-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWNPx91S4S1IGHg+yMMdYnXFLXIejK5NOTAFArE/55Dzqo+aurcD4KWbtPo0i5ow aAnqBSe5ePL7j70nQ9N6BQ== 0000891618-98-004365.txt : 19981001 0000891618-98-004365.hdr.sgml : 19981001 ACCESSION NUMBER: 0000891618-98-004365 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19980930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERCONDUCTOR TECHNOLOGIES INC CENTRAL INDEX KEY: 0000895665 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 770153076 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-65035 FILM NUMBER: 98718812 BUSINESS ADDRESS: STREET 1: 460 WARD DR STREET 2: STE F CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8056837646 S-3 1 FORM S-3 1 As filed with the Securities and Exchange Commission on September 30, 1998 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION ---------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- SUPERCONDUCTOR TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) DELAWARE 77-0158076 (State of incorporation) (I.R.S. Employer Identification No.) 460 WARD DRIVE, SUITE F SANTA BARBARA, CALIFORNIA 93111-2310 (805) 683-7646 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) M. PETER THOMAS CHIEF EXECUTIVE OFFICER SUPERCONDUCTOR TECHNOLOGIES INC. 460 WARD DRIVE, SUITE F SANTA BARBARA, CALIFORNIA 93111-2310 (805) 683-7646 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------------- Copies to: JOHN V. ROOS, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (650) 493-9300 ---------------------- Approximate date of commencement of proposed sale to the public: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the only securities being registered on this Form are to be offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ---------------------- CALCULATION OF REGISTRATION FEE
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1)(2) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.001 per share .............................. 2,978,333 $4.719 $14,054,753 $4,147 ================================================================================================================
(1) Pursuant to Rule 416 under the Securities Act, this Registration Statement also relates to a presumably indeterminate number of shares of Common Stock which are issuable upon the conversion of Convertible Preferred Stock of the Company or the payment of dividends thereon, pursuant to the provisions thereof regarding determination of the applicable conversion price. (2) Estimated solely for the purpose of computing the registration fee required by Section 6(b) of the Securities Act and computed pursuant to Rule 457(c) under the Securities Act based upon the average of the high and low prices of the Common Stock on September 28, 1998, as reported on the Nasdaq National Market. ---------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. 2 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such State. PROSPECTUS (Subject to completion, dated September 30, 1998) 2,978,333 SHARES SUPERCONDUCTOR TECHNOLOGIES INC. COMMON STOCK The shares (the "Shares") of Common Stock, $.001 par value (the "Common Stock"), of Superconductor Technologies Inc. (the "Company") covered by this Prospectus may be sold from time to time by the stockholders specified in this Prospectus or their pledgees, donees, transferees or other successors in interest (the "Selling Stockholders"). See "Selling Stockholders." This Prospectus relates to (a) 2,978,333 Shares, of which (i) 1,291,666 are Shares which may in the future be issued to certain Selling Stockholders upon the conversion of outstanding shares of the Company's Series A Preferred Stock (the "Series A Stock"), (ii) 250,000 are Shares which may in the future be issued to certain Selling Stockholders upon the conversion of outstanding shares of the Company's Series A-1 Preferred Stock (the "Series A-1 Stock"), (iii) 1,000,000 are Shares which may in the future be issued to certain Selling Stockholders upon the conversion of outstanding shares of the Company's Series B Preferred Stock (the "Series B Stock") and (iv) 436,667 are Shares which may in the future be issued to the Selling Stockholders upon the exercise of outstanding warrants held by the Selling Stockholders (the "Warrants"), and (b) such presently indeterminate number of additional Shares as may be issuable upon conversion of the Series A Stock, the Series A-1 Stock and the Series B Stock or the payment of dividends thereon, based upon fluctuations in the conversion price of the Series A Stock, the Series A-1 Stock and the Series B Stock, in accordance with Rule 416 under the Securities Act of 1933, as amended (the "Securities Act"). The Shares issuable upon conversion of the Series A Stock , Series A-1 Stock and Series B Stock are subject to adjustment and could be more or less than the estimated amount listed herein depending on factors which cannot be predicted at this time. The Company will not receive any of the proceeds from the sale of the Shares by the Selling Stockholders, but the Company may receive the proceeds from the exercise of the Warrants by the Selling Stockholders. See "Use of Proceeds." None of the Shares offered pursuant to this Prospectus have been registered prior to the filing of the Registration Statement of which this Prospectus is a part. The Selling Stockholders have not advised the Company of any specific plans for the distribution of the Shares covered by this Prospectus. It is anticipated, however, that the Shares may be offered by the Selling Stockholders from time to time in one or more transactions on the Nasdaq National Market, in privately negotiated transactions at such prices as may be agreed upon, or in a combination of such methods of sale. The Selling Stockholders may effect such transactions by selling the Shares to or through broker-dealers and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders or the purchasers of the Shares for whom such broker-dealers may act as agent or to whom they sell as principal or both (which compensation to a particular broker-dealer might be in excess of customary commissions). See "Plan of Distribution." The price at which any of the Shares may be sold, and the commissions, if any, paid in connection with any such sale, are unknown and may vary from transaction to transaction. The Company will pay all expenses incident to the offering and sale of the Shares to the public other than any commissions and discounts of underwriters, dealers or agents and any transfer taxes. See "Selling Stockholders" and "Plan of Distribution." The Common Stock is listed on the Nasdaq National Market under the symbol "SCON." On September 29, 1998, the last sale price of the Common Stock was $4.56 per share. ---------------------- AN INVESTMENT IN THE SHARES OFFERED HEREBY ENTAILS A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ---------------------- The Securities and Exchange Commission (the "Commission") may take the view that, under certain circumstances, the Selling Stockholders and any broker-dealers or agents that participate with the Selling Stockholders in the distribution of the Shares may be deemed to be "underwriters" within the meaning of the Securities Act. Commissions, discounts or concessions received by any such broker-dealer or agent may be deemed to be underwriting commissions under the Securities Act. The Company and the Selling Stockholders have agreed to certain indemnification arrangements. See "Plan of Distribution." ---------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------- THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998 3 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy and information statements and other information with the Commission. Such reports, proxy and information statements and other information may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048 and Chicago Regional Office, Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained by mail at prescribed rates from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. The Common Stock of the Company is listed on the Nasdaq National Market, and such reports, proxy and information statements and other information concerning the Company may be inspected at the offices of Nasdaq Operations, 1735 K Street, NW, Washington, D.C. 20006. This Prospectus constitutes a part of a Registration Statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") filed by the Company with the Commission under the Securities Act. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is hereby made to the Registration Statement. The Registration Statement may be inspected at the public reference facilities maintained by the Commission at the addresses set forth in the preceding paragraph. Statements contained herein concerning any document filed as an exhibit are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the Commission by the Company pursuant to the Exchange Act are hereby incorporated by reference in this Prospectus: (1) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (2) The Company's Quarterly Reports on Form 10-Q for the quarters ended March 28, 1998 and June 27, 1998; (3) The description of the Company's Common Stock contained in its Registration Statement on Form 8-A filed with the Commission on January 4, 1993; and (4) All other reports filed by the Company pursuant to Sections 13(a) or 15(d) of the Exchange Act since December 31, 1997. All reports and other documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference into this Prospectus, to the extent required, and to be a part of this Prospectus from the date of filing of such reports and documents. Any statement contained in a document incorporated by reference into this Prospectus shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company hereby undertakes to provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus has been delivered, upon written or oral request of such person, a copy of any or all of the foregoing documents incorporated by reference into this Prospectus (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be submitted in writing -2- 4 to Investor Relations, Superconductor Technologies Inc., 460 Ward Drive, Suite F, Santa Barbara, 93111-2310, or by telephone at (805) 683-7646. THE COMPANY Superconductor Technologies Inc. (the "Company") develops, manufactures and markets superconductor materials and related cryogenics. High-temperature superconductors ("HTS") are materials that have the ability to conduct electrical energy with little or no resistance when cooled to "critical" temperatures. The Company believes that the growing worldwide wireless communications market offers the most viable commercialization opportunities for its superconducting products. To capitalize on these opportunities the Company has developed its SuperFilter (TM) products, which combine specialized superconducting filters with a proprietary cryogenic cooler and, in many cases, a low noise amplifier ("LNA") in a highly compact system. The SuperFilter (TM) products, when incorporated into wireless base stations, offer significant advantages over conventional filter products for wireless applications, including reduced size, increased range and reduced interference. During the past 18 months, the Company has transitioned from focusing on research and development to introducing its first commercial product line and establishing the manufacturing infrastructure to support the product. The Company introduced the SuperFilter (TM) system for application in the AMPS/B segment of the cellular market in March 1997 and completed the cellular offerings by introducing the AMPS/A product in February 1998. As a result of the product introductions, the Company has significantly expanded its sales and marketing efforts. The Company has added four Regional Sales Executives to cover the United States and Latin America. The Company's sales and marketing effort has been directed primarily at rural and suburban cellular providers as the Company believes they will be the early deployers of product. The Company's product addresses the two most critical needs of these service providers: range coverage and call quality. In addition, the Company continues to pursue and develop urban applications and its relationship with the base station original equipment manufacturers ("OEMs"). In order to support the SuperFilter (TM) product introductions, the Company began the establishment of a manufacturing infrastructure in 1997 which includes operating units to support the production of all critical components including the superconducting filters, cryogenic coolers, cryogenic packaging and final enclosures, and quality and material control functions. In addition, the Company has expanded its manufacturing space and has procured the necessary equipment and tooling to produce its product in greater volume. A critical component of any superconducting application is cryogenic cooling. The Company has developed a proprietary cryogenic cooler which, in addition to being integrated into its SuperFilter (TM) systems, has the potential to be used in other applications. These other applications include home medical products, cold computing to increase the processing speeds of computers, and components of various kinds of instrumentation. The Company believes that the successful commercialization of its cryogenic coolers as stand alone products will assist in its ability to achieve economies of scale associated with volume production. Since its formation in 1987 and through June 27, 1998, the Company has received over $ 48.7 million in revenue from government research and development contracts, through which it has developed much of the technology used in its commercial products. The Company continues to secure government contracts, primarily to fund its research and development efforts, and also to address potential wireless product opportunities in the government section. The principal executive officers of the Company are located at 460 Ward Drive, Suite F, Santa Barbara, California 93111-2310, 805-683-7646. -3- 5 RISK FACTORS THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, ESTIMATES, INTENTIONS AND STRATEGIES ABOUT THE FUTURE. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS, ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. POTENTIAL INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, AS WELL AS THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE, BEFORE MAKING A DECISION TO INVEST IN THE SHARES OFFERED HEREBY. EARLY STAGE OF THE COMMERCIAL SUPERCONDUCTOR PRODUCTS MARKET: MARKET ACCEPTANCE AND RELIABILITY The commercial superconductor products market has experienced limited product commercialization to date. Moreover, since inception, the Company has been principally engaged in research and development activities and has only limited experience in the commercialization of its products. The Company's ability to grow will depend on its ability to successfully transition its expertise in superconducting filter and cryogenics technologies and applications to commercial markets, including the wireless communications market. The Company's success in this regard will depend upon a number of factors, including successful product testing by its potential customers, the success of the Company's sales and marketing efforts into the wireless communications market, the ability of the Company's products to achieve its anticipated benefits, its ability to attract and retain qualified personnel, successful and rapid scale-up of the Company's manufacturing capacity, the establishment of satisfactory vendor relationships to ensure continual supply of key components which are sourced outside the company, reduction of manufacturing expenses in order to price products competitively and continued product development to meet customer demands. While the Company's product has been field tested by its customers and has passed performance and reliability testing, there can be no assurances that the product will continue to pass these tests or meet the customers' performance expectations in the future. If such problems occur, the Company could experience increased costs, delays, reductions or cancellations of orders and shipments, and product returns and discounts. There can be no assurance that the Company will be able to produce its products in sufficient volume to meet market demand or that any of the Company's products will achieve full market acceptance. If the Company is unable to manufacture and market its products for its target markets successfully, its business, results of operations and financial condition will be materially and adversely affected. 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 -4- 6 do, that related system and manufacturing requirements can or will be met. Failure of service providers or OEMs to incorporate the Company's products into their systems or failure of such systems including the SuperFilter(TM) product to achieve market acceptance would have a material adverse effect on the Company's business, results of operations and financial condition. LIMITED MANUFACTURING EXPERIENCE To date, the Company has sold products only in limited quantities, primarily for use in field-testing as well as development and prototypes. During the first half of 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 assurances that the Company will be successful in overcoming the technological, engineering and management challenges associated with the production of commercial quantities of superconducting or cryogenic products at acceptable costs and on a timely basis. For example, the Company could incur significant ramp-up costs and unforeseen expenses and delays in connection with attempts to manufacture commercial quantities of superconducting and cryogenic products, which could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, a portion of the components of the SuperFilter (TM) system will be manufactured outside the Company. There can be no assurances that the Company will, if at all, be able to identify manufacturers of these components that will meet the Company's requirements as to reliability, timeliness and cost-effectiveness. Any such failure will limit the Company's ability to satisfy customer orders and would have a material adverse effect on the Company's business, results of operations and financial condition. HIGH DEGREE OF DEPENDENCE ON GOVERNMENT CONTRACTS Since inception and through June 27, 1998, 94% of the Company's net revenues have been from research and development contract sales directly to the government or to resellers to the government. Nearly all of such revenues were earned under contracts between the Company and the United States Department of Defense (the "DOD"). The Company uses these contracts to help fund its research and development programs. Although the Company recently has been devoting substantial resources to the development of commercial markets for its products, the Company is, and expects to continue to be in the near term, dependent on government funding for its research and development projects. The DoD has been reducing total expenditures over the past few years, and while to date DoD research and development funding for electronics has been relatively stable despite overall cutbacks, there can be no assurance that such funding will not be reduced in the future. Absent significant future revenues from commercial sales, a significant loss of government funding would have a material adverse effect on the Company's business, results of operations and financial condition. Virtually all of the Company's government contracts are terminable at any time at the option of the government. Although the Company historically has complied with applicable government regulations and contract provisions, there can be no assurance as to such compliance in the future. Noncompliance with government procurement regulations or contract provisions could result in termination of government contracts, substantial monetary fines or damages, suspension or debarment from doing business with the government and possible civil or criminal liability. During the term of any suspension or debarment by a government agency, the Company could be prohibited from competing for or being awarded any contract by any government agency. The termination of the Company's significant government contracts, the imposition of fines, damages, suspension or debarment, or the adoption of new or modified procurement regulations or practices could have a material adverse effect on the Company's business, results of operations and financial condition. Inventions conceived or actually reduced to practice under a government contract generally result in the government obtaining a royalty-free, paid-up, non-exclusive license to practice the invention. Similarly, technologies developed in whole or in part at government expense generally result in the government obtaining unlimited rights to use, duplicate or disclose technical data produced under the contract. There can be no assurance that such licenses and rights will not result in a loss by the Company of potential revenues or the disclosure of any of the Company's proprietary information, either of which could have a material adverse effect on the Company's business, results of operations and financial condition. -5- 7 INTENSE COMPETITION The markets for the Company's products are intensely competitive. The Company faces competition in various aspects of its technology and product development and in each of the markets targeted by the Company. The Company's current and potential competitors include conventional RF filter manufacturers and both established and newly emerging companies developing similar or competing superconducting technologies. The Company competes primarily with Conductus, Inc. and Illinois Superconductor Corporation, with respect to its superconducting filter systems. The Company also competes with alternative means of enhancing base stations range and selectivity other than by superconducting filter. The primary competition comes from tower mount and ground mount amplifiers and "smart" antennas. Tower mount and ground mount amplifiers pass the signal received by the antenna through a broad low level filter which then amplifies the signal. These units are produced by a number of companies, which include most of the OEMs of base stations such as Motorola, Lucent, Nortel and Nokia. These units are also produced by filter manufacturers including Allen Telecom and Cellwave. The "smart" antennas allow the antennas to focus on the signal they are trying to receive to enhance the ability to receive the signal. Among the companies that produce these systems are Metawave and Arraycom. In addition, the Company currently supplies components and licenses technology to large companies and industry leaders that may decide to manufacture or design their own superconducting components instead of purchasing them, or licensing the technology, from the Company. The Company competes with IBM, DuPont, Matsushita and Amtel, a Japanese consortium, among others, with respect to its HTS materials. In the government sector, the Company competes with universities, national laboratories and both large and small companies for research and development contracts. The Company expects increased competition both from existing competitors and a number of companies that may enter the wireless communications market. The Company also competes in cryogenic coolers with companies such as CTI Cryogenics, Leybold and Ricor. CTI Cryogenics uses another cooling method than is employed by the Company, which is not as efficient and thus requires additional power. Leybold and Ricor have produced similar units to one produced by the Company in limited or prototype quantities. The Company believes that it competes on the basis of technological sophistication, product performance, reliability, quality, cost-effectiveness and product availability. Many of the Company's current and potential competitors have significantly greater financial, technical, manufacturing and marketing resources than the Company. The Company's ability to effectively compete will require it to successfully manufacture and market its current products at a sufficiently low cost to achieve commercial acceptance, develop and maintain technologically advanced products, attract and retain highly qualified personnel and obtain patent or other protection for its technology and products. There can be no assurance that the Company will be able to compete successfully in the future. ACCUMULATED DEFICIT AND ANTICIPATED FUTURE LOSSES The Company has incurred net losses each year since its inception and, as of June 27, 1998, had an accumulated deficit of $31,072,000. The Company expects to continue to incur significant operating losses over the next several quarters as it continues to devote significant financial resources to the commercialization of wireless and cold computing products, the expansion of Company operations and product development activities. The success of the Company in this regard is dependent upon the Company's successful commercialization of its HTS filter systems for the worldwide wireless communications market, and there can be no assurance that the Company will be able to successfully commercialize such products. As a result, the timing of when the Company will be profitable and the amount of net losses until that time are uncertain. DEPENDENCE OF KEY PERSONNEL The Company is highly dependent upon the efforts of its technical workforce and senior management. Due to the specialized technical nature of the Company's business, the Company is also highly dependent upon its ability to attract and retain qualified technical personnel, primarily in the areas of wireless communications and cold computing. The loss of the services of one or more members of the senior management or technical teams could impede STI's ability to achieve its product development and commercialization objectives. There is intense competition for qualified -6- 8 personnel in the areas of the Company's activities and there can be no assurance that the Company will be able to continue to attract and retain qualified personnel necessary for the development of its business. LIMITED MARKETING AND SALES CAPABILITIES In order for the Company to successfully reach full market acceptance in its targeted markets, it must continue to develop appropriate marketing, sales, technical, customer service and distribution capabilities, or it must enter into agreements with third parties to provide such services. There can be no assurance that the Company's continuing efforts in developing its marketing and sales capabilities, including customer service and distribution, will be successful. Furthermore, there can be no assurance that such third party agreements can be obtained upon acceptable terms. Failure to develop such capabilities or obtain such third party agreements could have a material adverse effect on the acceptance of the Company's products in the commercial markets and, as a result, on the Company's business, results of operations and financial condition. UNCERTAINTY OF PATENTS AND PROPRIETARY RIGHTS The Company relies on a combination of patent, trademark, trade secret and copyright law and internal procedures and nondisclosure agreements to protect its intellectual property. There can be no assurance that the Company's intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. In addition, the laws of certain foreign countries in which the Company's products may be produced or sold do not protect the Company's intellectual property rights to the same extent as the laws of the United States. The failure of the Company to protect its proprietary information could have a material adverse effect on the Company's business, results of operations and financial condition. The Company has an exclusive, worldwide license, in all fields of use, to formulations covered by patents held by the University of Arkansas covering thallium barium calcium copper oxide ("TBCCO"), the material upon which the Company primarily relies for its HTS, products and product development. There can be no assurance that the validity of these patents will not be subject to challenge. In addition, other parties may have developed similar materials utilizing TBCCO formulations and may design around the patented aspects of this material. Under the terms of its exclusive license, the Company has agreed to assume litigation expenses for infringement actions, subject to a right of set off against future royalty obligations. If the Company is required to incur significant expenses under this agreement, the Company's results of operations and financial condition could be materially and adversely affected. In addition, the Company has granted each of DuPont and Superconducting Core Technologies, Inc. and its affiliates a non-exclusive worldwide sublicense under its license with the University of Arkansas to develop and market TBCCO materials and superconducting technologies. There can be no assurance that these sublicenses will not adversely affect the Company's business, results of operations and financial condition. The Company believes that a number of patent applications are pending that cover the composition yttrium barium copper oxide ("YBCO") including applications filed by IBM, AT&T and other large potential competitors of the Company. YBCO is an HTS material upon which the Company also relies, although to a lesser extent than TBCCO. The Company understands that such applications are the subject of interference proceedings currently pending in the U.S. Patent and Trademark Office. The Company is not involved in these proceedings. In addition, the Company has been issued patents for specific compounds that it uses. The Company believes that a number of international patents may be pending regarding other specific YBCO compounds. There is a substantial risk that one or more third parties will be granted patents covering YBCO and that the Company's use of these materials may require a license. As with other patents, there can be no assurance that the Company will be able to obtain licenses to any such patents for YBCO or other materials or that such licenses would be available on commercially reasonable terms. The Company's efforts to develop products based on YBCO would be substantially impaired by its failure to obtain any such license for YBCO, and such failure could have a material adverse effect on the Company's business, results of operations and financial condition. The Company owns or has rights under a number of patents and pending patent applications related to the processing of TBCCO and YBCO. There can be no assurance that the patent applications filed by the Company will result in patents being issued, that any patents issued will afford meaningful protection against competitors with similar technology, or that any patents issued will not be challenged by third parties. Since U.S. patent applications are maintained in secrecy until patents are issued, and since publications of discoveries in the scientific or patent literature -7- 9 tend to lag behind actual discoveries by several months, the Company cannot be certain that it was the first creator of inventions covered by issued patents or pending patent applications or that it was the first to file patent applications for such inventions. Moreover, there can be no assurance that other parties will not independently develop similar technologies, duplicate the Company's technologies or, if patents are issued to the Company or rights licensed by the Company, design around the patented aspects of any technologies developed or licensed by the Company. The Company may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine the priority of inventions, which could result in substantial costs to the Company. Litigation may also be necessary to enforce any patents held by or issued to the Company or to determine the scope and validity of others' proprietary rights, which could result in substantial costs to the Company. The rapid rate of inventions and discoveries in the superconductivity field has raised many patent issues which are not resolved at this time. The claims in the granted patents often overlap and there are disputes involving rights to inventions claimed in pending patent applications. As a result, the patent situation in the HTS field is unusually complex. It is likely that there will be patents held by third parties relating to the Company's products or technology. Therefore, the Company may need to acquire licenses to design around or successfully contest the validity or enforceability of such patents. The extent to which the Company may be able to acquire necessary licenses is not known. It is also possible that because of the number and scope of patents pending or issued, the Company may be required to obtain multiple licenses in order to use a single material. If the Company is required to obtain multiple licenses, the cost to the Company of HTS materials will increase. Furthermore, there can be no assurance that such licenses would be available on commercially reasonable terms or at all. The likelihood of successfully contesting the validity or enforceability of such patents is also uncertain, and, in any event, the Company could incur substantial costs in defending the validity or scope of its patents or challenging the patents of others. RAPID TECHNOLOGICAL CHANGE The field of superconductivity is characterized by rapidly advancing technology. The future success of the Company will depend in large part upon its ability to keep pace with advancing superconductor technology, including superconducting materials and processes and industry standards. The Company has focused its development efforts on TBCCO and, to a lesser extent, YBCO. There can be no assurance that either TBCCO or YBCO will ultimately prove commercially competitive against other currently known materials or materials that may be discovered in the future. The Company intends to continue to develop and integrate advances in wireless filter and cryogenic cooling technologies in the manufacture of commercial quantities of products. The Company will also need to continue to develop and integrate advances in complementary technologies, particularly in the wireless communication industry. There can be no assurance that the Company's development efforts will not be rendered obsolete by research efforts and technological advances made by others or that materials other than those currently used by the Company will not prove more advantageous for the commercialization of HTS products. MATERIALS RISKS To date, the Company has principally focused its development efforts on TBCCO. Although TBCCO has one of the highest critical temperatures of any HTS material verified by the scientific community to date, other HTS materials are currently known to have advantages over TBCCO with respect to certain applications. There can be no assurance that TBCCO will ultimately prove commercially competitive against YBCO or against other currently known materials. Moreover, there is no assurance that other materials will not be discovered with higher critical temperatures or other superior qualities or that the Company will be able to obtain the rights to any such superior material. The Company currently purchases substrates for growth of HTS thin films from two primary suppliers because of the quality of the substrate provided by such suppliers. There are additional components which the Company sources from a single vendor due to the present volume. While the Company is aware of alternative sources for its components, the establishment of relationships with additional or replacement suppliers could be time consuming and result in a supply interruption which would have a material adverse effect on the Company's ability to manufacture its products in commercial quantities and, correspondingly, upon its business, results of operations and financial condition. -8- 10 BUSINESS INTERRUPTIONS AND DEPENDENCE ON A SINGLE U.S. FACILITY The Company's primary operations, including engineering, manufacturing, customer service, distribution and general administration, are housed in a single facility in Santa Barbara, California. Any material disruption in the Company's operations, whether due to fire, natural disaster or otherwise, could have a material adverse effect on the Company's business, results of operations and financial condition. HAZARDOUS MATERIALS; ENVIRONMENTAL REGULATIONS The Company uses certain hazardous materials in its research, development and manufacturing operations. As a result, the Company is subject to stringent federal, state and local regulations governing the storage, use and disposal of such materials. It is possible that current or future laws and regulations could require the Company to make substantial expenditures for preventive or remedial action, reduction of chemical exposure, or waste treatment or disposal. There can be no assurance that the operations, business or assets of the Company will not be materially and adversely affected by the interpretation and enforcement of current or future environmental laws and regulations. In addition, although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, nevertheless there is the risk of accidental contamination or injury from these materials. To date, the Company has not incurred substantial expenditures for preventive action with respect to hazardous materials or for remedial action with respect to any hazardous materials accident. If such an accident occurred, the Company could be held liable for any resulting damages. Furthermore, the use and disposal of hazardous materials involves the risk that the Company could be required to incur substantial expenditures for such preventive or remedial actions. The liability in the event of an accident or the costs of such actions could exceed the Company's resources or otherwise have a material adverse effect on the Company's business, results of operations and financial condition. FUTURE CAPITAL NEEDS To date, the Company has financed its operations primarily through equity, debt, equipment and lease financings. To date, the Company has raised $44 million in equity, net of related expenses. In addition, the Company currently has outstanding indebtedness and lease financings of $820,000 and an additional $350,000 available under debt and lease financings. Although the Company believes that its current funds, including the aggregate $8.875 million of proceeds from its sale of the Series A Stock, Series A-1 Stock and Series B Stock to certain Selling Stockholders on March 26, 1998, August 11, 1998 and September 2, 1998, respectively, are sufficient to finance the Company's operations as planned for the next 12 months, the Company will require additional funds to finance its operations thereafter. There can be no assurance that additional financing will be available on terms acceptable to the Company, if at all. Also, depending upon the timing of market acceptance of the Company's products and the additional manufacturing ramp-up necessary to support the market acceptance, additional working capital financing may be required within the next 12 months to fully implement the Company's business plan. Under such circumstances, the Company's inability to fully implement its business plan, including the procurement of additional financing, would have a material adverse effect on the Company's business, operating results and financial condition. In addition, certain Selling Stockholders have been granted certain rights of first refusal to participate in certain future issuances of equity securities. These rights of first refusal could impair the Company's ability to obtain additional equity financings. If additional funds are raised by issuing other equity securities, further dilution to existing or future stockholders is likely to result. VOLATILITY OF COMMON STOCK PRICE The market price of the Common Stock, like that of many other high-technology companies, has fluctuated significantly and is likely to continue to fluctuate in the future. Announcements by the Company or others regarding the receipt of customer orders, quarterly variations in operating results, additional equity financings, changes in recommendations of securities analysts, results of customer field trials, scientific discoveries, technological innovations, litigation, product developments, patent or proprietary rights, government regulation and general market conditions may have a significant impact on the market price of the Common Stock. In addition, the securities markets have experienced volatility which is often unrelated to the operating performance of particular companies. In the past, following a period of volatility in the market price of a company's securities, securities class action lawsuits have been instituted against some -9- 11 companies. If brought, the costs of defending such litigation could have a material adverse effect on the Company's business, results of operation and financial condition. SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE On March 26, 1998, August 11, 1998 and September 2, 1998, the Company sold 645,833 shares of Series A Stock, 125,000 shares of Series A-1 Stock and 500,000 shares of Series B Stock, respectively, to certain Selling Stockholders in private placements pursuant to three convertible preferred stock purchase agreements. Each share of Series A Stock, Series A-1 Stock and Series B Stock is initially convertible into two shares of Common Stock. No shares of Series A Stock, Series A-1 Stock or Series B Stock have been converted into shares of Common Stock as of the date hereof. In connection with the issuances of the Series A Stock, Series A-1 Stock and Series B Stock, Warrants exercisable for an aggregate of 286,667 shares of Common Stock were also issued to certain Selling Stockholders. Also, in connection with a public offering of the Common Stock in November 1996, Warrants exercisable for an aggregate of 150,000 shares of Common Stock were issued to a certain Selling Stockholder. The Warrants have not been exercised for shares of Common Stock as of the date hereof. Pursuant to the securities purchase agreement in connection with the Series B Stock financing, the Company may be obligated to grant additional warrants exercisable for up to 454,545 shares of Common Stock under certain conditions. The Company may also issue additional capital stock, warrants and/or other securities to raise capital in the future. In order to attract and retain key personnel, the Company may also issue additional securities, including stock options, in connection with its employee benefit plans. During the terms of such options, warrants, Series A Stock, Series A-1 Stock and Series B Stock, if any, the holders thereof are given the opportunity to benefit from a rise in the market price of the Common Stock. The sale of a substantial number of shares of Common Stock by the Company or any of its significant stockholders, or the perception that such sales could occur, could adversely affect the prevailing market price of the Common Stock. In connection with the Registration Statement of which this Prospectus is a part, 2,978,333 Shares are being registered by the Company for public resale, of which (i) 1,291,666 are Shares which may in the future be issued to certain Selling Stockholders upon the conversion of outstanding shares of Series A Stock, (ii) 250,000 are Shares which may in the future be issued to certain Selling Stockholders upon the conversion of outstanding shares of Series A-1 Stock, (iii) 1,000,000 are Shares which may be issued to certain Selling Stockholders upon the conversion of outstanding shares of Series B Stock and (iv) 436,667 are Shares which may in the future be issued to the Selling Stockholders upon the exercise of Warrants. In addition, in connection with the Registration Statement of which this Prospectus is a part, a presently indeterminate number of additional Shares as may be issuable upon conversion of the Series A Stock, the Series A-1 Stock and the Series B Stock or the payment of dividends thereon are being registered by the Company for public resale in accordance with Rule 416 under the Securities Act. There can be no assurance that the Company will not be obligated to register additional shares of Common Stock for public resale prior to or upon conversion of the Series A Stock, the Series A-1 Stock and the Series B Stock depending on, among other factors, the future market price of the Common Stock. The increase in the number of outstanding shares of Common Stock that are available for sale without restriction due to the registration of the Shares and the perception that a substantial number of the Shares may be sold by the Selling Stockholders, or the actual sale of a substantial number of the Shares by the Selling Stockholders, could adversely affect the market price of the Common Stock. The Company is unable to make any prediction as to the effect, if any, that future sales of Common Stock or the availability of Common Stock for sale may have on the market price of the Common Stock prevailing from time to time. In addition, any such sale or such perception could make it more difficult for the Company to sell equity securities in the future at a time and price that the Company deems appropriate. The Company currently has outstanding warrants to purchase 436,667 shares of Common Stock at a weighted average exercise price of $4.64 per share and options to purchase 1,800,726 shares of Common Stock at a weighted average exercise price of $4.40 per share (952,721 of which have not yet vested) issued to employees, directors and consultants pursuant to the Company's various stock option plans and individual agreements with management and directors of the Company. -10- 12 DILUTION AND DIVIDEND POLICY The conversion of Series A Stock, Series A-1 Stock or Series B Stock, or the exercise of options and warrants, including the Warrants, as well as the sale by the Company of additional securities and/or rights to purchase such securities, would likely have an adverse or dilutive effect on the market value of the Common Stock, including the shares of Common Stock being offered hereby. The Series A Stock, Series A-1 Stock and Series B Stock may be converted into shares of Common Stock at a discount to the market price of the Common Stock on the particular date of conversion. The Company also may in the future offer equity participation in connection with the obtaining of non-equity financing, such as debt or leasing arrangements accompanied by warrants to purchase equity securities of the Company. This could also have a dilutive effect upon the 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 Stock, Series A-1 Stock and Series B Stock are payable at the rates of 6%, 6% and 7% per annum, respectively. While the Series A Stock, Series A-1 Stock and Series B Stock are outstanding, the Company is limited in its ability to pay dividends on the Common Stock. ANTI-TAKEOVER PROVISIONS The Company's Certificate of Incorporation and Bylaws, each as amended to date, contain provisions that could delay, deter or prevent a merger, tender offer or other business combination or change in control involving the Company that some or a majority of the stockholders might consider to be in their best interests, including offers or attempted takeovers that might otherwise result in such stockholders receiving a premium over the market price of the Common Stock. YEAR 2000 COMPLIANCE Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code filed. Beginning in the year 2000, these date code fields will need to accept four-digit entries to distinguish 21st century date from 20th century dates. As a result, in approximately two years, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists concerning the potential effects associated with compliance. The Company currently uses a limited number of software products which are not Year 2000 compliant. However, the Company has acquired manufacturing software, which has replaced 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. Nonetheless, there can be no assurance that coding errors or other defects will not be discovered in the future. Any Year 2000 compliance problem of the Company could result in a material adverse effect on the Company's business, operating results and financial conditions. However, the Company currently does not expect the amounts required to be expensed to become Year 2000 compliant to have a material effect on its financial position or results of operations. -11- 13 USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Shares by the Selling Stockholders. If and when all or a portion of the Warrants are exercised and up to 436,667 Shares are issued to the Selling Stockholders, the Company will receive the proceeds from the sale of such Shares to the Selling Stockholders to the extent that such warrants are exercised with cash consideration and not through warrant conversion. If the warrants are exercised in full and with cash consideration, the Company will receive $2,025,668. Such amount is intended to be used by the Company for working capital and other general corporate purposes. See "Selling Stockholders" and "Plan of Distribution" described below. -12- 14 SELLING STOCKHOLDERS The following table sets forth, as of September 30, 1998, certain information regarding the beneficial ownership of the outstanding Common Stock by the Selling Stockholders, consisting of the Shares which the Selling Stockholders may be issued upon conversion of the Series A Stock, the Series A-1 Stock and the Series B Stock and the Shares which the Selling Stockholders may acquire upon exercise of the Warrants, both before the offering of the Shares and as adjusted to reflect the sale of the Shares. The Company has agreed to initially register 2,978,333 Shares for resale by the Selling Stockholders. The Shares being offered by the Selling Stockholders were acquired from the Company (i) in private placement transactions pursuant to the Series A Preferred Stock Purchase Agreement dated March 26, 1998 (the "Series A Agreement"), Series A-1 Preferred Stock Purchase Agreement dated August 11, 1998 (the "Series A-1 Agreement") and Securities Purchase Agreement dated September 2, 1998 (the "Series B Agreement", and collectively, with the Series A Agreement and Series A-1 Agreement, the "Purchase Agreements") and (ii) upon exercise of the Warrants. Each Selling Stockholder that purchased the Shares pursuant to the Purchase Agreements represented to the Company that it would acquire the Shares for investment and with no present intention of distributing any such Shares except pursuant to this Prospectus or sales exempt from the registration requirements of the Securities Act. Pursuant to its obligation under the Registration Rights Agreement dated September 2, 1998 (the "Registration Rights Agreement"), the Company filed with the Commission, under the Securities Act, a Registration Statement on Form S-3, of which this Prospectus forms a part, with respect to the resale of the Shares from time to time on the Nasdaq National Market or in privately-negotiated transactions and has agreed to use its best efforts to keep such Registration Statement effective until the earlier of (i) the date on which all the Shares may be immediately sold without restriction (including without limitation as to volume by each holder thereof) and without registration under the Securities Act, or (ii) the date all of the Shares have been sold. None of the Selling Stockholders has held any position or office or had a material relationship with the Company or any of its affiliates within the past three years other than as a result of the ownership of the Common Stock. The Company may amend or supplement this Prospectus from time to time to update the disclosure set forth herein.
BENEFICIAL OWNERSHIP SHARES BENEFICIALLY SHARES AFTER OFFERING(3) OWNED PRIOR TO BEING ----------------------- SELLING STOCKHOLDER OFFERING(1) OFFERED(2) NUMBER PERCENT ------------------- ------------------ ---------- ------- ------- Wilmington Securities, Inc.(4) 2,819,333 2,044,333 775,000 7.95 Henry L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette, Trustees of the Henry L. Hillman Trust under Agreement dated November 18, 1985 (the "Henry L. Hillman Trust")(5) 441,000 336,000 105,000 1.31 Thomas G. Bigley and C.G. Grefenstette, Trustees under Agreement of Trust dated December 30, 1976 for Children of Juliet Lea Hillman Simonds (the "Juliet Lea Hillman Simonds Trust")(6) 117,000 112,000 5,000 * Thomas G. Bigley and C.G. Grefenstette, Trustees under Agreement of Trust dated December 30, 1976 for Children of Audrey Hillman Fischer (the "Audrey Hillman Fischer Trust")(7) 117,000 112,000 5,000 *
-13- 15
BENEFICIAL OWNERSHIP SHARES BENEFICIALLY SHARES AFTER OFFERING(3) OWNED PRIOR TO BEING ----------------------- SELLING STOCKHOLDER OFFERING(1) OFFERED(2) NUMBER PERCENT ------------------- ------------------ ---------- ------- ------- Thomas G. Bigley and C.G. Grefenstette, Trustees under Agreement of Trust dated December 30, 1976 for the Children of Henry Lea Hillman, Jr. (the "Henry Lea Hillman, Jr. Trust")(8) 117,000 112,000 5,000 * Thomas G. Bigley and C.G. Grefenstette, Trustees under Agreement of Trust dated December 30, 1976 for Children of William Talbott Hillman (the "William Talbott Hillman Trust")(9) 117,000 112,000 5,000 * Van Kasper & Company(10) 150,000 150,000 -- -- Total....................... 3,878,333 2,978,333 900,000 8.42
- ---------------------- * Less than one percent. (1) Henry L. Hillman, as settlor and trustee of the Henry L. Hillman Trust, and Elsie Hilliard Hillman and C.G. Grefenstette, as trustees of the Henry L. Hillman Trust, may be deemed to share voting and disposition power regarding 2,819,333 shares of Common Stock held beneficially by Wilmington Securities, Inc. and 436,000 shares (exclusive of 5,000 shares of Common Stock owned of record and beneficially by C.G. Grefenstette) of Common Stock held beneficially by the Henry L. Hillman Trust. As trustees of the Juliet Lea Hillman Simonds Trust, the Audrey Hillman Fischer Trust, the Henry Lea Hillman, Jr. Trust and the William Talbott Hillman Trust, Thomas G. Bigley and C.G. Grefenstette may be deemed to share voting and disposition power regarding 448,000 shares (exclusive of 5,000 shares of Common Stock owned of record and beneficially by C.G. Grefenstette) of Common Stock held beneficially by each of such trusts. (2) Represents the specified number of Shares that may be sold by the Selling Stockholders pursuant to this Prospectus; provided, however, that, pursuant to Rule 416 under the Securities Act, the Registration Statement of which this Prospectus is a part shall also cover any additional shares of Common Stock which become issuable in connection with the Shares registered for sale hereby (i) by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the Company's number of outstanding shares of Common Stock or (ii) upon conversion of the Series A Stock, the Series A-1 Stock and the Series B Stock or the payment of dividends thereon, pursuant to fluctuations in the applicable conversion price thereof. (3) Assumes the Selling Stockholders sell all of their Shares offered hereby to unaffiliated third parties pursuant to this Prospectus. The Selling Stockholders may sell all or part of their Shares. (4) 775,000 shares of Common Stock are owned of record and beneficially by Wilmington Securities, Inc. Wilmington Securities, Inc. also holds 645,833 shares of Series A Stock, 125,000 shares of Series A-1 Stock and 150,000 shares of Series B Stock, each with a stated value of $6, $8 and $8 per share, respectively, which may be initially converted into two shares of Common Stock. The number of shares of Common Stock shown in the table includes 1,841,666 shares of Common Stock, which represents two times the number of shares of Series A Stock, Series A-1 Stock and Series B Stock held by such Selling Stockholder. Because the number of shares of Common Stock that will ultimately be issued to Wilmington Securities, Inc. is dependent upon the applicable conversion ratio at the time of conversion, that number of shares of Common Stock, and therefore, the number of shares of Common Stock offered hereby, cannot be determined exactly at this time. The number of shares of Common Stock shown in the table also includes 202,667 shares of Common Stock issuable upon exercise of presently exercisable Warrants held by Wilmington Securities, Inc. -14- 16 (5) 5,000 shares of Common Stock are owned of record and beneficially by C.G. Grefenstette. 100,000 shares of Common Stock are owned of record and beneficially by the Henry L. Hillman Trust. The Henry L. Hillman Trust also holds 150,000 shares of Series B Stock, with a stated value of $8 per share, which may be initially converted into two shares of Common Stock. The number of shares of Common Stock shown in the table includes 300,000 shares of Common Stock, which represents two times the number of shares of Series B Stock held by such Selling Stockholder. Because the number of shares of Common Stock that will ultimately be issued to the Henry L. Hillman Trust is dependent upon the applicable conversion ratio at the time of conversion, that number of shares of Common Stock, and therefore, the number of shares of Common Stock offered hereby, cannot be determined exactly at this time. The number of shares of Common Stock shown in the table also includes 36,000 shares of Common Stock issuable upon exercise of presently exercisable Warrants held by the Henry L. Hillman Trust. (6) 5,000 shares of Common Stock are owned of record and beneficially by C.G. Grefenstette. The Juliet Lea Hillman Simonds Trust also holds 50,000 shares of Series B Stock, with a stated value of $8 per share, which may be initially converted into two shares of Common Stock. The number of shares of Common Stock shown in the table includes 100,000 shares of Common Stock, which represents two times the number of shares of Series B Stock held by such Selling Stockholder. Because the number of shares of Common Stock that will ultimately be issued to the Juliet Lea Hillman Simonds Trust is dependent upon the applicable conversion ratio at the time of conversion, that number of shares of Common Stock, and therefore, the number of shares of Common Stock offered hereby, cannot be determined exactly at this time. The number of shares of Common Stock shown in the table also includes 12,000 shares of Common Stock issuable upon exercise of presently exercisable Warrants held by the Juliet Lea Hillman Simonds Trust. (7) 5,000 shares of Common Stock are owned of record and beneficially by C.G. Grefenstette. The Audrey Hillman Fischer Trust also holds 50,000 shares of Series B Stock, with a stated value of $8 per share, which may be initially converted into two shares of Common Stock. The number of shares of Common Stock shown in the table includes 100,000 shares of Common Stock, which represents two times the number of shares of Series B Stock held by such Selling Stockholder. Because the number of shares of Common Stock that will ultimately be issued to the Audrey Hillman Fischer Trust is dependent upon the applicable conversion ratio at the time of conversion, that number of shares of Common Stock, and therefore, the number of shares of Common Stock offered hereby, cannot be determined exactly at this time. The number of shares of Common Stock shown in the table also includes 12,000 shares of Common Stock issuable upon exercise of presently exercisable Warrants held by the Audrey Hillman Fischer Trust. (8) 5,000 shares of Common Stock are owned of record and beneficially by C.G. Grefenstette. The Henry Lea Hillman, Jr. Trust also holds 50,000 shares of Series B Stock, with a stated value of $8 per share, which may be initially converted into two shares of Common Stock. The number of shares of Common Stock shown in the table includes 100,000 shares of Common Stock, which represents two times the number of shares of Series B Stock held by such Selling Stockholder. Because the number of shares of Common Stock that will ultimately be issued to the Henry Lea Hillman, Jr. Trust is dependent upon the applicable conversion ratio at the time of conversion, that number of shares of Common Stock, and therefore, the number of shares of Common Stock offered hereby, cannot be determined exactly at this time. The number of shares of Common Stock shown in the table also includes 12,000 shares of Common Stock issuable upon exercise of presently exercisable Warrants held by the Henry Lea Hillman, Jr. Trust. (9) 5,000 shares of Common Stock are owned of record and beneficially by C.G. Grefenstette. The William Talbott Hillman Trust also holds 50,000 shares of Series B Stock, with a stated value of $8 per share, which may be initially converted into two shares of Common Stock. The number of shares of Common Stock shown in the table includes 100,000 shares of Common Stock, which represents two times the number of shares of Series B Stock held by such Selling Stockholder. Because the number of shares of Common Stock that will ultimately be issued to the William Talbott Hillman Trust is dependent upon the applicable conversion ratio at the time of conversion, that number of shares of Common Stock, and therefore, the number of shares of Common Stock offered hereby, cannot be determined exactly at this time. The number of shares of Common Stock shown in the table also includes 12,000 shares of Common Stock issuable upon exercise of presently exercisable Warrants held by the William Talbott Hillman Trust. (10) The number of shares of Common Stock shown in the table includes 150,000 shares of Common Stock issuable upon exercise of presently exercisable Warrants held by Van Kasper & Company. -15- 17 PLAN OF DISTRIBUTION The Shares covered by this Prospectus may be offered and sold from time to time by the Selling Stockholders. The Selling Stockholders will act independently of the Company in making decisions with respect to the timing, manner and size of each sale. The Selling Stockholders may sell the Shares being offered hereby on the Nasdaq National Market, or otherwise, at prices and under terms then prevailing or at prices related to the then current market price or at negotiated prices. The Shares may be sold by one or more of the following means of distribution: (a) block trades in which the broker-dealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this Prospectus; (c) over-the-counter distributions in accordance with the rules of the Nasdaq National Market; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) privately negotiated transactions. To the extent required, this Prospectus may be amended and supplemented from time to time to describe a specific plan of distribution. In connection with distributions of the Shares or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of the Common Stock in the course of hedging the positions they assume with Selling Stockholders. The Selling Stockholders may also sell the Common Stock short and redeliver the shares to close out such short positions. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of Shares offered hereby, which Shares such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction). The Selling Stockholders may also pledge Shares to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution, may effect sales of the pledged Shares pursuant to this Prospectus (as supplemented or amended to reflect such transaction). In addition, any Shares that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this Prospectus. In effecting sales, brokers, dealers or agents engaged by the Selling Stockholders may arrange for other brokers or dealers to participate. Brokers, dealers or agents may receive commissions, discounts or concessions from the Selling Stockholders in amounts to be negotiated prior to the sale. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales, and any such commissions, discounts or concessions may be deemed to be underwriting discounts or commissions under the Securities Act. The Company will pay all reasonable expenses incident to the registration of the Shares other than any commissions and discounts of underwriters, dealers or agents. In order to comply with the securities laws of certain states, if applicable, the Shares must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and there has been compliance thereof. The Company has advised the Selling Stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of Shares in the market and to the activities of the Selling Stockholders and their affiliates. In addition, the Company will make copies of this Prospectus available to the Selling Stockholders and has informed them of the need for delivery of copies of this Prospectus to purchasers at or prior to the time of any sale of the Shares offered hereby. The Selling Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. At the time a particular offer of Shares is made, if required, a Prospectus Supplement will be distributed that will set forth the number of Shares being offered and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed selling price to the public. The sale of Shares by the Selling Stockholders is subject to compliance by the Selling Stockholders with certain contractual restrictions with the Company. There can be no assurance that the Selling Stockholders will sell all or any of the Shares. -16- 18 The Company has agreed to indemnify the Selling Stockholders and any person controlling a Selling Stockholder against certain liabilities, including liabilities under the Securities Act. The Selling Stockholders have agreed to indemnify the Company and certain related persons against certain liabilities, including liabilities under the Securities Act. The Company has agreed with certain of the Selling Stockholders to keep the Registration Statement of which this Prospectus constitutes a part effective until all the Shares are sold by the Selling Stockholders or all unsold Shares are immediately saleable without restriction (including without volume limitations) and without registration under the Securities Act. LEGAL MATTERS Certain legal matters with respect to the validity of the Shares offered hereby will be passed upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California, counsel to the Company. EXPERTS The financial statements incorporated in this Registration Statement by reference to the Annual Report on Form 10-K for the years ended December 31, 1997 and 1996, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. -17- 19 ================================================================================ No person is authorized in connection with any offering made by this Prospectus to give any information or to make any representations not contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company, any Selling Stockholder or by any other person. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the Shares offered hereby, nor does it constitute an offer to sell or a solicitation of an offer to buy any of the Shares offered hereby to any person in any jurisdiction in which it is unlawful to make such an offer or solicitation. Neither the delivery of this Prospectus nor any sale of or offer to sell the Shares made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the date hereof. ---------------- TABLE OF CONTENTS
PAGE ---- Available Information................. 2 Incorporation of Certain Documents By Reference........... 2 Risk Factors.......................... 4 Use of Proceeds....................... 12 Selling Stockholders.................. 13 Plan of Distribution.................. 16 Legal Matters......................... 17 Experts............................... 17
================================================================================ SUPERCONDUCTOR TECHNOLOGIES INC. 2,978,333 Shares of Common Stock PROSPECTUS September 30, 1998 ================================================================================ 20 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The Company will pay all reasonable expenses incident to the registration of the shares other than any commissions and discounts of underwriters, dealers or agents. Such expenses are set forth in the following table. All of the amounts shown are estimates except the Securities and Exchange Commission ("SEC") registration fee. SEC registration fee............................................. $ 4,147 Legal fees and expenses.......................................... 20,000 Accounting fees and expenses .................................... 15,000 Miscellaneous expenses........................................... 3,503 -------- Total........................................................ $42,650 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). Article 10 of the Registrant's Certificate of Incorporation, Article 10 of the Registrant's Restated Certificate of Incorporation and Article VI of the Registrant's Bylaws provide for indemnification of its directors, officers, employees and other agents to the maximum extent permitted by the Delaware General Corporation Law. In addition, the Registrant has entered into Indemnification Agreements with its officers and directors. Under the Registration Rights Agreement, the Company has agreed to indemnify the Selling Stockholders and persons controlling a Selling Stockholder against certain liabilities, including liabilities under the Securities Act, and the Selling Stockholders have agreed to indemnify the Company, its directors, its officers signing the Registration Statement and certain control and related persons against certain liabilities, including liabilities under the Securities Act. ITEM 16. EXHIBITS. 3.1 Amended and Restated Certificate of Incorporation of the Company. 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company. 4.1 Certificate of Designation, Preferences and Rights relating to the Company's Series B Preferred Stock. 4.2 Series A Preferred Stock Purchase Agreement dated March 26, 1998 between the Company and Wilmington Securities, Inc. 4.3 Series A-1 Preferred Stock Purchase Agreement dated August 11, 1998 between the Company and Wilmington Securities, Inc. 4.4 Amended and Restated Stockholders Rights Agreement dated August 11, 1998 between the Company and Wilmington Securities, Inc. 4.5 Securities Purchase Agreement dated September 2, 1998 between the Company and Wilmington Securities, Inc. 4.6 Registration Rights Agreement dated September 2, 1998 between the Company and Wilmington Securities, Inc. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 23.1 Consent of Independent Accountants. 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1 Power of Attorney (included on page II-4).
II-1 21 Item 17. Undertakings. A. Undertaking Pursuant to Rule 415. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs A(l)(i) and A(l)(ii) do not apply if the Registration Statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of this offering. B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. UNDERTAKING IN RESPECT OF INDEMNIFICATION. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in II-2 22 connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 23 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Santa Barbara on this 30th day of September, 1998. SUPERCONDUCTOR TECHNOLOGIES INC. By: /s/ M. PETER THOMAS ------------------------------------- M. Peter Thomas President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints M. Peter Thomas and James G. Evans, Jr., jointly and severally, as attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendment to this Registration Statement and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. II-4 24 Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on the 30th day of September, 1998 in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ M. Peter Thomas President, Chief Executive Officer September 30, 1998 - ------------------------- (Principal Executive Officer) M. Peter Thomas and Director /s/ James G. Evans, Jr. Vice President, Chief Financial Officer September 30, 1998 - ------------------------- and Secretary, (Principal Financial James G. Evans, Jr. and Accounting Officer) /s/ Glenn E. Penisten Director September 30, 1998 - ------------------------- Glenn E. Penisten /s/ E. Ray Cotten Director September 30, 1998 - ------------------------- E. Ray Cotten /s/ Robert P. Caren Director September 30, 1998 - ------------------------- Robert P. Caren /s/ Dennis Horowitz Director September 30, 1998 - ------------------------- Dennis Horowitz /s/ John D. Lockton Director September 30, 1998 - ------------------------- John D. Lockton /s/ J. Robert Schrieffer Director September 30, 1998 - ------------------------- J. Robert Schrieffer
II-5 25 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Amended and Restated Certificate of Incorporation of the Company. 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company. 4.1 Certificate of Designation, Preferences and Rights relating to the Company's Series B Preferred Stock. 4.2 Series A Preferred Stock Purchase Agreement dated March 26, 1998 between the Company and Wilmington Securities, Inc. 4.3 Series A-1 Preferred Stock Purchase Agreement dated August 11, 1998 between the Company and Wilmington Securities, Inc. 4.4 Amended and Restated Stockholders Rights Agreement dated August 11, 1998 between the Company and Wilmington Securities, Inc. 4.5 Securities Purchase Agreement dated September 2, 1998 between the Company and Wilmington Securities, Inc. 4.6 Registration Rights Agreement dated September 2, 1998 between the Company and Wilmington Securities, Inc. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 23.1 Consent of Independent Accountants. 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1 Power of Attorney (included on page II-4).
EX-3.1 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SUPERCONDUCTOR TECHNOLOGIES INC. Superconductor Technologies Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify that: 1. The name of the Corporation is Superconductor Technologies Inc. The Corporation was originally incorporated under that name, and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on May 11, 1987. 2. Pursuant to Sections 242 and 222 of the General Corporation Law of Delaware, the amendments and restatement herein set forth have been duly approved by the Board of Directors and the stockholders of the Corporation. 3. Pursuant to Section 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of the Corporation. 4. The text of the Amended and Restated Certificate of Incorporation as previously amended or supplemented is hereby restated and further amended to read in its entirety as follows: "ARTICLE I The name of this corporation is "SUPERCONDUCTOR TECHNOLOGIES INC." ARTICLE II The address of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 2 ARTICLE IV Section 1. Designation and Amount. The Corporation is authorized to issue two classes of shares to be designated respectively Common Stock and Preferred Stock. The total number of shares of Common Stock which the Corporation shall have authority to issue is 30,000,000, with par value of $0.001 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 2,000,000, with par value of $0.001 per share. Of the Preferred Stock, 500,000 shares shall be designated Series A Preferred Stock ("Series A Preferred") and 125,000 shares shall be designated Series A-1 Preferred Stock ("Series A-1 Preferred"). The undesignated 1,375,000 shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is authorized to determine or alter the powers, designations, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series, to determine the designation of any series, and to fix the number of shares of any series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock. The rights, preferences, privileges and restrictions granted to or imposed on the Common Stock and Preferred Stock are as follows: Section 2. Dividends. The holders of shares of Series A Preferred and Series A-1 Preferred shall be entitled to receive dividends, out of funds legally available therefor, payable in preference and priority to any payment of any dividend on Common Stock of the Corporation, at the rates of $0.36 per share and $0.48 per share (adjusted for any recapitalization, stock combinations, stock dividends, stock splits and the like) per annum for the Series A Preferred and the Series A-1 Preferred, respectively. Such dividends shall be payable when, as and if declared by the Board of Directors, provided that the right to such dividends shall be cumulative and be due and payable annually in arrears. No dividend shall be paid on the Common Stock in any year, other than dividends payable solely in Common Stock, until all dividends due and payable on the Preferred Stock have been declared and paid, and then such dividends on the Common Stock shall not be in excess of the dividends paid on the Preferred Stock unless the amount of such excess is also paid on the Preferred Stock on an as-converted per share basis. -2- 3 Section 3. Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (a "Liquidation Event"), distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of Series A Preferred and Series A-1 Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share equal to the sum (the "Liquidation Preference") of (i) $6.00 and $8.00 for each share of Series A Preferred and Series A-1 Preferred, respectively, then held by them, adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to such shares and, (ii) an amount equal to all unpaid dividends on the Series A Preferred and Series A-1 Preferred held by them; provided however, in the event of a Liquidation Event pursuant to Section 3(b) below that is consummated on or before March 26, 2001, the Liquidation Preference shall be $7.20 and $9.60 for each share of Series A Preferred and Series A-1 Preferred, respectively, adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like. If the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the aggregate preferential amount of shares of Preferred Stock outstanding as of the date of the distribution upon the occurrence of such event. After payment has been made to the holders of the Preferred Stock of the full amounts to which they shall be entitled as aforesaid, the holders of the Common Stock shall be entitled to share ratably in the remaining assets, based on the number of shares of Common Stock held. (b) For purposes of this Section 3, a merger or consolidation of the Corporation with or into any other corporation or corporations, or the merger of any other corporation or corporations into the Corporation, or the sale of all or substantially all of the assets of the Corporation, or any other corporate reorganization, in which consolidation, merger, sale of assets or reorganization the stockholders of the Corporation receive distributions in cash or securities of another corporation or corporations as a result of such consolidation, merger, sale of assets or reorganization, shall be treated as a Liquidation Event unless the stockholders of this Corporation immediately prior to such consolidation, merger, sale of assets or reorganization hold or control more than fifty percent (50%) of the voting equity securities of the successor or surviving corporation immediately following such consolidation, merger, sale of assets or reorganization, in which case such consolidation, merger, sale of assets or reorganization shall not be treated as a Liquidation Event. Section 4. Voting Rights. Except as otherwise required by law, the Amended and Restated Certificate of Incorporation or Bylaws of the Corporation or this Certificate of Designation, the holder of each share of Common Stock issued and outstanding shall have one vote and the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, such -3- 4 votes to be counted together with all other shares of stock of the Corporation having general voting power and not separately as a class. Holders of Common Stock and Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes by the holders of Preferred Stock shall not, however, be permitted and any fractional voting rights shall (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) be rounded to the nearest whole number. Section 5. Conversion. The holders of Series A Preferred and Series A-1 Preferred have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined: in the case of the Series A Preferred, by dividing $6.00 by the Series A Conversion Price, determined as hereinafter provided, in effect at the time of conversion, and, in the case of the Series A-1 Preferred, by dividing $8.00 by the Series A-1 Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of Series A Pre ferred shall initially be $3.00 with respect to each share of Series A Preferred (the "Series A Conversion Price"). The price at which shares of Common Stock shall be deliverable upon conversion of shares of Series A-1 Preferred shall initially be $4.00 with respect to each shares of Series A-1 Preferred (the "Series A-1 Conversion Price"). The term "Conversion Price," as used herein shall refer to the respective Conversion Price of each series of Preferred Stock. The initial Conversion Price shall be subject to adjustment as hereinafter provided. (b) Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price for such series upon the election of holders of at least a majority of the then outstanding shares of Preferred Stock. (c) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, the holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that the holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to Section 5(b), the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent and provided further, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation or its transfer agent as provided -4- 5 above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, or in the case of automatic conversion then on the date of election by a majority of the then outstanding shares of Preferred Stock, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) (1) Adjustment of Conversion Price of Preferred Stock. The Conversion Price shall be subject to adjustment from time to time as follows: (i) Adjustments for Subdivisions, Combinations or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be subdivided by stock split, stock dividends or otherwise, into a greater number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (ii) Adjustments for Stock Dividends and Other Distributions. In the event the Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution (excluding any repurchases of securities by the Corporation not made on a pro rata basis from all holders of any class of the Corporation's securities) payable in property or in securities of the Corporation other than shares of Common Stock, and other than as otherwise adjusted in this Section 5 or as provided in Section 2, then and in each such event the holders of Preferred Stock shall receive at the time of such distribution, the amount of property or the number of securities of the Corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event. (iii) Adjustments for Reclassification, Exchange and Substitution. Except as provided in Section 3 upon any liquidation, dissolution or winding up of the Corporation, if the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), each share of Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of -5- 6 Common Stock of the Corporation deliverable upon conversion of such share of Preferred Stock shall have been entitled upon such reorganization or reclassification. (2) Adjustments of Conversion Price for Diluting Issues. In addition to the adjustment of the Conversion Price provided in Section 5(d)(1) above, the Conversion Price shall be subject to further adjustment from time to time as follows: (i) Special Definitions. For purposes of this Section 5(d)(2), the following definitions shall apply: (1) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "Original Issue Date" shall mean the dates on which the first share of each series of Preferred Stock was first issued. (3) "Convertible Securities" shall mean securities convertible into or exchangeable for Common Stock. (4) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 5(d)(2)(iii), deemed to be issued) by the Corporation after the Original Issue Date other than shares of Common Stock issued or issuable: (A) upon conversion of shares of the Preferred Stock; (B) to officers, directors and employees of, and consultants to, the Corporation pursuant to plans and arrangements approved by the Board of Directors; (C) as a dividend or other distribution on the Preferred Stock or pursuant to clause (i), (ii) or (iii) of Section 5(d)(1); (D) upon the exercise of options issued prior to the Original Issue Date; (E) to research or development collaborators or to banks or other institutional lendors or lessors in connection with capital asset leases or borrowings for the acquisition of capital assets, pursuant to any arrangement approved by the Board of Directors; or (F) by way of dividend or other distributions on securities referred to in clauses (A), (B), (C), (D) and (E) above. -6- 7 (ii) No Adjustment of Conversion Price. No adjustment in the Conversion Price of a particular share of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such share of Preferred Stock. (iii) Deemed Issue of Additional Shares of Common Stock. (1) Options and Convertible Securities. Except as otherwise provided in Section 5(d)(2)(i) above, in the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of any holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 5(d)(2)(v) below) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which additional shares of Common Stock are deemed to be issued: (A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: -7- 8 (I) in the case of Convertible Securities or Options for Common Stock, the only additional shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (II) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; and (E) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 5(d)(2)(iii), but excluding stock dividends, subdivisions or split-ups that are the subject of adjustment pursuant to Section 5(d)(i)) without consideration or for a consideration per share less than the Conversion Price, in effect on the date of, and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue, (ii) the number of shares of Common Stock issuable upon conversion of the Preferred Stock outstanding immediately prior to such issue and (iii) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price; and the denominator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue, (ii) the number of shares of Common Stock issuable upon conversion of the Preferred Stock outstanding immediately prior to such issue and (iii) the -8- 9 number of such Additional Shares of Common Stock so issued; and provided further that, for the purposes of this Section 5(d)(2)(iv), all shares of Common Stock issuable upon exercise of outstanding Options or conversion of outstanding Convertible Securities shall be deemed to be out standing, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 5(d)(2)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (v) Determination of Consideration. For purposes of this Section 5(d)(2), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation (excluding amounts paid or payable for accrued interest or accrued dividends); (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 5(d)(2)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Option or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. -9- 10 (e) No Impairment. Except as provided in Section 8, the Corporation will not, by amendment of its Amended and Restated Certificate of Incorporation or this Certificate of Designation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock. (g) Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to effect any reclassification or capitalization of its Common Stock outstanding involving a change in the Common Stock; or (iii) to merge or consolidate with or into any other person or entity, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, the Corporation shall send to the holders of Preferred Stock: (1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (ii) and (iii) above; and (2) in the case of the matters referred to in (ii) and (iii) above, at least 20 days' prior written notice of the date when the same shall take place (and specifying the -10- 11 date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of the Preferred Stock at the address for each such holder as shown on the books of the Corporation. Section 6. Status of Converted Stock. In case any shares of Preferred Stock shall be repurchased or converted pursuant to Section 5, the shares so repurchased or converted shall be cancelled and shall not be issued by the Corporation and this Certificate of Designation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized Preferred Stock. Section 7. Redemption. (a) The Corporation may, at any time after March 26, 2001, redeem in cash out of any funds legally available therefor, all of the outstanding shares of the Preferred Stock. (b) At any time after March 26, 2005, 60 days after receipt of notice of an election of holders of at least two-thirds (2/3) of the then outstanding shares of the applicable series of Preferred Stock (which election shall bind all holders of such applicable series of Preferred Stock), the Corporation shall have the obligation to redeem in cash out of any funds legally available therefor, such outstanding shares of the such applicable series of Preferred Stock. (c) Any redemption shall be made for a price (the "Redemption Price") equal to (i) one hundred ten percent (110%) of the Liquidation Preference per share in the case of a redemption pursuant to Section 7(a) and (ii) the Liquidation Preference per share in the case of a redemption pursuant to Section 7(b). The Corporation need not establish any sinking fund for the redemption of the Preferred Stock. (d) If the Corporation elects or is required to redeem stock pursuant to Section 7(a) or (b) above, then the Corporation shall cause written notice to be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of such Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the redemption date (which shall be at least 30 days after the date of such notice (the "Redemption Date")), the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). Except as provided in Section 7(e) below, on or after the Redemption Date, each holder of such Preferred Stock to be redeemed shall surrender to this Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or -11- 12 certificates as the owner thereof and each surrendered certificate shall be cancelled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. Nothing herein shall be deemed to prevent a holder of such Preferred Stock from converting all or part of such holder's Preferred Stock into Common Stock in accordance with the terms of Section 5 above at any time prior to a Redemption Date covering such shares, and the provisions of this Section 7 shall not apply to any shares so converted. (e) From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of the Preferred Stock designated for redemption in the Redemption Notice as holders of Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates), shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of the Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares from holders of Preferred Stock. The shares of Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein, including the rights of conversion set forth in Section 5. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date but which it has not redeemed. Section 8. Covenants. In addition to any other rights provided by law, so long as at least twenty-five percent (25%) of the authorized Preferred Stock shall be outstanding, the Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of not less than a majority of the outstanding shares of Preferred Stock: (a) amend or repeal any provision of the Corporation's Amended or Restated Certificate of Incorporation, certificates of designation or Bylaws if such action would materially and adversely alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock; or (b) authorize or issue shares of any class or series of stock having any preference or priority as to dividends or assets superior to or on parity with any such preference or priority of the Preferred Stock. ARTICLE V The Corporation is to have perpetual existence. -12- 13 ARTICLE VI Except as otherwise provided in this Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend or rescind any or all of the Bylaws of the Corporation. ARTICLE VII Section 1. The number of directors of the Corporation shall be fixed from time to time by a Bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders. Section 2. Vacancies occurring on the Board of Directors for any reason may be filled by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at a meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy shall hold office until the next succeeding annual meeting of stockholders of the Corporation and until his or her successor shall have been duly elected and qualified. ARTICLE VIII Elections of directors at an annual or special meeting need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE IX Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE X The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. ARTICLE XI -13- 14 To the fullest extent permitted by Delaware General Corporation Law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision." -14- 15 THE UNDERSIGNED, being the President and Chief Executive Officer of the Corporation, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly, has hereunto set his hand this 11th day of August, 1998. SUPERCONDUCTOR TECHNOLOGIES INC. /s/ M. Peter Thomas ----------------------------------------- M. Peter Thomas, President and Chief Executive Officer Attest: /s/ James G. Evans - ---------------------------------- James G. Evans, Jr., Secretary -15- EX-3.2 3 CERT. OF AMENDMENT TO THE CERT. OF INCORPORATION 1 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SUPERCONDUCTOR TECHNOLOGIES The undersigned, Peter Thomas, hereby states and certifies that: 1. The undersigned is the Chief Executive Officer of Superconductor Technologies, Inc., a Delaware corporation (the "Corporation"). 2. Article IV (Section 1) of the Amended and Restated Certificate of Incorporation of the Corporation is amended by deleting Article IV (Section 1) in its entirety and adding a new Article IV (Section 1) to such Certificate of Incorporation, to read as follows: "Section 1. Designation and Amount. The Corporation is authorized to issue two classes of shares to be designated respectively Common Stock and Preferred Stock. The total number of shares of Common Stock which the Corporation shall have authority to issue is 30,000,000, with par value of $0.001 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 2,000,000, with par value of $0.001 per share. Of the Preferred Stock, 645,833 shares shall be designated Series A Preferred Stock ("Series A Preferred"), 125,000 shares shall be designated Series A-1 Preferred Stock ("Series A-1 Preferred") and 1,000,000 shares shall be designated Series B Preferred Stock ("Series B Preferred"). The rights, preferences and privileges of the Series B Preferred are set forth in the Certificate of Designation of the Series B Preferred as filed with the Secretary of the State of the State of Delaware on September 2, 1998. The undesignated 229,117 shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is authorized to determine or alter the powers, designations, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such 2 series subsequent to the issuance of shares of that series, to determine the designation of any series, and to fix the number of shares of any series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock. The rights, preferences, privileges and restrictions granted to or imposed on the common Stock, Series A Preferred and Series A-1 Preferred are as follows:" 3. The foregoing amendment to the Amended and Restated Certificate of Incorporation was duly approved and adopted, in accordance with Section 242 of the General Corporation Law of the State of Delaware, by the directors of the Corporation. 4. The foregoing amendment to the Amended and Restated Certificate of Incorporation was duly approved and adopted, in accordance with Section 242 of the General Corporation Law of the State of Delaware, by the stockholders of the Corporation entitled to vote thereon, by written consent without a meeting. IN WITNESS WHEREOF, the undersigned does hereby acknowledge, under penalty of perjury, that this Certificate of Amendment is the act and deed of the undersigned, and that the facts stated herein are true. Dated: September 3, 1998 /s/ Peter Thomas ----------------------------------------- Peter Thomas Chief Executive Officer EX-4.1 4 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS 1 EXHIBIT 4.1 CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES B PREFERRED STOCK OF SUPERCONDUCTOR TECHNOLOGIES INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware I, Peter Thomas, the Chief Executive Officer of Superconductor Technologies Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the said Corporation, the said Board of Directors on August 31, 1998 adopted the following resolution creating a series of 1,000,000 shares of Preferred Stock designated as Series B Preferred Stock. RESOLVED: That pursuant to the authority vested in the Board of Directors of the Corporation by the Amended and Restated Certificate of Incorporation, the Board of Directors does hereby provide for the issue of a series of Preferred Stock, par value $0.001 per share, of the Corporation, to be designated Series B Preferred Stock (the "Series B Preferred Stock"), initially consisting of 1,000,000 shares, and to the extent that the designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions of the Series B Preferred Stock are not stated and expressed in the Amended and Restated Certificate of Incorporation, does hereby fix and herein state and express such designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions thereof, as follows (all terms used herein which are defined in the Amended and Restated Certificate of Incorporation shall be deemed to have the meanings provided therein): SECTION 1. Designation and Amount. The shares of such Series B Preferred Stock shall be designated as "Series B Preferred Stock", par value $0.001 per share, and the number of shares constituting such series shall be 1,000,000. SECTION 2. Rank. Except as provided in Section 9, the Series B Preferred Stock shall rank (i) prior to the Corporation's common stock, par value $.001 per share (the "Common Stock"); (ii) prior to any class or series of capital stock of the Corporation hereafter created; (iii) pari passu with the Series A Preferred Stock, the Series A-1 Preferred Stock and with any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, on parity with the Series B Preferred Stock; and (iv) junior to any class or series of capital stock of the Corporation hereafter created 2 specifically ranking, by its terms, senior to the Series B Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. SECTION 3. Dividends. The holders of shares of Series B Preferred Stock and shall be entitled to receive dividends, out of funds legally available therefor, payable in preference and priority to any payment of any dividend on Common Stock of the Corporation, at the rate of $.56 per share (adjusted for any recapitalization, stock combinations, stock dividends, stock splits and the like) per annum for the Series B Preferred Stock. Such dividends shall be payable when, as and if declared by the Board of Directors, provided that the right to such dividends shall be cumulative and be due and payable annually in arrears. No dividend shall be paid on the Common Stock in any year, other than dividends payable solely in Common Stock, until all dividends due and payable on the Preferred Stock have been declared and paid, and then such dividends on the Common Stock shall not be in excess of the dividends paid on the Preferred Stock unless the amount of such excess is also paid on the Preferred Stock on an as-converted per share basis. SECTION 4. Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (a "Liquidation Event"), distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share equal to the sum (the "Liquidation Preference") of (i) $8.00 for each share of Series B Preferred Stock, then held by them, adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to such shares and, (ii) an amount equal to all unpaid dividends on the Series B Preferred Stock held by them; provided however, in the event of a Liquidation Event pursuant to Section 4(b) below that is consummated on or before September 2, 2001, the Liquidation Preference shall be $9.60 for each share of Preferred Stock, adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like. If the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the aggregate preferential amount of shares of Preferred Stock outstanding as of the date of the distribution upon the occurrence of such event. After payment has been made to the holders of the Preferred Stock of the full amounts to which they shall be entitled as aforesaid, the holders of the Common Stock shall be entitled to share ratably in the remaining assets, based on the number of shares of Common Stock held. (b) For purposes of this Section 4, a merger or consolidation of the Corporation with or into any other corporation or corporations, or the merger of any other corporation or corporations into the Corporation, or the sale of all or substantially all of the assets of the Corporation, or any other corporate reorganization, in which consolidation, merger, sale of assets or reorganization the stockholders of the Corporation receive distributions in cash or securities of another corporation or corporations as a result of such consolidation, merger, sale of assets or reorganization, shall be treated as a Liquidation Event unless the stockholders of this Corporation immediately prior to such consolidation, merger, sale of assets or reorganization hold or control more than fifty percent (50%) of 2 3 the voting equity securities of the successor or surviving corporation immediately following such consolidation, merger, sale of assets or reorganization, in which case such consolidation, merger, sale of assets or reorganization shall not be treated as a Liquidation Event. SECTION 5. Voting Rights. Except as otherwise required by law, the Amended and Restated Certificate of Incorporation or Bylaws of the Corporation or this Certificate of Designation, the holder of each share of Common Stock issued and outstanding shall have one vote and the holder of each share of Series B Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series B Preferred Stock could be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, such votes to be counted together with all other shares of stock of the Corporation having general voting power and not separately as a class. Holders of Common Stock and Series B Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes by the holders of Series B Preferred Stock shall not, however, be permitted and any fractional voting rights shall (after aggregating all shares into which shares of Series B Preferred Stock held by each holder could be converted) be rounded to the nearest whole number. SECTION 6. Conversion. The holders of Series B Preferred Stock have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series B Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $8.00 by the initial Conversion Price. The term "Conversion Price" as used herein shall mean initially $4.00 and shall be subject to adjustment as hereinafter provided. (b) Automatic Conversion. Each share of Series B Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price for such series upon the election of holders of at least a majority of the then outstanding shares of Series B Preferred Stock. (c) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Series B Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. Before any holder of Series B Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, the holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series B Preferred Stock, and shall give written notice (in the form of Exhibit A attached hereto) to the Corporation (the "Notice of Conversion") at such office that the holder elects to convert the same and specifying the date of conversion (the "Conversion Date"); provided, however, that in the event of an automatic conversion pursuant to Section 5(b), the outstanding shares of Series B Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer 3 4 agent and provided further, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Series B Preferred Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Series B Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Preferred Stock to be converted, or in the case of automatic conversion then on the date of election by a majority of the then outstanding shares of Series B Preferred Stock, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) (1) Adjustment of Conversion Price of Series B Preferred Stock. The Conversion Price shall be subject to adjustment from time to time as follows: (i) Adjustments for Subdivisions, Combinations or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be subdivided by stock split, stock dividends or otherwise, into a greater number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (ii) Adjustments for Stock Dividends and Other Distributions. In the event the Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution (excluding any repurchases of securities by the Corporation not made on a pro rata basis from all holders of any class of the Corporation's securities) payable in property or in securities of the Corporation other than shares of Common Stock, and other than as otherwise adjusted in this Section 6 or as provided in Section 3, then and in each such event the holders of Series B Preferred Stock shall receive at the time of such distribution, the amount of property or the number of securities of the Corporation that they would have received had their Series B Preferred Stock been converted into Common Stock on the date of such event. (iii) Adjustments for Reclassification, Exchange and Substitution. Except as provided in Section 4 upon any liquidation, dissolution or winding up of the Corporation, if the Common Stock issuable upon conversion of the Series B Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), each share of Series B Preferred Stock shall thereafter be convertible into the number of shares of stock 4 5 or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such share of Series B Preferred Stock shall have been entitled upon such reorganization or reclassification. (2) Adjustments of Conversion Price for Diluting Issues. In addition to the adjustment of the Conversion Price provided in Section 6(d)(1) above, the Conversion Price shall be subject to further adjustment from time to time as follows: (i) Special Definitions. For purposes of this Section 6(d)(2), the following definitions shall apply: (1) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "Original Issue Date" shall mean the dates on which the first share of each series of Series B Preferred Stock was first issued. (3) "Convertible Securities" shall mean securities convertible into or exchangeable for Common Stock. (4) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 6(d)(2)(iii), deemed to be issued) by the Corporation after the Original Issue Date other than shares of Common Stock issued or issuable: (A) upon conversion of shares of the Preferred Stock; (B) to officers, directors and employees of, and consultants to, the Corporation pursuant to plans and arrangements approved by the Board of Directors; (C) as a dividend or other distribution on the Preferred Stock or pursuant to clause (i), (ii) or (iii) of Section 6(d)(1); (D) upon the exercise of options issued prior to the Original Issue Date; (E) to research or development collaborators or to banks or other institutional lendors or lessors in connection with capital asset leases or borrowings for the acquisition of capital assets, pursuant to any arrangement approved by the Board of Directors; or (F) by way of dividend or other distributions on securities referred to in clauses (A), (B), (C), (D) and (E) above. (ii) No Adjustment of Conversion Price. No adjustment in the Conversion Price of a particular share of Series B Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of 5 6 Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such share of Series B Preferred Stock. (iii) Deemed Issue of Additional Shares of Common Stock. (1) Options and Convertible Securities. Except as otherwise provided in Section 6(d)(2)(i) above, in the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of any holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 6(d)(2)(v) below) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which additional shares of Common Stock are deemed to be issued: (A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (I) in the case of Convertible Securities or Options for Common Stock, the only additional shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such 6 7 Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (II) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; and (E) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 6(d)(2)(iii), but excluding stock dividends, subdivisions or split-ups that are the subject of adjustment pursuant to Section 6(d)(i)) without consideration or for a consideration per share less than the Conversion Price, in effect on the date of, and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue, (ii) the number of shares of Common Stock issuable upon conversion of the Preferred Stock outstanding immediately prior to such issue and (iii) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price; and the denominator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue, (ii) the number of shares of Common Stock issuable upon conversion of the Preferred Stock outstanding immediately prior to such issue and (iii) the number of such Additional Shares of Common Stock so issued; and provided further that, for the purposes of this Section 6(d)(2)(iv), all shares of Common Stock issuable upon exercise of outstanding Options or conversion of outstanding Convertible Securities shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 6(d)(2)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (v) Determination of Consideration. For purposes of this Section 6(d)(2), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: 7 8 (1) Cash and Property: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation (excluding amounts paid or payable for accrued interest or accrued dividends); (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 6(d)(2)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Option or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (e) No Impairment. Except as provided in Section 9, the Corporation will not, by amendment of its Amended and Restated Certificate of Incorporation or this Certificate of Designation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series B Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 6, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to 8 9 each holder of Series B Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series B Preferred Stock. (g) Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to effect any reclassification or capitalization of its Common Stock outstanding involving a change in the Common Stock; or (iii) to merge or consolidate with or into any other person or entity, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, the Corporation shall send to the holders of Series B Preferred Stock: (1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (ii) and (iii) above; and (2) in the case of the matters referred to in (ii) and (iii) above, at least 20 days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of the Series B Preferred Stock at the address for each such holder as shown on the books of the Corporation. SECTION 7. Status of Converted Stock. In case any shares of Series B Preferred Stock shall be repurchased or converted pursuant to Section 5, the shares so repurchased or converted shall be cancelled and shall not be issued by the Corporation and this Certificate of Designation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized Series B Preferred Stock. SECTION 8. Redemption. 9 10 (a) The Corporation may, at any time after September 2, 2001, redeem in cash out of any funds legally available therefor, all of the outstanding shares of the Series B Preferred Stock. (b) At any time after September 2, 2005, 60 days after receipt of notice of an election of holders of at least two-thirds (2/3) of the then outstanding shares of the applicable series of Series B Preferred Stock (which election shall bind all holders of such applicable series of Series B Preferred Stock), the Corporation shall have the obligation to redeem in cash out of any funds legally available therefor, such outstanding shares of the such applicable series of Series B Preferred Stock. (c) Any redemption shall be made for a price (the "Redemption Price") equal to (i) one hundred ten percent (110%) of the Liquidation Preference per share in the case of a redemption pursuant to Section 8(a) and (ii) the Liquidation Preference per share in the case of a redemption pursuant to Section 8(b). The Corporation need not establish any sinking fund for the redemption of the Series B Preferred Stock. (d) If the Corporation elects or is required to redeem stock pursuant to Section 8(a)or 8(b)above, then the Corporation shall cause written notice to be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of such Series B Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the redemption date (which shall be at least 30 days after the date of such notice (the "Redemption Date")), the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). Except as provided in Section 8(e) below, on or after the Redemption Date, each holder of such Series B Preferred Stock to be redeemed shall surrender to this Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. Nothing herein shall be deemed to prevent a holder of such Series B Preferred Stock from converting all or part of such holder's Series B Preferred Stock into Common Stock in accordance with the terms of Section 6 above at any time prior to a Redemption Date covering such shares, and the provisions of this Section 8 shall not apply to any shares so converted. (e) From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of the Series B Preferred Stock designated for redemption in the Redemption Notice as holders of Series B Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates), shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of the Series B Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series B Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares from holders of Series B Preferred Stock. The shares of Series B 10 11 Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein, including the rights of conversion set forth in Section 6. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series B Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date but which it has not redeemed. SECTION 9.Covenants. In addition to any other rights provided by law, so long as at least twenty-five percent (25%) of the authorized Series B Preferred Stock shall be outstanding, the Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of not less than a majority of the outstanding shares of Series B Preferred Stock: (a) amend or repeal any provision of the Corporation?s Amended or Restated Certificate of Incorporation, certificates of designation or Bylaws if such action would materially and adversely alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series B Preferred Stock; or (b) authorize or issue shares of any class or series of stock having any preference or priority as to dividends or assets superior to or on parity with any such preference or priority of the Series B Preferred Stock. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 11 12 IN WITNESS WHEREOF, Superconductor Technologies Inc. has caused this Certificate to be signed by Peter Thomas, its Chief Executive Officer, this 2nd day of September, 1998. /s/ M. Peter Thomas -------------------------------------- M. Peter Thomas Chief Executive Officer 12 13 EXHIBIT A NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Series B Preferred Stock) The undersigned hereby irrevocably elects to convert ______ shares of Series B Preferred Stock, represented by stock certificate No(s). __________ (the "Preferred Stock Certificates") into shares of common stock ("Common Stock") of Superconductor Technologies Inc. (the "Corporation") according to the conditions of the Certificate of Designation of Series B Preferred Stock, as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof). The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series B Preferred Stock shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from registration under the Act. Date of Conversion:___________________________ Applicable Conversion Price:____________________ Number of Shares of Common Stock to be Issued:_____________________ Signature:____________________________________ Name:_______________________________________ Address:______________________________________ *The Corporation is not required to issue shares of Common Stock until the original Series B Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Corporation or its Transfer Agent. EX-4.2 5 SERIES A PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 4.2 ================================================================================ SUPERCONDUCTOR TECHNOLOGIES INC. 460 WARD DRIVE SUITE F SANTA BARBARA, CALIFORNIA 93111 SERIES A PREFERRED STOCK PURCHASE AGREEMENT MARCH 26, 1998 ================================================================================ 2 TABLE OF CONTENTS (CONTINUED) PAGE TABLE OF CONTENTS
PAGE ---- SECTION 1 AUTHORIZATION AND SALE OF PREFERRED STOCK; ISSUANCE OF WARRANTS..........................1 1.1 AUTHORIZATION.....................................................................1 1.2 SALE OF SHARES; ISSUANCE OF WARRANTS..............................................1 1.3 SUBSEQUENT SALES OF ADDITIONAL SHARES.............................................1 SECTION 2 CLOSING DATES; DELIVERY..................................................................2 2.1 CLOSING...........................................................................2 2.2 DELIVERY..........................................................................2 SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................3 3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS.................................3 3.2 CORPORATE POWER...................................................................3 3.3 SUBSIDIARIES......................................................................3 3.4 CAPITALIZATION....................................................................3 3.5 AUTHORIZATION.....................................................................4 3.6 FINANCIAL STATEMENTS..............................................................4 3.7 CHANGES...........................................................................5 3.8 MATERIAL OBLIGATIONS..............................................................5 3.9 MATERIAL CONTRACTS AND COMMITMENTS................................................5 3.10 INTELLECTUAL PROPERTY, TRADEMARKS, ETC............................................5 3.11 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC........................................6 3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC...........................6 3.13 LITIGATION, ETC...................................................................6 3.14 REGISTRATION RIGHTS...............................................................6 3.15 GOVERNMENTAL CONSENT, ETC.........................................................6 3.16 OFFERING..........................................................................7 3.17 BROKERS OR FINDERS................................................................7 3.18 TAX RETURNS AND PAYMENTS..........................................................7 3.19 EMPLOYEE MATTERS..................................................................7 3.20 DISCLOSURE........................................................................7 Section 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................................7 4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT......................................7 4.2 INVESTMENT........................................................................8 4.3 RULE 144..........................................................................8 4.4 NO PUBLIC MARKET..................................................................8 4.5 ACCESS TO DATA....................................................................8 4.6 AUTHORIZATION.....................................................................8 4.7 BROKERS OR FINDERS................................................................9 4.8 TAX LIABILITY.....................................................................9
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PAGE ---- SECTION 5 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE.........................................9 5.1 REPRESENTATIONS AND WARRANTIES CORRECT............................................9 5.2 COVENANTS.........................................................................9 5.3 BLUE SKY..........................................................................9 5.4 CERTIFICATE OF DESIGNATION........................................................9 5.5 RIGHTS AGREEMENT.................................................................10 5.6 COMPLIANCE CERTIFICATE...........................................................10 5.7 COMPLIANCE WITH LAW..............................................................10 5.8 OPINION OF COMPANY'S COUNSEL.....................................................10 SECTION 6 CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE..........................................10 6.1 REPRESENTATIONS..................................................................10 6.2 COVENANTS........................................................................10 6.3 BLUE SKY.........................................................................10 6.4 CERTIFICATE OF DESIGNATION.......................................................10 6.5 RIGHTS AGREEMENT.................................................................10 6.6 COMPLIANCE WITH LAW..............................................................11 SECTION 7 CONFIDENTIAL INFORMATION..............................................................11 7.1 CONFIDENTIAL BUSINESS INFORMATION................................................11 SECTION 8 MISCELLANEOUS.........................................................................11 8.1 GOVERNING LAW....................................................................11 8.2 SURVIVAL.........................................................................11 8.3 SUCCESSORS AND ASSIGNS...........................................................11 8.4 ENTIRE AGREEMENT; AMENDMENT......................................................12 8.5 NOTICES, ETC.....................................................................12 8.6 DELAYS OR OMISSIONS..............................................................12 8.7 CALIFORNIA CORPORATE SECURITIES LAW..............................................13 8.8 COUNTERPARTS.....................................................................13 8.9 SEVERABILITY.....................................................................13 8.10 TITLES AND SUBTITLES.............................................................13 8.11 EXPENSES.........................................................................13
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PAGE ---- EXHIBITS A Schedule of Purchasers B Certificate of Designation C Warrant D Exceptions to Representations and Warranties E Stockholder Rights Agreement F Compliance Certificate G Opinion of Counsel
ii 5 SUPERCONDUCTOR TECHNOLOGIES, INC. SERIES A PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of March 26, 1998 by and among Superconductor Technologies Inc., a Delaware corporation (the "Company"), and the persons and entities listed on the Schedule of Purchasers attached hereto as Exhibit A (the "Purchasers"). SECTION 1 AUTHORIZATION AND SALE OF PREFERRED STOCK; ISSUANCE OF WARRANTS 1.1 AUTHORIZATION. The Company will, prior to the Initial Closing (as defined below), authorize the sale and issuance of (i) up to 833,333 shares (the "Shares") of the Company's Series A Preferred Stock ("Series A Preferred"), having the rights, privileges and preferences as set forth in the Certificate of Designation (the "Certificate") in the form attached to this Agreement as Exhibit B and (ii) the Warrants (as defined below) to purchase up to 166,667 shares of the Common Stock (as defined below). 1.2 SALE OF SHARES; ISSUANCE OF WARRANTS. Subject to the terms and conditions of this Agreement, each of the Purchasers agrees to purchase and the Company agrees to sell and issue to each Purchaser: (a) the number of Shares set forth in the column designated "Number of Series A Shares" opposite such Purchaser's name on the Schedule of Purchasers, at a cash price of $6.00 per share; and (b) a warrant or warrants in the form attached to this Agreement as Exhibit C (the "Warrants") which shall permit such Purchaser to initially purchase a number of shares of Common Stock set forth in the column designated "Warrants for Number of Common Stock" opposite such Purchaser's name on the Schedule of Purchasers, at an exercise price of $4.00 per share. The Company's agreement with each Purchaser is a separate agreement, and the sale and issuance of the Shares, the Additional Shares (as defined below) and the Warrants to each Purchaser is a separate sale and issuance. 1.3 SUBSEQUENT SALES OF ADDITIONAL SHARES. (a) The Company shall have the option, exercisable at its sole discretion for a period of twelve (12) months following the Initial Closing (the "Exercise Period") by delivering written notice (the "Exercise Notice") thereof at least ten (10) business days prior to the Closing (as defined below) to the Purchasers, to require the Purchasers to purchase up to 333,333 additional 6 Shares (the "Additional Shares") at the price and on the terms set forth in this Agreement; provided, however, prior to exercising such option, the Company must demonstrate to the reasonable satisfaction of the Purchasers it has completed manufacture of at least forty-five (45) commercially saleable superfilter systems between April 1, 1998 and August 31, 1998. Subject to the terms and conditions hereof, each of the Purchasers agrees to purchase the same percentage of such Additional Shares that the number of Shares purchased by it set forth on the Schedule of Purchasers represents as a percentage of the total number of Shares purchased by all the Purchasers set forth on the Schedule of Purchasers (a "Proportionate Percentage"). Any unresolved dispute or controversy arising under or in connection with this Section 1.3 shall be settled by binding mediation by a mediator mutually selected by the Company and the Purchasers. The direct expense of any mediation proceeding shall be borne equally by the Company and the Purchasers and each party shall bear its own counsel fees. (b) In connection with any sale and issuance of Additional Shares pursuant to Section 1.3(a) above, the Company agrees to issue a Warrant or Warrants which shall permit each Purchaser to initially purchase a number of shares of Common Stock equal to twenty percent (20%) (rounded to the nearest whole number) of such Purchaser's Proportionate Percentage. SECTION 2 CLOSING DATES; DELIVERY 2.1 CLOSING. The purchase and sale of the Shares and the Additional Shares and the issuance of the Warrants hereunder shall take place at one or more closings (each of which is referred to in this Agreement as a "Closing"). The initial closing (the "Initial Closing") for the Shares and the initial Warrants shall take place on March 26, 1998 and the Closing for the Additional Shares and additional Warrants shall take place no later than one (1) month after the Exercise Notice. Each Closing shall be held at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, on each Closing Date, or at such other time and place upon which the Company and the Purchasers shall agree. 2.2 DELIVERY. At each Closing, the Company will deliver to each Purchaser a certificate registered in such Purchaser's name representing the number of Shares or Additional Shares that such Purchaser is purchasing against payment of the purchase price therefor as set forth in the column designated "Purchase Price" opposite such Purchaser's name on the Schedule of Purchasers or as determined by multiplying the number of Additional Shares required to be purchased pursuant to Section 1.3 by the purchase price per share of $6.00, by cashier's or certified check payable to the Company or wire transfer of immediately available funds per the Company's instructions. At the Initial Closing, the Company will deliver to each purchaser a Warrant evidencing the right to purchase a number of shares of Common Stock as set forth in the column designated "Warrants for Number of Common Stock" opposite such Purchaser's name on the Schedule of Purchasers. At the Closing for the Additional Shares, the Company will deliver to each Purchaser a Warrant evidencing the right to purchase a number of shares of Common Stock equal to twenty percent (20%) (rounded to the nearest whole number) of such Purchaser's Proportionate Percentage. 2 7 SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on Exhibit D attached hereto, the Company represents and warrants to the Purchasers as of the date of this Agreement as follows: 3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business. The Company is presently qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on the Company's business, operating results or financial condition (a "Material Adverse Effect"). 3.2 CORPORATE POWER. The Company has all requisite legal and corporate power and authority to execute and deliver this Agreement and that certain Stockholder Rights Agreement substantially in the form attached hereto as Exhibit E (the "Rights Agreement"), to sell and issue the Warrants, Shares and Additional Shares hereunder, to issue the shares of the common stock of the Company (the "Common Stock") issuable upon conversion of the Shares and Additional Shares, to issue the Common Stock issuable on exercise of the Warrants and to carry out and perform its obligations under the terms of this Agreement and the Rights Agreement (together the "Agreements"). 3.3 SUBSIDIARIES. Except for Cryo-Asia Pte Ltd., a joint venture with Alantac in Singapore, the Company has no subsidiaries and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists or will, upon the filing of the Certificate, consist of 15,000,000 shares of Common Stock, par value $0.001 per share, of which 7,707,081 shares are issued and outstanding as of the date of this Agreement, and 2,000,000 shares of Preferred Stock, of which 833,333 shares have been designated "Series A Preferred" and none of which are issued and outstanding prior to the Initial Closing. The outstanding shares have been duly authorized and validly issued in compliance with applicable laws, and are fully paid and nonassessable. The Company has reserved (a) 833,333 shares of Series A Preferred for issuance hereunder, (b) 1,666,666 shares of Common Stock for issuance upon conversion of the Series A Preferred, (c) 166,667 shares of Common Stock for issuance upon exercise of the Warrants, (d) 1,828,909 shares of its Common Stock for issuance to employees, consultants or directors pursuant to its 1992 Director Option Plan, 1992 Stock Option Plan and Amended and Restated 1988 Stock Option Plan, of which options to purchase 1,528,396 shares are issued and outstanding and (e) a total of 150,000 shares of Common Stock for issuance upon exercise of certain outstanding warrants. The Common Stock and the Series A Preferred shall have the rights, preferences, privileges and restrictions set forth in the Amended and Restated Certificate of 3 8 Incorporation (the "Certificate of Incorporation") of the Company and the Certificate. Except as set forth above, there are no options, warrants or other rights to purchase any of the Company's authorized and unissued capital stock. 3.5 AUTHORIZATION. All corporate action on the part of the Company and its directors necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Warrants, Shares and Additional Shares, the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants, and the performance of all of the Company's obligations under the Agreements has been taken or will be taken prior to the Initial Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, except that the indemnification provisions of Section 1.10 of the Rights Agreement may further be limited by principles of public policy. The Warrants, Shares and Additional Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, will be fully paid and nonassessable, and will have the rights, preferences and privileges described in the certificate representing the Warrants and the Certificate; the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, the Certificate of Incorporation of the Company, the Certificate and the certificate representing the Warrants will be validly issued, and will be fully paid and nonassessable; and the Shares and Additional Shares and the Common Stock issued upon conversion of the Shares and Additional Shares and upon exercise of the Warrants, will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed upon the Purchasers; provided, however, that the Shares and Additional Shares, and the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants, are subject to restrictions on transfer under state and/or federal securities laws as set forth herein and in the Rights Agreement. 3.6 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser copies of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 (the "Reports"). The financial statements included within the Reports are complete and correct in all material respects and accurately set out and describe the financial condition and operating results of the Company as of the dates and during the periods indicated therein, subject only, in the case of financial statements included in the Quarterly Reports, to footnotes and normal year-end adjustments. 4 9 3.7 CHANGES. Since the date of the Company's last Quarterly Report on Form 10-Q, there has not been: (a) Any change in the assets, liabilities, financial condition, or operations of the Company except changes in the ordinary course of business which have not been in any case materially adverse; (b) Any damage, destruction, or loss, whether or not covered by insurance, materially and adversely affecting the properties or business of the Company; (c) Any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) Any loans made by the Company to its employees, officers or directors other than travel advances made in the ordinary course of business; (e) Any declaration or payment of any dividend or other distribution by the Company; or (f) To the best of the Company's knowledge, any other event or condition of any character which has materially and adversely affected the business operations, assets or financial condition of the Company. 3.8 MATERIAL OBLIGATIONS. The Company has no material liabilities or obligations, absolute or contingent (individually or in the aggregate), except (i) the liabilities and obligations set forth in the Reports, and (ii) liabilities and obligations which have been incurred subsequent to September 30, 1997, in the ordinary course of business which have not been, either in any case or in the aggregate, material. 3.9 MATERIAL CONTRACTS AND COMMITMENTS. To the best of the Company's knowledge, all of the contracts, agreements and instruments to which the Company is a party and which are set forth or incorporated by reference in the Reports (the "Material Agreements") are valid, binding and in full force and effect in all material respects, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 3.10 INTELLECTUAL PROPERTY, TRADEMARKS, ETC. The Company has the right to use, free and clear of all liens, charges, claims and restrictions, all intellectual property, patents, trademarks, service marks, trade names, copyrights, licenses and rights necessary to the business of the Company as presently conducted, except to the extent that a Material Adverse Effect could not reasonably be expected to result. To the Company's knowledge, the Company is not infringing upon or otherwise acting adversely to the right or claimed right of any other person under or with respect to any such intellectual property, patents, trademarks, service marks, trade names, copyrights, licenses or rights. 5 10 3.11 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company is not in violation of any term of the Certificate of Incorporation or Bylaws, each as amended to date, or in any material respect of any term or provision of any Material Agreement, judgment, decree, order, statute, rule or regulation applicable to the Company in any respect that could reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance of this Agreement, and the issuance of the Warrants, Shares and Additional Shares and the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants, have not resulted and will not result in any material violation of, or conflict with, or constitute a material default under, the Certificate of Incorporation or Bylaws, as amended, nor any of the Material Agreements, nor result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.13 LITIGATION, ETC. There are no actions, suits, proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any reasonable basis therefor or threat thereof) which, if adversely determined, would have a Material Adverse Effect. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. 3.14 REGISTRATION RIGHTS. Except as set forth in the Rights Agreement attached hereto as Exhibit E, the Company is not under any contractual obligation to register (as defined in Section 1.2 of the Rights Agreement) any of its presently outstanding securities or any of its securities which may hereafter be issued. 3.15 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Agreements, or the offer, sale or issuance of the Warrants, Shares and Additional Shares, and the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants, or the consummation of any other transaction contemplated hereby or thereby, except (a) filing of the Certificate in the office of the Delaware Secretary of State, and (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer, sale and issuance of the Warrants, Shares and Additional Shares (and the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants) under the California Corporate Securities Law of 1968, as amended, and other applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner. 6 11 3.16 OFFERING. Subject to the accuracy of the Purchasers' representations in Section 4 hereof, the offer, sale and issuance of the Warrants, Shares and Additional Shares to be issued in conformity with the terms of this Agreement, and the issuance of the Common Stock to be issued upon conversion of the Shares and Additional Shares and upon exercise of the Warrants, constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"). 3.17 BROKERS OR FINDERS. The Company has not engaged any brokers, finders or agents, and the Purchasers have not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreements. 3.18 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and to the Company's knowledge all other taxes due and payable by the Company on or before the date hereof have been paid or will be paid prior to the time they become delinquent. The Company has not been advised (i) that any of its returns, federal, state or other, have been or are being audited as of the date hereof, or (ii) of any deficiency in assessment or proposed judgment to its federal, state or other taxes. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for. 3.19 EMPLOYEE MATTERS. The Company does not have any collective bargaining agreements with any of its employees and no labor union organizing activity is pending or threatened with respect to the Company. 3.20 DISCLOSURE. To the best of the Company's knowledge, this Agreement (including the Exhibits hereto) does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein not misleading in light of the circumstances under which they were made. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser hereby severally represents and warrants to the Company with respect to the purchase of Shares and Additional Shares by and the issuance of the Warrants to such Purchaser and with respect only to such Purchaser, as follows: 4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. The Purchaser (or its principals or advisors) has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. The Purchaser 7 12 acknowledges that its investment in the Company is highly speculative and entails a substantial degree of risk and the Purchaser is in a position to lose the entire amount of such investment. 4.2 INVESTMENT. The Purchaser is acquiring the Warrants, Shares and Additional Shares and the underlying Common Stock for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. The Purchaser understands that the Warrants and Series A Preferred to be purchased hereby and the underlying Common Stock have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations as expressed herein. The Purchaser is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission. 4.3 RULE 144. The Purchaser acknowledges that the Warrants, Shares and Additional Shares and the underlying Common Stock must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. The Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. The Purchaser understands that the certificates evidencing the Warrants, Shares and Additional Shares will be imprinted with a legend that prohibits the transfer of such securities unless they are registered or such registration is not required. 4.4 NO PUBLIC MARKET. The Purchaser understands that no public market now exists for the Warrants and the Series A Preferred to be issued by the Company and that the Company has made no assurances that a public market will ever exist for the Warrants and the Series A Preferred. 4.5 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the Company's business, management and financial affairs with its management. The Purchaser has also had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Purchaser understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.6 AUTHORIZATION. The Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except as the indemnification provisions of Section 1.10 of the Rights Agreement may be limited by principles of public policy, and subject to laws of general application relating to 8 13 bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 4.7 BROKERS OR FINDERS. The Purchaser has not engaged any brokers, finders or agents, and the Company has not, and will not, incur, directly or indirectly, as a result of any action taken by Purchasers, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreements. In the event that the preceding sentence is in any way inaccurate, such Purchaser agrees to indemnify and hold harmless the Company and each other Purchaser from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability) for which the Company, any other Purchaser, or any of their officers, directors, employees or representatives, is responsible. 4.8 TAX LIABILITY. The Purchaser has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Agreements. With respect to such matters, the Purchaser relies solely on such advisors and not on any statements or representations of the Company or any of its agents other than the representations and warranties set forth herein. The Purchaser understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Agreements. SECTION 5 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE The Purchasers' obligations to purchase the Shares and Additional Shares at each Closing are, unless waived by the Purchasers, subject to the fulfillment of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by the Company on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the issuance of the Warrants, offer and sale of the Shares and Additional Shares and the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants. 5.4 CERTIFICATE OF DESIGNATION. The Certificate shall have been duly authorized, executed and filed with the Secretary of State of the State of Delaware. 9 14 5.5 RIGHTS AGREEMENT. The Company and the Purchasers shall have executed and delivered the Rights Agreement. 5.6 COMPLIANCE CERTIFICATE. The Chief Executive Officer of the Company shall have executed a Compliance Certificate, in the form of Exhibit F hereto, certifying the satisfaction of the conditions to closing listed in Sections 5.1 and 5.2 hereof. 5.7 COMPLIANCE WITH LAW. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the sale and issuance of the Warrants, Shares and Additional Shares and the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants and the consummation of the transactions contemplated hereby. 5.8 OPINION OF COMPANY'S COUNSEL. Purchasers shall have received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion addressed to the Purchasers, dated the Closing Date and in substantially the form attached as Exhibit G. SECTION 6 CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE The Company's obligation to sell and issue the Shares and Additional Shares at each Closing is, unless waived by the Company, subject to the fulfillment of the following conditions: 6.1 REPRESENTATIONS. The representations and warranties made by the Purchasers in Section 4 hereof shall be true and correct as of the Closing Date. 6.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by Purchasers on or prior to the Closing Date shall have been performed or complied with in all material respects. 6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the issuance of the Warrants, offer and sale of the Shares and Additional Shares and the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants. 6.4 CERTIFICATE OF DESIGNATION. The Certificate shall have been duly authorized, executed and filed with the Secretary of State of the State of Delaware. 6.5 RIGHTS AGREEMENT. The Company and the Purchasers shall have executed and delivered the Rights Agreement. 10 15 6.6 COMPLIANCE WITH LAW. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the sale and issuance of the Warrants, Shares and Additional Shares and the Common Stock issuable upon conversion of the Shares and Additional Shares and upon exercise of the Warrants and the consummation of the transactions contemplated hereby. SECTION 7 CONFIDENTIAL INFORMATION 7.1 CONFIDENTIAL BUSINESS INFORMATION. The Purchasers covenant and agree that they shall maintain the confidentiality of all non-public information related to the business of the Company made available to them and/or any of their representatives by the Company ("Confidential Business Information") and shall not utilize any Confidential Business Information in connection with purchases or sales of the Company's securities except in compliance with applicable state and federal anti-fraud statutes. The Purchasers further covenant and agree that they shall not disclose any Confidential Business Information to any person or entity without the prior written consent of the Company. The term "Purchaser" as used in this Section 7.1 includes all partners, officers, directors, affiliates, employees, attorneys, accountants and other agents and representatives of the Purchaser. Notwithstanding the above, Confidential Business Information shall not include (i) information known to the public generally, (ii) information known to the Purchaser from an independent source prior to the receipt of such information from the Company and (iii) information required to be disclosed by the Purchaser by court order or otherwise required by law, provided, however, that in the event of a required disclosure pursuant to this clause (iii), the Purchaser shall give the Company prompt written notice of any such requirement so that the Company may seek a protective order or other appropriate remedy. The Purchasers agree that violation of this Section 7.1 would cause immediate and irreparable damage to the business of the Company, and consent to the entry of immediate and permanent injunctive relief for any violation hereof. SECTION 8 MISCELLANEOUS 8.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California. 8.2 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchasers and the closing of the transactions contemplated hereby. 8.3 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 11 16 administrators of the parties hereto; provided, however, that the rights of the Purchasers to purchase the Shares and Additional Shares and obtain the Warrants on such purchase shall not be assignable without the prior written consent of the Company. 8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents delivered pursuant hereto at each Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that Purchasers holding a majority of the Shares and Additional Shares (including any shares of Common Stock issued upon conversion of the Shares and Additional Shares) may, with the Company's prior written consent, waive, modify, or amend on behalf of all Purchasers, any provision hereof. 8.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Purchaser, at such Purchaser's address, as shown on the Schedule of Purchasers, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any Shares or Additional Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares or Additional Shares who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Chief Executive Officer, or at such other address as the Company shall have furnished to the Purchasers. 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. 8.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 12 17 8.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 8.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 8.9 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 8.10 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 8.11 EXPENSES. The Company and the Purchasers shall each bear their own fees, costs and expenses incurred on their behalf with respect to the Agreement and the transactions contemplated hereby and any amendments or waiver thereto. 13 18 The foregoing Agreement is hereby executed as of the date first above written. "COMPANY" SUPERCONDUCTOR TECHNOLOGIES INC. a Delaware corporation By: /s/ Peter Thomas -------------------------------------- Name: Peter Thomas Title: Chief Executive Officer "PURCHASER" WILMINGTON SECURITIES, INC. By: /s/ Andrew H. McQuarrie -------------------------------------- Name: Andrew H. McQuarrie Title: Vice President [SIGNATURE PAGE TO PURCHASE AGREEMENT] 14 19 EXHIBIT A SCHEDULE OF PURCHASERS INITIAL CLOSING MARCH 26, 1998
WARRANTS FOR NUMBER OF NUMBER OF NAME AND ADDRESS SERIES A SHARES PURCHASE PRICE COMMON STOCK - ----------------------------- --------------- -------------- ------------- Wilmington Securities, Inc. 500,000 $3,000,000 100,000 824 Market Street, Suite 900 Wilmington, DE 19801 Attn: Andrew H. McQuarrie TOTAL: 500,000 $3,000,000 100,000
EX-4.3 6 SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 4.3 ================================================================================ SUPERCONDUCTOR TECHNOLOGIES INC. 460 WARD DRIVE SUITE F SANTA BARBARA, CALIFORNIA 93111 SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT AUGUST 11, 1998 ================================================================================ 2 TABLE OF CONTENTS
PAGE Section 1 Authorization and Sale of Preferred Stock; Issuance of Warrants....................... 1 1.1 Authorization..................................................................... 1 1.2 Sale of Shares; Issuance of Warrants.............................................. 1 Section 2 Closing Dates; Delivery............................................................... 1 2.1 Closing........................................................................... 1 2.2 Delivery.......................................................................... 2 Section 3 Representations and Warranties of the Company......................................... 2 3.1 Organization and Standing; Certificate and Bylaws................................. 2 3.2 Corporate Power................................................................... 2 3.3 Subsidiaries...................................................................... 2 3.4 Capitalization.................................................................... 2 3.5 Authorization..................................................................... 3 3.6 Financial Statements.............................................................. 3 3.7 Changes........................................................................... 4 3.8 Material Obligations.............................................................. 4 3.9 Material Contracts and Commitments................................................ 4 3.10 Intellectual Property, Trademarks, etc............................................ 4 3.11 Title to Properties and Assets; Liens, etc........................................ 5 3.12 Compliance with Other Instruments, None Burdensome, etc........................... 5 3.13 Litigation, etc................................................................... 5 3.14 Registration Rights............................................................... 5 3.15 Governmental Consent, etc......................................................... 5 3.16 Offering.......................................................................... 6 3.17 Brokers or Finders................................................................ 6 3.18 Tax Returns and Payments.......................................................... 6 3.19 Employee Matters.................................................................. 6 3.20 Disclosure........................................................................ 6 Section 4 Representations and Warranties of the Purchasers...................................... 6 4.1 Experience; Speculative Nature of Investment...................................... 6 4.2 Investment........................................................................ 7 4.3 Rule 144.......................................................................... 7 4.4 No Public Market.................................................................. 7 4.5 Access to Data.................................................................... 7 4.6 Authorization..................................................................... 7 4.7 Brokers or Finders................................................................ 8 4.8 Tax Liability..................................................................... 8 Section 5 Conditions to Purchasers' Obligations to Close........................................ 8
i 3 TABLE OF CONTENTS (CONTINUED) 5.1 Representations and Warranties Correct............................................ 8 5.2 Covenants......................................................................... 8 5.3 Blue Sky.......................................................................... 8 5.4 Certificate of Designation........................................................ 8 5.5 Rights Agreement.................................................................. 9 5.6 Compliance Certificate............................................................ 9 5.7 Compliance with Law............................................................... 9 5.8 Opinion of Company's Counsel...................................................... 9 Section 6 Conditions to Company's Obligations to Close.......................................... 9 6.1 Representations................................................................... 9 6.2 Covenants......................................................................... 9 6.3 Blue Sky.......................................................................... 9 6.4 Certificate of Designation........................................................ 9 6.5 Rights Agreement.................................................................. 9 6.6 Compliance with Law............................................................... 10 Section 7 Confidential Information.............................................................. 10 7.1 Confidential Business Information................................................. 10 Section 8 Miscellaneous......................................................................... 10 8.1 Governing Law..................................................................... 10 8.2 Survival.......................................................................... 10 8.3 Successors and Assigns............................................................ 10 8.4 Entire Agreement; Amendment....................................................... 11 8.5 Notices, etc...................................................................... 11 8.6 Delays or Omissions............................................................... 11 8.7 California Corporate Securities Law............................................... 12 8.8 Counterparts...................................................................... 12 8.9 Severability...................................................................... 12 8.10 Titles and Subtitles.............................................................. 12 8.11 Expenses.......................................................................... 12 EXHIBITS A Schedule of Purchasers B Certificate of Designation C Warrant D Exceptions to Representations and Warranties
ii 4 TABLE OF CONTENTS (CONTINUED) E Stockholder Rights Agreement F Compliance Certificate G Opinion of Counsel
iii 5 SUPERCONDUCTOR TECHNOLOGIES, INC. SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of August 11, 1998 by and among Superconductor Technologies Inc., a Delaware corporation (the "Company"), and the persons and entities listed on the Schedule of Purchasers attached hereto as Exhibit A (the "Purchasers"). SECTION 1 AUTHORIZATION AND SALE OF PREFERRED STOCK; ISSUANCE OF WARRANTS 1.1 AUTHORIZATION. The Company will, prior to the Closing (as defined below), authorize the sale and issuance of (i) up to 125,000 shares (the "Shares") of the Company's Series A-1 Preferred Stock ("Series A-1 Preferred"), having the rights, privileges and preferences as set forth in the Certificate of Designation (the "Certificate") in the form attached to this Agreement as Exhibit B and (ii) the Warrants (as defined below) to purchase up to 66,667 shares of the Common Stock (as defined below). 1.2 SALE OF SHARES; ISSUANCE OF WARRANTS. Subject to the terms and conditions of this Agreement, each of the Purchasers agrees to purchase and the Company agrees to sell and issue to each Purchaser: (a) the number of Shares set forth in the column designated "Number of Series A-1 Shares" opposite such Purchaser's name on the Schedule of Purchasers, at a cash price of $8.00 per share; and (b) a warrant or warrants in the form attached to this Agreement as Exhibit C (the "Warrants") which shall permit such Purchaser to initially purchase a number of shares of Common Stock set forth in the column designated "Warrants for Number of Common Stock" opposite such Purchaser's name on the Schedule of Purchasers, at an exercise price of $4.00 per share. The Company's agreement with each Purchaser is a separate agreement, and the sale and issuance of the Shares and the Warrants to each Purchaser is a separate sale and issuance. SECTION 2 CLOSING DATES; DELIVERY 2.1 CLOSING. The closing (the "Closing") for the purchase and sale of the Shares and the issuance of the Warrants hereunder shall take place on August 11, 1998 (the "Closing"). The Closing shall be held at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo 6 Alto, California, or at such other time and place upon which the Company and the Purchasers shall agree. 2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser a certificate registered in such Purchaser's name representing the number of Shares that such Purchaser is purchasing against payment of the purchase price therefor as set forth in the column designated "Purchase Price" opposite such Purchaser's name on the Schedule of Purchasers, by cashier's or certified check payable to the Company or wire transfer of immediately available funds per the Company's instructions. At the Closing, the Company will deliver to each purchaser a Warrant evidencing the right to purchase a number of shares of Common Stock as set forth in the column designated "Warrants for Number of Common Stock" opposite such Purchaser's name on the Schedule of Purchasers. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on Exhibit D attached hereto, the Company represents and warrants to the Purchasers as of the date of this Agreement as follows: 3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business. The Company is presently qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on the Company's business, operating results or financial condition (a "Material Adverse Effect"). 3.2 CORPORATE POWER. The Company has all requisite legal and corporate power and authority to execute and deliver this Agreement and that certain Amended and Restated Stockholder Rights Agreement substantially in the form attached hereto as Exhibit E (the "Rights Agreement"), to sell and issue the Warrants and Shares hereunder, to issue the shares of the common stock of the Company (the "Common Stock") issuable upon conversion of the Shares, to issue the Common Stock issuable on exercise of the Warrants and to carry out and perform its obligations under the terms of this Agreement and the Rights Agreement (together the "Agreements"). 3.3 SUBSIDIARIES. Except for Cryo-Asia Pte Ltd., a joint venture with Alantac in Singapore, the Company has no subsidiaries and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists or will, upon the filing of the Certificate, consist of (a) 30,000,000 shares of Common Stock, par value $0.001 per share, of which 7,715,081 shares are issued and outstanding as of the date of this Agreement, and (b) 2,000,000 shares of Preferred Stock, of which (i) 500,000 shares have been designated "Series A 2 7 Preferred", all of which are issued and outstanding, and (ii) 125,000 shares have been designated "Series A-1 Preferred", none of which are issued and outstanding prior to the Closing. The outstanding shares have been duly authorized and validly issued in compliance with applicable laws, and are fully paid and nonassessable. The Company has reserved (a) 125,000 shares of Series A-1 Preferred for issuance hereunder, (b) 1,250,000 shares of Common Stock for issuance upon conversion of the Preferred Stock, (c) 166,667 shares of Common Stock for issuance upon exercise of the warrants issued in connection with the Series A Preferred financing and the Warrants, (d) 2,078,909 shares of its Common Stock for issuance to employees, consultants or directors pursuant to its 1992 Director Option Plan, 1992 Stock Option Plan, Amended and Restated 1988 Stock Option Plan and 1998 Nonstatutory Option Plan, of which options to purchase 1,809,093 shares are issued and outstanding and (e) a total of 150,000 shares of Common Stock for issuance upon exercise of certain outstanding warrants. The Common Stock, the Series A Preferred and the Series A-1 Preferred shall have the rights, preferences, privileges and restrictions set forth in the Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") of the Company and the Certificate. Except as set forth above, there are no options, warrants or other rights to purchase any of the Company's authorized and unissued capital stock. 3.5 AUTHORIZATION. All corporate action on the part of the Company and its directors necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Warrants, Shares and the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants, and the performance of all of the Company's obligations under the Agreements has been taken or will be taken prior to the Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, except that the indemnification provisions of Section 1.10 of the Rights Agreement may further be limited by principles of public policy. The Warrants and Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, will be fully paid and nonassessable, and will have the rights, preferences and privileges described in the certificate representing the Warrants and the Certificate; the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, the Certificate of Incorporation of the Company, the Certificate and the certificate representing the Warrants will be validly issued, and will be fully paid and nonassessable; and the Shares and the Common Stock issued upon conversion of the Shares and upon exercise of the Warrants, will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed upon the Purchasers; provided, however, that the Shares, and the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants, are subject to restrictions on transfer under state and/or federal securities laws as set forth herein and in the Rights Agreement. 3.6 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser copies of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 1998 (the "Reports"). The financial statements included within the Reports are complete and correct in all material respects and 3 8 accurately set out and describe the financial condition and operating results of the Company as of the dates and during the periods indicated therein, subject only, in the case of financial statements included in the Quarterly Reports, to footnotes and normal year-end adjustments. 3.7 CHANGES. Since the date of the Company's last Quarterly Report on Form 10-Q, there has not been: (a) Any change in the assets, liabilities, financial condition, or operations of the Company except changes in the ordinary course of business which have not been in any case materially adverse; (b) Any damage, destruction, or loss, whether or not covered by insurance, materially and adversely affecting the properties or business of the Company; (c) Any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) Any loans made by the Company to its employees, officers or directors other than travel advances made in the ordinary course of business; (e) Any declaration or payment of any dividend or other distribution by the Company; or (f) To the best of the Company's knowledge, any other event or condition of any character which has materially and adversely affected the business operations, assets or financial condition of the Company. 3.8 MATERIAL OBLIGATIONS. The Company has no material liabilities or obligations, absolute or contingent (individually or in the aggregate), except (i) the liabilities and obligations set forth in the Reports, and (ii) liabilities and obligations which have been incurred subsequent to March 28, 1998, in the ordinary course of business which have not been, either in any case or in the aggregate, material. 3.9 MATERIAL CONTRACTS AND COMMITMENTS. To the best of the Company's knowledge, all of the contracts, agreements and instruments to which the Company is a party and which are set forth or incorporated by reference in the Reports (the "Material Agreements") are valid, binding and in full force and effect in all material respects, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 3.10 INTELLECTUAL PROPERTY, TRADEMARKS, ETC. The Company has the right to use, free and clear of all liens, charges, claims and restrictions, all intellectual property, patents, trademarks, service marks, trade names, copyrights, licenses and rights necessary to the business of the Company as presently conducted, except to the extent that a Material Adverse Effect could not reasonably be 4 9 expected to result. To the Company's knowledge, the Company is not infringing upon or otherwise acting adversely to the right or claimed right of any other person under or with respect to any such intellectual property, patents, trademarks, service marks, trade names, copyrights, licenses or rights. 3.11 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company is not in violation of any term of the Certificate of Incorporation or Bylaws, each as amended to date, or in any material respect of any term or provision of any Material Agreement, judgment, decree, order, statute, rule or regulation applicable to the Company in any respect that could reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance of this Agreement, and the issuance of the Warrants, Shares and the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants, have not resulted and will not result in any material violation of, or conflict with, or constitute a material default under, the Certificate of Incorporation or Bylaws, as amended, nor any of the Material Agreements, nor result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.13 LITIGATION, ETC. There are no actions, suits, proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any reasonable basis therefor or threat thereof) which, if adversely determined, would have a Material Adverse Effect. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. 3.14 REGISTRATION RIGHTS. Except as set forth in the Rights Agreement attached hereto as Exhibit E, the Company is not under any contractual obligation to register (as defined in Section 1.2 of the Rights Agreement) any of its presently outstanding securities or any of its securities which may hereafter be issued. 3.15 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Agreements, or the offer, sale or issuance of the Warrants, Shares and the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants, or the consummation of any other transaction contemplated hereby or thereby, except (a) filing of the Certificate in the office of the Delaware Secretary of State, and (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer, sale and issuance of the Warrants and Shares (and the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants) under the 5 10 California Corporate Securities Law of 1968, as amended, and other applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner. 3.16 OFFERING. Subject to the accuracy of the Purchasers' representations in Section 4 hereof, the offer, sale and issuance of the Warrants and Shares to be issued in conformity with the terms of this Agreement, and the issuance of the Common Stock to be issued upon conversion of the Shares and upon exercise of the Warrants, constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"). 3.17 BROKERS OR FINDERS. The Company has not engaged any brokers, finders or agents, and the Purchasers have not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreements. 3.18 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and to the Company's knowledge all other taxes due and payable by the Company on or before the date hereof have been paid or will be paid prior to the time they become delinquent. The Company has not been advised (i) that any of its returns, federal, state or other, have been or are being audited as of the date hereof, or (ii) of any deficiency in assessment or proposed judgment to its federal, state or other taxes. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for. 3.19 EMPLOYEE MATTERS. The Company does not have any collective bargaining agreements with any of its employees and no labor union organizing activity is pending or threatened with respect to the Company. 3.20 DISCLOSURE. To the best of the Company's knowledge, this Agreement (including the Exhibits hereto) does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein not misleading in light of the circumstances under which they were made. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser hereby severally represents and warrants to the Company with respect to the purchase of Shares by and the issuance of the Warrants to such Purchaser and with respect only to such Purchaser, as follows: 4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. The Purchaser (or its principals or advisors) has substantial experience in evaluating and investing in private placement transactions of 6 11 securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. The Purchaser acknowledges that its investment in the Company is highly speculative and entails a substantial degree of risk and the Purchaser is in a position to lose the entire amount of such investment. 4.2 INVESTMENT. The Purchaser is acquiring the Warrants, Shares and the underlying Common Stock for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. The Purchaser understands that the Warrants and Series A-1 Preferred to be purchased hereby and the underlying Common Stock have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations as expressed herein. The Purchaser is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission. 4.3 RULE 144. The Purchaser acknowledges that the Warrants, Shares and the underlying Common Stock must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. The Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. The Purchaser understands that the certificates evidencing the Warrants and Shares will be imprinted with a legend that prohibits the transfer of such securities unless they are registered or such registration is not required. 4.4 NO PUBLIC MARKET. The Purchaser understands that no public market now exists for the Warrants and the Series A-1 Preferred to be issued by the Company and that the Company has made no assurances that a public market will ever exist for the Warrants and the Series A-1 Preferred. 4.5 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the Company's business, management and financial affairs with its management. The Purchaser has also had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Purchaser understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.6 AUTHORIZATION. The Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except as the indemnification provisions of Section 1.10 of the Rights Agreement may be limited by principles of public policy, and subject to laws of general application relating to 7 12 bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 4.7 BROKERS OR FINDERS. The Purchaser has not engaged any brokers, finders or agents, and the Company has not, and will not, incur, directly or indirectly, as a result of any action taken by Purchasers, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreements. In the event that the preceding sentence is in any way inaccurate, such Purchaser agrees to indemnify and hold harmless the Company and each other Purchaser from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability) for which the Company, any other Purchaser, or any of their officers, directors, employees or representatives, is responsible. 4.8 TAX LIABILITY. The Purchaser has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Agreements. With respect to such matters, the Purchaser relies solely on such advisors and not on any statements or representations of the Company or any of its agents other than the representations and warranties set forth herein. The Purchaser understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Agreements. SECTION 5 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE The Purchasers' obligations to purchase the Shares at the Closing are, unless waived by the Purchasers, subject to the fulfillment of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by the Company on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the issuance of the Warrants, offer and sale of the Shares and the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants. 5.4 CERTIFICATE OF DESIGNATION. The Certificate shall have been duly authorized, executed and filed with the Secretary of State of the State of Delaware. 8 13 5.5 RIGHTS AGREEMENT. The Company and the Purchasers shall have executed and delivered the Rights Agreement. 5.6 COMPLIANCE CERTIFICATE. The Chief Executive Officer of the Company shall have executed a Compliance Certificate, in the form of Exhibit F hereto, certifying the satisfaction of the conditions to closing listed in Sections 5.1 and 5.2 hereof. 5.7 COMPLIANCE WITH LAW. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the sale and issuance of the Warrants, Shares and the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants and the consummation of the transactions contemplated hereby. 5.8 OPINION OF COMPANY'S COUNSEL. Purchasers shall have received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion addressed to the Purchasers, dated the Closing Date and in substantially the form attached as Exhibit G. SECTION 6 CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE The Company's obligation to sell and issue the Shares at the Closing is, unless waived by the Company, subject to the fulfillment of the following conditions: 6.1 REPRESENTATIONS. The representations and warranties made by the Purchasers in Section 4 hereof shall be true and correct as of the Closing Date. 6.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by Purchasers on or prior to the Closing Date shall have been performed or complied with in all material respects. 6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the issuance of the Warrants, offer and sale of the Shares and the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants. 6.4 CERTIFICATE OF DESIGNATION. The Certificate shall have been duly authorized, executed and filed with the Secretary of State of the State of Delaware. 6.5 RIGHTS AGREEMENT. The Company and the Purchasers shall have executed and delivered the Rights Agreement. 6.6 COMPLIANCE WITH LAW. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the sale and issuance of the Warrants, Shares and 9 14 the Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants and the consummation of the transactions contemplated hereby. SECTION 7 CONFIDENTIAL INFORMATION 7.1 CONFIDENTIAL BUSINESS INFORMATION. The Purchasers covenant and agree that they shall maintain the confidentiality of all non-public information related to the business of the Company made available to them and/or any of their representatives by the Company ("Confidential Business Information") and shall not utilize any Confidential Business Information in connection with purchases or sales of the Company's securities except in compliance with applicable state and federal anti-fraud statutes. The Purchasers further covenant and agree that they shall not disclose any Confidential Business Information to any person or entity without the prior written consent of the Company. The term "Purchaser" as used in this Section 7.1 includes all partners, officers, directors, affiliates, employees, attorneys, accountants and other agents and representatives of the Purchaser. Notwithstanding the above, Confidential Business Information shall not include (i) information known to the public generally, (ii) information known to the Purchaser from an independent source prior to the receipt of such information from the Company and (iii) information required to be disclosed by the Purchaser by court order or otherwise required by law, provided, however, that in the event of a required disclosure pursuant to this clause (iii), the Purchaser shall give the Company prompt written notice of any such requirement so that the Company may seek a protective order or other appropriate remedy. The Purchasers agree that violation of this Section 7.1 would cause immediate and irreparable damage to the business of the Company, and consent to the entry of immediate and permanent injunctive relief for any violation hereof. SECTION 8 MISCELLANEOUS 8.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California. 8.2 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchasers and the closing of the transactions contemplated hereby. 8.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto; provided, however, that the rights of the Purchasers to purchase the Shares and obtain the Warrants on such purchase shall not be assignable without the prior written consent of the Company. 10 15 8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents delivered pursuant hereto at each Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that Purchasers holding a majority of the Shares (including any shares of Common Stock issued upon conversion of the Shares) may, with the Company's prior written consent, waive, modify, or amend on behalf of all Purchasers, any provision hereof. 8.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Purchaser, at such Purchaser's address, as shown on the Schedule of Purchasers, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Chief Executive Officer, or at such other address as the Company shall have furnished to the Purchasers. 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. 8.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 8.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE 11 16 CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 8.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 8.9 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 8.10 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 8.11 EXPENSES. The Company and the Purchasers shall each bear their own fees, costs and expenses incurred on their behalf with respect to the Agreement and the transactions contemplated hereby and any amendments or waiver thereto. 12 17 The foregoing Agreement is hereby executed as of the date first above written. "COMPANY" SUPERCONDUCTOR TECHNOLOGIES INC. a Delaware corporation By: /s/ Peter Thomas --------------------------------- Name: Peter Thomas Title: Chief Executive Officer "PURCHASER" WILMINGTON SECURITIES, INC. By: /s/ Andrew H. McQuarrie --------------------------------- Name: Andrew H. McQuarrie Title: Vice President [SIGNATURE PAGE TO PURCHASE AGREEMENT] 13 18 EXHIBIT A SCHEDULE OF PURCHASERS THE CLOSING AUGUST 11, 1998
WARRANTS FOR NUMBER OF NUMBER OF NAME AND ADDRESS SERIES A 1 SHARES PURCHASE PRICE COMMON STOCK - ---------------------------- ----------------- -------------- ------------ Wilmington Securities, Inc. 125,000 $1,000,000 66,667 824 Market Street, Suite 900 Wilmington, DE 19801 Attn: Andrew H. McQuarrie TOTAL: 125,000 $1,000,000 66,667
EX-4.4 7 AMENDED AND RESTATED STOCKHOLDERS RIGHTS AGREEMENT 1 EXHIBIT 4.4 ================================================================================ SUPERCONDUCTOR TECHNOLOGIES INC. 460 WARD DRIVE SUITE F SANTA BARBARA, CALIFORNIA 93111 AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT AUGUST 11, 1998 ================================================================================ 2 TABLE OF CONTENTS
PAGE SECTION 1 Restrictions on Transferability of Securities; Compliance with Securities Act; Registration Rights................................... 1 1.1 Restrictions on Transferability............................... 1 1.2 Certain Definitions........................................... 1 1.3 Restrictive Legend............................................ 3 1.4 Restrictions on Transfer; Notice of Proposed Transfers........ 3 1.5 Requested Registration........................................ 4 1.6 Company Registration.......................................... 6 1.7 Limitations on Subsequent Registration Rights................. 7 1.8 Expenses of Registration...................................... 7 1.9 Registration Procedures....................................... 7 1.10 Indemnification............................................... 8 1.11 Information by Holder......................................... 9 1.12 Rule 144 Reporting............................................ 9 1.13 Transfer of Registration Rights............................... 10 1.14 Standoff Agreement............................................ 10 1.15 Termination of Registration Rights............................ 10 SECTION 2 Right of First Refusal........................................... 10 2.1 Grant of Right of First Refusal............................... 10 2.2 Definition of New Securities.................................. 10 2.3 Notice of Intent to Issue New Securities; Notice Period....... 11 2.4 Offers to Third Parties....................................... 11 2.5 Assignment.................................................... 11 2.6 Termination of Right of First Refusal......................... 11 SECTION 3 Miscellaneous.................................................... 12 3.1 Governing Law................................................. 12 3.2 Survival...................................................... 12 3.3 Successors and Assigns........................................ 12 3.4 Entire Agreement; Amendment................................... 12 3.5 Notices, etc.................................................. 12 3.6 Delays or Omissions........................................... 13 3.7 Counterparts.................................................. 13 3.8 Severability.................................................. 13 3.9 Titles and Subtitles.......................................... 13
-i- 3 SUPERCONDUCTOR TECHNOLOGIES INC. AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT This Amended and Restated Stockholder Rights Agreement (the "Agreement") is made as of August 11, 1998 between Superconductor Technologies Inc., a Delaware corporation (the "Company"), the Purchasers of the Company's Series A Preferred Stock (the "Series A Purchasers") pursuant to the Company's Series A Preferred Stock Purchase Agreement dated March 26, 1998 (the "Series A Agreement") and Purchasers of the Company's Series A-1 Preferred Stock (the "Series A-1 Purchasers") pursuant to the Company's Series A-1 Preferred Stock Purchase Agreement dated August 11, 1998 (the "Series A-1 Agreement"). The Series A Purchasers and the Series A-1 Purchasers are, collectively, the "Purchasers." RECITALS A. The Company and the Series A Purchasers have entered into that certain Stockholder Rights Agreement dated as of March 26, 1998 (the "Existing Agreement"), which established certain terms and conditions upon which the Company's Series A Preferred Stock and certain warrants are held by the Series A Purchasers, as set forth more particularly in the Existing Agreement. B. Concurrently herewith, the Company and the Series A-1 Purchasers are entering into the Series A-1 Agreement for sale by the Company and purchase by the Series A-1 Purchasers of shares of the Company's Series A-1 Preferred Stock and for the issuance by the Company of certain warrants to purchase shares of the Company's Common Stock to the Series A-1 Purchasers. C. The Company desires to provide a further inducement to the Series A-1 Purchasers to purchase shares of its Series A-1 Preferred Stock by establishing certain terms and conditions upon which such Series A-1 Preferred Stock and certain warrants are held by the Series A-1 Purchasers. D. The Company and the Series A Purchasers desire to amend and restate the Existing Agreement in its entirety, as set forth herein, to make the Series A-1 Purchasers party thereto. NOW, THEREFORE, the parties agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS 1.1 RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock, the Conversion Stock (as defined below) and the Warrants (as defined below) shall not be sold, assigned, transferred or pledged 4 except upon the conditions specified in this Section 1, which conditions are intended to ensure compliance with the provisions of the Securities Act (as defined below). The Purchasers will cause any proposed purchaser, assignee, transferee, or pledgee of any such securities held by the Purchasers to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 1. 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Closing Date" shall mean, (i) as to the Series A Purchasers, the date of the first purchase and sale of Series A Preferred Stock and issuance of Warrants pursuant to the Series A Agreement and (ii) as to the Series A-1 Purchasers, the date of the first purchase and sale of Series A-1 Preferred Stock and issuance of Warrants pursuant to the Series A-1 Agreement, as the case may be. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Conversion Stock" means the Common Stock issued or issuable pursuant to conversion of the Preferred Stock and exercise of the Warrants. "Holder" shall mean (i) any Purchaser holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Section 1 have been transferred in accordance with Section 1.13 hereof. "Initiating Holders" shall mean Holders in the aggregate of greater than 50% of the Registrable Securities. "Preferred Stock" shall, collectively, mean the Series A Preferred Stock issued pursuant to the Series A Agreement and the Series A-1 Preferred Stock issued pursuant to the Series A-1 Agreement. "Registrable Securities" shall mean (i) the Conversion Stock, (ii) any Common Stock acquired pursuant to the exercise of the right of first refusal in Section 2 of this Agreement (including any shares issued by virtue of such shares upon any stock split, stock dividend, recapitalization or similar event), and (iii) any Common Stock of the Company issued or issuable in respect of the Conversion Stock upon any stock split, stock dividend, recapitalization or similar event, or any Common Stock otherwise issued or issuable in respect of the Conversion Stock; provided, however, that shares of Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold or are, in the opinion of counsel for the Company, available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. -2- 5 The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 1.5 and 1.6 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company) and the reasonable fees and disbursements of one counsel for all Holders. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 1.3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and, except as set forth above, all reasonable fees and disbursements of counsel for any Holder. "Warrants" shall mean, collectively, (i) the Warrants issued pursuant to the Series A Agreement and (ii) the Warrants issued pursuant to the Series A-1 Agreement. 1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Preferred Stock, (ii) the Warrants, (iii) the Conversion Stock and (iv) any other securities issued in respect of the Preferred Stock or the Conversion Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. Each Purchaser and Holder consents to the Company making a notation on its records -3- 6 and giving instructions to any transfer agent of the Preferred Stock, the Warrants or the Conversion Stock in order to implement the restrictions on transfer established in this Section 1. 1.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, (ii) in transactions involving the distribution without consideration of Restricted Securities by the Holder to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) any transfer by any Holder to (A) any individual or entity controlled by, controlling, or under common control with, such Holder or (B) any individual or entity with respect to which such Holder (or any person controlled by, controlling, or under common control with, such Holder) has the power to direct investment decisions, or (iv) in transactions in compliance with Rule 144), and unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and shall be accompanied, at such holder's expense by either (i) an unqualified written opinion of legal counsel who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, or (ii) a "no action" letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 1.5 REQUESTED REGISTRATION. (a) Request for Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to (1) at least fifty percent (50%) of the issued and outstanding Registrable Securities or (2) not less than that number of shares of Registrable Securities which would result in an anticipated aggregate offering price, net of underwriting discounts and commissions, greater than five million dollars ($5,000,000), the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification -4- 7 under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after receipt of such written notice from the Company; Provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 2.5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Prior to September 26, 1999; (C) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) After the Company has effected one (1) such registration pursuant to this subparagraph 1.5(a), and such registration has been declared or ordered effective; (E) If the Company shall furnish to such Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed one hundred eighty (180) days from the date of receipt of written request from the Initiating Holders; provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Subject to the foregoing clauses (A) through (E), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders. (b) Underwriting. In the event that a registration pursuant to Section 1.5 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration -5- 8 pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 1.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all holders of Registrable Securities and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 1.6 COMPANY REGISTRATION. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such -6- 9 underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter and the Company may reduce the Registrable Securities to be included in such registration to the extent the underwriters deem necessary. The Company shall so advise all Holders and other holders distributing their securities through such underwriting and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all the Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holder at the time of filing the Registration Statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder or holder to the nearest 100 shares. If any Holder or holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 1.7 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the Closing Date, the Company shall not enter into any agreement granting any holder or prospective holder of any securities of the Company registration rights with respect to such securities unless (i) such new registration rights, including standoff obligations, are on a pari passu basis with those rights of the Holders hereunder, or (ii) such new registration rights, including standoff obligations, are subordinate to the registration rights granted Holders hereunder. 1.8 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with (i) one (1) registration pursuant to Section 1.5, (ii) all registrations pursuant to Section 1.6, shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all other Registration Expenses shall be borne by the Holders of such securities pro rata on the basis of the number of shares so registered. 1.9 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain -7- 10 effective for at least one hundred eighty (180) days or until the distribution described in the Registration Statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 1.10 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), state securities law or any rule or regulation promulgated under such laws applicable to the Company in connection with any such registration, qualification or compliance, and within a reasonable period the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing -8- 11 or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and within a reasonable period will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. (c) Each party entitled to indemnification under this Section 1.10 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1.10 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be liable for indemnification hereunder with respect to any settlement or consent to judgment, in connection with any claim or litigation to which these indemnification provisions apply, that has been -9- 12 entered into without the prior consent of the Indemnifying Party (which consent will not be unreasonably withheld). 1.11 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1.11. 1.12 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as a Holder owns any Restricted Securities to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 1.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Sections 1.5 and 1.6 may be assigned to a transferee or assignee reasonably acceptable to the Company in connection with any transfer or assignment of Registrable Securities by the Holder, provided that (a) such transfer may otherwise be effected in accordance with applicable securities laws and Section 1.3 and 1.4, and (b) such assignee or transferee acquires at least 100,000 shares of Registrable Securities. 1.14 STANDOFF AGREEMENT. In connection with any public offering of the Company's securities, the Holder agrees, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the underwriters; provided that the officers and directors of the Company who own stock of the Company also agree to such restrictions. -10- 13 1.15 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to Section 1 shall terminate as to each Holder at such time as all Registrable Securities held by such Holder may, in the opinion of counsel to the Company (which opinion shall be addressed and rendered to Holder), be sold within a given three month period pursuant to Rule 144 or any other applicable exemption that allows for a resale free of registration. SECTION 2 RIGHT OF FIRST REFUSAL 2.1 GRANT OF RIGHT OF FIRST REFUSAL. Subject to compliance with all applicable federal and state securities laws, the Company grants to the Purchasers the right of first refusal to purchase, pro rata, all or any part of New Securities (as defined in this Section 2) which the Company may, from time to time after the date of this Agreement, propose to sell and issue. A pro rata share, for purposes of this right of first refusal, is the ratio that the sum of the number of shares of Conversion Stock then held by a Purchaser bears to the total outstanding Common Stock of the Company (assuming conversion of all convertible securities and the exercise of all outstanding options and warrants). 2.2 DEFINITION OF NEW SECURITIES. Except as set forth below, "New Securities" shall mean any shares of capital stock of the Company, including Common Stock and Preferred Stock, whether now authorized or not, and rights, options or warrants to purchase said shares of Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible into said shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New Securities" does not include (i) the Preferred Stock, the Warrants or the Conversion Stock, (ii) securities offered to the public generally pursuant to a registration statement under the Securities Act, (iii) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of all or substantially all of the assets or other reorganization, (iv) securities issuable upon exercise or conversion of currently outstanding securities, (v) securities issued in connection with any stock split, stock dividend or recapitalization by the Company, (vi) securities issued to the Company's employees, officers, directors, and consultants pursuant to any arrangement approved by the Board of Directors of the Company, and (vii) securities issued to research or development collaborators or issued to banks or other institutional lenders or lessors in connection with capital asset leases or borrowings for the acquisition of capital assets, pursuant to any arrangement approved by the Board of Directors of the Company (including securities issued upon exercise or conversion of any such securities). 2.3 NOTICE OF INTENT TO ISSUE NEW SECURITIES; NOTICE PERIOD. In the event the Company proposes to undertake an issuance of New Securities, it shall give each Purchaser written notice of its intention, describing the type of New Securities and the price and terms upon which the Company proposes to issue the same. Each Purchaser shall have 15 days from the date of receipt of any such notice to agree to purchase up to its pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. -11- 14 2.4 OFFERS TO THIRD PARTIES. In the event a Purchaser fails to exercise the right of first refusal within said 15 day period, the Company shall have 90 days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within 60 days from the date of said agreement) to sell the New Securities not elected to be purchased by the Purchaser at the price and upon the terms no more favorable to the purchasers of such securities than specified in the Company's notice. In the event the Company has not sold the New Securities or entered into an agreement to sell the New Securities in accordance with the foregoing within 60 days from the date of said agreement, the Company shall not thereafter issue or sell any New Securities without first offering such securities in the manner provided above. 2.5 ASSIGNMENT. The right of first refusal granted under this Agreement is not assignable except by each of such Purchasers to any affiliated partnership or corporation or to a partner or retired partner of such S Purchaser or affiliated partnership or corporation. 2.6 TERMINATION OF RIGHT OF FIRST REFUSAL. The right of first refusal granted under this Agreement shall terminate upon the first to occur of the following: (i) if a Purchaser at any time holds less than 500,000 shares of Conversion Stock (appropriately adjusted for any stock split, stock dividend or any other recapitalization), the right of first refusal shall terminate as to such Purchaser; (ii) if a Purchaser converts or has at any time converted all of the Preferred Stock owned by such Purchaser, the right of first refusal shall terminate as to such Purchaser; (iii) the liquidation, dissolution or indefinite cessation of business operations of the Company; or (iv) the execution by the Company of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the property and assets of the Company. SECTION 3 MISCELLANEOUS 3.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California. 3.2 SURVIVAL. The covenants and agreements made herein shall survive any investigation made by the Purchasers and the closing of the transactions contemplated hereby. 3.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. -12- 15 3.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Series A Agreement, the Series A-1 Agreement and the other documents delivered pursuant hereto on the Closing Date for each of the Series A Agreement and the Series A-1 Agreement constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that holders of a majority of the issued or outstanding shares of the Preferred Stock may, with the Company's prior written consent, waive, modify or amend on behalf of all holders, any provisions hereof. 3.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Purchaser, at such Purchaser's address, as shown on the stock records of the Company, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of Preferred Stock, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Preferred Stock who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Chief Executive Officer, or at such other address as the Company shall have furnished to the Purchasers. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 3.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such nondefaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 3.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. -13- 16 3.8 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 3.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. -14- 17 The foregoing agreement is hereby executed as of the date first above written. "COMPANY" SUPERCONDUCTOR TECHNOLOGIES INC. a Delaware corporation By: /s/ Peter Thomas --------------------------------- Name: Peter Thomas, Title: Chief Executive Officer "SERIES A PURCHASER" WILMINGTON SECURITIES, INC. By: /s/ Andrew H. McQuarrie --------------------------------- Name: Andrew H. McQuarrie Title: "SERIES A-1 PURCHASER" WILMINGTON SECURITIES, INC. By: /s/ Andrew H. McQuarrie --------------------------------- Name: Andrew H. McQuarrie Title: -15- EX-4.5 8 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 4.5 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of September 2, 1998, by and among Superconductor Technologies Inc., a Delaware corporation, with headquarters located at 460 Ward Drive, Suite F, Santa Barbara, California 93111-2310 ("COMPANY"), and each of the purchasers set forth on the signature pages hereto (the "BUYERS"). WHEREAS: A. The Company and the Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 ACT"); B. The Company has authorized a new series of preferred stock, designated as Series B Preferred Stock (the "PREFERRED STOCK"), having the rights, preferences and privileges set forth in the Certificate of Designations, Rights and Preferences attached hereto as EXHIBIT "A" (the "CERTIFICATE OF DESIGNATION"); C. The Preferred Stock is convertible into shares of common stock, $.001 par value per share, of the Company (the "COMMON STOCK"), upon the terms and subject to the limitations and conditions set forth in the Certificate of Designation; D. The Company has authorized the issuance to the Buyers of warrants, in the form attached hereto as EXHIBIT "B", to purchase an aggregate of One Hundred Twenty Thousand (120,000) shares of Common Stock (the "WARRANTS"); E. The Buyers desire to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, (i) an aggregate of 500,000 shares of Preferred Stock, subject to adjustment as set forth herein and in the Certificate of Designation and (ii) Warrants to purchase One Hundred Twenty Thousand (120,000) shares of Common Stock, for an aggregate purchase price of Four Million Dollars ($4,000,000). F. Each Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, the number of shares of Preferred Stock and number of Warrants as is set forth immediately below its name on the signature pages hereto; and G. Contemporaneous with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws. 2 NOW THEREFORE, the Company and each of the Buyers severally (and not jointly) hereby agree as follows: 1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS. a. Purchase of Preferred Shares and Warrants. The Company shall issue and sell to each Buyer and each Buyer severally agrees to purchase from the Company such number of shares of Preferred Stock (collectively, together with any Preferred Stock issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the "PREFERRED SHARES") and number of Warrants as is set forth immediately below such Buyer's name on the signature pages hereto. The aggregate number of Preferred Shares to be issued at the Closing is 500,000 shares and the aggregate number of Warrants to be issued at the Closing is One Hundred Twenty Thousand (120,000) for an aggregate purchase price of Four Million Dollars ($4,000,000), subject to the satisfaction (or waiver) of the conditions thereto set forth in Sections 6 and 7 below. The aggregate purchase price (the "PURCHASE PRICE") payable by each Buyer in respect of the Preferred Stock and Warrants to be purchased by such Buyer at the Closing is as set forth below such Buyer's name on the signature pages hereto. b. Form of Payment. On the Closing Date (as defined below), (i) each Buyer shall pay the Purchase Price for the Preferred Shares and the Warrants, if any, to be issued and sold to it at the applicable Closing (as defined below) by wire transfer of immediately available funds to the Company, in accordance with the Company's written wiring instructions, against delivery of duly executed certificates representing such number of Preferred Shares and Warrants which such Buyer is purchasing and (ii) the Company shall deliver such certificates and Warrants duly executed on behalf of the Company, to the Buyer, against delivery of such Purchase Price. c. Closing Date. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Preferred Shares and the Warrants pursuant to this Agreement (the "CLOSING DATE") shall be 12:00 noon Eastern Standard Time on September 2, 1998 or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the "CLOSING") shall occur on the Closing Date at the offices of the Company, or at such other location as may be agreed to by the parties. 2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not jointly) represents and warrants to the Company solely as to such Buyer that: a. Investment Purpose. As of the date hereof, the Buyer is purchasing the Preferred Shares and the shares of Common Stock issuable upon conversion thereof (the "CONVERSION SHARES") and the Warrants and the shares of Common Stock issuable upon exercise thereof (the "WARRANT SHARES" and, collectively with the Preferred Shares, Warrants and Conversion Shares the "SECURITIES") for its own account for investment only and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act. 2 3 b. Accredited Investor Status. The Buyer is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D. c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities. d. Information. The Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk. e. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. f. Transfer or Resale. The Buyer understands that (i) except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the 1933 Act or any applicable state securities laws, and may not be transferred unless (a) subsequently included in an effective registration statement thereunder, (b) the Buyer shall have delivered to the Company an opinion of counsel (which opinion shall be reasonably acceptable to the Company) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, (c) sold or transferred to on "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) ("RULE 144")) or (d) sold pursuant to Rule 144; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case, other than pursuant to the Registration Rights Agreement). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. 3 4 g. Legends. The Buyer understands that the Preferred Shares and the Warrants and, until such time as the Conversion Shares and Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the Conversion Shares and Warrant Shares, may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities): "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT" The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope reasonably acceptable to the Company, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act and such sale or transfer is effected or (c) such holder provides the Company with reasonable assurances that such Security can be sold pursuant to Rule 144 under the 1933 Act (or a successor rule thereto) without any restriction as to the number of Securities acquired as of a particular date that can then be immediately sold. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. h. Authorization; Enforcement. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of the Buyer and are valid and binding agreements of the Buyer enforceable in accordance with their terms. i. Residency. The Buyer is a resident of the jurisdiction set forth immediately below such Buyer's name on the signature pages hereto. j. Tax Liability. The Buyer has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Agreements. With respect to such matters, the Buyer relies solely on such advisors and not on any statements or representations of the Company or any of its agents other than the representations and warranties set forth herein. The Buyer understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. 4 5 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Buyer that: a. Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not reasonably be expected have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on the business, operating results or financial condition of the Company or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. Except for Cryo-Asia Pte Ltd., a joint venture with Alantac in Singapore, the Company has no subsidiaries and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. b. Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to file and perform its obligations under the Certificate of Designation and to enter into and perform this Agreement, the Registration Rights Agreement and the Warrants and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement and the Warrants by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Preferred Shares and the Warrants and the issuance and reservation for issuance of the Conversion Shares and Warrant Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered and the Certificate of Designation has been duly filed by the Company, and (iv) each of this Agreement and the Certificate of Designation constitutes, and upon execution and delivery by the Company of the Registration Rights Agreement and the Warrants, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. c. Capitalization. The authorized capital stock of the Company consists or will, upon the filing of the Certificate of Designations, consist of (a) 30,000,000 shares of Common Stock, par value $0.001 per share, of which 7,715,081 shares are issued and outstanding as of the date of this Agreement, and (b) 2,000,000 shares of Preferred Stock, of which (i) 500,000 shares have been designated "Series A Preferred", all of which are issued and outstanding, (ii) 125,000 shares have been designated "Series A-1 Preferred", all of which are issued and outstanding, and (iii) 1,000,000 shares have been designated "Series B Preferred", none of which were issued and outstanding prior to the Closing. The outstanding shares have been duly authorized and validly issued in compliance with applicable laws, and are fully paid and nonassessable. The Company has 5 6 reserved (a) 500,000 shares of Preferred Stock for issuance hereunder, (b) 2,250,000 shares of Common Stock for issuance upon conversion of the Series A Preferred Stock, the Series A-1 Preferred Stock and the Preferred Stock, (c) 166,667 shares of Common stock for issuance upon exercise of the warrants issued in connection with the Series A Preferred Stock financings, (d) 574,545 shares of Common Stock for issuance upon exercise of the Warrants and the Additional Warrants (as defined herein), (e) 2,078,909 shares of its Common Stock for issuance to employees, consultants or directors pursuant to its 1992 Director Option Plan, 1992 Stock Option Plan, Amended and Restated 1988 Stock Option Plan and 1998 Nonstatutory Option Plan, of which options to purchase 1,809,093 shares are issued and outstanding and (f) a total of 150,000 shares of Common Stock for issuance upon exercise of certain outstanding warrants. All of such outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Except as disclosed in SECTION 3(c) OF THE SCHEDULE OF EXCEPTIONS, as of the effective date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act (except the Registration Rights Agreement) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Preferred Shares, the Warrants, the Conversion Shares or Warrant Shares. The Company has furnished to the Buyer true and correct copies of the Company's Certificate of Incorporation as in effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto. d. Issuance of Shares. The Preferred Shares, Conversion Shares and Warrant Shares are duly authorized and, upon issuance in accordance with the terms of this Agreement (including the issuance of the Conversion Shares upon conversion of the Preferred Shares in accordance with the Certificate of Designation and the Warrant Shares upon exercise of the Warrants in accordance with the terms thereof) will be validly issued, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of stockholders of the Company. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares and Warrant Shares upon conversion or exercise of the Preferred Shares or Warrants. The Company further acknowledges that its obligation to issue Conversion Shares and Warrant Shares upon conversion of the Preferred Shares or exercise of the Warrants in accordance with this Agreement, the Certificate of Designation and the Warrants is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. 6 7 e. Series of Preferred Stock. The terms, designations, powers, preferences and relative, participating and optional or special rights, and the qualifications, limitations and restrictions of each series of preferred stock of the Company (other than the Preferred Stock) are as stated in the Certificate of Incorporation, filed on or prior to the date hereof, and the Bylaws. The terms, designations, powers, preferences and relative, participating and optional or special rights, and the qualifications, limitations and restrictions of the Preferred Stock are as stated in the Certificate of Designation. f. No Conflicts. The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Warrants by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the filing of the Certificate of Designation and the issuance and reservation for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party and which is set forth or incorporated by reference in the Company's reports files with the SEC pursuant to the reporting requirements of the 1934 Act (as hereinafter defined) (the "MATERIAL AGREEMENTS"), or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect). The Company of is not in violation of its Certificate of Incorporation, By-laws or other organizational documents and the Company is not in default (and no event has occurred which with notice or lapse of time or both could put the Company in default) in any material respect under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any Material Agreement, except for possible defaults as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The business of the Company is not being conducted, and shall not be conducted so long as a Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self regulatory agency in order for it to execute, deliver or perform any of its obligations under this Agreement, the Registration Rights Agreement or the Warrants in accordance with the terms hereof or thereof. Except as disclosed in SECTION 3(f) OF THE SCHEDULE OF EXCEPTIONS, all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that the Common Stock 7 8 will be delisted by the Nasdaq in the foreseeable future. The Company is unaware of any facts or circumstances which might give rise to any of the foregoing. g. SEC Documents; Financial Statements. Since December 31, 1996, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits) incorporated by reference therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 1997 and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company or have been disclosed to the Buyers. h. Absence of Certain Changes. Since December 31, 1997, there has been no Material Adverse Effect, except as disclosed in SECTION 3(h) OF THE SCHEDULE OF EXCEPTIONS. i. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company threatened against or affecting the Company, or its officers or directors in their capacity as such, that, if adversely determined, could reasonably be expected to have a Material Adverse Effect. SECTION 3(i) OF THE SCHEDULE OF EXCEPTIONS contains a complete list and summary description of any pending or threatened proceeding against or affecting the Company, without regard to whether it would have a Material 8 9 Adverse Effect. The Company is unaware of any facts or circumstances which might give rise to any of the foregoing. j. Patents, Copyrights, etc. The Company owns or possesses the requisite licenses or rights to use all patents, patent rights, inventions, know-how, trade secrets, trademarks, service marks, service names, trade names and copyrights ("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now operated, except to the extent that a Material Adverse Effect could not reasonably be expected to result; or to the Company's knowledge, there is no claim or action by any person pertaining to, or proceeding pending, threatened which challenges the right of the Company with respect to any Intellectual Property necessary to enable it to conduct its business as now operated; to the best of the Company's knowledge, the Company's, current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property. k. No Materially Adverse Contracts, Etc. The Company is not subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has or is expected to have a Material Adverse Effect. l. Tax Status. Except as set forth on SECTION 3(l) OF THE SCHEDULE OF EXCEPTIONS, the Company has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. m. Certain Transactions. Except as set forth on SECTION 3(m) OF THE SCHEDULE OF EXCEPTIONS and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed on SECTION 3(c) OF THE SCHEDULE OF EXCEPTIONS, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the 9 10 knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. n. Disclosure. To the best of the Company's knowledge, all information relating to or concerning the Company set forth in this Agreement and provided to the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. Except for the transactions contemplated by this Agreement, no event or circumstance has occurred or exists with respect to the Company or its business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purposes that the Company's reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act). o. Acknowledgment Regarding Buyers' Purchase of Securities. The Company acknowledges and agrees that the Buyers are acting solely in the capacity of arm's length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Buyer or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Buyers' purchase of the Securities. The Company further represents to each Buyer that the Company's decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives. p. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyers. The issuance of the Securities to the Buyers will not be integrated with any other issuance of the Company's securities (past, current or future) which requires stockholder approval under the rules of the Nasdaq Stock Market. q. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby, except for dealings with Tanner Unman Securities ("Tanner Unman"), whose commissions and fees will be paid for by the Company. r. Permits; Compliance. The Company is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry 10 11 on its business as it is now being conducted , except to the extent that a Material Adverse Effect could not reasonably be expected to result (collectively, the "COMPANY PERMITS"), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. The Company is not in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since December 31, 1997, the Company has not received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect. s. Environmental Matters. (i) Except as set forth in SECTION 3(s) OF THE SCHEDULE OF EXCEPTIONS, there are, to the Company's knowledge, with respect to the Company or any or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and the Company has not received any notice with respect to any of the foregoing, nor is any action pending or, to the Company's knowledge, threatened in connection with any of the foregoing. The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder. (ii) To the Company's knowledge, other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company during the period the property was owned, leased or used by the Company, except in the normal course of the Company's business. (iii) To the Company's knowledge, except as set forth in SECTION 3(s) OF THE SCHEDULE OF EXCEPTIONS, there are no underground storage tanks on or under any real property owned, leased or used by the Company that are not in compliance with applicable law. 11 12 t. Title to Property. The Company owns no real property. The Company has good and marketable title to all personal property owned by it which is material to the business of the Company, in each case free and clear of all liens, encumbrances and defects except such as are described in SECTION 3(t) OF THE SCHEDULE OF EXCEPTIONS or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect. u. Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company is engaged. The Company has not any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. v. Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient, in the judgment of the Company's board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. w. Foreign Corrupt Practices. Neither the Company, nor any director, officer, agent, employee or other person acting on behalf of the Company has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. 4. COVENANTS. a. Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement. b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyers at the applicable closing pursuant to this Agreement under applicable securities or 12 13 "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to each Buyer on or prior to the Closing Date. c. Reporting Status; Eligibility to Use Form S-3. The Company's Common Stock is registered under Section 12(g) of the 1934 Act. So long as any Buyer beneficially owns any of the Securities, the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination. The Company currently meets, and will take all necessary action to continue to meet, the "registrant eligibility" requirements set forth in Part I.A. of the general instructions to Form S-3. d. Use of Proceeds. The Company shall use the proceeds from the sale of the Preferred Shares and the Warrants for working capital and general corporate purposes. e. Additional Equity Capital; Right of First Refusal. Subject to the exceptions described below, the Company will not, without the prior written consent of a majority-in-interest of the Buyers, negotiate or contract with any party to obtain additional equity financing (including debt financing with an equity component) that involves (A) the issuance of Common Stock at a discount to the market price of the Common Stock on the date of issuance (taking into account the value of any warrants or options to acquire Common Stock issued in connection therewith) or (B) the issuance of convertible securities that are convertible into an indeterminate number of shares of Common Stock during the period (the "LOCK-UP PERIOD") beginning on the Closing Date and ending on the later of (i) ninety (90) days from the Closing Date and (ii) thirty (30) days from the date the Registration Statement (as defined in the Registration Rights Agreement) is declared effective (plus any days in which sales cannot be made thereunder). In addition, subject to the exceptions described below, the Company will not conduct any equity financing (including debt with an equity component) ("FUTURE OFFERINGS") during the period beginning on the Closing Date and ending one hundred eighty (180) days after the end of the Lock-up Period, unless it shall have first delivered to each Buyer, at least fifteen (15) business days prior to the closing of such Future Offering, written notice describing the proposed Future Offering, including the terms and conditions thereof and proposed definitive documentation to be entered into in connection therewith, and providing each Buyer an option during the ten (10) day period following delivery of such notice to purchase its pro rata share (based on the ratio that the number of Conversion Shares held by such Buyer bears to the total outstanding Common Stock of the Company) of the securities being offered in the Future Offering on the same terms as contemplated by such Future Offering (the limitations referred to in this sentence are collectively referred to as the "CAPITAL RAISING Limitations"). In the event the terms and conditions of a proposed Future Offering are amended in any respect after delivery of the notice to the Buyers concerning the proposed Future Offering, the Company shall deliver a new notice to each Buyer describing the amended terms and conditions of the proposed Future Offering and each Buyer thereafter shall have an option during the ten (10) day period following delivery of such new notice to purchase its pro rata share of the securities being offered on the same terms as contemplated by such proposed Future Offering, as amended. The foregoing sentence shall apply 13 14 to successive amendments to the terms and conditions of any proposed Future Offering. The Capital Raising Limitations shall not apply to any transaction involving (i) the Preferred Stock, the Warrants or the Conversion Shares, (ii) securities offered to the public generally in an underwritten offering pursuant to a registration statement under the Securities Act, (iii) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of all or substantially all of the assets or other reorganization, (iv) securities issuable upon exercise or conversion of currently outstanding securities, (v) securities issued in connection with any stock split, stock dividend or recapitalization by the Company, (vi) securities issued to the Company's employees, officers, directors, and consultants pursuant to any arrangement approved by the Board of Directors of the Company, and (vii) securities issued to research or development collaborators or issued to banks or other institutional lenders or lessors in connection with capital asset leases or borrowings for the acquisition of capital assets, pursuant to any arrangement approved by the Board of Directors of the Company (including securities issued upon exercise or conversion of any such securities). f. Expenses. The Company shall reimburse Tanner Unman for all reasonable expenses incurred by it in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith, including, without limitation, attorneys' and consultants' fees and expenses. The Company's obligation to reimburse Tanner Unman's expenses under this Section 4(f) shall be limited to Thirty Thousand Dollars ($30,000), of which Fifteen Thousand Dollars ($15,000) has previously been paid. g. Financial Information. The Company agrees to send the following reports to each Buyer until such Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the stockholders of the Company, copies of any notices or other information the Company makes available or gives to such stockholders. h. Reservation of Shares. The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion or exercise of the outstanding Preferred Shares and Warrants and issuance of the Conversion Shares and Warrant Shares in connection therewith (based on the Conversion Price of the Preferred Shares or Exercise Price of the Warrants in effect from time to time). The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of Preferred Shares and exercise of the Warrants without the consent of each Buyer. The Company shall use its best efforts at all times to maintain the number of shares of Common Stock so reserved for issuance at no less than the sum of: (i) the number that is then actually issuable upon full conversion of the Preferred Shares (based on the Conversion Price of the Preferred Shares) and (ii) the number of shares of Common Stock issuable upon exercise of the Warrants (based on the Exercise Price of the Warrants in effect from time to time). If at any time the number of shares of Common Stock authorized and reserved for issuance 14 15 is below the number of Conversion Shares and Warrant Shares issued and issuable upon conversion of the Preferred Shares and exercise of the Warrants (based on the Conversion Price of the Preferred Shares or Exercise price of the Warrants then in effect), the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of shareholders to authorize additional shares to meet the Company's obligations under this Section 4(h), in the case of an insufficient number of authorized shares, and using its best efforts to obtain shareholder approval of an increase in such authorized number of shares. i. Listing. The Company shall use its best efforts to promptly secure the listing of the Conversion Shares and Warrant Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares and Warrant Shares from time to time issuable upon conversion of the Preferred Shares or exercise of the Warrants. The Company will obtain and maintain the listing and trading of its Common Stock on Nasdaq, the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers ("NASD") and such exchanges, as applicable. j. Corporate Existence. So long as a Buyer beneficially owns any Preferred Shares or Warrants, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE or AMEX. k. No Integration. The Company will not conduct any future offering that will be integrated with the issuance of the Securities solely for purposes of Rule 4460(i) of the Nasdaq Stock Market. l. Solvency. The Company (both before and after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not have, nor does it intend to take any action that would impair, its ability to pay its debts from time to time incurred in connection therewith as such debts mature. The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year. 15 16 m. Additional Warrants. In the event that the Determination Price (as defined herein) is less than $4.00 per share, the Company shall be obligated to issue such number of additional warrants ("Additional Warrants") determined in accordance with the calculation set forth below, which Additional Warrants will have an exercise price of $.01 per share. The "Determination Price" means the greater of (i) $2.75 per share of Common Stock or (ii) average closing bid price of the Common Stock on the ten (10) trading days ending on March 2, 1999. N = ($4.00 - DP) x (I /$4.00) -------------------------- DP N = Number of Additional Warrants DP = Determination Price I = Amount of Investment
The Additional Warrants will be in the form attached hereto as EXHIBIT "D". The shares of Common Stock issuable upon conversion of the Additional Warrants shall be considered Warrant Shares for purposes hereof and Registrable Securities for purposes of the Registration Rights Agreement. 5 TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon conversion of the Preferred Shares or exercise of the Warrants in accordance with the terms thereof (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the Conversion Shares and Warrant Shares under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof (in the case of the Conversion Shares and Warrant Shares, prior to registration of the Conversion Shares and Warrant Shares under the 1933 Act), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Section shall affect in any way the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon resale of the Securities. If a Buyer provides the Company with an opinion of counsel, reasonably satisfactory to the Company in form, substance and scope, that registration of a resale by such Buyer of any of the Securities is not required under the 1933 Act, the Company shall permit the transfer, and, in the case of the Conversion Shares and Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Buyer. 6 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Preferred Shares and Warrants to a Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the 16 17 following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: a. The applicable Buyer shall have executed this Agreement and the Registration Rights Agreement, and delivered the same to the Company. b. The applicable Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above. c. The Certificate of Designation shall have been accepted for filing with the Secretary of State of the State of Delaware. d. The representations and warranties of the applicable Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the applicable Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Buyer at or prior to the Closing Date. e. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. f. The Company shall have received an amendment to its Amended and Restated Stockholders Agreement dated as of August 11, 1998, in the form of EXHIBIT "E" hereto, duly executed by the "Purchasers" named therein. 7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each Buyer hereunder to purchase the Preferred Shares and Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for such Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion: a. The Company shall have executed this Agreement and the Registration Rights Agreement, and delivered the same to the Buyer. b. The Company shall have delivered to such Buyer duly executed certificates (in such denominations as the Buyer shall request) representing the Preferred Shares and Warrants in accordance with Section 1(b) above. c. The Certificate of Designation shall have been accepted for filing with the Secretary of State of the State of Delaware, and a facsimile copy thereof certified by such Secretary of State shall have been delivered to such Buyer. 17 18 d. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a majority-in-interest of the Buyers, shall have been delivered to and acknowledged in writing by the Company's Transfer Agent. e. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Buyer shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer including, but not limited to certificates with respect to the Company's Certificate of Incorporation, By-laws and Board of Directors' resolutions relating to the transactions contemplated hereby. f. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. g. The Conversion Shares and the Warrant Shares shall have been authorized for quotation on Nasdaq and trading in the Common Stock on Nasdaq shall not have been suspended by the SEC or Nasdaq. h. The Buyer shall have received an opinion of the Company's counsel, dated as of the Closing Date, in form, scope and substance reasonably satisfactory to the Buyer and in substantially the same form as EXHIBIT "F" attached hereto. i. The Buyer shall have received an officer's certificate described in Section 3(c) above, dated as of the Closing Date. 8. GOVERNING LAW; MISCELLANEOUS. a. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware without regard to the principles of conflict of laws. The parties hereto hereby submit to the exclusive jurisdiction of the United States Federal Courts located in Delaware with respect to any dispute arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby. b. Counterparts; Signatures by Facsimile. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party 18 19 and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement. f. Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five days after being placed in the mail, if mailed by regular U.S. mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Superconductor Technologies Inc. 460 Ward Drive Suite F Santa Barbara, California 93111-2310 Attention: Chief Executive Officer Facsimile: (805) 967-0342 With copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attention: John V. Roos, Esq. Facsimile: (650) 493-6811 19 20 If to a Buyer: To the address set forth immediately below such Buyer's name on the signature pages hereto. Each party shall provide notice to the other party of any change of its address. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from a Buyer or to any of its "affiliates," as that term is defined under the 1934 Act, without the consent of the Company. h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyers. The Company agrees to indemnify and hold harmless each of the Buyers and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in Sections 3 and 4 hereof or any of its covenants and obligations under this Agreement or the Registration Rights Agreement, including advancement of expenses as they are incurred. j. Publicity. The Company and each of the Buyers shall have the right to review a reasonable period of time before issuance of any press releases, SEC, Nasdaq or NASD filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of each of the Buyers, to make any press release or SEC, Nasdaq or NASD filings with respect to such transactions as is required by applicable law and regulations (although each of the Buyers shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon). k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. 20 21 m. Confidential Business Information. The Buyers covenant and agree that they shall maintain the confidentiality of all non-public information related to the business of the company made available to them and/or any of their representatives by the Company ("CONFIDENTIAL BUSINESS INFORMATION") and shall not utilize any Confidential Business Information in connection with purchases or sales of the Company's securities except in compliance with applicable state and federal anti-fraud statutes. The Buyers further covenant and agree that they shall not disclose any Confidential Business Information to any person or entity without the prior written consent of the Company. The term "Buyers" as used in this subsection includes all partners, officers, directors, affiliates, employees, attorneys, accountants and other agents and representatives of the Purchaser. Notwithstanding the above, Confidential Business Information shall not include (i) information known to the public generally, (ii) information known to the Buyers from an independent source prior to the receipt of such information from the Company and (iii) information required to be disclosed by the Buyers by court order or otherwise required by law, provided, however, that in the event of a required disclosure pursuant to this clause (iii), the Buyers shall give the Company prompt written notice of any such requirement so that the Company may seek a protective order or other appropriate remedy. The Buyers agree that violation of this subsection would cause immediate and irreparable damage to the business of the Company, and consent to the entry of immediate and permanent injunctive relief for any violation hereof. 21 22 IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this Agreement to be duly executed as of the date first above written. SUPERCONDUCTOR TECHNOLOGIES INC. By: /s/ M. Peter Thomas - --------------------------------------- Name: M. Peter Thomas Title: Chief Executive Officer WILMINGTON SECURITIES, INC. 824 Market Street Suite 900 Wilmington, Delaware 19801 By: /s/ Andrew McQuarrie - --------------------------------------- Name: Andrew McQuarrie Title: Vice President RESIDENCE: Delaware AGGREGATE SUBSCRIPTION AMOUNT: Number of Shares of Preferred Stock: 500,000 Number of Warrants: 120,000 Aggregate Purchase Price: $4,000,000
22 EX-4.6 9 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.6 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September 2, 1998, by and among Superconductor Technologies Inc., a Delaware corporation, with its headquarters located at 460 Ward Drive, Suite F, Santa Barbara, California 93111-2310 (the "COMPANY"), and each of the undersigned (together with their respective affiliates and any assignee or transferee of all of their respective rights hereunder, the "INITIAL INVESTORS"). WHEREAS: A. In connection with the Securities Purchase Agreement by and among the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to the Initial Investors (i) shares of its Series B Convertible Preferred Stock (the "PREFERRED STOCK") that are convertible into shares (the "CONVERSION SHARES") of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), upon the terms and subject to the limitations and conditions set forth in the Certificate of Designations, Rights, Preferences, Privileges and Restrictions with respect to the Preferred Stock (the "CERTIFICATE OF DESIGNATION") and (ii) warrants (the "WARRANTS") to acquire an aggregate of 120,000 shares of Common Stock (the "WARRANT SHARES"), upon the terms and conditions and subject to the limitations and conditions set forth in the Warrants dated September 2, 1998 plus any Additional Warrants (as defined in the Securities Purchase Agreement) (collectively, the "Warrant Shares"); and B. To induce the Initial Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 ACT"), and applicable state securities laws; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Initial Investors hereby agree as follows: 2 1. DEFINITIONS. a. As used in this Agreement, the following terms shall have the following meanings: (i) "INVESTORS" means the Initial Investors and any transferee or assignee who becomes bound by the provisions of this Agreement in accordance with Section 9 hereof. (ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). (iii) "REGISTRABLE SECURITIES" means the Conversion Shares (including any additional shares that may be issued pursuant to the Certificate of Designation) and Warrant Shares issued or issuable and any shares of capital stock issued or issuable as a dividend on or in exchange for or otherwise with respect to any of the foregoing, provided, however, that such securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold or are, in the opinion of counsel for the Company, available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the 1933 Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation such sale. (iv) "REGISTRATION STATEMENT" means a registration statement of the Company under the 1933 Act. b. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. a. Mandatory Registration. The Company shall prepare, and, on or prior to the date which is sixty (60) days after the date of the Closing under and as defined in the Securities Purchase Agreement (the "CLOSING DATE"), file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on such form of Registration Statement as is then available to effect a registration of the Registrable Securities) covering the resale of the Registrable Securities underlying the Preferred Stock and Warrants issued or issuable pursuant to the Securities Purchase Agreement, which Registration Statement, to the extent allowable under the 1933 Act and the Rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Preferred Stock and exercise of the Warrants 2 3 (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions or (ii) by reason of changes in the Conversion Price of the Preferred Stock in accordance with the terms thereof or the exercise price of the Warrants in accordance with the terms thereof. The number of shares of Common Stock initially included in such Registration Statement shall be no less than the sum of the number of Conversion Shares and Warrant Shares that are then issuable upon conversion of the Preferred Stock and the exercise of the Warrants, without regard to any limitation on the Investor's ability to convert the Preferred Stock or exercise the Warrants. The Company acknowledges that the number of shares initially included in the Registration Statement represents a good faith estimate of the maximum number of shares issuable upon conversion of the Preferred Stock and exercise of the Warrants. b. Payments by the Company. The Company shall use its best efforts to obtain effectiveness of the Registration Statement as soon as practicable. If (i) the Registration Statement(s) covering the Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof is not filed within sixty (60) days after the Closing Date or declared effective by the SEC within one hundred twenty (120) days after the Closing Date or if, after the Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to the Registration Statement (except as a result of an Allowed Delay (as defined in section 3(f)), or (ii) the Common Stock is not listed or included for quotation on the Nasdaq National Market ("NASDAQ"), the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") after being so listed or included for quotation, then the Company will make payments to the Investors in such amounts and at such times as shall be determined pursuant to this Section 2(b) as partial relief for the damages to the Investors by reason of any such delay in or reduction of their ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity). The Company shall not have any obligation to pay to the Investors any amounts provided for in this Section 2(b) during an Allowed Delay. The Company shall pay to each holder of the Preferred Stock or Registerable Securities an amount equal to the Purchase Price under and as defined in the Securities Purchase Agreement paid in respect of such Preferred Stock (and, in the case of holders of Registerable Securities, the purchase price for the Preferred Stock from which such Registerable Securities were converted) ("AGGREGATE SHARE PRICE") multiplied by the Applicable Percentage (as defined below) multiplied by the number of months (without duplication), prorated for partial months during (1) which the events described in clauses (i) or (ii) above have occurred and are continuing, (2) sales cannot be made pursuant to the Registration Statement after the Registration Statement has been declared effective (including, without limitation, when sales cannot be made by reason of the Company's failure to properly supplement or amend the prospectus included therein in accordance with the terms of this Agreement, but excluding any days during an Allowed Delay (as defined in Section 3(f)), or (3) that the Common Stock is not listed or included for quotation on the Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after the Registration Statement has been declared effective. The term "APPLICABLE PERCENTAGE" means 2 hundredths (.02). Such amounts shall be paid in cash or, at the Company's option, paid in shares of Preferred Stock, calculated based on the Purchase Price applicable to such shares and thereafter be convertible into Common Stock at the "CONVERSION PRICE" (as defined in the Certificate of Designation) in accordance with the terms of the Preferred Stock. Any shares of Common Stock issued upon conversion of such amounts shall be Registrable 3 4 Securities. Payments of cash pursuant hereto shall be made within ten (10) days after the end of each period that gives rise to such obligation, provided that, if any such period extends for more than thirty (30) days, interim payments shall be made for each such thirty (30) day period. c. Piggy-Back Registrations. Subject to the last sentence of this Section 2(c), if at any time prior to the expiration of the Registration Period (as hereinafter defined) the Company shall file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its equity securities (other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), the Company shall send to each Investor who is entitled to registration rights under this Section 2(c) written notice of such determination and, if within twenty (20) days after the effective date of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, except that if, in connection with any underwritten public offering for the account of the Company the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)' judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Investor has requested inclusion hereunder as the underwriter shall permit. Any exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Investors; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities; and provided, further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the right to include such securities in the Registration Statement other than holders of securities entitled to inclusion of their securities in such Registration Statement by reason of demand registration rights. No right to registration of Registrable Securities under this Section 2(c) shall be construed to limit any registration required under Section 2(a) hereof. If an offering in connection with which an Investor is entitled to registration under this Section 2(c) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. Notwithstanding anything to the contrary set forth herein, the registration rights of the Investors pursuant to this Section 2(c) shall only be available in the event the Company fails to timely file, obtain effectiveness or maintain effectiveness of the Registration Statement to be filed pursuant to Section 2(a) in accordance with the terms of this Agreement. d. Eligibility for Form S-3. The Company represents and warrants that it meets the registrant eligibility and transaction requirements for the use of Form S-3 for registration 4 5 of the sale by the Initial Investors and any other Investors of the Registrable Securities and the Company shall file all reports required to be filed by the Company with the SEC in a timely manner so as to maintain such eligibility for the use of Form S-3. 3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall have the following obligations: a. The Company shall prepare promptly, and file with the SEC not later than sixty (60) days after the Closing Date, a Registration Statement with respect to the number of Registrable Securities provided in Section 2(a), and thereafter use its best efforts to cause such Registration Statement relating to Registrable Securities to become effective as soon as possible after the filing thereof, and keep the Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which the Registrable Securities (in the opinion of counsel to the Initial Investors) may be immediately sold without restriction (including without limitation as to volume by each holder thereof) without registration under the 1933 Act (the "REGISTRATION PERIOD"). b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement. In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities issued or issuable upon conversion of the Preferred Stock and exercise of the Warrants, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefore, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within twenty (20) business days after the necessity therefor arises (based on the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely). The Company shall use its commercially reasonable efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. The provisions of Section 2(c) above shall be applicable with respect to such obligation, with the sixty (60) or one hundred twenty (120) days running from the day after the date on which the Company reasonably first determines (or reasonably should have determined) the need therefor. c. The Company shall furnish to each Investor whose Registrable Securities are included in the Registration Statement (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of the Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each 5 6 amendment or supplement thereto and (ii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. The Company will immediately notify each Investor by facsimile of the effectiveness of the Registration Statement or any post-effective amendment. The Company will promptly file an acceleration request as soon as practicable following the resolution or clearance of all SEC comments or, if applicable, following notification by the SEC that the Registration Statement or any amendment thereto will not be subject to review. d. The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as the Investors who hold a majority in interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (b) subject itself to general taxation in any such jurisdiction, (c) file a general consent to service of process in any such jurisdiction, (d) provide any undertakings that cause the Company undue expense or burden, or (e) make any change in its charter or bylaws. e. In the event Investors who hold a majority-in-interest of the Registrable Securities being offered in the offering select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering. f. As promptly as practicable after becoming aware of such event, the Company shall notify each Investor of (x) the issuance by the SEC of a stop order suspending the effectiveness of the Registration Statement, (y) the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (z) the occurrence or existence of any pending corporate development that, in the reasonable discretion of the Company, makes it appropriate to suspend the availability of the Registration Statement and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request; provided that, for not more than twenty (20) consecutive trading days (or a total of not more than thirty (30) trading days in any twelve (12) month period) (or 60 trading days in any 12 month period, in the case of an event described in clause (z) above that arises from an acquisition or a probable acquisition or financing, 6 7 recapitalization, business combination or other similar transaction), the Company may delay the disclosure of material non-public information concerning the Company (as well as prospectus or Registration Statement updating) the disclosure of which at the time is not, in the good faith opinion of the Company,the best interests of the Company (an "Allowed Delay"); provided, further, that the Company shall promptly (i) notify the Investors in writing of the existence of (but in no event, without the prior written consent of an Investor, shall the Company disclose to such investor any of the facts or circumstances regarding) material non-public information giving rise to an Allowed Delay and (ii) advise the Investors in writing to cease all sales under the Registration Statement until the end of the Allowed Delay. Upon expiration of the Allowed Delay, the Company shall again be bound by the first sentence of this Section 3(f) with respect to the information giving rise thereto, and shall be obligated to pay to the Investors any amounts provided for in Section 2(b). g. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof. h. The Company shall permit a single firm of counsel designated by the Initial Investors to review the Registration Statement and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof) a reasonable period of time prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects and will not request acceleration of the Registration Statement without prior notice to such counsel. The sections of the Registration Statement covering information with respect to the Investors, the Investor's beneficial ownership of securities of the Company or the Investors intended method of disposition of Registrable Securities shall conform to the information provided to the Company by each of the Investors. i. The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. j. At the request of any Investor, the Company shall furnish, on the date that Registrable Securities are delivered to an underwriter, if any, for sale in connection with the Registration Statement or, if such securities are not being sold by an underwriter, on the date of effectiveness thereof (i) an opinion, dated as of such date, from counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriters, if any, and the Investors and (ii) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and the Investors. 7 8 k. The Company shall make available for inspection during normal business hours by (i) any Investor and (ii) one firm of attorneys and one firm of accountants or other agents retained by the Initial Investors, (collectively, the "INSPECTORS") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to an Investor) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3(k). Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein (or in any other confidentiality agreement between the Company and any Investor) shall be deemed to limit the Investor's ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations. l. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor prior to making such disclosure, and allow the Investor, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. m. The Company shall (i) cause all the Registrable Securities covered by the Registration Statement to be listed on each national securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure the designation and quotation, of all the Registrable Securities covered by the Registration Statement on the Nasdaq or, if not eligible for the Nasdaq on the Nasdaq SmallCap and, without limiting the generality of 8 9 the foregoing, to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. n. The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. o. The Company shall cooperate with the Investors who hold Registrable Securities being offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request, and, within five (5) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an instruction in the form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form attached hereto as EXHIBIT 2. p. Except for registration rights previously disclosed to the Buyers prior to the execution of this Agreement, from and after the date of this Agreement, the Company shall not, and shall not agree to, allow the holders of any securities of the Company to include any of their securities in any Registration Statement under Section 2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof without the consent of the holders of a majority-in-interest of the Registrable Securities. q. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to the Registration Statement. 4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: a. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least three (3) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor. 9 10 b. Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement. c. In the event Investors holding a majority-in-interest of the Registrable Securities being registered (with the approval of the Initial Investors) determine to engage the services of an underwriter, each Investor agrees to enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement. d. Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or 3(g), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. e. No Investor may participate in any underwritten registration hereunder unless such Investor (i) agrees to sell such Investor's Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Section 5 below. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualification fees, printers and accounting fees, the fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the Company. 10 11 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: a. To the extent permitted by law, the Company will indemnify, hold harmless and defend (i) each Investor who holds such Registrable Securities, (ii) the directors, officers, partners, employees, agents and each person who controls any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any underwriter (as defined in the 1933 Act) for the Investors, and (iv) the directors, officers, partners, employees and each person who controls any such underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an "INDEMNIFIED PERSON"), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, "CLAIMS") to which any of them may become subject insofar as such Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section 6(c) with respect to the number of legal counsel, the Company shall reimburse the Indemnified Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, such corrected prospectus was timely made available by the Company pursuant to Section 3(c) hereof, and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a Violation and such Indemnified Person, notwithstanding such advice, used 11 12 it. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon any Violation by such Investor, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and subject to Section 6(c) such Investor will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Agreement (including this Section 6(b) and Section 7) for only that amount as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be 12 13 inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such legal counsel shall be selected by Investors holding a majority-in-interest of the Registrable Securities included in the Registration Statement to which the Claim relates (with the approval of a majority-in-interest of the Initial Investors), if the Investors are entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6, (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the investors to sell securities of the Company to the public without registration ("RULE 144"), the Company agrees to: a. make and keep public information available, as those terms are understood and defined in Rule 144; b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and 13 14 c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (ii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that term defined in Rule 501 of Regulation D promulgated under the 1933 Act. 14 15 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company, and Investors who hold a majority interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. 11. MISCELLANEOUS. a. A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices required or permitted to be given under the terms hereof shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five days after being placed in the mail, if mailed by regular U.S. mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Superconductor Technologies Inc. 460 Ward Drive Suite F Santa Barbara, California 93111-2310 Attention: Chief Executive Officer Facsimile: (805) 967-0342 With copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attention: John V. Roos, Esq. Facsimile: (650) 493-6811 15 16 If to an Investor: to the address set forth immediately below such Investor's name on the signature pages to the Securities Purchase Agreement. Each party shall provide notice to the other party of any change of its address. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. This Agreement shall be enforced, governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within such State. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. The parties hereto hereby submit to the exclusive jurisdiction of the United States Federal Courts located in Delaware with respect to any dispute arising under this Agreement or the transactions contemplated hereby. e. This Agreement and the Securities Purchase Agreement (including all schedules and exhibits thereto) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Securities Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. Except as otherwise provided herein, all consents and other determinations to be made by the Investors pursuant to this Agreement shall be made by Investors holding a 16 17 majority of the Registrable Securities, determined as if the all of the shares of Preferred Stock then outstanding have been converted into for Registrable Securities. k. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 17 18 IN WITNESS WHEREOF, the Company and the undersigned Initial Investors have caused this Agreement to be duly executed as of the date first above written. SUPERCONDUCTOR TECHNOLOGIES INC. By: /s/ M. Peter Thomas ----------------------------- Name: M. Peter Thomas Title: Chief Executive Officer WILMINGTON SECURITIES, INC. By: /s/ Andrew McQuarrie ----------------------------- Name: Andrew McQuarrie Title: Vice President EX-5.1 10 OPINION OF WILSON SONSINI GOODRICH & ROSATI 1 EXHIBIT 5.1 September 30, 1998 Superconductor Technologies Inc. 460 Ward Drive, Suite F Santa Barbara, California 93111-2310 RE: REGISTRATION STATEMENT ON FORM S-3 Ladies and Gentlemen: We have examined the Registration Statement on Form S-3 (the "Registration Statement") to be filed by Superconductor Technologies, Inc., a Delaware corporation (the "Company), with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or about the date hereof. The Registration Statement relates to (a) 2,978,333 shares of the Company's Common Stock, $.001 par value per share ("Common Stock"), of which (i) 1,291,666 shares (the "Series A Conversion Shares") may in the future be issued upon the conversion of certain outstanding shares of the Company's Series A Preferred Stock (the "Series A Stock"), (ii) 250,000 shares (the "Series A-1 Conversion Shares") may in the future be issued upon conversion of certain outstanding shares of the Company's Series A-1 Preferred Stock (the "Series A-1 Stock"), (iii) 1,000,000 shares (the "Series B Conversion Shares") may in the future be issued upon conversion of certain outstanding shares of the Company's Series B Preferred Stock (the "Series B Stock") and (iv) 436,667 shares (the"Warrant Shares") may in the future be issued upon the exercise of certain warrants (the "Warrants"), and (b) such presently indeterminate number of shares of Common Stock (the "Indeterminate Shares") which may be issued upon conversion of the Series A Stock, the Series A-1 Stock and the Series B Stock or the payment of dividends thereon, based upon fluctuations in the conversion price thereof, in accordance with Rule 416 under the Securities Act of 1933, as amended. In connection with this opinion, we have relied as to matters of fact, without investigation, upon certificates of public officials and others and upon affidavits, certificates and written statements of directors, officers and employees of, and the accountants and transfer agent for, the Company. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such instruments, documents and records as we have deemed relevant and necessary to examine for the purpose of this opinion, including (a) the Registration Statement, (b) the Amended and Restated Certificate of Incorporation of the Company, (c) the By-Laws of the Company, (d) the applicable Certificates of Designation, Preferences and Rights relating to the Series A Stock, the Series A-1 Stock and the Series B Stock (each, the "Applicable Certificate of Designation"), (e) stock purchase agreements relating to the issuances of the Series A, Series A-1 and Series B Stock (each, the "Stock Purchase Agreement"), (f) the Warrants and (g) resolutions adopted by the Board of Directors of the Company. In connection with this opinion, we have assumed the accuracy and completeness of all documents and records that we have reviewed, the genuineness of all signatures, the authenticity of the documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or reproduced copies. We have further assumed that all natural persons involved in the transactions contemplated by the Registration Statement (the "Offering") have sufficient legal capacity to enter into and perform their respective obligations and to carry out their roles in the Offering. 2 Based upon and subject to the foregoing, it is our opinion that: (i) The Series A, Series A-1 and Series B Conversion Shares, when issued by the Company upon the conversion of the Series A, Series A-1 and Series B Stock in accordance with the terms of the Amended and Restated Certificate of Incorporation of the Company and the Applicable Certificate of Designation, will be validly issued, fully paid and non-assessable; (ii) The Warrant Shares, if and when issued by the Company upon the exercise of the Warrants in accordance with the terms thereof, will be validly issued fully paid and non-assessable; and (iii) The Indeterminate Shares, if and when issued upon the conversion the Series A, Series A-1 or Series B Stock or as accrued dividends thereon in accordance with the terms of the Amended and Restated Certificate of Incorporation of the Company and the Applicable Certificate of Designation, will be validly issued, fully paid and non-assessable. Our opinion expressed above is limited to the General Corporation Law of the State of Delaware and the relevant federal laws of the United States, and we do not express any opinion concerning any other laws. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendment thereto. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation /s/ WILSON SONSINI GOODRICH & ROSATI -2- EX-23.1 11 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated February 18, 1998, except as to Note 10 which is as of March 26, 1998 appearing on page 26 of Superconductor Technologies Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, which is incorporated by reference in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PricewaterhouseCoopers LLP Los Angeles, California September 30, 1998 -----END PRIVACY-ENHANCED MESSAGE-----