SUPERCONDUCTOR TECHNOLOGIES INC (Form: 10-Q, Received: 05/13/2003 14:07:12)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


[X]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the quarterly period ended March 29, 2003

[ ]		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the transition period from to

Commission File Number 0-21074

SUPERCONDUCTOR TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		77-0158076 (IRS Employer Identification No.)

460 Ward Drive,
Santa Barbara, California 93111-2356
(Address of principal executive offices & zip code)

(805) 690-4500
(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

As of May 1, 2003 there were 59,823,553 shares of the Registrant’s Common Stock outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED STATEMENT OF OPERATIONS
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF CASH FLOWS
		NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Disclosure Controls and Procedures.
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
		(a) Exhibits
		(b) Reports on Form 8-K
SIGNATURES
EXHIBIT 4.26
EXHIBIT 10.36
EXHIBIT 10.37
EXHIBIT 10.38
EXHIBIT 10.39
EXHIBIT 99.1
EXHIBIT 99.2

SUPERCONDUCTOR TECHNOLOGIES INC.

INDEX TO FORM 10-Q

Three Months Ended March 29, 2003


PART I - FINANCIAL INFORMATION
	ITEM 1 - Financial Statements
	Statement of Operations		3
	Balance Sheet		4
	Statement of Cash Flows		5
	Notes to Unaudited Interim Financial Statements		6
	ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		22
	ITEM 4. Disclosure Controls and Procedures		22
PART II - OTHER INFORMATION
	ITEM 1 - Legal Proceedings		23
	ITEM 6 - Exhibits and Reports on Form 8-K
		(a) Exhibits	23
		(b) Reports on Form 8-K	26
SIGNATURE			27

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SUPERCONDUCTOR TECHNOLOGIES INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)


			March 30, 2002			March 29, 2003

Net revenues:
	Net commercial product revenues		$	3,707,000		$	5,121,000
	Government and other contract revenues			909,000			2,450,000
	Sub license royalties			—			9,000

		Total net revenues		4,616,000			7,580,000
Costs and expenses:
	Cost of commercial product revenues			4,374,000			4,797,000
	Contract research and development			651,000			1,385,000
	Other research and development			1,306,000			1,711,000
	Selling, general and administrative			4,105,000			7,982,000

		Total costs and expenses		10,436,000			15,875,000

Loss from operations				(5,820,000	)		(8,295,000	)
	Interest income			65,000			67,000
	Interest expense			(24,000	)		(115,000	)

		Net loss		(5,779,000	)		(8,343,000	)
Less:
	Deemed distribution attributable to the preferred stock beneficial conversion feature			(596,000	)		—

Net loss available to common stockholders			($	6,375,000	)	($	8,343,000	)

Basic and diluted loss per common share			($	0.33	)	($	0.14	)

Weighted average number of common shares outstanding				19,427,091			59,823,553

See accompanying notes to the consolidated financial statements

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SUPERCONDUCTOR TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEET


					December 31,			March 29,
					2002			2003

								(Unaudited)
				ASSETS
Current assets:
	Cash and cash equivalents				$	18,191,000		$	12,123,000
	Accounts receivable, net					3,405,000			1,728,000
	Inventory					6,347,000			7,482,000
	Prepaid expenses and other current assets					555,000			484,000

		Total current assets				28,498,000			21,817,000
Property and equipment, net of accumulated depreciation of $12,648,000 and $13,201,000, respectively						11,091,000			11,050,000
Patents, licenses and purchased technologies, net of accumulated amortization of $2,368,000 and $2,557,000, respectively						5,141,000			5,087,000
Goodwill						20,107,000			20,107,000
Other assets						489,000			584,000

		Total assets			$	65,326,000		$	58,645,000

			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	5,888,000		$	8,537,000
	Accrued expenses					4,557,000			3,942,000
	Current portion of capitalized lease obligations and long term debt					1,550,000			1,907,000

		Total current liabilities				11,995,000			14,386,000
Capitalized lease obligations and long term debt						573,000			122,000
Other long term liabilities						3,234,000			2,877,000

		Total liabilities				15,802,000			17,385,000
Commitments and contingencies-Note 7
Stockholders’ equity:
	Preferred stock, $.001 par value, 2,000,000 shares authorized, None issued and outstanding					—			—
	Common stock, $.001 par value, 125,000,000 shares authorized, 59,823,553 shares issued and outstanding					60,000			60,000
	Capital in excess of par value					154,744,000			154,823,000
	Notes receivable from stockholder					(820,000	)		(820,000	)
	Accumulated deficit					(104,460,000	)		(112,803,000	)

		Total stockholders’ equity				49,524,000			41,260,000

		Total liabilities and stockholders’ equity			$	65,326,000		$	58,645,000

See accompanying notes to the consolidated financial statements

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SUPERCONDUCTOR TECHNOLOGIES INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)


				Three Months Ended

				March 30, 2002			March 29, 2003

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss				($	5,779,000	)	($	8,343,000	)
Adjustments to reconcile net loss to net cash used for operating activities:
	Depreciation and amortization				425,000			745,000
	Warrant charges				367,000			—
	Amortization of accrued loss on sales contract				(346,000	)		—
	Changes in assets and liabilities:
		Accounts receivable			(1,134,000	)		1,677,000
		Inventory			(119,000	)		(1,135,000	)
		Prepaid expenses and other current assets			203,000			149,000
		Patents and licenses			(25,000	)		(134,000	)
		Other assets			(50,000	)		(99,000	)
		Accounts payable and accrued expenses			1,093,000			1,677,000

			Net cash used in operating activities		(5,365,000	)		(5,463,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment					(1,095,000	)		(512,000	)

			Net cash used for investing activities		(1,095,000	)		(512,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations					(66,000	)		(93,000	)
Proceeds from sale of common stock and warrants and exercise of stock options					12,460,000			—

			Net cash provided by (used in) financing activities		12,394,000			(93,000	)

Net increase (decrease) in cash and cash equivalents					(5,934,000	)		(6,068,000	)
Cash and cash equivalents at beginning of period					15,205,000			18,191,000

Cash and cash equivalents at end of period				$	21,139,000		$	12,123,000

See accompanying notes to the consolidated financial statements

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SUPERCONDUCTOR TECHNOLOGIES INC.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. General

Superconductor Technologies Inc. was incorporated in Delaware on May 11, 1987 and maintains its headquarters in Santa Barbara, California. The Company has operated in a single industry segment, the research, development, manufacture and marketing of high-performance filters to service providers and original equipment manufacturers in the mobile wireless communications industry. The Company’s principal commercial product, the SuperFilter ^® , combines high-temperature superconductors with cryogenic cooling technology to produce a filter with significant advantages over conventional filters. From 1987 to 1997, the Company was engaged primarily in research and development and generated revenues primarily from government research contracts. The Company began full-scale commercial production of the SuperFilter ^® in 1997 and shipped 393 units in 2000, 438 in 2001 and 927 units in 2002.

The Company continues to be involved as either contractor or subcontractor on a number of contracts with the United States government. These contracts have been and continue to provide a significant source of revenues for the Company. For the quarters ended March 30, 2002 and March 29, 2003, government related contracts account for 20% and 32% respectively, of the Company’s net revenues.

The unaudited consolidated financial information furnished herein has been prepared in accordance with generally accepted accounting principles and reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations and its cash flows for the periods presented.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. This quarterly report on Form 10-Q should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2002. The results of operations for the three months ended March 29, 2003 are not necessarily indicative of results for the entire fiscal year ending December 31, 2003.

2. Summary of Significant Accounting Policies

Basis of Presentation

During 2002 the Company incurred a net loss of $19,513,000 and negative cash flows from operations of $19,951,000. For the quarter ended March 29, 2003 the Company had a net loss of $8,343,000 and negative cash flows from operations of $5,463,000. The Company needs to significantly increase sales to achieve profitability and positive cash flows. If it is unable to do so, the Company may need additional debt or equity financing. The Company’s financial statements have been prepared assuming that the Company will continue as a going concern. The factors described above raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty.

Principles of Consolidation

The consolidated financial statements include the accounts of Superconductor Technologies Inc. and its wholly owned subsidiaries (the “Company”). All significant intercompany transactions have been eliminated from the consolidated financial statements.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. Cash and cash equivalents are maintained with quality financial institutions and from time to time exceed FDIC limits.

Accounts Receivable

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The Company sells predominantly to entities in the wireless communications industry and to entities of the United States Government. The Company grants uncollateralized credit to its customers. The Company performs ongoing credit evaluations of its customers before granting credit.

Revenue Recognition

Commercial revenues are principally derived from the sale of the Company’s SuperFilter ^® products and are recognized once all of the following conditions have been met: a) an authorized purchase order has been received in writing, b) customer’s credit worthiness has been established, c) shipment of the product has occurred, d) title has transferred, and e) if stipulated by the contract, customer acceptance has occurred and all significant vendor obligations, if any, have been satisfied.

Contract revenues are principally generated under research and development contracts. Contract revenues are recognized utilizing the percentage-of-completion method measured by the relationship of costs incurred to total estimated contract costs. If the current contract estimate were to indicate a loss, utilizing the funded amount of the contract, a provision would be made for the total anticipated loss. Revenues from research related activities are derived primarily from contracts with agencies of the United States Government. Credit risk related to accounts receivable arising from such contracts is considered minimal. These contracts include cost-plus, fixed price and cost sharing arrangements and are generally short-term in nature.

All payments to the Company for work performed on contracts with agencies of the U.S. Government are subject to adjustment upon audit by the Defense Contract Audit Agency. Based on historical experience and review of current projects in process, management believes that the audits will not have a significant effect on the financial position, results of operations or cash flows of the Company.

Warranties

The Company recognizes the estimated cost of warranty expense at the time of revenue recognition. Warranty reserves are reviewed periodically and adjusted based on actual and anticipated experience.

Guarantees

In connection with the sales of its commercial products, the Company indemnifies, without limit or term, its customers against all claims, suits, demands, damages, liabilities, expenses, judgments, settlements and penalties arising from actual or alleged infringement or misappropriation of any intellectual property relating to its products or other claims arising from its products. The Company cannot reasonably develop an estimate of the maximum potential amount of payments that might be made under its guarantee because of the uncertainty as to whether a claim might arise and how much it might total.

Research and Development Costs

Research and development costs are expensed as incurred and include salary, facility, depreciation and material expenses. Research and development costs incurred solely in connection with research and development contracts are charged to contract research and development expense. Other research and development costs are charged to other research and development expense.

Inventories

Inventories are stated at the lower of cost or market, with costs primarily determined using standard costs, which approximate actual costs utilizing the first-in, first-out method. Provision for potentially obsolete or slow moving inventory is made based on management’s analysis of inventory levels and sales forecasts.

Property and Equipment

Property and equipment are recorded at cost. Equipment is depreciated using the straight-line method over their estimated useful lives ranging from three to five years. Leasehold improvements and assets financed under capital leases are amortized over the shorter of their useful lives or the lease term. Furniture and fixtures are depreciated over seven years. Expenditures for additions and major improvements are capitalized. Expenditures for minor tooling, repairs and maintenance and minor improvements are charged to expense as incurred. When property or equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts. Gains or losses from

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retirements and disposals are recorded as other income or expense.

Patents, Licenses and Purchased Technology

Patents and licenses are recorded at cost and are amortized using the straight-line method over the shorter of their estimated useful lives or approximately seventeen years. Purchased technology acquired through the acquisition of Conductus, Inc. is recorded at its estimated fair value and is amortized using the straight-line method over seven years.

Goodwill

Goodwill represents the excess of purchase price over fair value of net assets acquired. Goodwill is tested for impairment annually in the fourth quarter after the annual planning process. The first step of the impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

Long-Lived Assets

The realizability of long-lived assets is evaluated periodically as events or circumstances indicate a possible inability to recover the carrying amount. Such evaluation is based on various analyses, including cash flow and profitability projections. The analyses necessarily involve significant management judgment. In the event the projected undiscounted cash flows are less than net book value of the assets, the carrying value of the assets will be written down to their estimated fair value.

Loss Contingencies

In the normal course of business the Company is subject to claims and litigation, including allegations of patent infringement. Liabilities relating to these claims are recorded when it is determined that a loss is probable and the amount of the loss can be reasonably estimated. The costs of defending the Company in such matters are expensed as incurred.

Income Taxes

The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes.” SFAS 109 utilizes an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax laws or rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Marketing Costs

All costs related to marketing and advertising the Company’s products are expensed as incurred or at the time the advertising takes place. Advertising costs were not material in the periods ended March 30, 2002 and March 29, 2003.

Net Loss Per Share

Basic and diluted net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding in each year. Net loss available to common stockholders is computed after deducting accumulated dividends on cumulative preferred stock, deemed dividends and accretion of redemption value on redeemable preferred stock for the period and beneficial conversion features on issuance of convertible preferred stock. Common stock equivalents are not included in the calculation of diluted loss per share because their effect is antidilutive.

Stock-based Compensation

As permitted under Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation”, the Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” in accounting for its stock options and other stock-based employee awards. Pro forma information regarding net loss and loss per share, as calculated under the provisions of SFAS 123, are disclosed in the notes to the financial statements. The Company accounts for equity securities issued to non-employees in accordance with the provision

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of SFAS 123 and Emerging Issues Task Force 96-18.

If the Company had elected to recognize compensation expense for employee awards based upon the fair value at the grant date consistent with the methodology prescribed by SFAS 123, the Company’s net loss and net loss per share would have been increased to the pro forma amounts indicated below:


		March 30,			March 29,
		2002			2003

Net Loss:
	As reported	($	5,779,000	)	($	8,343,000	)
	Pro forma	($	6,868,000	)	($	9,251,000	)
Loss per Share:
	As reported	($	0.33	)	($	0.14	)
	Pro forma	($	0.35	)	($	0.15	)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The significant estimates in the preparation of the financial statements relate to the assessment of the carrying amount of accounts receivable, inventory, intangibles, estimated provisions for warranty costs, accruals for restructuring and lease abandonment costs in connection with the Conductus acquisition, income taxes, the loss contract with U.S. Cellular and disclosures related to the litigation with ISCO International, Inc. Actual results could differ from those estimates and such differences may be material to the financial statements.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The Company estimates that the carrying amount of the debt approximates fair value based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Comprehensive Income

The Company has no items of other comprehensive income in any period and consequently does not report comprehensive income.

Segment Information

The Company operates in a single business segment; the research, development, manufacture, marketing and sale of high temperature superconducting filters and low noise amplifiers and multiplexer products for the wireless communications industry. The Company also markets and sells a multi-carrier power amplifier, a related product manufactured by a third party. Net revenues derived principally from government research and development contracts are presented separately on the statement of operations for all periods presented. Management views its government research and development contracts as a supplementary source of revenue to fund its development of high temperature superconducting products.

Certain Risks and Uncertainties

Our two largest commercial customers accounted for 99% and 87% of our net commercial product revenues for the three months ended March 29, 2003 and March 30, 2002, respectively, and 12% and 43% of accounts receivable as of March 29, 2003 and December 31, 2002, respectively.

The Company currently purchases substrates for growth of high-temperature superconductor films from one supplier because of the quality of its substrates.

Recent Accounting Pronouncements

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In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement addresses financial reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of this Statement are effective for exit or disposal activities initiated after December 31, 2002. The Company does not believe it will have a material impact on its financial position or results of its operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to Statement 123 in paragraphs 2(a)-2(e) of this Statement shall be effective for financial statements for fiscal years ending after December 15, 2002. Earlier application of the transition provisions in paragraphs 2(a)-2(d) is permitted for entities with a fiscal year ending prior to December 15, 2002, provided that financial statements for the 2002 fiscal year have not been issued as of the date this Statement is issued. Early application of the disclosure provisions in paragraph 2(e) is encouraged. The amendment to Statement 123 in paragraph 2(f) of this Statement and the amendment to Opinion 28 in paragraph 3 shall be effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. The adoption of the Standard did not have a material impact on the Company’s financial position or results of its operations.

In November 2002, the FASB issued FASB Interpretation Number 45, or FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of SFAS No. 5, 57 and 107 and rescission of FIN 34.” FIN 45 clarifies the requirements of SFAS No. 5, “Accounting for Contingencies, “ relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. FIN 45 is effective on January 1, 2003 and did not have an impact on the Company’s financial position, results of operations or cash flows for the period ended March 29, 2003.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB 51.” The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (“variable interest entities” or “VIE’s”) and how to determine when and which business enterprise should consolidate the VIE (the “primary beneficiary”). This new model for consolidation applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46 is effective January 1, 2003 and did not have an impact on the Company’s financial position, results of operations or cash flows for the period ended March 29, 2003.

Note 3-Acquisition of Conductus, Inc.

On December 18, 2002, the Company acquired 100 percent of the outstanding shares of Conductus, Inc. (“Conductus”). Conductus developed, manufactured, and marketed electronic components and systems based on superconductors for application in telecommunications markets and in defense, intelligence and law enforcement markets. The results of Conductus’ operations have been included in the consolidated financial statements for periods subsequent to the acquisition.

The following unaudited proforma information presents certain operating results as if the acquisition had taken place on January 1, 2002:


	Three Months
	Ended March 30,
	2002

Revenue	$	6,583,000
Net loss		(9,633,000	)

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	Three Months
	Ended March 30,
	2002

Net loss available to common stockholders		(10,229,000	)
Net loss per share	$	(0.31	)

These proforma results have been prepared for comparative purposes only and include certain adjustments such as additional amortization expense as a result of purchased technology and lower depreciation expense resulting from lower fixed assets costs. The proforma results are not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at January 1, 2002 or those of future periods.

4. Short Term Borrowings

On March 28, 2003, the Company entered into an accounts receivable purchase agreement with a bank. The agreement provides for the sale of up to $5 million of eligible accounts receivable, with advances to the Company totaling 80% of the receivables sold. Advances bear interest at the prime rate (4.25% at March 29, 2003) plus 2.50% subject to a minimum monthly charge and the agreement terminates on April 1, 2004.

Advances under the agreement are collateralized by all the Company’s assets. Under the terms of the agreement, the Company continues to service the sold receivables and is subject to recourse provisions. In connection with this agreement the Company issued seven year warrants for the purchase of 94,340 shares of common stock at $1.06 per share. The fair value of the warrants issued in connection with this agreement was calculated using the Black-Scholes option pricing model utilizing a volatility factor of 115%, risk-free interest rate of 3.46% and expected life of 7 years. The value is accounted for as debt issuance costs and amortized over the term of the agreement.

5. Stockholders’ Equity

During the three months ended March 29, 2003, the Company (i) issued options to purchase 718,093 shares of common stock under the Company’s stock option plans and (ii) cancelled options in connection with employment terminations to purchase 138,915 shares of common stock. No options were exercised during this period. At March 29, 2003, options to purchase 5,386,325 shares of common stock were issued and outstanding under the Company’s stock option plans. The outstanding options expire by the end of March 2013. The exercise prices for these options range from $1.00 to $49.38 per share, for an aggregate exercise price of approximately $43 million. At March 29, 2003, there were 379,804 shares of common stock available for granting future options.

The following is a summary of outstanding warrants at March 29, 2003:


	Number of Common
	Shares

			Currently		Price per
	Total		Exercisable		Share		Expiration Date

Warrant related to issuance of Series E preferred stock		1,151,819		1,151,819	$	19.53	September 29, 2005
Warrants related to issuance of common stock		770,714		770,714		5.50	March 10, 2007
		5,274,240		—		1.19	December 17, 2007
Warrants related to bank borrowings		62,500		62,500		3.00	June 18, 2004
		33,333		33,333		3.00	December 1, 2004
		27,692		27,692		3.25	January 12, 2005
		94,340		94,340		1.06	March 28, 2010
Warrants related to sales agreements		1,000,000		436,980		4.00	August 27, 2004

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	Number of Common
	Shares

			Currently		Price per
	Total		Exercisable		Share		Expiration Date

Warrants assumed in connection with the Conductus, Inc. acquisition		71,303		71,303		4.50	September 1, 2003
		219,690		219,690		6.667	December 1, 2004
		72,756		72,756		22.383	August 1, 2005
		1,095,000		1,095,000		4.583	September 27, 2007
		6,000		6,000		31.25	September 1, 2007

6. Warrants Issued To U. S. Cellular

In August 1999, the Company entered into a warrant agreement with United States Cellular Corporation (“U.S. Cellular”) where the exercise of a warrant to purchase up to 1,000,000 shares of common stock was conditioned upon future product purchases by U.S. Cellular. Under the terms of the warrant, U.S. Cellular vests in the right to purchase one share of common stock at $4 per share for every $25 of SuperFilter systems purchased from the Company. The warrant is immediately exercisable with respect to any vested shares and expires August 27, 2004. For accounting purposes proceeds from sales to U.S. Cellular under this agreement were initially allocated between commercial product revenues and the estimated value of the warrants vesting in connection with those sales. The estimated fair value of the warrants in excess of the related sales, when applicable, is recorded in cost of commercial product revenues.

In September 2000, the Company received a $7.8 million non-cancelable purchase order from U.S. Cellular for SuperFilter systems to be shipped over the next nine quarters. In consideration for the purchase order, the Company amended the August 1999 warrant agreement and vested 312,000 warrants to U.S. Cellular. The vested warrants are immediately exercisable, not subject to forfeiture, and U.S. Cellular has no other obligations to the Company.

The estimated fair value of the warrants vesting upon receipt of this order was calculated to be $5,635,000 using the Black-Scholes option-pricing model and was recorded as a deferred warrant charge in the statement of stockholders’ equity. As SuperFilter systems are shipped under this purchase order, the related sales proceeds are allocated between stockholders’ equity and commercial product revenue using the percentage relationship which existed between the fair value of the warrants as recorded in September 2000 and the amount of the non-cancelable purchase order. The fair value of the warrants was calculated utilizing a volatility factor of 85%, risk-free interest rate of 6.01%, and an expected life of 3.92 years. During the three months ended March 30, 2002 sales proceeds of $367,000 for shipments pursuant to this purchase order were allocated to the deferred warrant charge and proceeds of $141,000 were recorded as commercial product revenues.

In September 2000, after the allocation of the future sales proceeds to the fair value of the related warrants, the estimated cost of providing products under the purchase order exceeded related revenue by $5.3 million. The resulting loss was reflected in the results of operations for the quarter ended September 30, 2000. During the three months ended March 30, 2002, $346,000 of this reserve was amortized against the cost of product delivered under this purchase order. Deliveries under this purchase order were completed during fiscal 2002.

As of March 29, 2003, U.S. Cellular has 563,020 unvested warrants that can be earned from future product orders through August 27, 2004. In each period in which these remaining warrants are earned, a non-cash charge will be recorded for the fair market value of the warrants shares earned or vested in the period.

7. Legal Proceedings

The Company is engaged in a patent dispute with ISCO International, Inc. relating to U.S. Patent No. 6,263,215 entitled “Cryoelectronically Cooled Receiver Front End for Mobile Radio Systems.” ISCO filed a complaint on July 17, 2001 in the United States District Court for the District of Delaware against us and our wholly owned subsidiary, Conductus, Inc. The ISCO complaint alleged that our SuperFilter product and Conductus’ ClearSite® product infringe ISCO’s patent. The matter went to trial on March 17, 2003.

- 12 -

based upon a finding that ISCO engaged in unfair competition and acted in bad faith by issuing press releases and contacting our customers asserting rights under this patent. The award will only be recognized as income if and when received.

On April 17, 2003, the Company filed a Motion for Attorneys’ Fees and Disbursements, in which it asked the Court to award the Company its attorneys’ fees and other litigation expenses. On the same date, ISCO filed a motion, asking the Court to overturn the verdict and grant a new trial. Further briefing on both motions will be filed in early May 2003. It is not known when the Court will rule on either motion.

Litigation expenses on the ISCO matter totaled $4,034,000 for the three months ended March 29, 2003, and $818,000 in the three-month period ended March 30, 2002.

8. Earnings Per Share

The computation of per share amounts for the three months ended March 29, 2003 and March 30, 2002 is based on the average number of common shares outstanding for the period. Options and warrants to purchase 15,265,712 and 6,168,508 shares of common stock during the three months ended March 29, 2003 and March 30, 2002, respectively, were not considered in the computation of diluted earnings per share because their inclusion would be antidilutive. Preferred stock convertible into 2,929,563 shares of common stock was also not considered in the computation of diluted earnings per share for the three months ended March 30, 2002 because their inclusion would also be antidilutive.

9. Details of Certain Financial Statement Components and Supplemental Disclosures of Cash Flow Information and Non-Cash Activities

Balance sheet data :


		December 31,
		2002			March 29, 2003

Accounts receivable:
	Accounts receivable-trade	$	1,592,000		$	586,000
	U.S. government accounts receivable-billed		1,692,000			1,203,000
	U.S. government accounts receivable-unbilled		179,000			—
	Less: allowance for doubtful accounts		(58,000	)		(61,000	)

		$	3,405,000		$	1,728,000

Unbilled accounts receivable represent costs and profits in excess of billed amounts on contracts-in-progress at year-end. Such amounts are billed based upon the terms of the contractual agreements. Such amounts are substantially collected within one year.


Inventories:
	Raw materials	$	1,841,000		$	1,283,000
	Work-in-process		3,143,000			4,248,000
	Finished goods		2,013,000			2,685,000
Less inventory reserve			(650,000	)		(734,000	)

		$	6,347,000		$	7,482,000

Property and Equipment:
	Equipment	$	18,315,000		$	18,772,000
	Leasehold improvements		5,016,000			5,063,000
	Furniture and fixtures		408,000			416,000

			23,739,000			24,251,000
	Less: accumulated depreciation and amortization		(12,648,000	)		(13,201,000	)

		$	11,091,000		$	11,050,000

- 13 -

At December 31, 2002 and March 29, 2003, equipment includes $1,448,000 of assets financed under capital lease arrangements, net of $1,090,000 and $1,132,000 of accumulated amortization, respectively. Depreciation expense amounted to $357,000 and $553,000 for the quarter ended March 30, 2002 and March 29, 2003, respectively.


Patents and Licenses
	Patents pending	$	599,000		$	699,000
	Patents issued		964,000			998,000
Less accumulated amortization			(268,000	)		(282,000	)

Net patents issued			696,000			716,000

	Licenses		2,746,000			2,746,000
Less accumulated amortization			(2,081,000	)		(2,141,000	)

Net licenses			665,000			605,000

	Purchased technology		3,200,000			3,200,000
Less accumulated amortization			(19,000	)		(133,000	)

Net purchased technology			3,181,000			3,067,000

		$	5,141,000		$	5,087,000

Amortization expense related to these items totaled $68,000 and $189,000 the quarters ended March 30, 2002 and March 29, 2003, respectively and is expected to total $749,000 in 2003, $760,000 in 2004 and $774,000 in each of the years 2005, 2006 and 2007.


Accrued Expenses and Other Long Term Liabilities
	Compensation related	$	1,053,000		$	1,586,000
	Warranty reserve		351,000			369,000
	Unfavorable lease costs		1,140,000	(1)		1,065,000	(1)
	Lease abandonment costs		1,995,000	(1)		1,843,000	(1)
	Product line exit costs		1,042,000	(1)		1,010,000	(1)
	Severance costs		1,600,000	(1)		535,000	(1)
	Other		610,000			411,000

			7,791,000			6,819,000
	Less current portion		(4,557,000	)		(3,942,000	)

	Long term portion	$	3,234,000		$	2,877,000

(1) Amounts are related to the acquisition of Conductus, Inc. on December 18, 2002.


Warranty Reserve Activity
Beginning balance	$	242,000		$	351,000
Additions		340,000			35,000
Deductions		(231,000	)		(17,000	)

Ending balance	$	351,000		$	369,000

Supplemental schedule of non-cash financing activities:


Equity issuance costs not yet paid	$	203,000	$	—

Issuance of warrants in connection with debt agreement	$	—	$	78,000

- 14 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

We develop, manufacture and market high performance wireless infrastructure products to commercial service providers, systems integrators and original equipment manufacturers as well as government entities. Our products, known commercially as SuperLink™ Solutions, maximize the performance of wireless networks by improving the quality of “uplink” signals from subscriber terminals (wireless handsets or mobile wireless devices) to network base stations and of “downlink” signals from network base stations to subscriber terminals. These premium products are built around our flagship product family, SuperLink™ Rx, and work in concert to provide Total Link™ Enhancement, combining the benefits of our complementary solutions to meet the growing demand of the wireless telecommunications industry for improved capacity, reduced interference, and greater coverage for their network base stations.

SuperLink Solutions consist of three unique product families: SuperLink™ Rx, SuperLink™ Tx and SuperPlex™. Together, these solutions enable service providers to improve network performance while reducing capital and operating costs. Service providers also realize enhanced revenues as subscribes experience fewer dropped and blocked calls and better overall call quality.

• SuperLink Rx. In order to receive uplink signals from wireless terminals, base stations require a wireless filter system to eliminate, or filter out, out-of-band interference. To address this need, we offer SuperLink Rx. Deployed in base stations, these products combine specialized filters using high-temperature superconducting (HTS) technology with a proprietary cryogenic cooler and a low-noise amplifier. The result is the ultimate uplink, a highly compact and reliable cryogenic receiver front-end that can simultaneously deliver both high selectivity (interference rejection) and high sensitivity (detection of low level signals). SuperLink Rx products thereby offer significant advantages over conventional filter systems.

• SuperLink Tx. Wireless networks also suffer from insufficient transmit power on the downlink signal path. This is particularly true after the uplink has been improved by using SuperLink Rx. In this situation, operators can achieve superior downlink performance from SuperLink Tx, a family of compact, robust, and technologically advanced multi-carrier high-power amplifiers.

• SuperPlex. For antenna sharing without compromise, we offer SuperPlex, a line of multiplexers that provide extremely low insertion loss and excellent cross-band isolation.

Our government products utilize many of the same advanced technologies as found in our SuperLink Rx products for commercial wireless networks. Government products are tailored to the specialized needs of individual government customers yet a significant percentage of these products are based on common platforms to allow for improved economies of scale.

• From 1987 to 1997, the Company was engaged primarily in research and development and generated revenues primarily from government research contracts. The Company began full-scale commercial production of the SuperLink Rx family of products in 1997 and shipped 438 units in 2001 and 927 units in 2002. As the Company continues to focus on its commercial products, commercial revenues are expected to increase as a percentage of revenues. The Company has incurred cumulative losses of $113 million from inception to March 29, 2003.

On December 18, 2002, the Company acquired 100 percent of the outstanding shares of Conductus, Inc. The results of Conductus, Inc. are included in the consolidated financial statement for periods following its acquisition.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts

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of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, warranty obligations, contingencies and restructuring reserves. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Our net sales consist of revenue from sales of products net of trade discounts and allowances. We recognize revenue when evidence of an arrangement exists, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured. At the time revenue is recognized, we provide for the estimated cost of product warranties if allowed for under contractual arrangements. Our warranty obligation is effected by product failure rates and service delivery costs incurred in correcting a product failure. Should such failure rates or costs differ from these estimates, accrued warranty costs would be adjusted.

In connection with the acquisition of Conductus we recognized $20 million of goodwill. The first time this goodwill will be tested for impairment will be in the fourth quarter of 2003 unless required earlier. If the carrying amount exceeds its implied fair value, an impairment loss will be recognized equal to the excess.

As permitted under Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation”, the Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” in accounting for its stock options and other stock-based employee awards. Pro forma information regarding net loss and loss per share, as calculated under the provisions of SFAS 123, are disclosed in the notes to the financial statements. The Company accounts for equity securities issued to non-employees in accordance with the provision of SFAS 123 and Emerging Issues Task Force 96-18.

- 16 -


		March 30,			March 29,
		2002			2003

Net Loss:
	As reported	($	5,779,000	)	($	8,343,000	)
	Pro forma	($	6,868,000	)	($	9,251,000	)
Loss per Share:
	As reported	($	0.33	)	($	0.14	)
	Pro forma	($	0.35	)	($	0.15	)

Our valuation allowance against the deferred tax assets is based on our assessments of historical losses and projected operating results in future periods. If and when we generate future taxable income in the U.S. against which these tax assets may be applied, some portion or all of the valuation allowance would be reversed and an increase in net income would consequently be reported in future years.

Backlog

Our commercial backlog consists of accepted product purchase orders scheduled for delivery within 24 months and consists of purchase orders for both dollar and unit purchase commitments. The exact dollar commitment for unit commitments may vary depending on the exact units purchased. Based on past purchasing patterns and expected purchasing trends of customers with unit commitments, we estimate our backlog at March 29, 2003 to be $4.5 million, as compared to $1.4 million at December 31, 2002.

Results of Operations

Quarter ended March 29, 2003 as compared to the quarter ended March 30, 2002 .

On December 18, 2002, the Company acquired 100 percent of the outstanding shares of Conductus, Inc. Therefore, the results of Conductus, Inc. are included in the consolidated financial statements for the quarter ended March 29, 2003 and not in the quarter ended March 30, 2002.

Total net revenues increased by $3.0 million, or 64%, from $4.6 million for the quarter ended March 30, 2002 to $7.6 million for the quarter ended March 29, 2003. The increase is primarily due to higher commercial product revenues and higher contract sales.

Our commercial revenue is generated from (i) the sales of our SuperFilter product line which combines specialized superconducting RF filters with a proprietary cryogenic cooler (and, in most cases, a low noise amplifier) in highly compact systems and (ii) starting in February 2001, from the sales of our new multiplexer product line. Net commercial product revenue consists of gross commercial product sales proceeds less sales discounts and the allocation of certain sales proceeds to a warrant issued to one customer in 1999 under a long-term supply agreement. The following table summarizes the calculation of net commercial product revenue for 2003 and 2002:


		Quarter Ended

		March 30,			March 29,
Dollars in thousands		2002			2003

Gross commercial product sales proceeds		$	4,103		$	5,178
	Less allocation of proceeds to warrants issued to U.S. Cellular		(367	)		—
	Less sales discounts		(29	)		(57	)

Net commercial product revenues		$	3,707		$	5,121

- 17 -

For the quarter ended March 29, 2003, net commercial product revenues increased to $5.1 million from $3.7 million in the same period last year, an increase of $1.4 million, or 38%. This increase is the result of higher sales of our SuperFilter products, a shift in the product mix toward higher-priced SIX-Pak units, increased sales of our duplexer product and the decrease in the amount of sales proceeds allocated to warrants partially offset by lower average selling prices. The increase in gross commercial product sales proceeds was partially offset by $367,000 in 2002 to reflect an allocation of sales proceeds to warrants issued to U.S. Cellular in connection with those sales. Our two largest customers accounted for 99% of our net commercial revenues in 2003 and 87% in 2002.

In 2003, government and other contract revenues totaled $2.5 million as compared to $909,000 in the same period last year, or an increase of $1.5 million. The increase is attributable the acquisition of Conductus.

Cost of commercial product revenue includes all direct costs, manufacturing overhead and related start-up costs. The cost of commercial product revenues totaled $4.8 million for the quarter ended March 29, 2003 as compared to $4.4 million in the same period last year.This increase resulted from increased unit shipments, higher costs associated with ramping up the Company’s manufacturing capacity and amortization of the accrued loss relating to the U.S. Cellular contract in 2002, partially offset by lower material and labor costs per unit and the effect of increased manufacturing efficiencies. Cost of commercial product revenues for the quarter ended March 30, 2002 was reduced by amortization credits of $346,000 relating to the accrual for non-cash contract loss on the purchase order from U.S. Cellular. Excluding these amortization credits, the cost of commercial revenues for 2002 totaled $4.7 million

For the quarter ended March 29, 2003, we generated positive gross margins of $324,000 from net commercial sales of $5.1 million as compared to a negative gross margin of $667,000 for the quarter ended March 30, 2002. . Based on current prices and forecasted product mix and costs, we expect to continue to achieve positive commercial gross margins for the remainder of fiscal 2003.

Contract research and development expenses totaled $1.4 million in the quarter ended March 29, 2003 as compared to $651,000 in the prior year period. This increase results from the increased government and other contract activities resulting from the acquisition of Conductus.

Other research and development expenses relate to development of our commercial products. These expenses totaled $1.7 million in the quarter ended March 29, 2003 as compared to $1.3 million in the prior year. The increase results from increased commercial development efforts.

Selling, general and administrative expenses totaled $8.0 million in quarter ended March 29, 2003 as compared to $4.1 million in comparable period last year. This increase results primarily from increased domestic and international marketing and sales efforts, increased ISCO litigation expenses and the addition of Conductus expenses which totaled $385,000. ISCO litigation expenses totaled $4.0 million for 2003 as compared to $818,000 in 2002.

On April 3, 2003, the jury returned a unanimous verdict that ISCO’s patent is invalid and unenforceable. The jury also awarded STI $3.8 million in compensatory damages based upon a finding that ISCO engaged in unfair competition and acted in bad faith by issuing press releases and contacting our customers asserting rights under this patent. The damages award will be recognized as income if and when received. Litigation expenses relating to this matter are expected to decrease significantly in the second quarter of 2003.

Interest income in the quarter ended March 29, 2003 is comparable to the prior year.

Interest expense in the current quarter in 2003 has increased as compared to the prior year due to interest being

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recognized for accounting purposes due to certain liabilities being recorded at their net present value in connection with the Conductus acquisition.

We had a net loss of $8.3 million in the first quarter of 2003 as compared to $5.8 million in same period last year.

The net loss available to common shareholders totaled $8.3 million in the quarter ended March 29, 2003, or $0.14 per common share, as compared to $6.4 million, or $0.33 per common share in the same period last year. The amounts for 2002 include a $596,000 non-cash deemed distribution on preferred stock.

Liquidity and Capital Resources

Cash and cash equivalents decreased by $6.1 million from $18.2 million at December 31, 2002 to $12.1 million at March 29, 2003.

Cash used in operations totaled $5.5 million in the first quarter of 2003. We used $7.6 million to fund the cash portion of our net losses. We also used cash to fund a $1.4 million increase in inventory, patents and licenses and other assets. Cash generated from the decrease in accounts receivable and increase in accounts payable and other accrued expenses totaled $3.5 million. Since a significant portion of our payables relate to the recently completed ISCO litigation we do not expect accounts payable and other accrued liabilities to increase at the same rate for the remainder of 2003.

Net cash used in investing activities totaled $512,000 in the first quarter of 2003 and primarily related to the purchase of manufacturing equipment and facilities improvements. .

Net cash used in financing activities totaled $93,000 in the first quarter of 2003 and related to the pay down of capital lease obligations.

At March 29, 2003, we had the following cash commitments:

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			Payments Due
			by Period

Contractual
Obligations	Total		Less than 1 year		2-3 years		4-5 years		After 5 years

Capital lease obligations	$	380,000	$	239,000	$	110,000	$	31,000		—
Principal and interest payments on subordinated note payable		1,760,000		1,760,000		—		—		—
Operating leases		14,064,000		2,342,000		4,473,000		2,394,000	$	4,855,000
Minimum license commitment		587,000		100,000		200,000		200,000		87,000
Fixed asset purchase commitments		841,000		841,000		—		—		—

Total contractual cash obligations	$	17,632,000	$	5,282,000	$	4,783,000	$	2,625,000	$	4,942,000

Additionally, we plan to invest an additional $2.0-$2.5 million in fixed assets during 2003 to continue to expand manufacturing ability. With our present SuperFilter product mix, we have the ability to manufacture about 600 units per quarter and have the ability to easily expand that capacity to 1,000 units per quarter. In addition, we expect that sales will continue to increase which will result in higher inventory and accounts receivable balances being maintained. Although revenues are expected to increase in 2003, through March 2003 the Company has continued to incur losses. Our long-term prospects are dependent upon the continued and increased market acceptance for our products.

Based on current forecasts, STI believes it will have sufficient resources to fund normal operations until it reaches profitability expected later this year. We need to significantly increase sales to achieve profitability and positive cash flows. If we are unable to do so, we may need additional debt or equity financing. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should we be unable to continue in existence.

Net Operating Loss Carryforward

At December 31, 2002, we had a federal net operating loss carryforward of approximately $162.7 million. Section 382 of the Internal Revenue Code imposes an annual limitation on the utilization of net operating loss carryforwards based on a statutory rate of return (usually the “applicable federal funds rate”, as defined in the Internal Revenue Code) and the value of the corporation at the time of a “change of ownership” as defined by Section 382. Recently the Company completed an analysis of its equity transactions and determined that it had a change in ownership in August 1999. Therefore, the ability to utilize net operating loss carryforwards incurred prior to the change of ownership totaling $32.6 million will be subject in future periods to an annual limitation of $2.3 million. Net operating losses incurred by Superconductor Technologies Inc. subsequent to the change totaled $67.4 million and are not subject to this limitation, however, they may be subject to limitation should a subsequent change in ownership occur. Conductus has net operating loss carryforwards of $89.2 million. Conductus may have already had an ownership change because of its previous equity transactions. It is likely that the consummation of the merger with Conductus and the contemporaneous offering caused another ownership change for purposes of Section 382, further restricting utilization of net operating loss carryforwards incurred through the ownership change date and acquired through the acquisition of Conductus. If such an ownership change occurred, the applicable Section 382 Limitation may be significantly lower than the $2.3 million limitation that resulted from the 1999 ownership change.

- 20 -

Future Accounting Requirements

- 21 -

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There was no material change in our exposure to market risk at March 29, 2003 as compared with our market risk exposure on December 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Risk” in our 2002 Annual Report on Form 10K.

Item 4. Disclosure Controls and Procedures.

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be included in the Company’s periodic SEC filings. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. We have made these statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements relate to future events or our future performance and include, but are not limited to, statements concerning our business strategy, future commercial revenues, market growth, capital requirements, new product introductions, expansion plans and the adequacy of our funding. Other statements contained in this report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and other comparable terminology.

Forward-looking statements are not guarantees of future performance and are subject to various risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed in forward-looking statements. They can be affected by many factors, including, but not limited to the following:

• fluctuations in product demand,

• the impact of competitive filter products, technologies and pricing,

• manufacturing capacity constraints and difficulties,

• market acceptance risks, and

• general economic conditions.

Please read Exhibit 99 to our report on Form 10-K for the year ended December 31, 2002 entitled “Disclosure Regarding Forward-Looking Statements” for a description of additional uncertainties and factors that may affect our forward-looking statements. Forward-looking statements are based on information presently available to senior management, and we do not assume any duty to update our forward-looking statements.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are engaged in a patent dispute with ISCO International, Inc. relating to U.S. Patent No. 6,263,215 entitled “Cryoelectronically Cooled Receiver Front End for Mobile Radio Systems.” ISCO filed a complaint on July 17, 2001 in the United States District Court for the District of Delaware against us and our wholly owned subsidiary, Conductus, Inc., another company involved in the high-temperature superconducting industry. The ISCO complaint alleged that our SuperFilter product and Conductus’ ClearSite® product infringe ISCO’s patent. The matter went to trial on March 17, 2003.

On April 3, 2003, the jury returned a unanimous verdict that our SuperFilter III product does not infringe, and that ISCO’s patent is invalid and unenforceable. The jury also awarded STI $3.8 million in compensatory damages based upon a finding that ISCO engaged in unfair competition and acted in bad faith by issuing press releases and contacting our customers asserting rights under this patent.

Item 6. Exhibits and Reports on Form 8-K

(a)


Number		Description of Document

3.1		Amended and Restated Certificate of Incorporation of the Company ⁽⁸⁾

3.2		Certificate of Amendment of Restated Certificate of Incorporation ⁽¹⁵⁾

3.3		Bylaws of the Registrant ⁽⁹⁾

3.4		Certificate of Amendment of Bylaws dated May 17, 2001 ⁽¹⁵⁾

3.5		Certificate of Amendment of Bylaws dated August 8, 2001 ⁽¹⁵⁾

4.1		Form of Common Stock Certificate ⁽¹⁾

4.2		Third Amended and Restated Stockholders Rights Agreement ⁽⁹⁾

4.3		Warrant Issued to PNC Bank, National Association in connection with Credit Agreement ⁽⁹⁾

4.4		Registration Rights Agreement to United States Cellular Corporation ⁽¹⁰⁾

4.5		Form of Warrant to United States Cellular Corporation ⁽¹⁰⁾

4.6		Warrant Purchase Agreement dated December 1, 1999 with PNC Bank ⁽¹²⁾

4.7		Warrant Purchase Agreement dated January 12, 2000 with PNC Bank ⁽¹²⁾

4.8		Certificate of Designations, Preferences and Rights of Series E Convertible Stock ⁽¹³⁾

4.9		Securities Purchase Agreement dated as of September 29, 2000 between the Company and RGC International Investors, LDC. (Exhibits and Schedules Omitted) ⁽¹³⁾

4.10		Registration Rights Agreement dated as of September 29, 2000 between the Company and RGC International Investors, LDC. ⁽¹³⁾

4.11		Initial Stock Purchase Warrant dated as of September 29, 2000 between the Company and RGC International Investors, LDC. ⁽¹³⁾

4.12		Incentive Stock Purchase Warrant dated as of September 29, 2000 between the Company and RGC International Investors, LDC. ⁽¹³⁾

4.13		Registration Rights Agreement, dated March 6, 2002 ⁽¹⁶⁾

4.14		Warrants to Purchase Shares of Common Stock, dated March 11, 2002 ⁽¹⁶⁾

4.15		Registration Rights Agreement dated October 10, 2002 ⁽¹⁸⁾

4.16		Warrants to Purchase Common Stock dated October 10, 2002 ⁽¹⁸⁾

- 23 -


Number		Description of Document

4.17		Common Stock Purchase Agreement, dated March 8, 2002 between Conductus, Inc. and the investors signatory thereto ⁽⁷⁾

4.18		Warrant to Purchase Common Stock, dated March 8, 2002 by Conductus, Inc. to certain investors ⁽²¹⁾

4.19		Registration Rights Agreement, dated March 26, 2002, between Conductus, Inc. and certain investors ⁽²¹⁾

4.20		Purchase Contract, dated as of August 7, 2000, between Conductus and Dobson Cellular Systems, Inc. ⁽²²⁾ *

4.21		Warrant to Purchase Common Stock, dated August 7, 2000, issued by Conductus to Dobson Communications Corporation ⁽²²⁾ *

4.22		Form of Series B Preferred Stock and Warrant Purchase Agreement dated September 11, 1998 and September 22, 1998 between Conductus and Series B Investors ⁽²³⁾

4.23		Form of Warrant to Purchase Common Stock between Conductus and Series B investors, dated September 28, 1998, issued by Conductus in a private placement ⁽²³⁾

4.24		Form of Series C Preferred Stock and Warrant Purchase Agreement, dated December 10, 1999, between Conductus and Series C Investors ⁽²⁴⁾

4.25		Form of Warrant Purchase Common Stock between Conductus and Series C investors, dated December 10, 1999, issued by Conductus in a private placement ⁽²⁴⁾

4.26		Form of Warrant to Purchase Common Stock dated March 28, 2003, 2003 issued to Silicon Valley Bank ⁽²⁵⁾

10.1		Technical Information Exchange Agreement between the Registrant and Philips dated September 1989 ⁽²⁾

10.2		1992 Director Option Plan ⁽²⁾

10.3		Form of Indemnification Agreement ⁽²⁾

10.4		License Agreement between the Registrant and the University of Arkansas dated April 9, 1992, as amended ⁽²⁾

10.5		1992 Stock Option Plan ⁽²⁾

10.6		Proprietary Information & Patents Inventions Agreement among the Registrant, E-Systems, Inc. and various other parties; Purchase Order dated October 10, 1991 ⁽²⁾

10.7		Joint Venture Company (JDC) Agreement between the Registrant and Sunpower Incorporated dated April 2, 1992 ⁽²⁾ *

10.8		Government Contract issued to Registrant by the Defense Advanced Research Projects Agency through the Office of Naval Research dated September 4, 1991 ⁽²⁾

10.9		License Agreement between the Registrant and E.I. DuPont de Nemours and Company dated December 1992 ⁽²⁾ *

10.10		Superconductor Technologies Inc. Purchase Agreement ⁽³⁾ *

10.11		Form of Distribution Agreement ⁽⁴⁾

10.12		Amended and Restated 1988 Stock Option Plan, as amended, with form of stock option agreement ⁽⁴⁾

10.13		Joint Venture Agreement between Registrant and Analeptic Technologies (S) Pet Ltd., dated May 20, 1996 ⁽⁵⁾ *

10.14		Employment Offer Letter to M. Peter Thomas dated April 3, 1997 ⁽⁶⁾

10.15		Employment Agreement with E. Ray Cotten dated July 1, 1997 ⁽⁷⁾

10.16		PNC Bank, National Association Credit Agreement ⁽⁹⁾

10.17		1999 Stock Option Agreement ⁽¹¹⁾

10.18		Second Amendment to Credit Agreement dated January 12, 2000 between Registrant and PNC Bank ⁽¹²⁾

10.19		Third Amendment to Credit Agreement dated March 29, 2000 between Registrant and PNC Bank ⁽¹⁷⁾

10.20		Fourth Amendment to Credit Agreement dated December 21, 2000 between Registrant and PNC Bank ⁽¹⁷⁾

10.21		1998 Stock Option Plan ⁽¹⁴⁾

10.22		Employment Agreement with M. Peter Thomas dated January 1, 2001 ⁽¹⁵⁾

10.23		Promissory Note with M. Peter Thomas dated April 9, 2001 ⁽¹⁵⁾

- 24 -


Number		Description of Document

10.24		Securities Purchase Agreement, dated March 6, 2002 ⁽¹⁶⁾

10.25		Agreement Concerning Additional Investors, dated March 8, 2002 ⁽¹⁶⁾

10.26		Letter Agreement dated September 29, 2002 between Superconductor and RGC International Investors, LPC ⁽¹⁸⁾

10.27		Subordinated Promissory Note dated September 30, 2002 issued to RGC International Investors, LPC ⁽¹⁸⁾

10.28		Form of Change in Control Agreement dated October 10, 2002 ⁽²⁰⁾

10.29		Charles E. Shalvoy Change in Control Agreement dated October 10, 2002 ⁽²⁰⁾

10.30(a)		Securities Purchase Agreement dated October 20, 2002 ⁽¹⁹⁾

10.30(b)		Supplement to Securities Purchase Agreement dated October 28, 2002 for additional investment ⁽²⁰⁾

10.31		Promissory Note between Charles E. Shalvoy and Conductus dated December 28, 2000 ⁽²⁰⁾

10.32		Security Agreement between Charles E. Shalvoy and Conductus dated December 28, 2000 ⁽²⁰⁾

10.33		Promissory Note Agreement between Charles E. Shalvoy and Conductus dated August 21, 2001 ⁽²⁰⁾

10.34		Security Agreement between Charles E. Shalvoy and Conductus dated August 21, 2000 ⁽²⁰⁾

10.35		Purchase Contract, dated as of August 7, 2000, between Condutus and Dobson Cellular Systems, Inc.

10.36		Form of Change of Control Agreement dated March 28, 2003 ⁽²⁵⁾

10.37		Accounts Receivable Purchases Agreement dated March 28, 2003 by and between Registrant and Silicon Valley Bank ⁽²⁵⁾

10.38		Unconditional Guaranty dated March 27, 2003 issued by Conductus, Inc. to Silicon Valley Bank ⁽²⁵⁾

10.39		Patent License Agreement between Telcordia Technologies, Inc. and Registrant dated July 13, 2002 ⁽²⁵⁾

99.1		Statement Pursuant to 906 of the Sarbanes-Oxley Act of 2002

99.2		Statement Pursuant to 906 of the Sarbanes-Oxley Act of 2002

(1)
Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (Reg. No. 33-56714).

(2)
Incorporated by reference from Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (Reg. No. 33-56714).

(3)
Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed for the year ended December 31, 1993.

(4)
Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed for the year ended December 31, 1994.

(5)
Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (Reg. No. 333-10569).

(6)
Incorporated by reference from the Registrant’s Report on Form 10-Q filed on May 8, 1997 for the quarter ended March 29, 1997. The exhibit listed is incorporated by reference to Exhibit 10.1 of Registrant’s Report on Form 10-Q.

(7)
Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed for the year ended December 31, 1997.

(8)
Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended April 3, 1999.

(9)
Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended July 3, 1999.

(10)
Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended October 2, 1999.

(11)
Incorporated by reference from the Registrant’s Registration Statement on Form S-8 (Reg. No. 333-90293).

(12)
Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended December

- 25 -

31, 1999.

(13) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed October 4, 2000.

(14) Incorporated by reference from the Registrant’s Registration Statement on Form S-8 (Reg. No. 333-56606).

(15) Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2001.

(16) Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

(17) Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.

(18) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed October 2, 2002.

(19) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed October 14, 2002.

(20) Incorporated by reference from the Registrant’s Registration Statement on Form S-4 (Reg. No. 333-100908).

(21) Incorporated by reference from the Conductus, Inc.’s Registration Statement on Form S-3 (Reg. No. 333-85928), filed on April 9, 2002.

(22) Incorporated by reference from Conductus, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2000.

(22) Incorporated by reference from Conductus, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on November 16, 1998.

(23) Incorporated by reference from Conductus, Inc.’s Annual Report on Form 10-K, filed with the SEC on March 30, 2000.

(24) Incorporated by reference from Conductus, Inc.’s Annual Report on Form 10-K, for the year ended December 31, 1999 filed with the SEC on March 30, 2000.

(25) Filed herewith.

* Confidential treatment has been previously granted for certain portions of these exhibits.

(b) Reports on Form 8-K.

We did not file any reports on Form 8-K during the quarter ended March 29, 2003. We filed the following reports on Form 8-K subsequent to the quarter ended March 29, 2003 and prior to the date hereof:

• April 2, 2003 - Announcing fourth quarter and year-end 2002 results.

• April 8, 2003 - Announcing that a jury returned a unanimous verdict that ISCO patent in invalid and unenforceable and awards Company $3.8 million compensatory damages.

• April 10, 2003 - Announcing preliminary first quarter 2003 revenues.

• April 30, 2003 - Announcing our first quarter 2003 results

- 26 -

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SUPERCONDUCTOR TECHNOLOGIES INC.

Dated: May 13, 2003		/s/ Martin S. McDermut

		Martin S. McDermut
		Senior Vice President, Chief Financial Officer and Secretary

		/s/ M. Peter Thomas

		M. Peter Thomas
		President and Chief Executive Officer

- 27 -

Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
By
Principal Executive Officer and Principal Financial Officer
Regarding Facts and Circumstances Relating to Exchange Act Filings

I, M. Peter Thomas, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Superconductor Technologies Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003


	/s/ M. Peter Thomas

	M. Peter Thomas
	President and Chief Executive Officer

- 28 -

Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
By
Principal Executive Officer and Principal Financial Officer
Regarding Facts and Circumstances Relating to Exchange Act Filings

I, Martin S. McDermut, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Superconductor Technologies Inc.;

Date: May 13, 2003


	/s/ Martin S. McDermut

	Martin S. McDermut
	Senior Vice President, Chief Financial Officer and Secretary

- 29 -

EXHIBIT 4.26

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

WARRANT TO PURCHASE STOCK

Company: Superconductor Technologies Inc., a California corporation Number of Shares: Warrant Coverage (see below) Class of Stock: Common
Warrant Price: Is the price per share on the Warrant Effective Date Issue Date: is the Warrant Effective Date, which is the date Holder executes this Warrant
Expiration Date: is the 7th anniversary of the Issue Date

Warrant Coverage shall be defined as 2.00% of 5,000,000.

THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the company (the "Company") at the Warrant Price all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

ARTICLE 1. EXERCISE.

1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other from of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

1.2 Conversion Right. In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.

1.3 Fair Market Value. If the Company's common stock is traded in a public market and the shares are common stock, the fair market value of each Share shall be the closing price of a Share reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company's initial public offering, the "price to public" per share price specified in the final prospectus relating to such offering). If the Company's common stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Company's common stock reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the

Company's initial public offering, the initial "price to public" per share price specified in the final prospectus relating to such offering), in both cases, multiplied by the number of shares of the Company's common stock into which a Share is convertible. If the Company's common stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

1.6 Treatment of Warrant Upon Acquisition of Company.

1.6.1 "Acquisition". For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction.

1.6.2 Treatment of Warrant at Acquisition.

A) Upon the written request of the Company, Holder agrees that, in the event of an Acquisition in which the sole consideration is cash, either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition. The Company shall provide the Holder with written notice of its request relating to the foregoing (together with such reasonable information as the Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

B) Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is an "arms length" sale of all or substantially all of the Company's assets (and only its assets) to a third party that is not an Affiliate (as defined below) of the Company (a "True Asset Sale"), either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will continue until the Expiration Date if the Company continues as a going concern following the closing of any such True Asset Sale. The Company shall provide the Holder with written notice of its request relating to the foregoing (together with such reasonable information as the Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

C) Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares

were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly.

As used herein "Affiliate" shall mean any person or entity that owns or controls directly or indirectly ten (10) percent or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such person's or entity's officers, directors, joint venturers or partners, as applicable.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on the Shares payable in common stock, or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred. If the Company subdivides the Shares by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of stock into which the Shares are convertible, the number of shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

2.2 Reclassification, Exchange, Combinations or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles or Certificate (as applicable) of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

2.3 Intentionally Omitted.

2.4 No Impairment. The Company shall not, by amendment of its Articles or Certificate (as applicable) of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment.

2.5 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of

the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company shall promptly notify Holder in writing, and, at the Company's expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.1 Representations and Warranties. The Company represents and warrants to the Holder as follows:

(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of the Shares as of the date of this Warrant.

(b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon any of its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for sale additional shares of any class or series of the Company's stock; (c) to effect any reclassification or recapitalization of any of its stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.

3.3 Registration Under Securities Act of 1933, as amended. The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be subject to the registration rights set forth on Exhibit A.

3.4 No Shareholder Rights. Except as provided in this Warrant, the Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and warrants to the Company as follows:

4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by the Holder will be acquired for investment for the Holder's account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that the Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.

4.2 Disclosure of Information. The Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. The Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Holder or to which the Holder has access.

4.3 Investment Experience. The Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. The Holder has experience as an investor in securities of companies in the development stage and acknowledges that the Holder can bear the economic risk of such Holder's investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that the Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables the Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4 Accredited Investor Status. The Holder is an "accredited investor" within the meaning of Regulation D promulgated under the Act.

4.5 The Act. The Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered un the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder's investment intent as expressed herein. The Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the 1933 Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.

ARTICLE 5. MISCELLANEOUS.

5.1 Term: This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

5.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR

TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to Silicon Valley Bancshares (Holder's parent company) or any other affiliate of Holder. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale.

5.4 Transfer Procedure. Upon receipt by Holder of the executed Warrant, Holder will transfer all of this Warrant to Silicon Valley Bancshares, Holder's parent company, by execution of an Assignment substantially in the form of Appendix 2. Subject to the provisions of Article 5.3 and upon providing Company with written notice, Silicon Valley Bancshares and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, Silicon Valley Bancshares or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.

5.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such holder from time to time. Effective upon receipt of the fully executed Warrant and the initial transfer described in Article 5.4 above, all notices to the Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

Silicon Valley Bancshares Attn: Treasury Department 3003 Tasman Drive, HA 200 Santa Clara, CA 95054 Telephone: 408-654-7400 Facsimile: 408-496-2405

Notice to the Company shall be addressed as follows until the Holder receives notice of a change in address:

Superconductor Technologies Attn: Martin S. McDermut 460 Ward Drive Santa Barbara, CA 93111-2310 Telephone (805) 690-4539 Facsimile: (805) 682-9496

5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 Attorney's Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorney's fees.

5.8 Automatic Conversion upon Expiration. In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with
Section 1.3 above is greater than the Exercise Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to the Holder.

5.9 Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

5.10 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

"COMPANY"
Superconductor Technologies Inc.

By:__________________________________

Name: _______________________________
(Print)

Title: Chairman of the Board,
President or Vice President

By:__________________________________

Name: _______________________________
(Print)

Title: Chief Financial Officer,
Secretary, Assistant Treasurer
or Assistant Secretary

"HOLDER"
Silicon Valley Bank

By:__________________________________

Name: _______________________________

Title: ______________________________

Warrant Effective Date:______________

APPENDIX 1

NOTICE OF EXERCISE

1. Holder elects to purchase ___________ shares of the Common/Series ______ Preferred [strike one] Stock of Superconductor Technologies Inc. pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.

[or]

1. Holder elects to convert the attached Warrant into Shares/cash
[strike one] in the manner specified in the Warrant. This conversion is exercised for _____________________ of the Shares covered by the Warrant.

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing the shares in the name specified below:

Holders Name

(Address)

3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.

HOLDER:

By:____________________________

Name:__________________________

Title:_________________________

(Date):________________________

APPENDIX 2

ASSIGNMENT

For value received, Silicon Valley Bank hereby sells, assigns and transfers unto

Name:    Silicon Valley Bancshares
Address: 3003 Tasman Drive (HA-200)
         Santa Clara, CA 95054

Tax ID: 91-1962278

that certain Warrant to Purchase Stock issued by Superconductor Technologies Inc. (the "Company"), on ____________________ (the "Warrant") together with all rights, title and interest therein.

SILICON VALLEY BANK

By:____________________________________

Name:__________________________________

Title:_________________________________

Date: [insert Issue Date]_____________

By its execution below, and for the benefit of the Company, Silicon Valley Bancshares makes each of the representations and warranties set forth in Article 4 of the Warrant as of the date hereof.

SILICON VALLEY BANCSHARES

By:____________________________________

Name:__________________________________

Title: ________________________________

"EXHIBIT A"
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT is entered into as of Warrant Effective Date, by and between Silicon Valley Bank ("Purchaser") and the Company whose name appears on the last page of this Agreement.

RECITALS

A. Concurrently with the execution of this Agreement, the Purchaser is purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant to which Purchaser has the right to acquire from the Company the Shares (as defined in the Warrant).

B. By this Agreement, the Purchaser and the Company desire to set forth the registration rights of the Shares all as provided herein.

C. Capitalized terms used herein shall have the same meaning as set forth in the Warrant.

NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows:

1. Registration Rights. The Company covenants and agrees as follows:

1.1 Definitions. For purposes of this Section 1:

(a) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Securities Act"), and the declaration or ordering of effectiveness of such registration statement or document;

(b) The term "Registrable Securities" means (i) the Shares (if Common Stock) or all shares of Common Stock of the Company issuable or issued upon conversion of the Shares and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any stock referred to in (i).

(c) The terms "Holder" or "Holders" means the Purchaser or qualifying transferees under subsection 1.8 hereof who hold Registrable Securities.

(d) The term "SEC" means the Securities and Exchange Commission.

1.2 Company Registration.

(a) Registration. If at any time or from time to time, the Company shall determine to register any of its securities, for its own account or the account of any of its shareholders, other than a registration on Form S-1 or S-8 relating solely to employee stock option or purchase plans, or a registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their successor forms) or any successor to such forms, which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will:

(i) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and

(ii) include in such registration (and compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 30 days after receipt of such written notice from the Company, by any Holder or Holders, except as set forth in subsection 1.2(b) below.

(b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to subsection 1.2 (a) (i). In such event the right of any Holder to registration pursuant to this subsection 1.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other shareholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company.

1.3 Expenses of Registration. All expenses incurred in connection with any registration, qualification or compliance pursuant to this
Section 1 including without limitation, all registration, filing and qualification fees, printing expenses, fees and disbursements of counsel for the Company and expenses of any special audits incidental to or required by such registration, shall be borne by the Company except the Company shall not be required to pay underwriters' fees, discounts or commissions relating to Registrable Securities. All expenses of any registered offering not otherwise borne by the Company shall be borne pro rata among the Holders participating in the offering and the Company.

1.4 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Registration Rights Agreement, the Company will keep each Holder participating therein advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. Except as otherwise provided in subsection 1.3, at its expense the Company will:

(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 120 days.

(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement.

(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities

Act or the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

1.5 Indemnification.

(a) The Company will indemnify each Holder of Registrable Securities and each of its officers, directors and partners, and each person controlling such Holder, with respect to which such registration, qualification or compliance has been effected pursuant to this Rights Agreement, and each underwriter, if any, and each person who controls any underwriter of the Registrable Securities held by or issuable to such Holder, against all claims, losses, expenses, damages and liabilities (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, or any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended, ("Exchange Act") or any state securities law applicable to the Company or any rule or regulation promulgated under the Securities Act, the Exchange Act or any such state law and relating to action or inaction required of the Company in connection with any such registration, qualification of compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, within a reasonable amount of time after incurred for any reasonable legal and any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.5 (a) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld); and provided further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by such Holder or underwriter specifically for use therein.

(b) Each Holder will, if Registrable Securities held by or issuable to such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company within the meaning of the Securities Act, and each other such Holder, each of its officers, directors and partners and each person controlling such Holder, against all claims, losses, expenses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, partners, persons or underwriters for any reasonable legal or any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder specifically for use therein; provided, however, that the indemnity agreement contained in this subsection 1.5(b) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of the Holder, (which consent shall not be unreasonably withheld); and provided further, that the total amount for which any Holder shall be liable under this subsection 1.5(b) shall not in any event exceed the aggregate proceeds received by such Holder from the sale of Registrable Securities held by such Holder in such registration.

(c) Each party entitled to indemnification under this subsection 1.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying

Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense; and provided further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations hereunder, unless such failure resulted in prejudice to the Indemnifying Party; and provided further, that an Indemnified Party (together with all other Indemnified Parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.

1.6 Information by Holder. Any Holder or Holders of Registrable Securities included in any registration shall promptly furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to herein.

1.7 Rule 144 Reporting. With a view to making available to Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees at all times to:

(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, after 90 days after the effective date of the first registration filed by the Company for an offering of its securities to the general public;

(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and

(c) so long as a Holder owns any Registrable Securities, to furnish to such Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as the Holder may reasonably request in complying with any rule or regulation of the SEC allowing the Holder to sell any such securities without registration.

1.8 Transfer of Registration Rights. Holders' rights to cause the Company to register their securities and keep information available, granted to them by the Company under subsections 1.2 and 1.7 may be assigned to a transferee or assignee of a Holder's Registrable Securities not sold to the public, provided, that the Company is given written notice by such Holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned. The Company may prohibit the transfer of any Holders' rights under this subsection 1.8 to any proposed transferee or assignee who the Company reasonably believes is a competitor of the Company.

2. General.

2.1 Waivers and Amendments. With the written consent of the record or beneficial holders of at least a majority of the Registrable Securities, the obligations of the Company and the rights of the Holders of the Registrable Securities under this agreement may be waived (either generally or in a

particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), and with the same consent the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement; provided, however, that no such modification, amendment or waiver shall reduce the aforesaid percentage of Registrable Securities without the consent of all of the Holders of the Registrable Securities. Upon the effectuation of each such waiver, consent, agreement of amendment or modification, the Company shall promptly give written notice thereof to the record holders of the Registrable Securities who have not previously consented thereto in writing. This Agreement or any provision hereof may be changed, waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, except to the extent provided in this subsection 2.1.

2.2 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California.

2.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

2.4 Entire Agreement. Except as set forth below, this Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.

2.5 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, certified or registered mail, return receipt requested, addressed (a) if to Holder, at such Holder's address as set forth below, or at such other address as such Holder shall have furnished to the Company in writing, or (b) if to the Company, at the Company's address set forth below, or at such other address as the Company shall have furnished to the Holder in writing.

2.6 Severability. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement or any provision of the other Agreement s shall not in any way be affected or impaired thereby.

2.7 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

2.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

PURCHASER                                       COMPANY

SILICON VALLEY BANK                             SUPERCONDUCTOR
                                                TECHNOLOGIES, INC.

By:__________________________________           By:_____________________________

Name:________________________________           Name:___________________________

Title:_______________________________           Title:__________________________

Address:                                        Address:

3003 Tasman Drive                               460 Ward Drive
Santa Clara, CA 95054                           Santa Barbara, CA 93111-2310

EXHIBIT B

Registration Rights

The Shares (if common stock), or the common stock issuable upon conversion of the Shares, shall be deemed "registrable securities" or otherwise entitled to "piggy back" registration rights in accordance with the terms of the following agreement (the "Agreement") between the Company and its investor(s):

[Identify Agreement by date, title and parties. If no Agreement exists, indicate by "none".]

The Company agrees that no amendments will be made to the Agreement, which would have an adverse impact on Holder's registration rights thereunder without the consent of Holder. By acceptance of the Warrant to which this Exhibit B is attached, Holder shall be deemed to be a party to the Agreement, unless Holder otherwise elects not to become or to cease being a party thereto.

If no Agreement exists, then the Company and the Holder shall enter into Holder's standard form of Registration Rights Agreement as in effect on the Issue Date of the Warrant.

EXHIBIT 10.36

CHANGE IN CONTROL AGREEMENT

THIS CHANGE IN CONTROL AGREEMENT is entered into as of March 28, 2003, by and between _____________ (the "Executive") and Superconductor Technologies Inc., a Delaware corporation (the "Company").

As of the effective date of this Agreement, Executive will continue to serve as an at-will employee of the Company in his present position. In the Event of a Change of Control, Executive will have such authority and responsibilities as may be assigned to him by the Board of Directors of the acquiring company. Executive's office will continue to be located in the Santa Barbara, California area and Executive's duties shall primarily be performed there. Executive will continue to earn an annual base salary of _____________ (subject to adjustment in accordance with Company's policy, but, effective upon the occurrence of a Change in Control), which shall cover all hours worked, payable in the time and manner that salary is paid by the Company to employees generally, and subject to required tax withholding. Executive will continue to be eligible to receive a bonus in accordance with Company's policy.

1. Definitions. The following definitions shall apply for all purposes under this Agreement:

(a) Change in Control. "Change in Control" means the occurrence of any of the following events on or after the effective date of this Agreement:

(i) When any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors, other than the following persons:

(A) the Company,

(B) a subsidiary of the Company,

(D) any person who, as of the effective date of this Agreement, has publicly disclosed in filings with the Securities and Exchange Commission the beneficial ownership of more than 5% of the combined voting power of the Company's outstanding securities entitled to vote generally in the election of directors;

(ii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding

immediately after such merger or consolidation, or the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the Company's assets;.

(iii) A change in the composition of the Board of Directors of the Company, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the effective date of this Agreement, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company);

(iv) The sale, transfer or other disposition of all or substantially all of the Company's assets; or

(v) The stockholders of the Company approve the dissolution or liquidation of the Company;

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction.

(b) Cause. "Cause" means the occurrence of any of the following events on or after the effective date of this Agreement:

(i) Executive's intentional unauthorized use or disclosure of the confidential information or trade secrets of the Company;

(ii) Executive's conviction of, or a plea of "guilty" or "no contest" to, a felony under the laws of the United States or any state thereof; or

(iii) Executive's intentional failure to perform assigned duties after receiving written notification from his superior and Executive's failure to correct such deficiencies within ten (10) days after receiving such written notification.

(c) Disability. "Disability" shall mean that, on or after the effective date of this Agreement, the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

(d) Good Reason. "Good Reason" shall mean that, on or after the effective date of a Change in Control, the Executive (without Executive's written consent):

(i) Has incurred a material reduction in his or her authority or responsibility in comparison to the Executive's authority or responsibility prior to the public announcement of the Change in Control;

(ii) Has incurred one or more reductions in his or her "total compensation" which is defined as follows:

(A) a reduction of more than 10% in base salary unless it occurs in connection with a restructuring or other cost-cutting measure as evidenced by a comparable reduction in the base salary of all executive officers or

(B) a reduction of more than 20% in the target annual bonus percentage of base salary unless it occurs in connection with a restructuring or other cost-cutting measure as evidenced by a comparable reduction in the target annual bonus percentage of all executive officers; or

(iii) Has been notified that his or her principal place of work will be relocated by a distance of 50 miles or more.

For purposes of this Agreement, "base salary" shall mean the Executive's annualized base salary as set forth above and as may be subsequently adjusted upward for increases and "executive officer" shall have the meaning set forth in Rule 3b-7 under the Securities Exchange Act of 1934, as amended.

2. Severance Payment and Equity Compensation.

(a) The Executive shall be entitled to receive a severance payment from the Company (the "Severance Payment") if within the first twenty-four (24) month period after the occurrence of a Change in Control, either:

(i) The Executive voluntarily resigns his or her employment for Good Reason within sixty (60) days after the Executive becomes aware of the occurrence of an event specified in Section 1(d); or

(ii) The Company terminates the Executive's employment for any reason other than Cause, death or Disability.

For all purposes under this Agreement, the amount of the Severance Payment shall be equal to 1.5 times the Executive's annual base salary, as in effect on the date of the termination of Executive's employment.

If Executive is entitled to a Severance Payment, then such Severance Payment shall be made in monthly substantially equal cash pro-rata payments on the first business day of each month over a 18-month period until the Severance Payment is paid in full. The first such monthly payment shall be paid in the month immediately following the date Executive becomes entitled to a Severance Payment. Except as may be provided under Sections 2(b) and 2(c), the Severance Payment shall be in lieu of any other post-termination of employment payments.

(b) Incentive Programs. If the Executive is entitled to a Severance Payment under Section 2(a) and notwithstanding anything to the contrary in any stock option or stock appreciation right (SAR) plans or agreements, then (i) the Executive shall become immediately fully vested in all of his/her outstanding stock options, SARs, warrants, restricted stock, phantom stock or similar plans or agreements of the Company and (ii) the Executive (or his/her personal representative if applicable) shall be permitted to exercise any of his/her vested stock options/SARs until the earlier

of (i) five (5) years after Executive's termination of employment or (ii) the term of such unexercised stock options, warrants or SARs or (iii) ninety days following the date that Executive becomes an employee of any of the Competing Companies (as defined below) if such other employment commenced within 24 months after Executive's termination of employment with the Company. For purposes of this Section 2(b), the "Competing Companies" are: ISCO International, Inc., DuPont Superconductivity (a subsidiary of DuPont Corporation), CryoDevices, Inc. and any other company (including, without limitation, any affiliates of the foregoing) engaged in the development, manufacture or sale of cryogenic receiver front-end devices for communications.

(c) Insurance Coverage. If the Executive is entitled to a Severance Payment under Section 2(a), the Company shall pay for any group health continuation coverage that the Company is otherwise required to offer under the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") and for term life insurance, in both cases on the same terms then available to other executives subject to applicable caps (with respect to life insurance, based on Executive's base salary in effect on the effective date of this Agreement) until earlier of the date that (i) the Executive becomes covered by comparable health coverage and/or life insurance coverage, as applicable, offered by another employer, or (ii) is 18 months after the date upon which the Executive becomes entitled to a Severance Payment under Section 2(a).

(d) Mitigation. Except as may be expressly provided elsewhere in this Agreement, the Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this Section 2 (whether by seeking new employment or in any other manner). No such payment shall be reduced by earnings that the Executive may receive from any other source.

(e) Conditions. All payments and benefits provided under this
Section 2 are conditioned on Executive's continuing compliance with this Agreement and the Company's policies and Executive's execution of a release of claims and covenant not to sue substantially in the form provided in Exhibit A upon termination of employment.

3. Tax Effect of Payments.

(a) Excise Taxes. In the event that it is determined that any payment or distribution of any type to or for the benefit of the Executive made by the Company, by any of its affiliates, by any person who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company's assets (within the meaning of section 280G of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code")) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), would be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the "Excise Tax"), then such payments or distributions shall be limited to such amount which would result in no portion of the payments or distributions being subject to the Excise Tax.

(b) Determination by Auditors. All mathematical determinations and all determinations of whether any of the Total Payments are "parachute payments" (within the meaning of section 280G of the Code) that are required to be made under this Section 3, shall be made by the independent auditors retained by the Company most recently prior to the Change in Control (the "Auditors"), who shall provide their determination (the "Determination"), together with detailed supporting calculations regarding the amount of any relevant matters, both to the Company and to the Executive within seven (7) business days of the Executive's termination date, if applicable, or such earlier time as is requested by the Company or by the Executive. The Auditors shall furnish

the Executive with a written statement that such Auditors have concluded that no Excise Tax is payable (including the reasons therefor) and that the Executive has substantial authority not to report any Excise Tax on the Executive's federal income tax return. Any determination by the Auditors shall be binding upon the Company and the Executive, absent manifest error. The Company shall pay the fees and costs of the Accountants.

4. Successors.

(a) Company's Successors. Any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets, shall be obligated to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession.

(b) Executive's Successors. This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

5. Miscellaneous Provisions.

(a) Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

(b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(c) Whole Agreement. This Agreement contains all the legally binding understandings and agreements between Executive and the Company pertaining to the subject matter of this Agreement and supersedes all such agreements, whether oral or in writing, previously entered into between the parties

(d) Withholding Taxes. All payments made under this Agreement shall be subject to reduction to reflect taxes required to be withheld by law.

(e) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.

(f) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(g) Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in San Francisco in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Discovery shall be permitted to the same extent as in a proceeding under the Federal Rules of Civil Procedure, including (without limitation) such discovery as is specifically authorized by section 1283.05 of the California Code of Civil Procedure, without need of prior leave of the arbitrator under section 1283.05(e) of such Code. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. All fees and expenses of the arbitrator and such Association and attorney fees shall be paid as determined by the arbitrator.

(h) No Assignment. The rights of Executive to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this Subsection (h) shall be void.

(i) Nondisparagement; Confidentiality. On effective date of this Agreement and thereafter, Executive agrees that he/she will not disparage the Company or its directors, officers, employees, predecessor, successors or assigns in any written or oral communications to any third party. Executive further agrees that he/she will not direct anyone to make any disparaging oral or written remarks to any third parties. During Executive's employment and following Executive's termination of employment, Executive agrees to not intentionally use or disclose the confidential information or trade secrets of the Company.

(j) Nonsolicit. During the Executive's employment with Company, the Executive shall not, directly or indirectly, either as an individual or as an employee, agent, consultant, advisor, independent contractor, general partner, officer, director, stockholder, investor, lender, or in any other capacity whatsoever, of any person, firm, corporation or partnership induce or attempt to induce any person who at the time of such inducement is an employee of Company to perform work or service for any other person or entity other than Company.

(k) Nondisclosure. Notwithstanding any requirement that the Company may have to publicly disclose the terms of this Agreement pursuant to applicable law or regulations, Executive agrees to use reasonable efforts to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as "Agreement Information"). Executive also agrees to take every reasonable precaution to prevent disclosure of any Agreement Information to third parties, except for disclosures required by law or absolutely necessary with respect to Executive's family members or personal advisors who shall also agree to maintain confidentiality of the Agreement Information.

(l) Notice of Employment. During Executive's employment and for 18 months after Executive's termination of employment, Executive will promptly notify the Company in writing if Executive becomes (or agrees to become) an employee of any other employer. Such notice shall include the name of the other employer and the date of commencement of employment.

6. Effective Date and Term of Agreement. This Agreement is effective on the date first written above and shall continue in effect until the Company shall have given Executive three (3) years' written notice of cancellation; provided, that, notwithstanding the delivery of any such notice, this Agreement shall continue in effect for a period of three (3) years after a Change in Control, if such Change in Control shall have occurred during the term of this Agreement. Except as provided in

the next paragraph, this Agreement shall terminate if Executive's employment is terminated prior to a Change in Control.

This Agreement shall remain effective if, in connection with an impending Change in Control that is actually consummated, the Company terminates the Executive's employment for any reason other than Cause, death or Disability or the Executive voluntarily resigns for Good Reason. The Company's Board shall determine in good faith whether such a termination or resignation is occurring in connection with an impending Change in Control. However, such a termination or resignation shall in any event be deemed to be in connection with an impending Change in Control if such termination or resignation (i) is required by the merger agreement or other instrument relating to such Change in Control or (ii) is made at the express request of the other party (or parties) to the transaction constituting such Change in Control.

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

EXECUTIVE:

COMPANY:

By: John D. Lockton As Its: Chairman of the Board

EXHIBIT A

Form of Release of Claims and Covenant Not To Sue

In consideration of the payments and other benefits that Superconductor Technologies Inc. (the "Company") is providing to _________________ ("Executive") under the Change in Control Agreement entered into by and between Executive and the Company, dated _________, 2003, the Executive, on his/her own behalf and on behalf of Executive's representatives, agents, heirs and assigns, waives, releases, discharges and promises never to assert any and all claims, demands, actions, costs, rights, liabilities, damages or obligations of every kind and nature, whether known or unknown, suspected or unsuspected that Executive ever had, now have or might have as of the date of Executive's termination of employment with the Company against the Company or its predecessors, parent, affiliates, subsidiaries, stockholders, owners, directors, officers, employees, agents, attorneys, insurers, successors, or assigns (including all such persons or entities that have a current and/or former relationship with the Company) for any claims arising from or related to Executive's employment with the Company, its parent or any of its affiliates and subsidiaries and the termination of that employment.

These released claims also specifically include, but are not limited to, any claims arising under any federal, state and local statutory or common law, such as (as amended and as applicable) Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Employee Retirement Income Security Act, the Family Medical Leave Act, the Equal Pay Act, the Fair Labor Standards Act, the Industrial Welfare Commission's Orders, the California Fair Employment and Housing Act, the California Constitution, the California Government Code, the California Labor Code and any other federal, state or local constitution, law, regulation or ordinance governing the terms and conditions of employment or the termination of employment, and the law of contract and tort and any claim for attorneys' fees.

Furthermore, the Executive acknowledges that this waiver and release is knowing and voluntary and that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled. Executive acknowledges that there may exist facts or claims in addition to or different from those which are now known or believed by Executive to exist. Nonetheless, this Agreement extends to all claims of every nature and kind whatsoever, whether known or unknown, suspected or unsuspected, past or present. Executive also expressly waives the provisions of California Civil Code section 1542, which provides: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him/her must have materially affected his settlement with the debtor." With respect to the claims released in the preceding sentences, the Executive will not initiate or maintain any legal or administrative action or proceeding of any kind against the Company or its predecessors, parent, affiliates, subsidiaries, stockholders, owners, directors, officers, employees, agents, successors, or assigns (including all such persons or entities that have a current or former relationship with the Company), for the purpose of obtaining any personal relief, nor assist or participate in any such proceedings, including any proceedings brought by any third parties (except as otherwise required or permitted by law). The Executive further acknowledges that he/she has been advised by this writing that:

A-1

- he/she should consult with an attorney prior to executing this release;

- he/she has at least twenty-one (21) days within which to consider this release;

- he/she has up to seven (7) days following the execution of this release by the parties to revoke the release; and

- this release shall not be effective until such seven
(7) day revocation period has expired.

Executive agrees that the release set forth above shall be and remain in effect in all respects as a complete general release as to the matters released.

EXECUTIVE

__________________________________ Date:_____________________________

A-2

EXHIBIT 10.37

[SILICON VALLEY BANK LOGO]

SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, Ca. 95054

(408) 654-1000 - Fax (408) 980-6410

ACCOUNTS RECEIVABLE PURCHASE AGREEMENT

This Accounts Receivable Purchase Agreement (the "Agreement") is made as of the Effective Date by and between Silicon Valley Bank ("Buyer") having a place of business at the address specified above and SUPERCONDUCTOR TECHNOLOGIES INC., a DELAWARE corporation, ("Seller") having its principal place of business and chief executive office at 460 Ward Drive, Santa Barbara, CA 93111-2310 and with a FAX number of (805) 682-9496.

1. DEFINITIONS. When used herein, the following terms shall have the following meanings.

"Account Balance" shall mean, on any given day, the gross amount of all Purchased Receivables unpaid on that day.

"Account Debtor" shall have the meaning set forth in the California Uniform Commercial Code and shall include any person liable on any Purchased Receivable, including without limitation, any guarantor of the Purchased Receivable and any issuer of a letter of credit or banker's acceptance.

"Adjustments" shall mean all discounts, allowances, returns, disputes, counterclaims, offsets, defenses, rights of recoupment, rights of return, warranty claims, or short payments, asserted by or on behalf of any Account Debtor with respect to any Purchased Receivable.

"Advance" shall have the meaning set forth in Section 2.2 hereof.

"Collateral" shall have the meaning set forth in Section 8 hereof.

"Collateral Handling Fee" shall have the meaning set forth in Section 3.3 hereof.

"Collections" shall mean all good funds received by Buyer from or on behalf of an Account Debtor with respect to Purchased Receivables.

"Compliance Certificate" shall mean a certificate, in a form provided by Buyer to Seller, which contains the certification of the chief financial officer of Seller that, among other things, the representations and warranties set forth in this Agreement are true and correct as of the date such certificate is delivered.

"Effective Date" is the date Buyer executes this Agreement.

"Event of Default" shall have the meaning set forth in Section 9 hereof.

"Facility Fee" shall have the meaning set forth in Section 3.6 hereof.

"Finance Charges" shall have the meaning set forth in Section 3.2 hereof.

"Invoice Transmittal" shall mean a writing signed by an authorized representative of Seller which accurately identifies the receivables which Buyer, at its election, may purchase, and includes for each such receivable the correct amount owed by the Account Debtor, the name and address of the Account Debtor, the invoice number, the invoice date and the account code.

"Obligations" shall mean all advances, financial accommodations, liabilities, obligations, covenants and duties owing, arising, due or payable by Seller to Buyer of any kind or nature, present or future, arising under or in connection with this Agreement or under any other document, instrument or agreement, whether or not evidenced by any note, guarantee or other instrument, whether arising on account or by overdraft, whether direct or indirect (including those acquired by assignment) absolute or contingent, primary or secondary, due or to become due, now owing or hereafter arising, and however acquired; including, without limitation, all Advances, Finance Charges, Collateral Handling Fees, interest, Repurchase Amounts, fees, expenses, professional fees and attorneys' fees and any other sums chargeable to Seller hereunder or otherwise.

"Purchased Receivables" shall mean all those accounts, receivables, chattel paper, instruments, contract rights, documents, general intangibles, letters of credit, drafts, bankers acceptances, and rights to payment, and all proceeds thereof (all of the foregoing being referred to as "receivables"), arising out of

the invoices and other agreements identified on or delivered with any Invoice Transmittal delivered by Seller to Buyer which Buyer elects to purchase and for which Buyer makes an Advance.

"Prime Rate" shall mean the Buyer's most recently announced "prime rate," even if it is not Buyer's lowest rate

"Refund" shall have the meaning set forth in Section 3.5 hereof.

"Reserve" shall have the meaning set forth in Section 2.4 hereof.

"Repurchase Amount" shall have the meaning set forth in Section 4.2 hereof.

"Reconciliation Date" shall mean the last calendar day of each Reconciliation Period.

"Reconciliation Period" shall mean each calendar month of every year.

2. PURCHASE AND SALE OF RECEIVABLES.

2.1. OFFER TO SELL RECEIVABLES. During the term hereof, and provided that there does not then exist any Event of Default or any event that with notice, lapse of time or otherwise would constitute an Event of Default, Seller may request that Buyer purchase receivables and Buyer may, in its sole discretion, elect to purchase receivables. Seller shall deliver to Buyer an Invoice Transmittal with respect to any receivable for which a request for purchase is made. An authorized representative of Seller shall sign each Invoice Transmittal delivered to Buyer. Buyer shall be entitled to rely on all the information provided by Seller to Buyer on or with the Invoice Transmittal and to rely on the signature on any Invoice Transmittal as an authorized signature of Seller.

2.2. ACCEPTANCE OF RECEIVABLES. Buyer shall have no obligation to purchase any receivable listed on an Invoice Transmittal. Buyer may exercise its sole discretion in approving the credit of each Account Debtor before buying any receivable. Upon acceptance by Buyer of all or any of the receivables described on any Invoice Transmittal, Buyer shall pay to Seller 80(%) percent of the face amount of each receivable Buyer desires to purchase, net of deferred revenue and offsets related to each specific Account Debtor. Such payment shall be the "Advance" with respect to such receivable. Buyer may, from time to time, in its sole discretion, change the percentage of the Advance. Upon Buyer's acceptance of the receivable and payment to Seller of the Advance, the receivable shall become a "Purchased Receivable." It shall be a condition to each Advance that
(i) all of the representations and warranties set forth in Section 6 of this Agreement be true and correct on and as of the date of the related Invoice Transmittal and on and as of the date of such Advance as though made at and as of each such date, and (ii) no Event of Default or any event or condition that with notice, lapse of time or otherwise would constitute an Event of Default shall have occurred and be continuing, or would result from such Advance. Notwithstanding the foregoing, in no event shall the aggregate amount of all Purchased Receivables outstanding at any time exceed FIVE MILLION DOLLARS ($5,000,000.00).

2.3. EFFECTIVENESS OF SALE TO BUYER. Effective upon Buyer's payment of an Advance, and for and in consideration therefor and in consideration of the covenants of this Agreement, Seller hereby absolutely sells, transfers and assigns to Buyer, all of Seller's right, title and interest in and to each Purchased Receivable and all monies due or which may become due on or with respect to such Purchased Receivable. Buyer shall be the absolute owner of each Purchased Receivable. Buyer shall have, with respect to any goods related to the Purchased Receivable, all the rights and remedies of an unpaid seller under the California Uniform Commercial Code and other applicable law, including the rights of replevin, claim and delivery, reclamation and stoppage in transit.

2.4. ESTABLISHMENT OF A RESERVE. Upon the purchase by Buyer of each Purchased Receivable, Buyer shall establish a reserve. The reserve shall be the amount by which the face amount of the Purchased Receivable exceeds the Advance on that Purchased Receivable (the "Reserve"); provided, the Reserve with respect to all Purchased Receivables outstanding at any one time shall be an amount not less than 20(%) percent of the Account Balance at that time and may be set at a higher percentage at Buyer's sole discretion. The reserve shall be a book balance maintained on the records of Buyer and shall not be a segregated fund.

3. COLLECTIONS, CHARGES AND REMITTANCES.

3.1. COLLECTIONS. In computing Finance Charges on the Obligations, all checks and other items of payment received by Buyer (including proceeds of Purchased Receivables and payment of Obligations in full) shall be deemed applied by Buyer on account of the Obligations three (3) Business Days after receipt by Buyer of immediately available funds. If Seller is in default under this Agreement, Buyer shall apply all Collections to Seller's Obligations hereunder in such order and manner as Buyer may determine. If an item of collection is not honored or Buyer does not receive good funds for any reason, the amount shall be included in the Account Balance as if the Collections had not been received and Finance Charges under Section 3.2 shall accrue thereon.

3.2. FINANCE CHARGES. On each Reconciliation Date Seller shall pay to Buyer a finance charge in an amount equal to 2.50 percentage points above the Prime Rate per annum (BUT NO LESS THAN 6.75%) multiplied by the gross average daily Account Balance outstanding during the applicable Reconciliation Period (the "Finance Charges").

3.3. COLLATERAL HANDLING FEE. On each Reconciliation Date, Seller will pay to Buyer a collateral handling fee, equal to .50% per month of the average daily Account Balance outstanding during the applicable Reconciliation Period. Buyer shall deduct the Collateral Handling Fee from the Reserve as set forth in Section 3.5 below. Notwithstanding the foregoing, on each Reconciliation Date, Seller shall pay to Buyer a minimum $750.00 Finance Charge. Buyer shall deduct the accrued Finance Charges from the Reserve as set forth in
Section 3.5 below.

3.4. ACCOUNTING. Buyer shall prepare and send to Seller after the close of business for each Reconciliation Period, an accounting of the transactions for that Reconciliation Period, including the amount of all Purchased Receivables, all Collections, Adjustments, Finance Charges, and the Collateral Handling Fee. The accounting shall be deemed correct and conclusive unless Seller makes written objection to Buyer within thirty (30) days after the Buyer mails the accounting to Seller.

3.5. REFUND TO SELLER. Provided that there does not then exist an Event of Default or any event or condition that with notice, lapse of time or otherwise would constitute an Event of Default, Buyer shall refund to Seller by check after the Reconciliation Date, the amount, if any, which Buyer owes to Seller at the end of the Reconciliation Period according to the accounting prepared by Buyer for that Reconciliation Period (the "Refund"). The Refund shall be an amount equal to:

(A) (1) The Reserve as of the beginning of that Reconciliation Period, PLUS

(2) the Reserve created for each Purchased Receivable purchased during that Reconciliation Period, MINUS

(B) The total for that Reconciliation Period of:

(1) the Collateral Handling Fee;

(2) Finance Charges;

(3) Adjustments;

(4) Repurchase Amounts, to the extent Buyer has agreed to accept payment thereof by deduction from the Refund;

(5) the Reserve for the Account Balance as of the first day of the following Reconciliation Period in the minimum percentage set forth in Section 2.4 hereof; and

(6) all amounts due, including professional fees and expenses, as set forth in Section 12 for which oral or written demand has been made by Buyer to Seller during that Reconciliation Period to the extent Buyer has agreed to accept payment thereof by deduction from the Refund.

In the event the formula set forth in this Section 3.5 results in an amount due to Buyer from Seller, Seller shall make such payment in the same manner as set forth in Section 4.3 hereof for repurchases. If the formula set forth in this
Section 3.5 results in an amount due to Seller from Buyer, Buyer shall make such payment by check, subject to Buyer's rights under Section 4.3 and Buyer's rights of offset and recoupment.

3.6. FACILITY FEE. A fully earned, non-refundable facility fee of $25,000.00 shall be due upon execution of this Agreement of which $5,000 has been received by Buyer.

3.7. DUE DILIGENCE FEE. A fully earned, non-refundable due diligence fee of $5,000.00 is due immediately (the "Due Diligence Fee") (previously received by Buyer).

4. RECOURSE AND REPURCHASE OBLIGATIONS.

4.1. RECOURSE. Buyer's acquisition of Purchased Receivables from Seller shall be with full recourse against Seller. In the event the Obligations exceed the amount of Purchased Receivables and Collateral, Seller shall be liable for any deficiency.

4.2. SELLER'S AGREEMENT TO REPURCHASE. Seller agrees to pay to Buyer on demand, the full face amount, or any unpaid portion, of any Purchased Receivable:

(A) which remains unpaid ninety (90) calendar days after the invoice date; or

(B) which is owed by any Account Debtor who has filed, or has had filed against it, any bankruptcy case, assignment for the benefit of creditors, receivership, or insolvency proceeding or who has become insolvent (as defined in the United States Bankruptcy Code) or who is generally not paying its debts as such debts become due; or

(C) with respect to which there has been any breach of warranty or representation set forth in Section 6 hereof or any breach of any covenant contained in this Agreement; or

(D) with respect to which the Account Debtor asserts any discount, allowance, return, dispute, counterclaim, offset, defense, right of recoupment, right of return, warranty claim, or short payment;

together with all reasonable attorneys' and professional fees and expenses and all court costs incurred by Buyer in collecting such Purchased Receivable and/or enforcing its rights under, or collecting amounts owed by Seller in connection with, this Agreement (collectively, the "Repurchase Amount").

4.3. SELLER'S PAYMENT OF THE REPURCHASE AMOUNT OR OTHER AMOUNTS DUE BUYER. When any Repurchase Amount or other amount owing to Buyer becomes due, Buyer shall inform Seller of the manner of payment which may be any one or more of the following in Buyer's sole discretion: (a) in cash immediately upon demand therefor; (b) by delivery of substitute invoices and an Invoice Transmittal acceptable to Buyer which shall thereupon become Purchased Receivables; (c) by adjustment to the Reserve pursuant to Section 3.5 hereof; (d) by deduction from or offset against the Refund that would otherwise be due and payable to Seller;
(e) by deduction from or offset against the amount that otherwise would be forwarded to Seller in respect of any further Advances that may be made by Buyer; or (f) by any combination of the foregoing as Buyer may from time to time choose.

4.4. SELLER'S AGREEMENT TO REPURCHASE ALL PURCHASED RECEIVABLES. Upon and after the occurrence of an Event of Default, Seller shall, upon Buyer's demand (or, in the case of an Event of Default under Section 9(B), immediately without notice or demand from Buyer) repurchase all the Purchased Receivables then outstanding, or such portion thereof as Buyer may demand. Such demand may, at Buyer's option, include and Seller shall pay to Buyer immediately upon demand, cash in an amount equal to the Advance with respect to each Purchased Receivable then outstanding together with all accrued Finance Charges, Adjustments, Collateral Handling Fees, attorney's and professional fees, court costs and expenses as provided for herein, and any other Obligations. Upon receipt of payment in full of the Obligations, Buyer shall immediately instruct Account Debtors to pay Seller directly, and return to Seller any Refund due to Seller. For the purpose of calculating any Refund due under this Section only, the Reconciliation Date shall be deemed to be the date Buyer receives payment in good funds of all the Obligations as provided in this Section 4.4.

5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and its successors and assigns as Seller's true and lawful attorney in fact, and hereby authorizes Buyer, regardless of whether there has been an Event of Default, (a) to sell, assign, transfer, pledge, compromise, or discharge the whole or any part of the Purchased Receivables; (b) to demand, collect, receive, sue, and give releases to any Account Debtor for the monies due or which may become due upon or with respect to the Purchased Receivables and to compromise, prosecute, or defend any action, claim, case or proceeding relating to the Purchased Receivables, including the filing of a claim or the voting of such claims in any bankruptcy case, all in Buyer's name or Seller's name, as Buyer may choose; (c) to prepare, file and sign Seller's name on any

notice, claim, assignment, demand, draft, or notice of or satisfaction of lien or mechanics' lien or similar document with respect to Purchased Receivables;
(d) to notify all Account Debtors with respect to the Purchased Receivables to pay Buyer directly; (e) to receive, open, and dispose of all mail addressed to Seller for the purpose of collecting the Purchased Receivables; (f) to endorse Seller's name on any checks or other forms of payment on the Purchased Receivables; (g) to execute on behalf of Seller any and all instruments, documents, financing statements and the like to perfect Buyer's interests in the Purchased Receivables and Collateral; and (h) to do all acts and things necessary or expedient, in furtherance of any such purposes. If Buyer receives a check or item which is payment for both a Purchased Receivable and another receivable, the funds shall first be applied to the Purchased Receivable and, so long as there does not exist an Event of Default or an event that with notice, lapse of time or otherwise would constitute an Event of Default, the excess shall be remitted to Seller. Upon the occurrence and continuation of an Event of Default, all of the power of attorney rights granted by Seller to Buyer hereunder shall be applicable with respect to all Purchased Receivables and all Collateral.

6. REPRESENTATIONS, WARRANTIES AND COVENANTS.

6.1. RECEIVABLES' WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce Buyer to buy receivables and to renders its services to Seller, and with full knowledge that the truth and accuracy of the following are being relied upon by the Buyer in determining whether to accept receivables as Purchased Receivables, Seller represents, warrants, covenants and agrees, with respect to each Invoice Transmittal delivered to Buyer and each receivable described therein, that:

(A) Seller is the absolute owner of each receivable set forth in the Invoice Transmittal and has full legal right to sell, transfer and assign such receivables;

(B) The correct amount of each receivable is as set forth in the Invoice Transmittal and is not in dispute;

(C) The payment of each receivable is not contingent upon the fulfillment of any obligation or contract, past or future and any and all obligations required of the Seller have been fulfilled as of the date of the Invoice Transmittal;

(D) Each receivable set forth on the Invoice Transmittal is based on an actual sale and delivery of goods and/or services actually rendered, is presently due and owing to Seller, is not past due or in default, has not been previously sold, assigned, transferred, or pledged, and is free of any and all liens, security interests and encumbrances other than liens, security interests or encumbrances in favor of Buyer or any other division or affiliate of Silicon Valley Bank;

(E) There are no defenses, offsets, or counterclaims against any of the receivables, and no agreement has been made under which the Account Debtor may claim any deduction or discount, except as otherwise stated in the Invoice Transmittal;

(F) Each Purchased Receivable shall be the property of the Buyer and shall be collected by Buyer, but if for any reason it should be paid to Seller, Seller shall promptly notify Buyer of such payment, shall hold any checks, drafts, or monies so received in trust for the benefit of Buyer, and shall promptly transfer and deliver the same to the Buyer;

(G) Buyer shall have the right of endorsement, and also the right to require endorsement by Seller, on all payments received in connection with each Purchased Receivable and any proceeds of Collateral;

(H) Seller, and to Seller's best knowledge, each Account Debtor set forth in the Invoice Transmittal, are and shall remain solvent as that term is defined in the United States Bankruptcy Code and the California Uniform Commercial Code, and no such Account Debtor has filed or had filed against it a voluntary or involuntary petition for relief under the United States Bankruptcy Code;

(I) Each Account Debtor named on the Invoice Transmittal will not object to the payment for, or the quality or the quantity of the subject matter of, the receivable and is liable for the amount set forth on the Invoice Transmittal;

(J) Each Account Debtor shall promptly be notified, after acceptance by Buyer, that the Purchased Receivable has been transferred to and is payable to Buyer, and Seller shall not take or permit any action to countermand such notification;

and

(K) All receivables forwarded to and accepted by Buyer after the date hereof, and thereby becoming Purchased Receivables, shall comply with each and every one of the foregoing representations, warranties, covenants and agreements referred to above in this Section 6.1.

6.2. ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition to the foregoing warranties, representations and covenants, to induce Buyer to buy receivables and to render its services to Seller, Seller hereby represents, warrants, covenants and agrees that:

(A) Seller will not assign, transfer, sell, or grant, or permit any lien or security interest in any Purchased Receivables or Collateral to or in favor of any other party, without Buyer's prior written consent;

(B) The Seller's name, form of organization, chief executive office, and the place where the records concerning all Purchased Receivables and Collateral are kept is set forth at the beginning of this Agreement, Collateral is located only at the location set forth in the beginning of this Agreement, or, if located at any additional location, as set forth on a schedule attached to this Agreement, and Seller will give Buyer at least thirty (30) days prior written notice if such name, organization, chief executive office or other locations of Collateral or records concerning Purchased Receivables or Collateral is changed or added and shall execute any documents necessary to perfect Buyer's interest in the Purchased Receivables and the Collateral;

(C) Seller shall (i) pay all of its normal gross payroll for employees, and all federal and state taxes, as and when due, including without limitation all payroll and withholding taxes and state sales taxes; (ii) deliver at any time and from time to time at Buyer's request, evidence satisfactory to Buyer that all such amounts have been paid to the proper taxing authorities; and (iii) if requested by Buyer, pay its payroll and related taxes through a bank or an independent payroll service acceptable to Buyer;

(D) Seller has not, as of the time Seller delivers to Buyer an Invoice Transmittal, or as of the time Seller accepts any Advance from Buyer, filed a voluntary petition for relief under the United States Bankruptcy Code or had filed against it an involuntary petition for relief;

(E) If Seller owns, holds or has any interest in, any copyrights (whether registered, or unregistered), patents or trademarks, and licenses of any of the foregoing, such interest has been disclosed to Buyer and is specifically listed and identified on a schedule to this Agreement, and Seller shall immediately notify Buyer if Seller hereafter obtains any interest in any additional copyrights, patents, trademarks or licenses that are significant in value or are material to the conduct of its business;

(F) Seller shall provide Buyer with, (i) as soon as available, but no later than 30 days following each Reconciliation Period, a deferred revenue report, an aged listing of accounts receivable and accounts payable, an company prepared balance sheet and income statement, prepared under GAAP, consistently applied, covering Seller's operations during the period; (ii) within 5 days of filing, copies of all statements, reports and notices made available to Seller's security holders or to any holders of Subordinated Debt and all reports on Form 10-Q with the Securities and Exchange Commission; (iii) a prompt report of any legal actions pending or threatened against Seller that could result in damages or costs to Seller, except to the extent previously disclosed in Seller's SEC filing summarizing ongoing patent litigation; (iv) budgets, sales projections, operating plans or other financial information Buyer reasonably requests; and (v) prompt notice of any material change in the composition of the Intellectual Property, including any subsequent ownership right of Seller in or to any Copyright, Patent or Trademark not shown in any intellectual property security agreement between Seller and Buyer or knowledge of an event that materially adversely affects the value of the Intellectual Property;

(G) Seller shall provide Buyer within 50 days after the last day of each quarter a compliance certificate;

(H) On request by Buyer, Seller will promptly furnish any information Buyer may reasonably request to determine financial condition of Seller, including, but not limited to all of Seller's Obligations, and the condition of any of Seller's receivables which may include but are not limited to Purchased Receivables; and

(I) Seller will maintain its primary deposit and investments accounts with or through Buyer.

7. ADJUSTMENTS. In the event of a breach of any of the representations, warranties, or covenants set forth in Section 6.1, or in the event any Adjustment or dispute is asserted by any Account Debtor, Seller shall promptly advise Buyer and shall, subject to the Buyer's approval, resolve such disputes and advise Buyer of any adjustments. Unless the disputed Purchased Receivable is repurchased by Seller and the full Repurchase Amount is paid, Buyer shall remain the absolute owner of any Purchased Receivable which is subject to Adjustment or repurchase under Section 4.2 hereof, and any rejected, returned, or recovered personal property, with the right to take possession thereof at any time. If such possession is not taken by Buyer, Seller is to resell it for Buyer's account at Seller's expense with the proceeds made payable to Buyer. While Seller retains possession of said returned goods, Seller shall segregate said goods and mark them "property of Silicon Valley Bank."

8. SECURITY INTEREST. To secure the prompt payment and performance to Buyer of all of the Obligations, Seller hereby grants to Buyer a continuing lien upon and security interest in all of Seller's now existing or hereafter arising rights and interest in the following, whether now owned or existing or hereafter created, acquired, or arising, and wherever located (collectively, the "Collateral"):

(A) All accounts, receivables, contract rights, chattel paper, instruments, documents, letters of credit, bankers acceptances, drafts, checks, cash, securities, and general intangibles (including, without limitation, all claims, causes of action, deposit accounts, guaranties, rights in and claims under insurance policies (including rights to premium refunds), rights to tax refunds, copyrights, patents, trademarks, rights in and under license agreements, and all other intellectual property);

(B) All inventory, including Seller's rights to any returned or rejected goods, with respect to which Buyer shall have all the rights of any unpaid seller, including the rights of replevin, claim and delivery, reclamation, and stoppage in transit;

(C) All monies, refunds and other amounts due Seller, including, without limitation, amounts due Seller under this Agreement (including Seller's right of offset and recoupment);

(D) All equipment, machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles;

(E) All farm products, crops, timber, minerals and the like (including oil and gas);

(F) All accessions to, substitutions for, and replacements of, all of the foregoing;

(G) All books and records pertaining to all of the foregoing; and

(H) All proceeds of the foregoing, whether due to voluntary or involuntary disposition, including insurance proceeds.

Seller is not authorized to sell, assign, transfer or otherwise convey any Collateral without Buyer's prior written consent, except for the sale of finished inventory in the Seller's usual course of business. Seller agrees to sign UCC financing statements, in a form acceptable to Buyer, and any other instruments and documents requested by Buyer to evidence, perfect, or protect the interests of Buyer in the Collateral. Seller agrees to deliver to Buyer the originals of all instruments, chattel paper and documents evidencing or related to Purchased Receivables and Collateral.

9. DEFAULT. The occurrence of any one or more of the following shall constitute an Event of Default hereunder.

(A) Seller fails to pay any amount owed to Buyer as and when due;

(B) There shall be commenced by or against Seller any voluntary or involuntary case under the United States Bankruptcy Code, or any assignment for the benefit of creditors, or appointment of a receiver or custodian for any of its assets;

(C) Seller shall become insolvent in that its debts are greater than the fair value of its assets, or Seller is generally not paying its debts as they become due or is left with unreasonably small capital;

(D) Any involuntary lien, garnishment, attachment or the like is issued against or attaches to the Purchased Receivables or any Collateral;

(E) Seller shall breach any covenant, agreement, warranty, or representation shall constitute an immediate default hereunder;

(F) Seller is not in compliance with, or otherwise is in default under, any term of any document, instrument or agreement evidencing a debt, obligation or liability of any kind or character of Seller, now or hereafter existing, in favor of Buyer or any division or affiliate of Silicon Valley Bank, regardless of whether such debt, obligation or liability is direct or indirect, primary or

secondary, joint, several or joint and several, or fixed or contingent, together with any and all renewals and extensions of such debts, obligations and liabilities, or any part thereof;

(G) An event of default shall occur under any guaranty executed by any guarantor of the Obligations of Seller to Buyer under this Agreement, or any material provision of any such guaranty shall for any reason cease to be valid or enforceable or any such guaranty shall be repudiated or terminated, including by operation of law;

(H) A default or event of default shall occur under any agreement between Seller and any creditor of Seller that has entered into a subordination agreement with Buyer;

(I) Any creditor that has entered into a subordination agreement with Buyer shall breach any of the terms of or not comply with such subordination agreement; or

(J) (i) There is a material adverse change in the business, operations, or condition (financial or otherwise) of the Seller, or (ii) there is a material impairment of the prospect of repayment of any portion of the Obligations or (iii) there is a material impairment of the value or priority of Buyer's security interests in the Collateral.

10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, (1) without implying any obligation to buy receivables, Buyer may cease buying receivables or extending any financial accommodations to Seller; (2) all or a portion of the Obligations shall be, at the option of and upon demand by Buyer, or with respect to an Event of Default described in Section 9(B), automatically and without notice or demand, due and payable in full; and (3) Buyer shall have and may exercise all the rights and remedies under this Agreement and under applicable law, including the rights and remedies of a secured party under the California Uniform Commercial Code, all the power of attorney rights described in Section 5 with respect to all Collateral, and the right to collect, dispose of, sell, lease, use, and realize upon all Purchased Receivables and all Collateral in any commercial reasonable manner. Seller and Buyer agree that any notice of sale required to be given to Seller shall be deemed to be reasonable if given five (5) days prior to the date on or after which the sale may be held. In the event that the Obligations are accelerated hereunder, Seller shall repurchase all of the Purchased Receivables as set forth in Section 4.4.

11. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid when due, including, without limitation, amounts due under Section 3.5, Repurchase Amounts, amounts due under Section 12, and any other Obligations, such amounts shall bear interest at a per annum rate equal to the per annum rate of the Finance Charges until the earlier of (i) payment in good funds or (ii) entry of a final judgment thereof, at which time the principal amount of any money judgment remaining unsatisfied shall accrue interest at the highest rate allowed by applicable law.

12. FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Seller will pay to Buyer immediately upon demand all fees, costs and expenses (including fees of attorneys and professionals and their costs and expenses) that Buyer incurs or may from time to time impose in connection with any of the following: (a) preparing, negotiating, administering, and enforcing this Agreement or any other agreement executed in connection herewith, including any amendments, waivers or consents in connection with any of the foregoing, (b) any litigation or dispute (whether instituted by Buyer, Seller or any other person) in any way relating to the Purchased Receivables, the Collateral, this Agreement or any other agreement executed in connection herewith or therewith, (c) enforcing any rights against Seller or any guarantor, or any Account Debtor, (d) protecting or enforcing its interest in the Purchased Receivables or the Collateral, (e) collecting the Purchased Receivables and the Obligations, and (f) the representation of Buyer in connection with any bankruptcy case or insolvency proceeding involving Seller, any Purchased Receivable, the Collateral, any Account Debtor, or any guarantor. Seller shall indemnify and hold Buyer harmless from and against any and all claims, actions, damages, costs, expenses, and liabilities of any nature whatsoever arising in connection with any of the foregoing.

13. SEVERABILITY, WAIVER, AND CHOICE OF LAW. In the event that any provision of this Agreement is deemed invalid by reason of law, this Agreement will be construed as not containing such provision and the remainder of the Agreement shall remain in full force and effect. Buyer retains all of its rights, even if it makes an Advance after an Event of Default. If Buyer waives an Event of Default, it may enforce a later Event of Default. Any consent or waiver under, or amendment of, this Agreement must be in writing.

Nothing contained herein, or any action taken or not taken by Buyer at any time, shall be construed at any time to be indicative of any obligation or willingness on the part of Buyer to amend this Agreement or to grant to Seller any waivers or consents. This Agreement has been transmitted by Seller to Buyer at Buyer's office in the State of California and has been executed and accepted by Buyer in the State of California. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of California.

14. ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require or prefer that all of Seller's receivables be paid to the same address and/or party, or Seller and Buyer may agree that all receivables with respect to certain Account Debtors be paid to one party. In such event Buyer and Seller may agree that Buyer shall collect all receivables whether owned by Seller or Buyer and (provided that there does not then exist an Event of Default or event that with notice, lapse or time or otherwise would constitute an Event of Default, and subject to Buyer's rights in the Collateral) Buyer agrees to remit to Seller the amount of the receivables collections it receives with respect to receivables other than Purchased Receivables. It is understood and agreed by Seller that this Section does not impose any affirmative duty on Buyer to do any act other than to turn over such amounts. All such receivables and collections are Collateral and in the event of Seller's default hereunder, Buyer shall have no duty to remit collections of Collateral and may apply such collections to the obligations hereunder and Buyer shall have the rights of a secured party under the California Uniform Commercial Code.

15. NOTICES. All notices shall be given to Buyer and Seller at the addresses or faxes set forth on the first page of this Agreement and shall be deemed to have been delivered and received: (a) if mailed, three (3) calendar days after deposited in the United States mail, first class, postage pre-paid,
(b) one (1) calendar day after deposit with an overnight mail or messenger service; or (c) on the same date of confirmed transmission if sent by hand delivery, telecopy, telefax or telex.

16. JURY TRIAL. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT; AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.

17. TERM AND TERMINATION. The term of this Agreement shall be through March 17, 2004 unless terminated in writing by Buyer or Seller. Seller and Buyer shall each have the right to terminate this Agreement at any time. Notwithstanding the foregoing, any termination of this Agreement shall not affect Buyer's security interest in the Collateral and Buyer's ownership of the Purchased Receivables, and this Agreement shall continue to be effective, and Buyer's rights and remedies hereunder shall survive such termination, until all transactions entered into and Obligations incurred hereunder or in connection herewith have been completed and satisfied in full.

18. TITLES AND SECTION HEADINGS. The titles and section headings used herein are for convenience only and shall not be used in interpreting this Agreement.

19. OTHER AGREEMENTS. The terms and provisions of this Agreement shall not adversely affect the rights of Buyer or any other division or affiliate of Silicon Valley Bank under any other document, instrument or agreement. The terms of such other documents, instruments and agreements shall remain in full force and effect notwithstanding the execution of this Agreement. In the event of a conflict between any provision of this Agreement and any provision of any other document, instrument or agreement between Seller on the one hand, and Buyer or any other division or affiliate of Silicon Valley Bank on the other hand, Buyer shall determine in its sole discretion which provision shall apply. Seller acknowledges specifically that any security agreements, liens and/or security interests currently securing payment of any obligations of Seller owing to Buyer or any other division or affiliate of Silicon Valley Bank also secure Seller's obligations under this Agreement, and are valid and subsisting and are not adversely affected by

execution of this Agreement. Seller further acknowledges that (a) any collateral under other outstanding security agreements or other documents between Seller and Buyer or any other division or affiliate of Silicon Valley Bank secures the obligations of Seller under this Agreement and (b) a default by Seller under this Agreement constitutes a default under other outstanding agreements between Seller and Buyer or any other division or affiliate of Silicon Valley Bank.

IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the day and year above written.

SELLER: SUPERCONDUCTOR TECHNOLOGIES INC.

By _______________________________________

Title ____________________________________

BUYER: SILICON VALLEY BANK

By_______________________________________

Title ___________________________________

Effective Date:__________________________

EXHIBIT "A"

TO FINANCING STATEMENT AND SECURITY AGREEMENT

This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types or items of property (in addition to, and without limiting the types of property set forth on page 1 hereof):

A) All accounts, receivables, contract rights, chattel paper, instruments, documents, letters of credit, bankers acceptances, drafts, checks, cash, securities, deposit accounts, and general intangibles (including, without limitation, all claims, causes of action, guaranties, rights in and claims under insurance policies (including rights to premium refunds), rights to tax refunds, copyrights, patents, trademarks, rights in and under license agreements, and all other intellectual property);

B) All inventory, including Seller's rights to any returned or rejected goods, with respect to which Buyer shall have all the rights of any unpaid seller, including the rights of replevin, claim and delivery, reclamation, and stoppage in transit;

C) All monies, refunds and other amounts due Seller, including, without limitation, amounts due Seller under this Agreement (including Seller's right of offset and recoupment);

D) All equipment, machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles;

E) All farm products, crops, timber, minerals and the like (including oil and gas);

F) All accessions to, substitutions for, and replacements of, all of the foregoing;

G) All books and records pertaining to all of the foregoing; and

H) All proceeds of the foregoing, whether due to voluntary or involuntary disposition, including insurance proceeds.

INITIALS _____________________

[SILICON VALLEY BANK LOGO]

SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, California 95054

(408) 654-1000 - Fax (408) 980-6410

CERTIFICATION OF OFFICERS

The undersigned, being all the officers of SUPERCONDUCTOR TECHNOLOGIES INC., a Delaware corporation (the "Corporation"), hereby certify to Silicon Valley Bank ("SVB") that:

1. The correct name of the Corporation is SUPERCONDUCTOR TECHNOLOGIES INC., as set forth in the Articles of Incorporation.

2. The Corporation was incorporated on May 11, 1987, under the laws of the State of Delaware, and is in good standing under such laws.

3. The Corporation's place of business and chief executive office being the place at which the Corporation maintains its books and records pertaining to accounts, accounts receivables, contract rights, chattel paper, general intangibles, instruments, documents, inventory, and equipment, is located at:

460 WARD DRIVE
SANTA BARBARA, CA 93111-2310

4. The Corporation has other places of business at the following addressees:

969 W. Maude Avenue
Sunnyvale, CA 94086

5. There is no provision in the Certificate of Incorporation, Articles of Incorporation, or Bylaws of the Corporation, or in the laws of the State of its incorporation, requiring any vote or consent of shareholders to authorize the sale of receivables or the grant of a security interest in any assets of the Corporation. Such power is vested exclusively in the Corporation's Board of Directors.

6. The officers of the Corporation, and their respective titles and signatures are as follows:

PRESIDENT:

(Signature)

VICE PRESIDENT:

(Signature)

SECRETARY:

(Signature)

TREASURER:

(Signature)

OTHER OFFICER:
TITLE:

(Signature)

7. Except as indicated in this paragraph 7, each of the officers listed in paragraph 6 has signatory powers with respect to all the Corporation's transactions with SVB. Explanation of exceptions:

8. The undersigned shall give SVB prompt written notice of any change or amendment with respect to any of the foregoing. Until such written notice is received by SVB, SVB shall be entitled to rely upon the foregoing in all respects.

IN WITNESS WHEREOF, the undersigned have executed this Certification of Officers on 03/13/03.

PRESIDENT:        ______________________________________________________________

VICE PRESIDENT:   ______________________________________________________________

SECRETARY:        ______________________________________________________________

TREASURER:        ______________________________________________________________

[SILICON VALLEY BANK LOGO]

SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, California 95054

(408) 654-1000 - Fax (408) 980-6410

SECRETARY'S CERTIFICATE OF RESOLUTION

The undersigned, as Secretary of SUPERCONDUCTOR TECHNOLOGIES INC., a Delaware corporation (the "Corporation"), hereby certifies to Silicon Valley Bank that at a meeting duly convened at which a quorum was present the following resolutions were adopted by the Finance Committee of the Board of Directors of the Corporation and that such resolutions have not been modified, amended, or rescinded in any respect and are in full force and effect as of today's date.

RESOLVED, that this corporation be and hereby is authorized to sell this corporation's accounts receivable to Silicon Valley Bank, and to grant Silicon Valley Bank a security interest in this corporation's assets, including, without limitation, accounts, accounts receivable, contract rights, chattel paper, general intangibles, instruments, documents, letters of credit, drafts, inventory and equipment, presently owned or hereafter acquired and proceeds and products of the foregoing (the " Collateral," as defined in the Accounts Receivable Purchase Agreement).

RESOLVED, that this corporation be and hereby is authorized and directed to execute and deliver certain agreements in connection with the sale of receivables, and granting of security interests in the Collateral to Silicon Valley Bank including, without limitations, a Accounts Receivable Purchase Agreement and UCC-1 financing statement.

RESOLVED, that the following named officers of this corporation ("Authorized Officers") be, and any of them hereby are, authorized, empowered, and directed to execute and deliver to Silicon Valley Bank on behalf of this corporation all such further agreements and instruments as may be deemed necessary or advisable in order to fully effectuate the purposes and intent of the foregoing resolutions.

         Print Names of Authorized Officers:                 Title:
___________________________________________       ______________________________
___________________________________________       ______________________________
___________________________________________       ______________________________
___________________________________________       ______________________________
___________________________________________       ______________________________
___________________________________________       ______________________________

RESOLVED, that the Secretary or Assistant Secretary of this corporation be, and hereby is authorized, empowered and directed to certify to the passage of the foregoing resolutions under the seal of this corporation.

IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this Thirteenth day of March 2002.

Signature

Secretary of SUPERCONDUCTOR TECHNOLOGIES INC.

[SILICON VALLEY BANK LOGO]

CONSENT AND RELEASE

Silicon Valley Bank sincerely appreciates your business and would like to publicize your Company recently joining our "family". In order to do so, kindly complete the following and return to us.

SUPERCONDUCTOR TECHNOLOGIES INC. ("Client") consents to and releases Silicon Valley Bank ("Bank") from any liability in its use of (check all that apply):

Company Name                   ___________

Individual Name                ___________

Quotation                      ___________

Photograph                     ___________

Client Reference               ___________

Type of Credit Facility        ___________

Amount of Credit Facility      ___________

in Bank's written and oral presentations, advertising and promotional materials and Internet Web site.

Client Name:

SUPERCONDUCTOR TECHNOLOGIES INC.

Signature

Name and Title

Date

EXHIBIT 10.38

UNCONDITIONAL GUARANTY

In consideration of SILICON VALLEY BANK'S ("Buyer") financing to Superconductor Technologies, Inc. ("Seller"), under the Accounts Receivable Purchase Agreement dated as of the Effective Date (as defined therein) (the "Agreement"), Conductus, Inc. ("Guarantor"), a Delaware corporation, unconditionally and irrevocably guarantees payment of all amounts Seller owes Buyer and Seller's performance of the Agreement and any other agreements between Seller and Buyer, as amended from time to time (collectively the "Agreements"), according to their terms.

1. If Seller does not perform its obligations under the Agreements, Guarantor will immediately pay all amounts due (including, without limitation, all principal, interest, and fees) and satisfy all Seller's obligations under the Agreements.

2. These obligations are independent of Seller's obligations and separate actions may be brought against Guarantor (whether action is brought against Seller or whether Seller is joined in the action). Guarantor waives benefit of any statute of limitations affecting its liability. Guarantor's liability is not contingent on the genuineness or enforceability of the Agreements.

3. Buyer may, without notice to Guarantor and without affecting Guarantor's obligations under this Guaranty, (a) renew, extend, or otherwise change the terms of the Agreements; (b) take security for the payment of this Guaranty or the Agreements; (c) exchange, enforce, waive and release any security; and (d) apply the security and direct its sale as Buyer, in its discretion, chooses. All notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested.

4. Guarantor waives:

a) Any right to require Buyer to (i) proceed against Seller or any other person; (ii) proceed against or exhaust any security or (iii) pursue any other remedy. Buyer may exercise or not exercise any right or remedy it has against Seller or any security it holds (including the right to foreclose by judicial or nonjudicial sale) without affecting Guarantor's liability.

b) Any defenses from disability or other defense of Seller or from the cessation of Sellers liabilities.

c) Any setoff, defense or counterclaim against Buyer.

d) Any defense from the absence, impairment or loss of any right of reimbursement or subrogation or any other rights against Seller. Until Seller's obligations to Buyer have been paid, Guarantor has no right of subrogation or reimbursement or other rights against Seller.

e) Any right to enforce any remedy that Buyer has against Seller.

f) Any rights to participate in any security held by Buyer.

g) Any demands for performance, notices of nonperformance or of new or additional indebtedness. Guarantor is responsible for being and keeping itself informed of Seller's financial condition. Unless Guarantor requests particular information, Buyer has no duty to provide information to Guarantor.

(h) The benefits of California Civil Code sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.

5. Guarantor acknowledges that, to the extent Guarantor has or may have rights of subrogation or reimbursement against Seller for claims arising out of this Guaranty, those rights may be impaired or destroyed if Buyer elects to proceed against any real property security of Seller by non-judicial foreclosure. That impairment or destruction could, under certain judicial cases and based on equitable principles of estoppel, give rise to a defense by Guarantor against its obligations under this Guaranty. Guarantor waives that defense and any others arising from Buyer's election to pursue non-judicial foreclosure. Without limiting the generality of the foregoing, Guarantor waives all benefits and defenses under California Code of Civil Procedure Sections 580a, 580b, 580d and 726, to the extent they apply.

6. If Seller becomes insolvent or is adjudicated bankrupt or files a petition for reorganization, or similar relief under the United States Bankruptcy Code, or if a petition is filed against Seller and/or any obligation under the Agreements is terminated or rejected or any obligation of Seller is modified or if Seller's obligations are avoided Guarantor's liability will not be affected and its liability will continue. If Buyer must return any payment because of the insolvency, bankruptcy or reorganization of Seller, Guarantor or any other guarantor this Guaranty will remain effective or be reinstated

7. Guarantor subordinates any indebtedness of Seller it holds to Buyer; and Guarantor will collect, enforce and receive payments as Buyer's trustee and will pay Buyer those payments without reducing or affecting its liability under this Guaranty.

8. Guarantor will pay Buyer's reasonable attorneys' fees and other costs and expenses incurred enforcing this Guaranty. This Guaranty may not be waived, revoked or amended without Buyer's prior written consent. If any provision of this Guaranty is unenforceable, all other provisions remain effective. This Guaranty is the entire agreement among the parties about this Guaranty. No prior dealings, no usage of trade, and no parol or extrinsic evidence may supplement or vary this Guaranty. Buyer may assign this Guaranty without in any way affecting Guarantor's liability under it. This Guaranty shall inure to the benefit of Buyer and its successors and assigns. This Guaranty is in addition to the guaranties of any other guarantors and any and all other guaranties of Seller's indebtedness or liabilities to Buyer. Guarantor may not assign this Agreement or any rights under it without Buyer's prior written consent, which may be granted or withheld in Buyer's discretion.

9. Guarantor represents and warrants that (i) it has taken all action necessary authorize execute, deliver and perform this Guaranty, (ii) execution, delivery and performance of this Guaranty do not conflict with any organizational documents or agreements to which it is party and (iii) this Guaranty is a valid and binding obligation, enforceable against Guarantor according to its terms.

10. Guarantor will do all of the following:

10.1 Maintain its legal existence, remain in good standing in the state of its formation, and continue to qualify in each jurisdiction in which the failure to qualify could have a material adverse effect on the financial condition, operations or business. Maintain all licenses, approvals and agreements, the loss of which could have a material adverse effect on its financial condition, operations or business.

10.2 Comply with all statutes and regulations if non-compliance could adversely affect its financial condition, operations or business.

10.3 Execute other instruments and take action Buyer reasonably requests to effect the purposes of this Agreement.

10.4 Deliver to Buyer complete and current financial information and other information about Guarantor as Buyer may reasonably request.

11. This Guaranty is governed by California law, without regard to conflicts of laws. GUARANTOR WAIVES ITS RIGHT TO A JURY TRIAL OF ANY ACTION ARISING OUT OF THIS GUARANTY, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, AND ALL OTHER CLAIMS. Guarantor submits to the exclusive jurisdiction of the state and federal courts in Santa Clara, California.

Date ___________________ CONDUCTUS, INC.

By:________________________________

Title:_____________________________

EXHIBIT 10.39

PATENT LICENSE AGREEMENT

BETWEEN

TELCORDIA TECHNOLOGIES, INC.

RUTGERS, THE STATE UNIVERSITY OF NEW JERSEY

AND

SUPERCONDUCTOR TECHNOLOGIES INC.

This Agreement, effective on the date the last party signs it (the "EFFECTIVE DATE"), is by and between TELCORDIA TECHNOLOGIES, INC., a Delaware corporation , having an office at 445 South Street, Morristown, New Jersey 07960, U.S.A. ("TELCORDIA"), RUTGERS, THE STATE UNIVERSITY OF NEW JERSEY, an academic institution organized under the laws of the State of New Jersey, having an office at 3 Rutgers Plaza, New Brunswick, NJ 08091 ("Rutgers") and SUPERCONDUCTOR TECHNOLOGIES INC., a Delaware corporation, having an office at 460 Ward Drive, Santa Barbara, CA 93111 U.S.A ("STI").

RECITALS

Whereas, TELCORDIA is co-owner of U.S. Patent No. 5,015,492 entitled "Method and Apparatus for Pulsed Energy Induced Vapor Deposition of Thin Films" ("Licensed Patent");

Whereas, Rutgers is the other co-owner of the Licensed Patent and has made Telcordia the licensing agent with respect to the Licensed Patent;

Whereas, TELCORDIA has offered STI a license to practice certain claims of the Licensed Patent and a covenant not to be sued with respect to other claims of the Licensed Patent; and,

Whereas, STI, after evaluating its needs, has elected to accept a license to practice certain claims of the Licensed Patent and a covenant not to be sued with respect to other claims of the Licensed Patent.

Now, therefore, in consideration of the mutual covenants and premises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I - DEFINITIONS

1.1 Terms in this Agreement (other than the names of parties, Article headings, and the warranty clauses) that are set forth in all uppercase letters have the meanings established for them in the succeeding paragraphs of this Article I.

1.2 An "AFFILIATE" of a party shall mean any entity that is owned or controlled by the party, or owns or controls the party (such entity being hereinafter called the "Parent"), or any entity owned or controlled by the Parent of the entity at the time in question. In the case of a corporation or similar entity, ownership, direct or indirect, of capital stock or other ownership interest representing more than fifty percent (50%) of the voting power for the election or appointment of directors, or person performing similar functions, shall constitute ownership or control thereof.

1.3 "LICENSED PATENT" shall mean (i) U.S. Patent No. 5,015,492 titled "Method and Apparatus for Pulsed Energy Induced Vapor Deposition"; (ii) any continuation, continuation-in-part, division, reissue, reexamination, extension, renewal or substitute of the `492 patent;
(iii) any patent or application claiming priority to the application from which the `492 patent issued; and (iv) any foreign (non-U.S.) counterpart patent or patent that claims priority to or from any of the patents or patent applications specified in subsections (i)-(iii) above.

1.4      "NET SALES PRICE" shall mean:

         1.4.1    for a LICENSED PRODUCT that is sold or leased, the sales price
                  agreed to between STI and the third party buyer in a bona
                  fide, arm's length transaction, net of returns, allowances,
                  trade discounts, bad debts and any other amounts included in
                  the calculation of "net sales" under generally accepted
                  accounting principles. Such NET SALES PRICE shall not include
                  packing, shipping, insurance charges, import, export, excise,
                  sales and value added taxes, and customs duties.

         1.4.2    for a LICENSED PRODUCT OTHERWISE DISPOSED OF, the average
                  sales price, agreed to between STI and third party buyers in
                  bona fide, arm's length transactions (net of returns,
                  allowances, trade discounts, bad debts and any other amounts
                  included in the calculation of "net sales" under generally
                  accepted accounting principles) for similar LICENSED PRODUCTS
                  sold within ninety (90) days prior to the date of such OTHER
                  DISPOSITION OF. Such NET SALES PRICE shall not include
                  packing, shipping, insurance charges, import, export, excise,
                  sales and value added taxes, and customs duties.

         1.4.3    for LICENSED PRODUCTS made by or on behalf of STI, but not
                  sold, leased or OTHERWISE DISPOSED OF in the event of
                  expiration or termination of this Agreement, shall be the
                  average NET SALES PRICE as defined in Section 1.4.1 for
                  similar LICENSED PRODUCTS sold within ninety (90) days prior
                  to the date of such expiration or termination.

1.5 "LICENSED PRODUCT" shall mean a cryogenic receiver front-end device for wireless communications networks which contains a thin film radio frequency filter manufactured using high-temperature superconducting materials and either pulsed energy deposition or pulsed laser deposition. A list of the current LICENSED PRODUCTS of STI, is set forth as Exhibit 1. Additional LICENSED PRODUCTS may be added to this list by STI upon written notice to TELCORDIA.

1.6 "LICENSED EQUIPMENT" shall mean an apparatus performing pulsed energy deposition and/or pulsed laser deposition claimed in the LICENSED PATENT.

1.7 "OTHERWISE DISPOSE OF," "OTHERWISE DISPOSED OF", "OTHERWISE DISPOSES

         OF" and "OTHER DISPOSITION OF" as used in conjunction with LICENSED
         PRODUCT shall mean any transaction that is not an arms length sale,
         lease or disposition to a third party of a LICENSED PRODUCT in
         consideration for products and/or services from such third party. These
         phrases shall not include any LICENSED PRODUCTS which are (a)
         destroyed, damaged or defective or (b) on loan to third parties for
         testing, evaluation or field trials.

1.8      "STI" shall mean SUPERCONDUCTOR TECHNOLOGIES INC. and any other company
         or entity that is currently an AFFILIATE but only for so long as it
         remains an AFFILIATE. "STI" shall also include AFFILIATES subsequently
         acquired by STI, but the licenses and covenants not to sue granted
         herein with respect to such subsequently acquired AFFILIATES shall only
         be with respect to LICENSED PRODUCTS made by or on behalf of, sold,
         offered for sale, leased, imported used or OTHERWISE DISPOSED OF by
         such subsequently acquired AFFILIATES after such acquisition. The
         release granted to STI herein is only with respect to SUPERCONDUCTOR
         TECHNOLOGIES INC. and current AFFILIATES of SUPERCONDUCTOR
         TECHNOLOGIES, INC. as of the EFFECTIVE DATE.

1.9      "LICENSOR" shall mean either Telcordia Technologies, Inc. or Rutgers
         University, The State University of New Jersey.

1.10     "LICENSORS" shall mean Telcordia Technologies, Inc. and Rutgers
         University as joint owners of the Licensed Patent.

                    ARTICLE II - GRANT OF LICENSE AND RELEASE

2.1      LICENSORS hereby grant to STI, for the term of this Agreement, a
         worldwide and nonexclusive license under the method claims of the
         LICENSED PATENT to make, have made, use, lease, offer to sell, sell,
         distribute, import or OTHERWISE DISPOSE OF LICENSED PRODUCTS and to use
         LICENSED EQUIPMENT to manufacture LICENSED PRODUCTS.

2.2      The license granted in Section 2.1 hereof does not include: any right
         to grant sublicenses to others provided, however, that nothing herein
         will prevent STI from (a) using resellers, distributors, or AFFILIATES
         for distribution of LICENSED PRODUCTS made by STI or its contract
         manufacturers pursuant to STI's have made rights and bearing an STI
         brand and (b) to grant sublicenses to third party suppliers in exercise
         of STI's have made rights.

2.3      LICENSORS covenant not to sue STI for infringement of the apparatus
         claims of the LICENSED PATENT based on the manufacture by or on behalf
         of STI of LICENSED EQUIPMENT or STI'S use of LICENSED EQUIPMENT to
         manufacture LICENSED PRODUCTS; provided that STI has made all payments
         in a timely manner as required by Article III of this Agreement.

2.4      STI acknowledges and agrees that nothing in this Agreement shall be
         construed as granting to STI any right or license, express or implied,
         under any patent owned or controlled by LICENSORS, except for the
         LICENSED PATENT, and that nothing in this Agreement shall restrict
         either LICENSOR from asserting any of its patents, except for the
         LICENSED PATENT, against STI and STI's customers, mediate and immediate
         (including resellers, distributors, and end users) in the event any
         product of STI, including the LICENSED PRODUCT or LICENSED EQUIPMENT,
         should infringe any such patent. STI acknowledges and agrees that
         nothing in this Agreement shall be construed as granting to STI any
         right to sell, lease or OTHERWISE DISPOSE OF any LICENSED EQUIPMENT.

2.5      STI represents that, prior to the EFFECTIVE DATE, it has not, sold,
         leased, or OTHERWISE DISPOSED OF any LICENSED PRODUCTS, including but
         not limited to LICENSED PRODUCTS, other than to the extent disclosed in
         Exhibit 2. Such disclosure shall include the identity and quantity of
         all LICENSED PRODUCTS sold, leased or OTHERWISE DISPOSED OF prior to
         the EFFECTIVE DATE. Subject to the forgoing representation and upon
         payment to LICENSORS of the amount specified in Section 3.3, each
         LICENSOR, for itself, its successors, and assigns, hereby releases and
         forever discharges STI (defined in this Section 2.5 as Superconductor
         Technologies Inc. and its current AFFILIATES as of the EFFECTIVE DATE),
         from any and all causes of action, claims, and demands whatsoever in
         law or in equity arising or claimed to arise out of any infringement or
         asserted infringement of the LICENSED PATENT by any LICENSED PRODUCTS
         sold, leased, or OTHERWISE DISPOSED OF by STI at any time prior to the
         EFFECTIVE DATE of this Agreement. This release shall not apply to any
         infringement of any

         patent owned or controlled by either LICENSOR except for the LICENSED
         PATENT. The release provided by this paragraph does not provide a
         release for infringement of the LICENSED PATENT by any entity that
         becomes an AFFILIATE of STI after the EFFECTIVE DATE of this Agreement.

                ARTICLE III - CONSIDERATION, REPORTS AND RECORDS

3.1      STI shall pay LICENSORS within ten (10) days of the EFFECTIVE DATE of
         this Agreement a non-refundable initial license fee of ________________
         ________________.

3.2      STI shall also pay LICENSORS within ten (10) days of the EFFECTIVE DATE
         of this Agreement a non-refundable initial covenant fee of
         __________________________________.

3.3      STI shall also pay LICENSORS within ten (10) days of the EFFECTIVE DATE
         of this Agreement a non-refundable fee of _____________________________
         for the release provided in Section 2.5.

3.4      STI shall pay to LICENSORS a royalty payment of _______________________
         of the aggregate NET SALES of LICENSED PRODUCTS manufactured, sold,
         leased or OTHERWISE DISPOSED OF in the United States by STI after the
         EFFECTIVE DATE. STI shall pay LICENSORS a minimum annual royalty of
         _______________________, which will be deemed advance payment of (and
         credited towards) royalties owing for LICENSED PRODUCTS sold, leased or
         OTHERWISE DISPOSED OF by STI during such year. The first minimum annual
         royalty of _________________________ shall be due and payable within
         thirty (30) days of the EFFECTIVE DATE. Subsequent minimum annual
         royalties of ______________________ are due January 1st for each year
         thereafter. LICENSORS shall not be obligated to refund any portion of
         the minimum annual royalty even if the actual royalty due is less than
         the annual minimum royalty.

3.5      STI shall pay LICENSORS an annual covenant fee of _____________________
         which will be deemed payment for the covenant not to sue provided
         pursuant to Section 2.3 of this Agreement for LICENSED EQUIPMENT
         manufactured by or on behalf of STI during such year. The first annual
         covenant fee of _____________________________ shall be due and payable
         within thirty (30) days of the EFFECTIVE DATE. Subsequent annual
         covenant fees of ____________________________ are due January 1st for
         each year thereafter. LICENSORS shall not be obligated to refund any
         portion of the covenant fee.

3.6      A LICENSED PRODUCT shall not be subject to royalty under Section 3.4 if
         the LICENSED PRODUCT is sold, leased or OTHERWISE DISPOSED OF to a
         third party, if and to the extent that (i) such third party is licensed
         by either LICENSOR under the LICENSED PATENT to have such

         LICENSED PRODUCT made, (ii) such third party advises STI, in writing
         prior to or promptly after the time of such sale, lease or OTHER
         DISPOSITION OF such LICENSED PRODUCTS, that it is exercising its own
         have made license from a LICENSOR under the LICENSED PATENT, and (iii)
         STI promptly provides written notice to LICENSORS of the exercise of
         such have made license. LICENSORS shall include a substantially similar
         clause to this Section 3.6 in all other licenses LICENSORS provide to
         others under the LINCENSED PATENT.

3.7      STI shall furnish LICENSORS within forty-five (45) days following the
         end of each calendar quarter thereafter, a report in writing and signed
         by an executive level officer of the company specifying separately by
         model and type of LICENSED PRODUCT the total quantity and NET SALES of
         all LICENSED PRODUCTS manufactured, sold, leased or OTHERWISE DISPOSED
         OF in the United States by STI, the amount of royalties payable
         thereon, all exclusions from royalties pursuant to Section 3.6 and the
         total royalties due LICENSORS during the preceding three calendar
         months. In addition, each report shall also include the total aggregate
         royalties paid to LICENSORS and cumulative total of the NET SALES of
         all LICENSED PRODUCTS made by STI and sold, leased or OTHERWISE
         DISPOSED OF. Each such report shall be accompanied by payment in full
         of the royalties due pursuant to Section 3.4 of this Agreement.

3.8      LICENSED PRODUCTS shall be considered sold, leased or OTHERWISE
         DISPOSED OF when such transaction is recognizable in accordance with
         STI's revenue recognition policy then in effect provided such policy is
         in accordance with generally accepted accounting policies. LICENSED
         PRODUCTS placed into field trials with potential customers shall not be
         considered sold, leased or OTHERWISE DISPOSED OF unless and until the
         potential customer agrees to purchase or lease or otherwise acquire
         such LICENSED PRODUCTS. Any LICENSED PRODUCTS made but not sold, leased
         or OTHERWISE DISPOSED OF, as of the date of termination of this
         Agreement shall be subject to royalty under Section 3.4 on the date of
         termination of this Agreement unless STI certifies in writing that it
         has destroyed such LICENSED PRODUCTS. Conversion to United States
         dollars of the NET SALES PRICE on sales, lease or OTHER DISPOSITION
         made in currencies other than United States dollars shall be at the
         prevailing rate for bank cable transfers, as quoted by STI's bank on
         the date of such sale, lease of OTHER DISPOSITION OF LICENSED PRODUCTS.

3.9      STI shall keep full, clear and accurate records with respect to all
         LICENSED PRODUCTS and LICENSED EQUIPMENT for four (4) years from the
         date such product is sold, leased, used or OTHERWISE DISPOSED OF.
         LICENSORS shall have the right to appoint a third party auditor(s)
         reasonably acceptable to STI to make an examination, during normal
         business hours, no more than once annually of all technical
         information, records and accounts bearing upon the selection of
         LICENSED PRODUCTS and LICENSED EQUIPMENT, sales, lease, use or OTHER
         DISPOSITION OF LICENSED PRODUCTS and LICENSED EQUIPMENT, the amount of
         royalty payable to LICENSORS hereunder and the basis of the reports
         required in Section 3.7. STI shall use

         reasonable efforts to provide facilities and assistance to the third
         party auditor during normal business hours subject to their prior
         execution of a confidentiality agreement reasonably acceptable in form
         and substance to STI. LICENSORS shall complete the audit within a
         reasonable time and without undue interference or burden of STI. Within
         thirty (30) days of receiving an invoice STI shall pay any unpaid
         royalties due unless the subject of a bona fide dispute. STI shall then
         have 90 days to present supporting information to the auditor(s) who
         shall review and consider such information. STI shall pay LICENSORS
         their reasonable expenses in retaining such third party auditor for
         such examination which discloses an underpayment of royalties of five
         percent (5.0%) or more due LICENSORS for the audited period. All
         materials reviewed or produced in connection with such audit, together
         with all reports or other information relating to the manufacture, sale
         or distribution of LICENSED PRODUCTS, shall be deemed to be the
         Confidential Information of STI.

3.10     All payments pursuant to this Agreement shall be payable to Telcordia
         Technologies, Inc. and wire transferred to:

                  Chase Manhattan Bank
                  New York, New York

         The above payment instructions may be modified at any time by TELCORDIA
         upon reasonable written notice to STI. All royalty reports shall be
         sent to TELCORDIA at the address set forth in Section 8.3.

3.11     Past due payments hereunder shall be subject to a late payment charge,
         compounded daily, and calculated at an annual rate of seven percent
         (7.0%)over the lowest prime rate available in New York City, as
         published by The Wall Street Journal on the first Monday (or next
         business day if such Monday is a holiday) following the payment due
         date. If the amount of such charge exceeds the maximum permitted by law
         for such charge, such charge shall be reduced to such maximum amount.
         If STI fails to make any payment set forth herein (except any amounts
         that are the subject of a bona fide dispute), STI shall pay LICENSORS
         all reasonable expenses, including attorney fees, incurred by LICENSORS
         in collecting such payment.

3.12     A final report and payment shall be sent to LICENSORS within thirty
         (30) days after termination or expiration of this Agreement. In
         addition to the requirements of Section 3.7, the final report shall
         report on all LICENSED PRODUCTS made but not sold, leased or OTHERWISE
         DISPOSED OF as of the date of termination or expiration of this
         Agreement and shall pay the balance of the license fee required
         pursuant to Section 3.4 on all such LICENSED PRODUCTS.

     ARTICLE IV - DISCLAIMER, LIMITED WARRANTY, LIMITATION OF LIABILITY AND
                                 INDEMNIFICATION

4.1      Nothing contained in this Agreement shall be construed as:

         a)       a requirement to maintain the LICENSED PATENT or any other
                  patent owned by LICENSORS.

         b)       a warranty or representation as to the validity,
                  enforceability or scope of the LICENSED PATENT or any other
                  LICENSOR patent;

         c)       a warranty or representation that any manufacture, offer for
                  sale, sale, lease, use or importation of a LICENSED PRODUCT
                  will be free from infringement of patents or other
                  intellectual property rights, other than the LICENSED PATENT
                  under the conditions set forth herein;

         d)       an agreement to bring or prosecute actions or suits against
                  third parties for infringement of the LICENSED PATENT;

         e)       conferring any right to use, in advertising, publicity or
                  otherwise, any name, trade name, trademark, service mark, or
                  any contraction, abbreviation or simulation thereof except as
                  specifically set forth in Section 8.2;

f) an obligation to furnish any information or services;

g) conferring by implication, estoppel or otherwise any license or other right under any patent or other intellectual property rights, except as expressly granted herein; or

h) any arrangement or understanding that either Party will make any purchase, lease, examination or test of, or give any approval with respect to, any product.

4.2 (a) Each LICENSOR warrants that it has the right to grant the license granted herein and to enter into this Agreement and that it owns a one-half undivided interest in and to the LICENSED PATENT. Each LICENSOR further warrants that it has not made and will not make any commitments to third parties that are inconsistent with or in derogation of the rights licensed to STI hereunder and that the

LICENSORS together own all right, title and interest in and to the LICENSED PATENT. STI warrants that it has the right to enter into this Agreement.

(b) Each LICENSOR makes no representations, extends no warranties of any kind other than those set forth in Section 4.2(a), and assumes no responsibility or liability whatsoever with respect to the manufacture, offer for sale, sale, lease, use or importation of any LICENSED PRODUCT, LICENSED EQUIPMENT or any portion thereof.

(c) THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, EVEN IF EITHER LICENSOR HAS BEEN MADE AWARE OF SUCH PURPOSE, AND THE WARRANTY AGAINST INFRINGEMENT OF PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS.

(d) OTHER THAN FOR A BREACH OF A LICENSOR'S WARRANTIES AND COVENANTS EXPLICITLY SET FORTH HEREIN, LICENSOR SHALL NOT BE LIABLE FOR ANY DAMAGES, NOR SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT DAMAGES, INCLUDING ANY LOST PROFITS OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF THIS AGREEMENT, INCLUDING THE USE OR INABILITY TO USE ANY LICENSED PRODUCT OR ANY TECHNOLOGY DESCRIBED IN THE LICENSOR PATENT. LICENSOR'S LIABILITY HEREUNDER, IF ANY, SHALL NOT EXCEED THE PAYMENTS RECEIVED HEREUNDER.

(e) STI acknowledges that its decision to enter into this Agreement is with the full knowledge of the foregoing.

4.3 STI shall indemnify, hold harmless and defend each LICENSOR and its AFFILIATES, (at STI's own expense), from and against any and all direct losses, damages, fines, claims, suits, actions or proceedings, and any judgment, settlement, compromise or resolution for damages or any other relief resulting therefrom, to the extent based on any allegation of any direct losses or damages, arising out of or in connection with the manufacture, use, lease, sale, offer for sale, distribution, importation or possession of any LICENSED PRODUCT or LICENSED EQUIPMENT made by STI or made on behalf of STI in exercise of its have made rights, regardless of the legal, equitable or factual basis thereof; provided, however, that STI shall not have any indemnification obligations under this Section 4.3 if and to the extent such losses, damages, fines, claims suits, actions or proceedings result from or arise out of (a) any material breach by a LICENSOR of any of its warranties set forth in Section 4.2 herein or (b) the validity or enforceability of the LICENSED PATENT. STI shall have no obligations under this Section 4.3, unless a LICENSOR provides STI with prompt written notification of any claim not independently received by STI;
(ii) provides STI with all reasonable

information and assistance to defend or settle the claim; and (iii) grants STI authority and sole control of the defense or settlement of such claim, provided that STI shall consult with LICENSOR and LICENSOR shall have a right to reasonably object to any defense or settlement that affects the interpretation, validity or enforceability of the LICENSED PATENT.

ARTICLE V - PATENT MARKING; CONFIDENTIALITY

5.1 STI shall mark or have marked with the number of the LICENSED PATENT all LICENSED EQUIPMENT made by or on behalf of STI.

5.2 Each party acknowledges that it will acquire information and materials from the other party and knowledge about the business, products, customers, clients and suppliers of the other party and that all such knowledge, information and materials (collectively "Confidential Information") constitute the confidential information and/or trade secrets of the disclosing party. Confidential Information further includes the existence, terms and conditions of this Agreement. Confidential Information will not include any information that: (i) is received by the receiving party from a third party without restriction on use or disclosure; (ii) the disclosing party gives to third parties without restriction on use or disclosure; (iii) is previously known to the receiving party as evidenced in writing; or (iv) is independently developed by employees of the receiving party without access to the Confidential Information. Each party agrees to use reasonable efforts to (i) hold all such Confidential Information in confidence; (ii) not disclose such Confidential Information to any third party other than AFFILIATES; and, (iii) use such Confidential Information for any purpose other than for purposes set forth in this Agreement. Confidential Information may be disclosed: (i) to either party's attorneys, financial institutions, accountants or other professional advisors in the course of seeking professional advice provided an obligation of confidence exists; (ii) to the extent required by a court or government agency, or by applicable law, order, rule or regulation provided reasonable notice is provided to the disclosing party prior to such disclosure to such court or governmental agency; and, (iii) to entities with which either party is discussing a proposed sale of its stock, sale of all or substantially all of its assets, assignment of the Licensed Patent, obtaining financing or entering into a partnering arrangement, provided that an entity to whom the terms of this Agreement is to be disclosed under this clause (iii) has entered into a confidentiality agreement sufficient in scope to protect the parties' rights and interests hereunder.

ARTICLE VI - TERM AND TERMINATION/CANCELLATION

6.1 The term of this Agreement is from the EFFECTIVE DATE until the expiration of the LICENSED PATENT (including any divisional, continuation or continuation-in-part, reissue, renewal or extension thereof or substitute thereof).

6.2 The license granted under Article II shall apply to all LICENSED PRODUCTS sold, distributed, leased, used, imported, offered for sale, or made, prior to the termination or expiration of this Agreement provided STI has paid royalties pursuant to Section 3.4 of this Agreement on all such LICENSED PRODUCTS, within thirty (30) days of the termination or expiration of this Agreement.

6.3 STI may terminate this Agreement on sixty (60) days prior written notice to LICENSORS, provided however that upon such termination/cancellation, STI pays LICENSORS: (i) any amount owed LICENSORS pursuant to Sections 3.1, 3.2, 3.3, 3.4 and 3.5 of this Agreement; and (ii) any late fees due pursuant to Section 3.11.

6.4 Except to the extent prohibited by law under Section 365(n) of the Bankruptcy Code, should STI become bankrupt or insolvent, or file a petition in bankruptcy, or if the business of STI should be placed in the hands of a receiver, assignee or trustee for the benefit of creditors, whether by voluntary act of STI or otherwise, and such petition or placement with a receiver, assignee or trustee shall not have been dismissed within sixty (60) days the licenses granted herein to STI shall terminate automatically.

6.5 Should STI fail to make any payment set forth herein when due or upon any other material breach of, or default under, this Agreement by STI, LICENSORS shall have the right to terminate this Agreement and the licenses granted herein to STI on sixty (60) days prior written notice, unless STI pays LICENSORS such payments, or otherwise cures the material breach, within such sixty (60) days.

6.6 No waiver of any breach of, or default under, this Agreement shall constitute a waiver of any prior, concurrent or subsequent breach of, or default under, this Agreement, and no waiver shall be effective unless made in writing and signed by an authorized representative of each LICENSOR.

6.7 No expiration or termination of this Agreement or of the licenses granted herein to STI shall relieve STI from any obligations that should have been performed under the terms hereof prior to such expiration or termination. STI's obligation to pay LICENSORS any unpaid royalties that have accrued prior to the expiration or termination of this Agreement and both parties' rights and obligations under Section
2.3 (with respect to sale, lease or OTHER DISPOSITION prior to termination), Section 2.5, Section 4.2, Section 4.3, Section 5.2, and Article VIII shall survive any expiration or termination of this Agreement. Section 5.2 shall survive five (5) years after such

termination or expiration. The termination rights of the parties provided herein are in addition to all other rights and remedies available to either of the parties. Notwithstanding any other provision of this Agreement to the contrary, any obligation of STI, including payment obligations, shall immediately cease upon the final judgment of any court of the United States that all claims of the LICENSED PATENT are invalid or unenforceable, where such final judgment is unappealed or unappealable unless LICENSORS fail to diligently pursue an appeal.

ARTICLE VII - ASSIGNMENT

7.1 This Agreement has been entered into by LICENSORS in reliance upon the particular representations and qualifications of STI and is personal to STI. Neither this Agreement, nor any rights or obligations hereunder, may be assigned, pledged, or encumbered by STI without the express prior written approval of LICENSORS, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, STI may assign this Agreement to any successor to substantially all of its business assets to which this Agreement relates, whether by merger, sale of assets, sale of stock or reorganization or otherwise; provided that any successor assignee agrees in writing to assume all obligations of STI under this Agreement.

7.2 LICENSORS may assign, pledge, or encumber its monetary rights under this Agreement and may assign this Agreement and all rights and obligations hereunder in conjunction with the sale of the LICENSED PATENT.

ARTICLE VIII - GENERAL PROVISIONS

8.1 This Agreement is predicated on the understanding by both Parties that under the Telecommunications Act of 1996 ("the Act"), TELCORDIA is permitted to grant the license granted herein to STI under the terms and conditions of this Agreement. In the event of any court or administrative order, with regard to which all reasonable appeals have been exhausted, that TELCORDIA is not permitted to perform under this Agreement or agreements of this type, then TELCORDIA shall have the right to immediately terminate or modify this Agreement by written notice to STI. This Agreement may also be terminated or modified, as required, by any state or federal law or regulation, or by judicial decree. Any such termination or modification shall not relieve STI from any obligations that accrued on or prior to such termination or modification, nor obligate TELCORDIA to refund any monies paid by STI hereunder unless and to the extent that such termination results in STI owing royalties to any other party for any period during which STI paid royalties under this Agreement (but in no event shall any refund exceed the amount previously paid to each LICENSOR). As of the EFFECTIVE DATE of this Agreement, TELCORDIA believes that this Agreement and performance thereunder are consistent with the terms of the Act.

8.2 No party may, without written permission of the other party, use in advertising, publicity, packaging, labeling or otherwise any trade name, trademark, trade device, service mark, symbol or other identification, abbreviation, contraction or simulation thereof associated with the other party to identify its products or services.

8.3 Any notice or other communication hereunder shall be in writing and shall be sufficiently given and effective when received by certified mail: by TELCORDIA at the address specified herein (Attention: Vice President and General Manager, Intellectual Capital Products, NVC 3X-387A, 331 Newman Springs Road, Red Bank, NJ 07701-5699), or by STI at the address specified herein (Attention: Robert B. Hammond, Chief Technology Officer, Superconductor Technologies Inc., 460 Ward Avenue, Santa Barbara, CA 93111-2358 ) or RUTGERS at the address specified above (Attention: William T. Adams, Office of Corporate Liaison & Technology Transfer, Room 335, Administrative Services Building III, Cook Campus). Any party may change its address for receipt of notices by written notice to the other.

8.4 There may be countries in which STI may have, as a consequence of this Agreement, rights against infringers for infringement of the LICENSED PATENT. STI hereby expressly waives any such right it may have by reason of the infringement or alleged infringement of the LICENSED PATENT.

8.5 If any provision or portion of a provision of this Agreement shall be held invalid or unenforceable, the remainder of this Agreement shall not be affected thereby and the remaining terms shall continue in effect and be binding on the parties, provided such invalid provision or portion is not a material right or obligation under this Agreement. If such invalid provision or portion is a material right or obligation under this Agreement, then the parties shall negotiate in good faith to replace the invalid or unenforceable provision by a mutually acceptable, valid and enforceable provision that is consistent with and fulfills the stated intention of the parties.

8.6 This Agreement (i) is binding upon the parties only when it is duly authorized, executed and delivered by each party, and (ii) sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges all prior discussions between them. Neither of the parties shall be bound by any warranties, understanding or representations with respect to such subject matter, other than as expressly provided herein or as set forth on or subsequent to the execution hereof in writing signed by an authorized representative of the party to be bound thereby.

8.7 Nothing herein shall be deemed to create an agency, joint venture, or partnership relation between the parties hereto.

8.8 The construction and performance of this Agreement shall be in accordance with the law of the State of New Jersey, without regard to its conflict of laws principles.

8.9      This Agreement may be amended only by a written document signed by
         authorized representatives of each party.

8.10     This Agreement and the Exhibits hereto shall not be construed as an
         admission of any liability, wrongdoing or infringement by STI. Without
         limiting the foregoing, the parties acknowledge that the definition of
         "LICENSED PRODUCTS" in Section 1.5 does not make reference to the
         claims of the LICENSED PATENT. This definition was formulated without
         such a reference for the convenience of the parties at the request of
         the LICENSORS based on their assertion that it would be unduly
         difficult for the LICENSORS to successfully audit STI's royalty reports
         if the definition of LICENSED PRODUCTS was limited to products
         manufactured using methods covered by the claims of the LICENSED
         PATENT. STI has agreed to this broad definition of "LICENSED PRODUCT"
         in reliance on its absolute right under Section 6.3 to terminate this
         Agreement, and STI may elect to do so if it concludes that it can
         manufacture the LICENSED PRODUCTS without infringing any claims of the
         LICENSED PATENT. Accordingly, no inferences regarding infringement
         shall be drawn from the use of this broad definition of a "LICENSED
         PRODUCT" or the existence of this Agreement, and the parties each
         reserve their respective rights and positions concerning the scope of
         the claims of the LICENSED PATENT and any alleged infringement of the
         LICENSED PATENT.

Signatories

TELCORDIA TECHNOLOGIES, INC. SUPERCONDUCTOR TECHNOLOGIES, INC.

By:   /s/                                      By:  /s/
    ---------------------------------             -----------------------------

Name: Joseph Giordano                          Name: Robert B. Hammond

Title: Deputy General Counsel Intellectual     Title: Senior VP, Chief
       Property                                       Technology Officer

Date: ____________________________________     Date: 7/13/02

RUTGERS, THE STATE UNIVERSITY OF
NEW JERSEY

By: /s/
   --------------------------------------

Name: William T. Adams

Title: Director, Office of Corporate Liaison & Technology Transfer

Date:________________________________

EXHIBIT 1 - LICENSED PRODUCTS

SuperFilter(R)
SuperFilter(R) II
SuperFilter(R) PCS

EXHIBIT 2 - PRIOR SALES

Introductory Note -- This Exhibit shall not be construed as an admission of any liability, wrongdoing or infringement by STI.

EXHIBIT 99.1

STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002
BY
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS

Dated: May 13, 2003

I, M. Peter Thomas, certify that the periodic report on Form 10-Q for the period ending March 29, 2003, to which this Statement is attached:

1. fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, and

2. the information contained in the periodic report to which this Statement is attached, fairly presents, in all material respects, the financial condition and results of operations of the registrant.

IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.

           /s/ M. Peter Thomas
------------------------------------------
M. Peter Thomas
President and Chief Executive Officer

EXHIBIT 99.2

STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002
BY
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS

Dated: May 13, 2003

I, Martin S. McDermut, certify that the periodic report on Form 10-Q for the period ending March 29, 2003, to which this Statement is attached:

1. fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, and

IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.

         /s/ Martin S. McDermut
------------------------------------------
Martin S. McDermut
Senior Vice President, Chief Financial
Officer and Secretary

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•		SuperLink Rx. In order to receive uplink signals from wireless terminals, base stations require a wireless filter system to eliminate, or filter out, out-of-band interference. To address this need, we offer SuperLink Rx. Deployed in base stations, these products combine specialized filters using high-temperature superconducting (HTS) technology with a proprietary cryogenic cooler and a low-noise amplifier. The result is the ultimate uplink, a highly compact and reliable cryogenic receiver front-end that can simultaneously deliver both high selectivity (interference rejection) and high sensitivity (detection of low level signals). SuperLink Rx products thereby offer significant advantages over conventional filter systems.

•		SuperLink Tx. Wireless networks also suffer from insufficient transmit power on the downlink signal path. This is particularly true after the uplink has been improved by using SuperLink Rx. In this situation, operators can achieve superior downlink performance from SuperLink Tx, a family of compact, robust, and technologically advanced multi-carrier high-power amplifiers.

•		SuperPlex. For antenna sharing without compromise, we offer SuperPlex, a line of multiplexers that provide extremely low insertion loss and excellent cross-band isolation.

	•		fluctuations in product demand,

	•		the impact of competitive filter products, technologies and pricing,

	•		manufacturing capacity constraints and difficulties,

	•		market acceptance risks, and

	•		general economic conditions.

(1)		Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (Reg. No. 33-56714).

(2)		Incorporated by reference from Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (Reg. No. 33-56714).

(3)		Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed for the year ended December 31, 1993.

(4)		Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed for the year ended December 31, 1994.

(5)		Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (Reg. No. 333-10569).

(6)		Incorporated by reference from the Registrant’s Report on Form 10-Q filed on May 8, 1997 for the quarter ended March 29, 1997. The exhibit listed is incorporated by reference to Exhibit 10.1 of Registrant’s Report on Form 10-Q.

(7)		Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed for the year ended December 31, 1997.

(8)		Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended April 3, 1999.

(9)		Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended July 3, 1999.

(10)		Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended October 2, 1999.

(11)		Incorporated by reference from the Registrant’s Registration Statement on Form S-8 (Reg. No. 333-90293).

(12)		Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended December

		31, 1999.

(13)		Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed October 4, 2000.

(14)		Incorporated by reference from the Registrant’s Registration Statement on Form S-8 (Reg. No. 333-56606).

(15)		Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2001.

(16)		Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

(17)		Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.

(18)		Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed October 2, 2002.

(19)		Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed October 14, 2002.

(20)		Incorporated by reference from the Registrant’s Registration Statement on Form S-4 (Reg. No. 333-100908).

(21)		Incorporated by reference from the Conductus, Inc.’s Registration Statement on Form S-3 (Reg. No. 333-85928), filed on April 9, 2002.

(22)		Incorporated by reference from Conductus, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2000.

(22)		Incorporated by reference from Conductus, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on November 16, 1998.

(23)		Incorporated by reference from Conductus, Inc.’s Annual Report on Form 10-K, filed with the SEC on March 30, 2000.

(24)		Incorporated by reference from Conductus, Inc.’s Annual Report on Form 10-K, for the year ended December 31, 1999 filed with the SEC on March 30, 2000.

(25)		Filed herewith.

	•		April 2, 2003 - Announcing fourth quarter and year-end 2002 results.

	•		April 8, 2003 - Announcing that a jury returned a unanimous verdict that ISCO patent in invalid and unenforceable and awards Company $3.8 million compensatory damages.

	•		April 10, 2003 - Announcing preliminary first quarter 2003 revenues.

	•		April 30, 2003 - Announcing our first quarter 2003 results

		a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

		b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

		c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

		a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

		b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and