed a private placement of 41,667
shares of Series C 7% Cumulative Convertible Preferred Stock to a certain
investor at $72.00 per share. The gross proceeds of the offering totaled $3
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million. Each share of Preferred Stock was initially convertible into twenty
shares of Common Stock at $3.60 per share and carries a cumulative dividend of
7% per annum. The Preferred Stock also has voting rights and liquidation
preferences.
In March 1999, the Company entered into a master lease agreement for
$1.5 million in lease financing. The Company has drawn upon $900,000 as of
October 2, 1999 in an equipment sale/leaseback transaction under the agreement
to provide working capital. The implicit interest rate of the lease agreement is
14.4% for a term of 48 months. In connection with the new lease, the Company
issued warrants for the purchase of 25,180 shares of Common Stock at a price of
$4.17 per share. The fair value of the warrants have been estimated using the
Black-Scholes option pricing model and have been accounted for as deferred debt
issuance costs which are being amortized over the lease term.
On June 23, 1999, the Company entered into a private equity financing
agreement providing for the sale of securities in two tranches with gross
proceeds of up to $6.5 million. Under the first transaction, which took place
June 23, 1999, the Company sold 77,296 shares of Series D 6% Cumulative
Convertible Preferred Stock to certain investors at $50.00 per share which
resulted in gross proceeds of approximately $3.8 million. Under the second
transaction, which took place on August 17, 1999, the Company sold 28,704 shares
of Series D 6% Cumulative Convertible Preferred Stock to certain investors at
$50.00 per share which resulted in gross proceeds of approximately $1.4 million.
Each share of Preferred Stock is initially convertible into twenty shares of
Common Stock at $2.50 per share and carries a cumulative dividend of 6% per
annum. The Preferred Stock also has voting rights and liquidation preferences.
In connection with the Series D financing the Company also issued warrants for
the purchase of up to 212,000 shares of Common Stock at a price of $3.00 per
share. The Company granted the Series D investors registration rights with
respect to the Common Stock underlying the Series D Preferred Stock and related
warrants. The Series D financing resulted in antidilution adjustments to the
Company's outstanding preferred stock and one class of outstanding warrants as
more fully described in footnotes to the Company's financial statements and in
Part II, Item 2 below.
On June 18, 1999, the Company entered into a new credit agreement, which
includes a revolving line of credit maturing on July 1, 2000. The revolving line
of credit is not to exceed the lesser of (i) $2.5 million or (ii) 80% of
eligible accounts receivable. The revolving line of credit bears interest at the
prime rate plus 1% (9.25% at October 2, 1999). The Company is required to
maintain certain minimum tangible net worth, debt and other financial and
business covenants. Borrowings under the revolving line of credit are secured by
substantially all of the Company's assets. The agreement is renewable annually.
All outstanding borrowings under all previous agreements were fully paid at July
3, 1999. In connection with the new credit agreement, the Company issued
warrants for the purchase of 62,500 shares of Common Stock at a price of $3.00
per share. The fair value of the warrants have been estimated using the
Black-Scholes option pricing model and have been accounted for as deferred debt
issuance costs, which are being amortized over the term of the loan agreement.
At October 2, 1999, the Company had $1,178,000 outstanding under this agreement.
As of October 2, 1999, the Company was not in compliance with certain of its
financial covenants. The Company has received a waiver of all instances of
noncompliance from its lender and is in negotiation to amend these covenants
with its lender for terms more favorable to the Company.
The Company anticipates relying on external sources of financing to meet
its cash needs over the next 12 months. In an effort to support its capital
requirements, the Company continues to explore several financing alternatives.
The Company is exploring the expansion of its working capital lines of credit in
order to provide the additional flexibility to fund its working capital needs.
The Company is also reviewing other means of equity infusion in order to support
the Company's growth potential and operations. There can be no assurance that
additional financing will be available to the Company, on terms acceptable to
the Company, if at all. In addition, if the Company does not meet its operating
objectives for market penetration and manufacturing production, the need for
capital will increase substantially.
IMPACT OF YEAR 2000
The Company currently uses a limited number of software products that
are not Year 2000 compliant. However, the Company has acquired manufacturing
software, which replaces substantially all non-Year 2000 compliant software, in
order to support its expansion efforts. The software developer has represented
that the new software is Year 2000 compliant. The Company has reviewed the
remaining software programs that are not Year 2000 compliant and believes that
with modification to existing software or cessation of utilization of
non-compliant software, the Year 2000 problem will not pose significant
operational problems. The Company currently does not expect the amounts required
to be incurred to become Year 2000 compliant to have a material effect on its
business, operating results or financial condition.
FACTORS AFFECTING FUTURE BUSINESS OPERATIONS
FUTURE CAPITAL NEEDS
To foster growth of its commercial product sales, the Company has built
a sales and marketing infrastructure and has developed manufacturing operations
to support anticipated increased sales of its SuperFilter(R) product. In order
to
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fully implement its business plan, the Company is in the process of seeking
additional debt and equity financing. There can be no assurance that the Company
will be successful in obtaining such additional debt or equity financing on
acceptable terms or at all. In the event that the Company is unable to obtain
additional financing throughout the course of 1999, the Company will have
insufficient cash to fund operations. The Company's independent accountants have
indicated in their report accompanying the Company's 1998 year-end financial
statements that, based on generally accepted auditing standards, there is
substantial doubt about the Company's ability to continue as a going concern. If
the Company is successful in obtaining additional equity financing, future
dilution to existing or future stockholders is likely to result.
EARLY STAGE OF THE COMMERCIAL SUPERCONDUCTOR PRODUCTS MARKET: MARKET ACCEPTANCE
AND RELIABILITY
The commercial superconductor products market has experienced limited
product commercialization to date. Moreover, since inception, the Company has
been principally engaged in research and development activities and has only
limited experience in the commercialization of its products. The Company's
ability to grow will depend on its ability to successfully transition its
expertise in superconducting filter and cryogenics technologies and applications
to commercial markets, including the wireless communications market. There can
be no assurance that the Company will be able to produce its products in
sufficient volume to meet market demand or that any of the Company's products
will achieve market acceptance. If the Company is unable to manufacture and
market its products for its target markets successfully, its business, results
of operations and financial condition will be materially affected.
DEPENDENCE ON SALES TO SERVICE PROVIDERS AND OEMS
Most of the Company's products, including those developed for wireless
communications base stations and government applications, are intended for use
as components or subsystems in base station systems or other complex systems.
Therefore, to gain market acceptance, particularly in the wireless market, the
Company must demonstrate that its products will provide advantages to the
service providers who utilize base station systems and the OEMs that manufacture
base station systems. These benefits include a decrease in system size, an
increase in base station range and a reduction in interference. There can be no
assurance that upon acceptance, the Company's products will be able to achieve
any of these advantages. Moreover, even if the Company is able to demonstrate
such advantages, there can be no assurance that service providers and OEMs will
elect to incorporate the Company's products into their systems or, if they do,
that related system and manufacturing requirements can or will be met.
LIMITED MANUFACTURING EXPERIENCE
To date, the Company has sold products only in limited quantities,
primarily for limited deployment, use in field-testing as well as development
and prototypes. During 1998, the Company significantly increased its
manufacturing capacity in order to meet the increased demand for its products as
well as expected future requirements. While the Company has increased its
manufacturing capacity, there can be no assurance that the Company will be
successful in overcoming the technological, engineering and management
challenges associated with the production of commercial quantities of
superconducting or cryogenic products for large scale deployment at acceptable
costs and on a timely basis.
HIGH DEGREE OF DEPENDENCE ON GOVERNMENT CONTRACTS
Since inception, 91% of the Company's net revenues have been from
research and development contract sales directly to the government or to
resellers to the government. Although the Company recently has been devoting
substantial resources to the development of commercial markets for its products,
the Company is, and expects to continue to be in the near term, dependent on
government funding for its research and development projects. Funds authorized
by the government under any development contract may be reduced or eliminated at
any time, and there can be no assurance that the Company will receive all or any
part of the funds under any of the Company's existing government contracts not
yet performed. Absent significant future revenues from commercial sales, a
significant loss of government funding would have a material adverse effect on
the Company's business, results of operations and financial condition.
UNCERTAINTY OF PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of patent, trademark, trade secret
and copyright law and internal procedures and nondisclosure agreements to
protect its intellectual property. There can be no assurance that the Company's
intellectual property rights can be successfully asserted in the future or will
not be invalidated, circumvented or challenged. In addition, the laws of certain
foreign countries in which the Company's products may be produced or sold do not
protect the Company's intellectual property rights to the same extent as the
laws of the United States.
The Company has an exclusive, worldwide license, in all fields of use,
to formulations covered by patents held by the University of Arkansas covering
TBCCO, the material upon which the Company primarily relies for its HTS
9
<PAGE> 10
products and product development. There can be no assurance that the validity of
these patents will not be subject to challenge. In addition, other parties may
have developed similar materials utilizing TBCCO formulations and may design
around the patented aspects of this material. In addition, the Company has
granted DuPont and its affiliates a non-exclusive worldwide sublicense under its
license with the University of Arkansas to develop and market TBCCO materials
and superconducting technologies. There can be no assurance that this sublicense
will not adversely affect the Company's business, results of operations and
financial condition.
PREFERRED STOCK FINANCINGS
The market value of the Company's Common Stock will likely be diluted by
the issuance of Common Stock upon the conversion of the Company's Series A-2,
Series A-3, Series B-1, Series C and Series D Preferred Stock and the exercise
of options and warrants for the purchase of Company Common Stock, including the
warrants issued in connection with the Company's Preferred Stock financings and
the Exchange Agreement. At its annual meeting of stockholders that was held on
June 2, 1999 the Company received stockholder approval of the elimination of
limitations on conversions of the Company's Preferred Stock and exercises of
warrants issued in connection with the Series C Preferred Stock financing and
the Exchange Agreement. Similarly, and at the special meeting of stockholders
held on August 6, 1999, the Company's stockholders approved the issuance of
Series D Preferred Stock and related warrants. As a result, the Series A-2,
Series A-3, Series B-1, Series C and Series D Preferred Stock may be fully
converted into shares of Common Stock, potentially at a discount to the market
price of the Common Stock on the date of conversion. Also, the holders of
warrants issued in connection with the Preferred Stock financings and the
Exchange Agreement may fully exercise warrants for the purchase of Company
Common Stock at prices that may be below the market value of the Company's
Common Stock on the date of such exercise. The total number of shares that may
be issued upon such Preferred Stock conversions and warrant exercises is
currently 6,336,624 shares. This number of shares is subject to adjustment for
certain future dilutive stock issuances by the Company and for
recapitalizations, stock combinations, stock dividends, stock splits and the
like.
The Company anticipates issuing additional securities in the foreseeable
future to satisfy its capital requirements. In addition, as a means of obtaining
benefits for the Company without the expenditure of cash, the Company has in the
past and may in the future offer equity participation to parties in connection
with debt, leasing, supply agreements or similar arrangements. In such cases,
the Company may issue warrants or other securities providing for the purchase of
Common Stock. These future financing and operating arrangements will likely
result in the eventual issuance of Company Common Stock that may be dilutive to
the Company's current holders of Common Stock.
The Company has never paid a cash dividend on its Common Stock and does
not expect to do so in the foreseeable future. Cumulative dividends on the
Series A-2, Series A-3, Series B-1, Series C and Series D Preferred Stock are
payable at the rates of 6%, 6%, 7%, 7% and 6% per annum, respectively. While the
Series A-2, Series A-3, Series B-1, Series C and Series D Preferred Stock are
outstanding, the Company is limited in its ability to pay dividends on the
Common Stock.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Between August 17, 1999 and the date of this Form 10-Q the Company
raised a total of $1.4 million through the sale of Series D Preferred Stock and
warrants for the purchase of Common Stock. The chart below reflects the
securities issued in this financing:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------- ---------------
Common Stock
Issuable
upon Warrants for
Conversion Purchase of Total
Series of Number of of Preferred Common Consideration Date of
Preferred Stock Shares Issued Shares Stock(1) Received Issuance
- - ------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Series D 28,704 574,080 57,408 $1,435,200 August 17, 1999
- - ------------------------------------------------------------------------------- ---------------
</TABLE>
(1) The exercise price of the Series D warrants is $3.00 per share, expiring
August 17, 2004.
All of the Company's private placements were effected pursuant to an
exemption from federal registration requirements provided under Rule 506 of
federal Regulation D. The purchasers in each case were accredited investors as
defined in Regulation D.
10
<PAGE> 11
The Series D Preferred Stock financing resulted in an antidilution
adjustment to the Company's Series A-2, A-3, B-1 and C Preferred Stock.
Following completion of the Series D financing the total number of shares
issuable upon conversion of the Company's outstanding Preferred Stock is as
follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Series of Preferred Shares of Preferred Common Stock Issuable Upon Conversion Stock
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
Series A-2 64,584 1,322,539
- - -------------------------------------------------------------------------------------------------
Series A-3 12,500 263,852
- - -------------------------------------------------------------------------------------------------
Series B-1 50,000 1,055,409
- - -------------------------------------------------------------------------------------------------
Series C 41,667 872,100
- - -------------------------------------------------------------------------------------------------
Series D 106,000 2,120,000
- - -------------------------------------------------------------------------------------------------
Total 5,633,900
- - -------------------------------------------------------------------------------------------------
</TABLE>
During the last quarter, the Company also issued warrants in connection
with the purchase agreement with U.S. Cellular Corporation (see Note E.).The
securities were issued pursuant to an exemption from registration provided under
Section 4(2) of the Securities Act. The warrant holder is a sophisticated
institutional investor that obtained the warrants for investment purposes.
The Series D Preferred Stock financing, together with the issuance of
warrants to U.S. Cellular Corporation, resulted in an adjustment to warrants
issued in connection with the Company's Series B Preferred Stock financing (the
Series B Preferred Stock was converted into Series B-1 Preferred Stock in
February 1999). The total number of shares issuable upon exercise of such
warrants increased from 120,000 to 129,057 as a result of such adjustments and
the exercise price of the warrants was reduced from $5.70 per share to $5.30 per
share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Under the terms of the Company's line of credit with PNC Bank the
Company is required to maintain certain financial covenants. As discussed in
Part I, Item 2 of this report, as of October 2, 1999, the Company was not in
compliance with certain of its financial covenants set forth in the line of
credit. The Company has received a waiver of all instances of noncompliance from
its lender and is in negotiation to amend these covenants with its lender for
terms more favorable to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matter was submitted to the shareholders at the Company's Special
Meeting of Shareholders held August 6, 1999:
1) The issuance of Series D Preferred Stock and related warrants and the
issuance of Common Stock upon the conversion and exercise of such securities
were approved.
Votes For: 7,042,201 (including 3,375,020 Preferred)
Votes Against: 158,900
Votes Abstaining: 38,357
Broker Non-Votes: 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 4.1 Registration Rights Agreement to United States Cellular
Corporation
Exhibit 4.2 Form of Warrant to United States Cellular Corporation
*Exhibit 10.1 United States Cellular Corporation Purchase Agreement
*Confidential treatment has been requested for certain portions of this exhibit.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended October 2,
1999.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERCONDUCTOR TECHNOLOGIES INC.
(Registrant)
Dated: November 15, 1999 /s/ M. Peter Thomas
----------------------------------------
M. Peter Thomas
President, Chief Executive Officer
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
4.1 Registration Rights Agreement to United States Cellular
Corporation
4.2 Form of Warrant to United States Cellular Corporation
10.1 United States Cellular Corporation Purchase Agreement
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.1
===============================================================================
SUPERCONDUCTOR TECHNOLOGIES, INC.
460 WARD DRIVE, SUITE 700
SANTA BARBARA, CA 93111
REGISTRATION RIGHTS AGREEMENT
AUGUST 27, 1999
===============================================================================
<PAGE> 2
SUPERCONDUCTOR TECHNOLOGIES INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made as of
August 27, 1999 between Superconductor Technologies Inc., a Delaware corporation
(the "Company") and the United States Cellular Corporation ("USCC").
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS
1.1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Closing Date" shall mean August 27, 1999.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean Company Common Stock, par value $0.001 per
share.
"Conversion Stock" means the Common Stock issued or issuable upon
exercise of the Warrants.
"Holder" shall mean (i) USCC and (ii) any person holding Registrable
Securities to whom the rights under this Section 1 have been transferred in
accordance with Section 1.11 hereof.
"Registrable Securities" means the Conversion Stock and 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 issuable with respect to 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 Section 1.5 hereof,
including, without limitation, all registration,
<PAGE> 3
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 the warrants for the purchase of Common Stock
issued pursuant to the Purchase Agreement by and between the Company and USCC
dated as of August 27, 1999.
1.2 RESTRICTIONS ON TRANSFERABILITY. The Warrants and the Conversion
Stock shall not be sold, assigned, transferred or pledged except upon the
conditions specified in this Section 1. The Holder will cause any proposed
purchaser, assignee, transferee, or pledgee of any such shares held by the
Holder to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 1.
1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Warrant,
(ii) the Conversion Stock and (iii) any other securities issued in respect of
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
in the following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT.
Each Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Common Stock in
order to implement the restrictions on transfer established in this Section 1.
2
<PAGE> 4
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) a written opinion of legal
counsel who shall be, and whose legal opinion shall be, reasonably satisfactory
to the Company addressed to the Company, to the effect that the proposed
transfer of the Restricted Securities may be effected without registration under
the Securities Act, or (ii) a "no action" letter from the Commission to the
effect that the transfer of such securities without registration will not result
in a recommendation by the staff of the Commission that action be taken with
respect thereto, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. Each certificate evidencing
the Restricted Securities transferred as above provided shall bear, except if
such transfer is made pursuant to Rule 144, the appropriate restrictive legend
set forth in Section 1.3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for such holder and the Company
such legend is not required in order to establish compliance with any provision
of the Securities Act.
1.5 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 1.5(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 such
3
<PAGE> 5
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 1.5, 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 (to zero if
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. Notwithstanding the
preceding sentence, the Holders' rights to participate in a registration shall
be subordinate to "Holders" as such term is defined in the Company's Third
Amended and Restated Stockholder Rights Agreement dated as of June 23, 1999 (the
"Preferred Holders") and the Holders' Registrable Securities shall be reduced or
eliminated from a registration prior to the reduction of any securities held by
Preferred Holders to be included in such registration. 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 1.5 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
1.6 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with all registrations pursuant to Section 1.5 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.
1.7 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; and
4
<PAGE> 6
(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.
1.8 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 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
5
<PAGE> 7
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder and stated to be specifically for use therein. Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited in an amount equal to the gross proceeds before expenses and commissions
to each Holder received for the shares sold by such Holder, unless such
liability arises out of or is based on willful misconduct by such Holder.
(c) Each party entitled to indemnification under this Section 1.8
(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 2 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.
1.9 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 2.
1.10 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, after such
time as a public market exists for the Common Stock of the Company, 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 (at any time after it has become subject to
such reporting requirements); 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
6
<PAGE> 8
requirements of said Rule 144 (at any time after ninety (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 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.
1.11 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted Holders under Section 1.5 may be assigned to a
transferee or assignee reasonably acceptable to the Company which acquires at
least 100,000 shares of Registrable Securities in connection with any transfer
or assignment of Registrable Securities by the Holders.
1.12 STANDOFF AGREEMENT. In connection with any public offering of the
Company's securities, provided that the Holders and entities affiliated with the
Holder collectively hold more than 2% of the Company's Common Stock, the Holder
agrees, upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed one hundred eighty (180) days) from
the effective date of such registration as may be requested by the underwriters,
provided that the officers and directors of the Company who own stock of the
Company and each holder representing at least 1% ownership of the Company's
outstanding Common Stock also agrees to such restrictions.
1.13 TERMINATION OF REGISTRATION RIGHTS. The registration rights
granted pursuant to Section 1 shall terminate as to each Holder at such time as
a public market for the Company's Common Stock exists and 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
MISCELLANEOUS
2.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the internal laws of the State of Delaware.
2.2 SURVIVAL. The covenants and agreements made herein shall survive
the closing of the transactions contemplated hereby.
2.3 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.
7
<PAGE> 9
2.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered on the Closing Date 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 Registrable Securities may,
with the Company's prior written consent, waive, modify or amend on behalf of
all holders, any provisions hereof.
2.5 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 Holder, 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 who has so
furnished an address to the Company, or (b) 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 President, or at such other address as the
Company shall have furnished to the Holders.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.
2.6 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.
2.7 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.
2.8 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.
8
<PAGE> 10
2.9 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 PAGE(s) FOLLOW(s)]
9
<PAGE> 11
The foregoing Agreement is hereby executed as of the date first above written.
SUPERCONDUCTOR TECHNOLOGIES INC.
a Delaware Corporation
By: /s/ M. Peter Thomas
-----------------------------------------
M. Peter Thomas
Chief Executive Officer
UNITED STATES CELLULAR
CORPORATION
By: /s/ Richard Goehring
-----------------------------------------
Name: Richard Goehring
Title: Executive Vice President,
Engineering and Network Operations
10
<PAGE> 1
EXHIBIT 4.2
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT OR REGULATION A NOTIFICATION UNDER SUCH ACT
COVERING SUCH SECURITIES OR SUPERCONDUCTOR TECHNOLOGIES INC. (THE
"COMPANY") RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE
COMPANY) STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
No. SA-1 Right to Purchase 1,000,000
August 27, 1999 Shares of Common Stock
Void After August 27, 2004
SUPERCONDUCTOR TECHNOLOGIES INC.
WARRANT
THIS CERTIFIES THAT, subject to the terms of this agreement, United
States Cellular Corporation (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 Million
(1,000,000) fully paid and non-assessable shares of the Company's Common Stock
(the "COMMON STOCK"), such purchase right being subject to the vesting
requirements set forth in Section 1(a) below and such price and such number of
shares being subject to adjustment upon occurrence of the contingencies set
forth in this Warrant.
This Warrant is issued pursuant to a Purchase Agreement dated August 27,
1999 between the Company and the Holder (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, 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 that 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.
(a)Vesting. The Holder may exercise the purchase right
represented by this Warrant with respect to any number of shares of Common Stock
if the purchase right with respect to such shares becomes vested. The purchase
right with respect to up to 16,700 shares of Common Stock subject to this
Warrant shall become vested at the execution of the Purchase Agreement. The
purchase right with respect to the remaining number of shares of Common Stock
subject to this Warrant shall become vested at a rate of one share per $25.00
worth of purchase orders from the Holder for the Company's Systems (as defined
in the Purchase Agreement) pursuant to the Purchase Agreement. Such vesting
shall occur on a calendar quarterly basis, the number of shares to vest in such
quarter will be STI's revenue under this Agreement during the quarter divided by
25.
(b)The purchase right with respect to any number of shares of
Common Stock that is vested may be exercised at any time after such vesting and
prior to the first to occur of the following:
(i) 5:00 p.m., Pacific Standard Time, August 27, 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 $4.00 per share.
3. 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(b)(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
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<PAGE> 3
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 3. 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.
4. 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.
5. Investment Letter. As a condition to exercise 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-1 or (ii) deliver to the Company an opinion of counsel for the Holder
reasonably satisfactory to the Company, stating that such exercise is exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT").
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<PAGE> 4
6. Registration Rights. The Common Stock issued or issuable upon the
exercise of this Warrant are subject to registration in accordance with the
registration rights in favor of the Holder as provided for in a Registration
Rights Agreement dated as of August 27, 1999 between the Company and the Holder.
7. 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.
8. Compliance with Act. The Holder, by acceptance hereof, agrees that
this Warrant and the Common Stock to be issued upon the exercise 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 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.
9. 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.
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<PAGE> 5
(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 (i) a transfer not involving a change in beneficial ownership, and (ii) any
transfer by any Holder to (A) any individual or entity controlled by,
controlling, or under common control with, such Holder or (B) any individual or
entity with respect to which such Holder (or any person controlled by,
controlling, or under common control with, such Holder) has the power to direct
investment decisions.
(g) This Warrant or any provision of this Warrant may be
amended, waived, discharged or terminated by a statement in writing signed by
both the Company and the Holder.
(h) This Warrant shall be governed by the laws of the State of
Delaware.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: August 27, 1999
SUPERCONDUCTOR TECHNOLOGIES INC.
/s/ M. Peter Thomas
-----------------------------------------
M. Peter Thomas, Chief Executive Officer
<PAGE> 7
EXHIBIT A
NOTICE OF EXERCISE
TO: Superconductor Technologies Inc.
1. The undersigned hereby decides 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. 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)
3. 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> 8
EXHIBIT A-1
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 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 as of 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
-2-
<PAGE> 9
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:
-----------------------------------
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<PAGE> 1
EXHIBIT 10.1
PURCHASE AGREEMENT*
This Purchase Agreement ("AGREEMENT") is made and entered into as of the
27th day of August, 1999 between Superconductor Technologies Inc., a Delaware
corporation, having its principal place of business at 460 Ward Drive, Santa
Barbara, California 93111 ("STI") and United States Cellular Corporation, a
Delaware corporation, having its principal place of business at 8410 West Bryn
Mawr, Suite 700, Chicago, Illinois 60631 ("USCC"). This Agreement may refer to
STI and USCC individually as a "PARTY" or collectively as the PARTIES."
WHEREAS, STI manufactures and sells superconducting filters for use in
cellular and PCS radio systems.
WHEREAS, USCC desires to purchase superconducting filters, as set forth
on Attachment B ("SYSTEMS"), sold by STI;
WHEREAS, the Parties wish to enter into an agreement for USCC's purchase
of the Systems from STI and wish to replace any and all prior agreements, both
written and oral, with this Agreement;
WHEREAS, USCC desires to acquire warrants from STI which shall permit
USCC to purchase shares of STI's common stock ("COMMON STOCK");
NOW THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Parties hereto agree as follows:
ARTICLE 1
TERM, MUTUAL REPRESENTATIONS
1.1 The term of this Agreement shall be five (5) years from
the date of this Agreement, unless extended or earlier terminated as hereinafter
provided. This Agreement may be extended only upon the mutual written agreement
of the Parties.
1.2 STI represents that (i) it is duly incorporated and
existing under the laws of the State of Delaware and is in good standing under
such laws; (ii) it has all requisite legal and corporate power and authority to
execute and deliver this Agreement and effect the transactions contemplated
under this Agreement; and (iii) this Agreement, when executed and delivered by
STI, shall constitute valid and binding obligations of STI enforceable in
accordance with its terms.
*Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
1
<PAGE> 2
1.3 USCC represents that (i) it is duly incorporated and
existing under the laws of the State of Delaware and is in good standing under
such laws; (ii) it has all requisite legal and corporate power and authority to
execute and deliver this Agreement and effect the transactions contemplated
under this Agreement; and (iii) this Agreement, when executed and delivered by
USCC, shall constitute valid and binding obligations of USCC enforceable in
accordance with its terms.
ARTICLE 2
TERMINATION
Subject to Section 3.5, this Agreement may be terminated by written
notice thereof given by one Party to the other if one of the following occurs:
(a) A Party fails to comply with or perform any material covenant,
agreement or obligation provided in this Agreement (a
"DEFAULTING PARTY"), and the defaulting Party has not cured that
default within thirty (30) days after written notice thereof by
the non-defaulting Party; or
(b) A Party becomes insolvent or is adjudicated as bankrupt, or its
business comes into the possession or control of any trustee in
bankruptcy, or a receiver is appointed for it, or it makes a
general assignment for the benefit of creditors. If any of these
events occurs, no interest in this Agreement will be deemed an
asset of creditors.
ARTICLE 3
PURCHASE ORDERS
3.1 USCC will place written purchase orders with STI for a
minimum of one hundred (100) Systems for delivery prior to December 31, 2000 at
prices set forth in Attachment A. STI will provide written acknowledgments of
purchase orders so received. USCC will order a minimum of four hundred (400)
additional Systems for delivery prior to the end of the term of this Agreement
pending successful USCC TDMA and CDMA trials and future cost benefit analyses.
3.2 Any USCC purchase order for Systems issued during the
term of this Agreement will be deemed to be issued in accordance with the terms
of this Agreement, unless the Parties expressly agree to the contrary in
writing. Any printed term on USCC's purchase order that conflicts with this
Agreement will not be binding on either Party.
3.3 Any affiliate of USCC ("USCC AFFILIATE") may place a
purchase order pursuant to the terms and conditions of this Agreement.
2
<PAGE> 3
3.4 USCC will provide to STI a quarterly written forecast of
the Systems it intends to order during the following quarter. This forecast will
be based upon a six (6) weeks lead time for deliveries after receipt of USCC's
purchase order.
3.5 USCC will exclusively purchase Systems from STI for a
period of six months commencing on the start date of this Agreement . USCC
agrees to purchase a minimum of 80% of Systems from STI for the remaining term
of the agreement. If USCC requires a system different from the Systems outlined
in Attachment B, STI has the first right of refusal to supply the new System(s)
as long as STI provides the new system within six months of the written request.
ARTICLE 4
ISSUANCE OF WARRANTS
4.1 As part of this Agreement, STI agrees to issue to USCC a
warrant in the form attached to this Agreement as Attachment C (the "WARRANT"),
which shall permit USCC to purchase up to One Million (1,000,000) shares of
STI's Common Stock, at an exercise price of $4.00 per share and subject to the
terms and conditions specified therein. USCC may exercise the purchase right
represented by the Warrants with respect to any number of shares of Common Stock
if the purchase right with respect to such shares becomes vested. The purchase
right with respect to up to 16,700 shares of Common Stock subject to the Warrant
shall become vested at the execution of this Agreement and 16,500 additional
Warrants shall become vested on October 1, 1999 pending the completion of
Purchase Orders for twenty-five System orders now in process. These twenty-five
Systems are not to be considered part of the one hundred Systems referenced in
Article 3.1. The purchase right with respect to the remaining number of shares
of Common Stock will become vested at a rate of one share per $25 worth of
purchases from USCC for the Systems pursuant to this Agreement. Such vesting
will occur on a calendar quarterly basis, the number of shares to vest in such
quarter will be the STI revenues under this Agreement during the quarter divided
by 25.
4.2 STI represents and warrants that: (a) no approval,
authorization, consent or order of or filing with any federal, state, local or
foreign governmental or regulatory commission, board, body, authority or agency
is required in connection with the issuance and sale of the Warrant or the
underlying shares of Common Stock as contemplated under this Agreement (except
any necessary qualification under applicable securities laws and filings with
the Securities Exchange Commission); (b) STI has all requisite legal and
corporate power and authority to execute and deliver this Agreement, the
Warrant, and the Registration Rights Agreement between STI and USCC dated August
27, 1999, to issue the Warrant, to issue the Common Stock issuable on exercise
of the Warrant and to carry out and perform its obligations under the terms of
this Agreement, the Warrant and the Rights Agreement; (c) all corporate action
necessary on the part of the Company necessary for the execution and delivery of
the Agreements and the authorization, sale, issuance and delivery of the Shares
and the Warrants and the Common Stock issuable upon exercise of the Warrants has
taken place; (d) the Warrant 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
3
<PAGE> 4
privileges described in the certificate representing the Warrants; (e) the
Common Stock issuable upon exercise of the Warrant has been duly and validly
reserved and, when issued in compliance with the provisions of this Agreement
and the certificate representing the Warrant will be validly issued, and will be
fully paid and nonassessable; (f) the Common Stock issued upon exercise of the
Warrant will be free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon USCC, provided, however, that the Common
Stock issuable upon exercise of the Warrants will be subject to restrictions on
transfer under state and/or federal securities laws as set forth in the
certificate representing the Warrant and in the Rights Agreement.
4.3 USCC hereby represents and warrants to STI with respect
to the issuance of the Warrant that it is acquiring the Warrant 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. USCC understands that the Warrant and the underlying
Common Stock have not been, and will not be, registered under the Securities Act
of 1933, as amended (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 USCC's representations as expressed herein. USCC is
an "ACCREDITED INVESTOR" within the meaning of Regulation D, Rule 501(a),
promulgated by the Securities and Exchange Commission.
4.4 USCC acknowledges that the Warrants 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. USCC
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 STI, 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. USCC understands that the certificates
evidencing the Warrant will be imprinted with a legend that prohibits the
transfer of such securities unless they are registered or such registration is
not required.
4.5 USCC understands that no public market now exists for
the Warrant to be issued by STI and that STI has made no assurances that a
public market will ever exist for the Warrant.
4.6 USCC has had an opportunity to discuss STI's business,
management and financial affairs with its management. USCC has also had an
opportunity to ask questions of officers of STI, which questions were answered
to its satisfaction. USCC understands that such discussions, as well as any
written information issued by STI, were intended to describe certain aspects of
STI's business and prospects but were not a thorough or exhaustive description.
4
<PAGE> 5
ARTICLE 5
PRICING AND PRODUCT
5.1 Pricing for the Systems STI sells to USCC is set forth
in Attachment A and the specifications for the Systems STI will sell to USCC are
set forth on Attachment B.
5.2 STI warrants not to change the specifications outlined
in Attachment B in a manner that would diminish the System's performance without
written notification to USCC and the acceptance by USCC.
5.3 *
ARTICLE 6
DELIVERY, RISK OF LOSS AND TITLE
6.1 STI will ship all Systems to USCC within ten (10) days
of delivery dates specified by USCC on the applicable purchase order, provided
the Systems are included in the forecast set forth in Section 3.4.
6.2 STI will select the method and common carrier for
shipment unless notified by USCC reasonably in advance of the ship date that
USCC desires to select the method and common carrier. STI will pre-pay freight
charges from the place of shipment to the designated delivery address on the
Purchase Order. STI will not invoice USCC for standard ground shipment charges.
If USCC requests non standard shipment, STI will invoice the difference between
standard ground shipment and cost of the non standard request. Any non standard
freight charges invoiced to USCC will not include mark-up or administrative
charges.
6.3 Delivery terms herein are FOB to the designated delivery
address on the USCC Purchase Orders. Unless otherwise provided herein, title and
risk of loss will pass to USCC upon delivery to the designated delivery address
on the USCC purchase orders. STI warrants to USCC that such title is good and
clear and free of all liens and encumbrances.
*Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
5
<PAGE> 6
6.4 USCC must notify STI, in writing or a confirmed
facsimile, within thirty (30) days of receipts of (i) any shortages or
discrepancies existing between the items charged to USCC on any invoice and the
Systems actually received by USCC in the corresponding shipment; and/or (ii) any
damages to the Systems. If STI does not receive written notice of such shortage
or discrepancy, damage or other objection within the thirty-(30) day period set
forth above, USCC will be deemed to have accepted the Systems.
6.5 Upon STI's receipt of notice that the Systems shipped to
USCC are damaged, defective or otherwise non-conforming (i.e., do not conform to
the applicable portion of the product specification set forth on Attachment B),
STI will promptly provide USCC with replacement Systems. USCC will then promptly
return the, defective or non-conforming Systems to STI. The cost associated with
shipping the defective and the replacement Systems will be borne by STI.
ARTICLE 7
USCC'S PAYMENT TO STI
7.1 STI agrees to invoice for the Systems only after USCC
receives the System.
7.2 USCC will pay all amounts invoiced by STI within thirty
(30) days of receipt of STI's invoice for the Systems. STI will issue a separate
invoice for each purchase order.
7.3 If the damaged or otherwise non-conforming Systems are
received by USCC from STI, that portion of the invoice for the damaged or
non-conforming Systems will not be paid until such Systems are replaced.
Invoices submitted for non-conforming Systems will not be due until thirty (30)
days after the conforming Systems have been received by USCC.
7.4 If USCC wishes to dispute any charge on an invoice, USCC
must provide STI a full written explanation of the basis of the dispute within
thirty (30) days of USCC's receipt of the invoice. If it is determined that the
disputed amount was properly billed to USCC, then USCC will remit full payment
within fifteen (15) days from the date of such determination. If it is
determined that USCC is not obligated to pay the disputed amount, then USCC will
have no obligation to pay the disputed amount to STI.
ARTICLE 8
TAXES
8.1 The prices set forth in Attachment A are exclusive of
any taxes, however designated, on the Systems STI sells to USCC under this
Agreement. STI will charge and collect from USCC appropriate federal, state and
local taxes, except to the extent that USCC provides STI with appropriate
documentation that USCC qualifies for a full or partial exemption.
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<PAGE> 7
8.2 In the event any taxes collected by STI from USCC are
inappropriately assessed against USCC, or any such taxes are charged by STI to
USCC at the incorrect rate of taxation, STI will refund to USCC any amounts
improperly collected by STI from USCC within thirty (30) days of notice of the
overpayment. Notice of USCC's overpayment of taxes to STI will be received when
STI discovers an error in the assessment or calculation of taxes; (ii) USCC
provides STI with written notice of the tax error; or (iii) any local, state or
federal agency or other third party advises STI of the tax error.
ARTICLE 9
INSTALLATION AND REPAIR
9.1 Installation of the Systems will be completed by USCC.
STI will, at no cost to USCC, provide appropriate training regarding the
installation of the Systems. Such training will be conducted when reasonably
requested by USCC.
9.2 STI will provide USCC and each USCC Affiliate with one
set of instructional material for the Systems as to the (i) proper installation
of the Systems; (ii) proper operation and (iii) removal and replacement of
Systems. STI will provide USCC at the time of installation with documents
evidencing the conformity of the Systems shipped to USCC with the appropriate
specification listed in Attachment B.
9.3 STI will operate a twenty-four (24) hour hotline to
provide telephone support to USCC. STI's Customer Service will be available to
USCC by telephone during STI's normal business hours of 8:00 a.m. to 5:00 p.m.,
Monday through Friday. Such support will be provided to USCC at no additional
cost.
9.4 If the Systems fail to operate in accordance with the
specifications set forth on Attachment B or does not pass a mutually agreeable
acceptance test, STI will attempt to correct the anomaly. If it is determined by
STI that factory repair is necessary, USCC will promptly ship the Systems to
STI. STI will pay for round trip freight charges. STI will then replace the
Systems on a like-for-like basis and return them to USCC at STI's cost within
twenty (20) working days. STI will replace the units at their cost with systems
in compliance with the original specs of the Systems, or if mutually acceptable
with a newer or updated System. Premium repair and replacement service is
available from STI's Customer Service at the rates set forth on Attachment A. It
is recommended that USCC maintain an inventory of spare Systems which may be
utilized in emergency situations.
ARTICLE 10
SOFTWARE LICENSE
10.1 As used herein, "SOFTWARE" is defined as any computer
code provided by STI to USCC for use in the temperature control and monitoring
of the Systems and any updates or maintenance releases thereto. The Software may
be provided on separate medium or may be imbedded in the Systems.
7
<PAGE> 8
10.2 STI grants to USCC a limited non-exclusive license to
use the Software solely to support the operation of the Systems that are owned
by USCC and which are installed in cellular or PCS Systems owned or operated by
USCC. USCC may make copies for its internal use only of non-imbedded Software
provided with the Systems.
10.3 USCC agrees not to decompile, reverse engineer,
disassemble, or otherwise reduce the Software to human-perceivable form. USCC
may not modify, adapt, translate, rent, sublicense, assign, loan, distribute or
network the Software or create derivative works based upon the Software or any
part thereof, absent express written approval of STI. USCC is hereby granted
permission to link the Software to its Mobile Switching Office or Operations and
Maintenance Computer(s) for the sole purpose of monitoring and controlling the
Systems.
ARTICLE 11
WARRANTIES
11.1 Systems Warranties: STI provides a * warranty on its
Systems ("WARRANTY PERIOD"). The Warranty Period starts upon delivery of each
System. STI warrants that during the Warranty Period, the Systems furnished
under this Agreement will be free from defects in material and workmanship and
shall conform to the specifications as set forth in Attachment B. STI will make
all repairs including round trip freight to defective Systems at their costs
during the Warranty Period.
11.2 Warranty services furnished by STI hereunder will be
performed in a professional and competent manner.
11.3 Year 2000 Compliance
11.3.1 STI warrants that all Systems delivered under
this Agreement will be Year 2000 compliance and accurately process dates and
date related data for dates occurring after December 31, 1999 in the same manner
as such Systems processed dates and date related data for dates occurring prior
to January 1, 2000. The duration of the warranty will be as defined in, and
subject to the terms and limitation of STI's standard commercial warranty or
warranties relating to the specific Systems purchased by USCC under this
Agreement, provided that no warranty (including the foregoing warranty) will
expire prior to April 1, 2000.
The remedies available to USCC under this warranty will
include repair or replacement of any Systems whose non-compliance is discovered
and made known to STI. Nothing in this warranty will be construed to limit any
rights or remedies USCC may otherwise have under this Agreement or any purchase
order with respect to defects other than Year 2000 performance.
*Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
8
<PAGE> 9
11.3.2 STI represents that it is using commercially
reasonable efforts to cause all Systems owned or controlled by STI to be Year
2000 compliant by December 31, 1999. STI further represents that it is using
commercially reasonable efforts to investigate and remain informed regarding the
efforts and progress of its vendors and suppliers as used by STI in providing
services or Systems to USCC under this Agreement. Upon USCC's request at
reasonable intervals STI will provide USCC a written summary of STI's
then-current information regarding the efforts and progress toward Year 2000
compliance for the Systems that STI uses to provide services for the Systems.
11.3.3 As used herein, Year 2000 compliant will mean:
(a) For all dates in storage, the century is
unambiguous
(b) All operations give consistent results
whether dates in the data, or the current System date, are before or after the
millennial New Year's Eve.
(c) February 29, 2000 is properly recognized
as a leap day.
(d) All dates are properly and unambiguously
recognized and presented on input and output interfaces (screens, reports,
files, etc.).
ARTICLE 12
PROPRIETARY RIGHTS
Nothing in this Agreement shall be construed as conferring to either
Party the right to use any name, trademark or other designation of the other
Party. Nothing in this Agreement shall be deemed to grant to either Party any
license under the trademarks, trade names, patents or patent applications of the
other Party.
ARTICLE 13
INTELLECTUAL PROPERTY INDEMNIFICATION
STI agrees to defend, at its expense, any suits against USCC based upon
a claim that any Systems furnished hereunder directly infringes a U. S. patent,
copyright, trade secret, trademark or other right of a third party, and to pay
costs and damages finally awarded in any such suit, provided that STI is
notified promptly in writing of the suit and, at STI's request and at its
expense, is given control of said suit and all reasonably requested assistance
for defense of same. If the use or sale of any Systems furnished hereunder is
enjoined as a result of such suit, STI, at its option, and at no expense to
USCC, shall obtain for USCC the rights to use or sell said Systems, or shall
substitute an equivalent product reasonably acceptable to USCC and extend this
indemnity thereto or shall accept the return Systems and reimburse USCC the
purchase price therefore. This indemnity does not extend to any suit based upon
any infringement or alleged infringement of any patent or copyright by
9
<PAGE> 10
the combination of any Systems furnished by STI and other elements nor does it
extend to any products of USCC's design or formula.
ARTICLE 14
CONFIDENTIAL INFORMATION
14.1 All data or information provided by USCC to STI, or by
STI to USCC, which the disclosing Party identifies, orally or in writing, as
confidential or proprietary shall be designated as "CONFIDENTIAL INFORMATION."
Confidential Information shall be used only in connection with the performance
of obligations under this Agreement and the receiving Party shall only disclose
Confidential Information to its employees who have a need to know this
Confidential Information for performance of this Agreement. Absent the written
consent of the disclosing Party, the receiving Party is prohibited from
disclosing any Confidential Information to any individual or entity not a Party
to this Agreement, or to employees or independent contractors of the receiving
Party who do not have a need to know such Confidential Information.
14.2 Neither party shall not make any public disclosure or
announcement regarding the existence of this AGREEMENT, any of its terms and
conditions hereof, including the pricing, and any accepted purchase orders by
USCC except (i) with consent of the other party and (ii) as required by any
governmental body or law.
ARTICLE 15
AUDIT
15.1 Upon thirty (30) days written notice, either Party shall
have the right through its authorized representative to make an audit, during
normal business hours, of any records, accounts and processes which contain
information bearing upon the services provided under this Agreement. The audited
party agrees to provide audit support, including appropriate access to and use
of the audited party's facilities (including, but not limited to, conference
rooms, telephones and copying machines). Each party shall bear its own expenses
in connection with such audit.
15.2 Adjustments, credits or payments shall be made and any
corrective action shall commence within thirty (30) days from the auditing
party's receipt of the final audit report to compensate for any errors or
omissions that are disclosed by such audit and are agreed to by the Parties. One
and one-half percent (1 1/2%) or the highest interest rate allowable by law for
commercial transaction shall be assessed on any amounts owed and shall be
computed by compounding daily form the time of the overcharge to the date of
payment or credit.
10
<PAGE> 11
ARTICLE 16
FORCE MAJEURE
Neither Party shall be held responsible for any delay or failure in
performance to the extent that such delay or failure is caused by a Force
Majeure act or event. Force Majeure acts or events are unforeseen circumstances
or causes beyond the reasonable control of the delayed Party including, but not
limited to, acts of God, war (including civil war), riots, embargoes, acts
(whether sovereign or contractual) of civil or military authorities, acts of any
government, earthquakes, fires, floods, explosions, the elements, epidemics,
quarantine restrictions, strikes, lockouts, plant shutdowns, slowdowns,
accidents, shortages of energy, material, component parts, labor, or delays of
suppliers or subcontractors. Each Party shall immediately notify the other Party
of an inability to perform due to the occurrence or existence of a Force Majeure
act or event by telephone and shall confirm such notification in writing as
promptly as possible, including in such notice an estimate of the effect and/or
duration of the Force Majeure act or event. The delivery schedule shall be
considered extended by a period of time equal to the time lost because of a
Force Majeure act or event. In the event STI is unable to wholly or partially
perform for a period of greater than 45 days because of any Force Majeure act or
event beyond its reasonable control, USCC may terminate any delayed order
without any liability.
ARTICLE 17
RELATIONSHIP BETWEEN THE PARTIES
The relationship between the Parties is that of independent
contractors. Notwithstanding Article #4, nothing herein is intended or will be
construed to establish any agency, employment, partnership or joint venture
relationship between the Parties. Each Party shall be solely responsible for the
direction, control and management of its subcontractors, agents and employees.
ARTICLE 18
LIMITATION OF LIABILITY
Neither Party shall be liable to the other under this Agreement for
indirect, incidental, consequential or special damages, including without
limitation, lost profits, regardless of the form of action.
ARTICLE 19
DISPUTE RESOLUTION
The Parties agree to meet and configure in good faith to resolve any
problems or disputes that may arise under this Agreement. If the Parties fail to
reach an amicable settlement within thirty (30) days after either Party gives
notice to the other Party of the existence of a problem or dispute, either
11
<PAGE> 12
Party may then submit the dispute for arbitration to the American Arbitration
Association ("AAA") for final decision, with instructions that the arbitration
be conducted in the manner set forth below.
(a) Arbitration shall be conducted by three (3) arbitrators. USCC
shall nominate one (1) arbitrator and STI shall nominate one (1) arbitrator. The
third arbitrator shall be agreed upon by the arbitrators nominated by the
Parties, and this third arbitrator shall serve as chairperson of the panel.
(b) The place of arbitration shall be at a neutral location agreed
upon by the Parties. The arbitration award shall be final and binding on the
Parties. The costs of arbitration shall be borne by a Party or the Parties, as
determined by the arbitration panel.
(c) When any dispute occurs and when any dispute is under
arbitration, with the exception of the matters under dispute, the Parties shall
continue to exercise their remaining respective rights and fulfill their
remaining respective obligations under this Agreement.
ARTICLE 20
ASSIGNMENT
Neither Party shall assign or transfer their rights or obligations under
this Agreement without the proper written consent of the other Party.
Notwithstanding the foregoing, either Party may, upon prompt written notice,
assign their respective rights and obligations pursuant to this Agreement to any
affiliate, provided, however, that the assigning Party shall remain liable under
this Agreement. In the event of an assignment, this Agreement shall be binding
upon and inure to the benefit of each such successor or transferee.
ARTICLE 21
GOVERNING LAW
This Agreement and the rights and duties of the Parties hereunder shall
be governed and interpreted according to the laws of the State of Illinois.
ARTICLE 22
AMENDMENT
No alterations or modifications of this Agreement shall be binding upon
either STI or USCC unless made in writing and signed by an authorized
representative of each.
12
<PAGE> 13
ARTICLE 23
SEVERABILITY
Any provision of this Agreement that is determined to be invalid or
unenforceable will be ineffective to the extent of such determination without
invalidating the remaining provisions of this Agreement or affecting the
validity of enforceability of such remaining provisions.
ARTICLE 24
SURVIVAL OF OBLIGATIONS
The rights and obligations of the Parties under this Agreement that, by
their nature, would continue beyond the termination, cancellation or expiration,
shall survive such termination, cancellation or expiration.
ARTICLE 25
WAIVER
Any failure by either Party to insist upon the specific performance by
the other Party of any of the provisions of the Agreements shall not be deemed a
waiver of any of the provisions of this Agreement, and each Party,
notwithstanding such failure, shall have the right thereafter to insist upon the
specific performance of any and all of the provisions of this Agreement.
ARTICLE 26
NOTICES
Except as may be otherwise specifically provided, all notices and
communications shall be in writing and delivered by: (a) United States Postal
Service certified or registered mail, return receipt requested, postage prepaid;
(b) facsimile transmission with a copy mailed by first class mail or its
equivalent deposited in the United States Postal Service, postage prepaid; (c)
overnight courier service; or (d) personal delivery; and shall be directed to
the persons at the applicable addresses set forth below, or to such other person
or place as the Parties may direct. Notice shall be deemed received on the date
of facsimile transmission confirmation, or the date of delivery, whichever
applies:
Superconductor Technologies, Inc. United States Cellular Corp.
460 Ward Drive 8410 West Bryn Mawr Avenue, Suite 700
Santa Barbara, California 93111 Chicago, Illinois 60631-3486
Attn: Ms. Linda Sessler Attn: Mr. Paul Gill
Manager, HQ Sales Administration Procurement Manager
Telephone (805) 683-7646 Telephone (773) 399-4910
Facsimile (805) 683-8527 Facsimile (773) 399-4123
13
<PAGE> 14
or at such other address as the intended recipient previously shall have
designated by written notice to the other Party.
ARTICLE 27
HEADINGS
Headings are inserted for convenience only and shall not be used in any
way to construe the terms of this Agreement.
ARTICLE 28
ENTIRE AGREEMENT
This Agreement and Attachment C, Attachments A and B and the
Registration Rights Agreement incorporated herein by reference, constitute the
entire understanding between the Parties. This Agreement supersedes all prior
agreements between the Parties relating to the subject matter contained herein
and merges all prior discussions between them. Neither Party shall be bound by
any definition, condition, provision, representation, warranty, covenant or
promise other than as expressly stated in this Agreement or as is
contemporaneously or subsequently set forth in writing and executed by a duly
authorized officer or representative of the Party to be bound thereby.
14
<PAGE> 15
IN WITNESS HEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives:
Superconductor Technologies Inc. United States Cellular Corporation
By: /s/ E. Ray Cotten By: /s/ Richard Goehring
Title: Sr. Vice President, Sales Title: Executive Vice President,
& Marketing Engineering & Network Operations
Date: August 27, 1999 Date: August 27, 1999
15
<PAGE> 16
ATTACHMENT A
SuperFilter(R) Systems Pricing
- - -----------------------------------------------------------------------------
MODEL DESCRIPTION PRICE PER SYSTEM
- - -----------------------------------------------------------------------------
* Cellular A Band, 2-PAK, Rack *
Mount, Replacement Option
- - -----------------------------------------------------------------------------
* Cellular B Band, 2-PAK, Rack *
Mount, Replacement Option
- - -----------------------------------------------------------------------------
* Cellular A Band, 2-PAK, Rack *
Mount, Variable Gain Option
- - -----------------------------------------------------------------------------
* Cellular B Band, 2-PAK, Rack *
Mount, Variable Gain Option
- - -----------------------------------------------------------------------------
* Cellular A Band, 2-PAK, Rack *
Mount, SuperMC
- - -----------------------------------------------------------------------------
* Cellular B Band, 2-PAK, *
Rack Mount, SuperMC
- - -----------------------------------------------------------------------------
* Cellular A Band, 6-PAK, Rack *
Mount, Variable Gain Adapter
- - -----------------------------------------------------------------------------
* Cellular B Band, 6-PAK, Rack *
Mount, Variable Gain Adapter
- - -----------------------------------------------------------------------------
* Cellular A Band, 6-PAK, Rack *
Mount, Replacement Adapter
- - -----------------------------------------------------------------------------
* Cellular B Band, 6-PAK, Rack *
Mount, Replacement Adapter
- - -----------------------------------------------------------------------------
* Cellular A Band, 6-PAK, Rack *
Mount, SuperMC(TM)
- - -----------------------------------------------------------------------------
* Cellular B Band, 6-PAK, Rack *
Mount, SuperMC(TM)
- - -----------------------------------------------------------------------------
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 17
ATTACHMENT B
GUIDE TO SPECIFICATIONS
- - --------------------------------------------------------------------------------
MODEL NUMBER PAGE NUMBER
- - --------------------------------------------------------------------------------
* i
- - --------------------------------------------------------------------------------
* ii
- - --------------------------------------------------------------------------------
* iii
- - --------------------------------------------------------------------------------
* iv
- - --------------------------------------------------------------------------------
* v
- - --------------------------------------------------------------------------------
* vi
- - --------------------------------------------------------------------------------
* vii
- - --------------------------------------------------------------------------------
* viii
- - --------------------------------------------------------------------------------
* ix
- - --------------------------------------------------------------------------------
* x
- - --------------------------------------------------------------------------------
* xi
- - --------------------------------------------------------------------------------
* xii
- - --------------------------------------------------------------------------------
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 18
SUPERFILTER(R) MODEL *
Cellular A Band, 2-PAK, Rack Mount, Replacement Option
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 815 MHz *
815 - 822.2 MHz *
837.2 - 844.5 MHz *
847.1 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no *
damage)
Max out-of-band RF input signal level *
(no damage)
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements 150 W @ + 27VDC idle
180 W cool-down
Operating temperature 0 to 50(degree) C
Weight 55 lbs.
Size 17" X 25" X 7" (Rack Mounting Provided)
Connections
RF Connectors N - Female
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
i
<PAGE> 19
SUPERFILTER(R) MODEL *
Cellular B Band, 2-PAK, Rack Mount, Replacement Option
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 829 MHz *
829- 833 MHz *
845.22 - 846.28 MHz *
851 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no *
damage)
Max out-of-band RF input signal level *
(no damage)
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements 150 W @ + 27VDC idle
180 W cool-down
Operating temperature 0 to 50(degree) C
Weight 55 lbs.
Size 17" X 25" X 7" (Rack Mounting Provided)
Connections
RF Connectors N - Female
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
ii
<PAGE> 20
SUPERFILTER(R) MODEL *
Cellular A Band, 2-PAK, Rack Mount, Variable Gain Option
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 815 MHz *
815 - 822.2 MHz *
837.2 - 844.5 MHz *
847.1 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no *
damage)
Max out-of-band RF input signal level *
(no damage)
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements 130 W @ + 27VDC idle
160 W cool-down
Operating temperature 0 to 50(degree) C
Weight 55 lbs.
Size 17" X 25" X 7" (Rack Mounting Provided)
Connections
RF Connectors N - Female
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
iii
<PAGE> 21
SUPERFILTER(R) MODEL *
Cellular B Band, 2-PAK, Rack Mount, Variable Gain Option
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 829 MHz *
829- 833 MHz *
845.22 - 846.28 MHz *
851 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no *
damage)
Max out-of-band RF input signal level *
(no damage)
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements 130 W @ + 27VDC idle
160 W cool-down
Operating temperature 0 to 50(degree) C
Weight 55 lbs.
Size 17" X 25" X 7" (Rack Mounting Provided)
Connections
RF Connectors N - Female
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
iv
<PAGE> 22
SUPERFILTER(R) MODEL *
Cellular A Band, 2-PAK, Rack Mount, SuperMC(TM)
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 815 MHz *
815 - 822.2 MHz *
837.2 - 844.5 MHz *
847.1 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no *
damage)
Max out-of-band RF input signal level *
(no damage)
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements SuperFilter
130 W @ + 27VDC idle
160 W cool-down
SuperMC
30 W @ + 27VDC
Operating temperature 0 to 50(degree) C
Weight SuperFilter
55 lbs.
SuperMC
12 lbs.
Size SuperFilter
17" X 25" X 7" (Rack Mounting Provided)
SuperMC
17" X 12.5" X "1.7"
Connections
RF Input Connectors N - Female
RF Output Connectors BNC
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
V
<PAGE> 23
SUPERFILTER(R) MODEL *
Cellular B Band, 2-PAK, Rack Mount, SuperMC(TM)
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 829 MHz *
829- 833 MHz *
845.22 - 846.28 MHz *
851 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no *
damage)
Max out-of-band RF input signal level *
(no damage)
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements SuperFilter
130 W @ + 27VDC idle
160 W cool-down SuperMC
30 W @ + 27VDC
Operating temperature 0 to 50(degree) C
Weight SuperFilter
55 lbs.
SuperMC
12 lbs.
Size SuperFilter
17" X 25" X 7" (Rack Mounting Provided)
SuperMC
17" X 12.5" X "1.7"
Connections
RF Input Connectors N - Female
RF Output Connectors BNC
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
Vi
<PAGE> 24
SUPERFILTER(R)MODEL *
Cellular A Band, 6-PAK, Rack Mount, Variable Gain Adapter
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 815 MHz *
815 - 822.2 MHz *
837.2 - 844.5 MHz *
847.1 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no *
damage)
Max out-of-band RF input signal level *
(no damage)
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements SuperFilter
130 W @ + 27VDC idle
160 W cool-down Variable Gain Adapter
10 W @ + 27VDC
Operating temperature 0 to 50(degree) C
Weight SuperFilter
58 lbs.
Variable Gain Adapter
12 lbs.
Size SuperFilter
17" X 25" X 7" (Rack Mounting
Provided)
Variable Gain Adapter
17" X 12.5" X "1.7"
Connections
RF Connectors N - Female
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
Vii
<PAGE> 25
SUPERFILTER(R)MODEL *
Cellular B Band, 6-PAK, Rack Mount, Variable Gain Adapter
PARAMETER SPECIFICATION (EACH OF TWO RF PATHS)
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 829 MHz *
829- 833 MHz *
845.22 - 846.28 MHz *
851 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no *
damage)
Max out-of-band RF input signal level *
(no damage)
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements SuperFilter
130 W @ + 27VDC idle
160 W cool-down Variable Gain Adapter
10 W @ + 27VDC
Operating temperature 0 to 50(degree) C
Weight SuperFilter
58 lbs.
Variable Gain Adapter
12 lbs.
Size SuperFilter
17" X 25" X 7" (Rack Mounting
Provided)
Variable Gain Adapter
17" X 12.5" X "1.7"
Connections
RF Connectors N - Female
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
Viii
<PAGE> 26
SUPERFILTER(R) MODEL *
Cellular A Band, 6-PAK, Rack Mount, Replacement Adapter
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 815 MHz *
815 - 822.2 MHz *
837.2 - 844.5 MHz *
847.1 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no damage) *
Max out-of-band RF input signal level (no damage) *
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements SuperFilter
130 W @ + 27VDC idle
160 W cool-down
Replacement Adapter
60 W @ + 27VDC
Operating temperature 0 to 50(degree) C
Weight SuperFilter
58 lbs.
Replacement Adapter
20 lbs.
Size SuperFilter
17" X 25" X 7" (Rack Mounting
Provided)
Replacement Adapter
17" X 17.5" X "1.7"
Connections
RF Connectors N - Female
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
IX
<PAGE> 27
SUPERFILTER(R) MODEL *
Cellular B Band, 6-PAK, Rack Mount, Replacement Adapter
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 829 MHz *
829- 833 MHz *
845.22 - 846.28 MHz *
851 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no damage) *
Max out-of-band RF input signal level (no damage) *
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements SuperFilter
130 W @ + 27VDC idle
160 W cool-down
Replacement Adapter
60 W @ + 27VDC
Operating temperature 0 to 50(degree) C
Weight SuperFilter
58 lbs.
Replacement Adapter
20 lbs.
Size SuperFilter
17" X 25" X 7" (Rack Mounting
Provided)
Replacement Adapter
17" X 17.5" X "1.7"
Connections
RF Connectors N - Female
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
X
<PAGE> 28
SUPERFILTER(R) MODEL *
Cellular A Band, 6-PAK, Rack Mount, SuperMC(TM)
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 815 MHz *
815 - 822.2 MHz *
837.2 - 844.5 MHz *
847.1 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no
damage) *
Max out-of-band RF input signal level
(no damage) *
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements SuperFilter
140 W @ + 27VDC idle
180 W cool-down
SuperMC
30 W @ + 27VDC
Operating temperature 0 to 50(degree) C
Weight SuperFilter
48 lbs.
SuperMC
12 lbs.
Size SuperFilter
17" X 25" X 7" (Rack Mounting
Provided)
SuperMC
17" X 12.5" X "1.7"
Connections
RF Input Connectors N - Female
RF Output Connectors BNC
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
XI
<PAGE> 29
SUPERFILTER(R) MODEL *
Cellular B Band, 6-PAK, Rack Mount, SuperMC(TM)
PARAMETER SPECIFICATION *
-------------------------------------------------------------------------
Passband *
Rejection (from max. passband gain)
DC - 829 MHz *
829- 833 MHz *
845.22 - 846.28 MHz *
851 - 869 MHz *
869 - 894 MHz *
Noise Figure *
Gain *
Attenuation *
VSWR *
Output third order intercept point *
Max in-band RF input signal level (no
damage) *
Max out-of-band RF input signal level
(no damage) *
GENERAL SPECIFICATION
-------------------------------------------------------------------------
Power requirements SuperFilter
140 W @ + 27VDC idle
180 W cool-down
SuperMC
30 W @ + 27VDC
Operating temperature 0 to 50(degree) C
Weight SuperFilter
58 lbs.
SuperMC
12 lbs.
Size SuperFilter
17" X 25" X 7" (Rack Mounting Provided)
SuperMC
17" X 12.5" X "1.7"
Connections
RF Input Connectors N - Female
RF Output Connectors BNC
DC power connectors Wire clamp terminal block
RS-232 Port Connector DB- 25S
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
STI reserves the right to change specifications at any time
STI PROPRIETARY
XII
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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0
15,903,000
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