EXHIBIT 10.3

Promissory Note

      $1,685,636.56   September 29, 2002

FOR VALUE RECEIVED, SUPERCONDUCTOR TECHNOLOGIES INC., a Delaware corporation
with its principal place of business at 460 Ward Drive, Santa Barbara,
California 93111-2310 (the “Debtor”), promises to pay to the order of RGC
INTERNATIONAL INVESTORS, LDC (the “Lender”), in lawful money of the United
States of America in immediately available funds to the following address: c/o
Rose Glen Capital Management, L.P., 3 Bala Plaza East, Suite 501, 251 St. Asaphs
Road, Bala Cynwyd, Pennsylvania 19004, or at such other location as the Lender
may designate from time to time, the principal sum of ONE MILLION SIX HUNDRED
EIGHTY-FIVE THOUSAND SIX HUNDRED THIRTY-SIX AND 56/100 DOLLARS ($1,685,636.56),
together with interest accruing on the outstanding principal balance from the
date hereof, as provided below:

1. Rate of Interest. Amounts outstanding under this Note will bear interest at a
rate of eight percent (8%) per annum (“Interest Rate”). Interest will be
calculated on the basis of a year of 360 days for the actual number of days in
each interest period. In no event will the rate of interest hereunder exceed the
maximum rate allowed by law.

2. Payment Terms. Interest accrued from the date hereof on the unpaid principal
balance hereof shall be payable monthly, in arrears, commencing on October 29,
2002, and on the twenty-ninth day of each of the five months thereafter, until
March 29, 2003, in the amount of $11,237.58 per month, subject to adjustment for
any change in the interest rate in accordance with Sections 3, 5 or 6 below.
Thereafter, principal and interest shall be due and payable in twelve equal
amortizing monthly installments of $146,630.88, (subject to adjustment for any
change in the interest rate in accordance with Sections 3, 5 or 6 below),
commencing on April 29, 2003, and on the twenty-ninth day of each of the eleven
months thereafter, until March 29, 2004, on which date all remaining outstanding
principal and accrued interest shall be due and payable in full.

If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the Commonwealth of Pennsylvania, such payment shall
be made on the next succeeding business day and such extension of time shall be
included in computing interest in connection with such payment. Payments
received will be applied to charges, fees and expenses (including attorneys’
fees), accrued interest and principal in any order the Lender may choose, in its
sole discretion.

3. Late Payments; Default Rate. If the Debtor fails to make any payment of
principal, interest or other amount coming due pursuant to the provisions of
this Note within five calendar days of the date due and payable, the Debtor also
shall pay to the Lender a late charge equal to five percent (5%) of the amount
of such payment (the “Late Charge”). Such five day period shall not be construed
in any way to extend the due date of any such payment. Upon maturity, whether by
acceleration, demand or otherwise, and at the Lender’s option upon the
occurrence of any Event of Default (as hereinafter defined) and during the
continuance thereof, this Note shall bear interest at a rate per annum (based on
a year of 360 days and actual days elapsed) which shall be ten percentage points
(10%) in excess of the interest rate in effect from time to time under this Note
but not more than the maximum rate allowed by law (the “Default Rate”). The
Default Rate shall continue to apply whether or not judgment shall be entered on
this Note. Both the Late Charge and the Default Rate are imposed as liquidated
damages for the purpose of defraying the Lender’s expenses incident to the
handling of delinquent payments, but are in addition to, and not in lieu of, the
Lender’s exercise of any rights and remedies hereunder or under applicable law,
and any fees and expenses of any agents or attorneys which the Lender may
employ. In addition, the Default Rate reflects the increased credit risk to the
Lender of carrying a loan that is in default. The Debtor agrees that the Late
Charge and Default Rate are reasonable forecasts of just compensation for
anticipated and actual harm incurred by the Lender and that the actual harm
incurred by the Lender cannot be estimated with certainty and without
difficulty.

4. Prepayment. The indebtedness may be prepaid in whole or in part at any time
without penalty.

5. Events of Default. The occurrence of any of the following events will be
deemed to be an “Event of Default” under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note within five (5) days
when due; (ii) the occurrence of any event of default or default and the lapse
of any notice or cure period under any other debt, liability or obligation to
the Lender of the Debtor; (iii) the filing by or against the Debtor of any
proceeding in bankruptcy,

 

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receivership, insolvency, reorganization, liquidation, conservatorship or
similar proceeding (and, in the case of any such proceeding instituted against
the Debtor, such proceeding is not dismissed or stayed within 45 days of the
commencement thereof); (iv) the Debtor or any “significant subsidiary” (as
defined in Section 210.1-02(w) of Regulation S-X promulgated under the
Securities Act of 1933, as amended) of the Debtor shall make an assignment for
the benefit of creditors, or admit in writing its inability to pay its debts
generally as they become due or apply for or consent to the appointment of a
receiver or trustee for Debtor or for all or substantially all of its property
or business or such a receiver or trustee shall otherwise be appointed, or any
levy, garnishment, attachment or similar proceeding is instituted against any
property of the Debtor or any significant subsidiary of the Debtor; (v) a
default with respect to any other indebtedness of the Debtor for borrowed money
in excess of $100,000, if the effect of such default results in the acceleration
of such debt; (vi) the commencement of any foreclosure or forfeiture proceeding,
execution or attachment against any collateral securing the obligations of the
Debtor to the Lender; (vii) the entry of a final judgment against the Debtor and
the failure of the Debtor to discharge the judgment within ten days of the entry
thereof; (viii) the Debtor ceases doing business as a going concern; (ix) a
breach by the Debtor of a representation or warranty contained in any agreement
with the Lender or the Debtor’s failure to observe or perform any covenant or
other agreement with the Lender, including that certain Securities Purchase
Agreement dated as of September 29, 2000 between the Lender and the Debtor and
the agreements required thereby and contemplated therein; (x) the Debtor sells,
conveys or disposes of all or substantially all of its assets (the presentation
of any such transaction for stockholder approval being conclusive evidence that
such transaction involves the sale of all or substantially all of the assets of
the Debtor); (xi) the Debtor, without the written consent of the Lender, pays,
declares or sets apart for such payment, any dividend or other distribution
(whether in cash or property but excluding other securities) on shares of
capital stock of Debtor or directly or indirectly through any subsidiary makes
any other payment or distribution in respect of its capital stock; (xii) the
Debtor, without the written consent of the Lender, redeems, repurchases or
otherwise acquires (whether for cash or in exchange for property or other
securities or otherwise) in any one transaction or series of related
transactions, any shares of capital stock of the Debtor or any warrants, rights
or options to purchase or acquire any such shares; provided however, that the
Debtor may repurchase shares of capital stock of the Debtor or any warrants,
rights or options to purchase or acquire any such shares of capital stock from
former employees of the Debtor pursuant to repurchase rights included in a
restricted stock purchase plan for such employees so long as (a) such plan was
approved by a majority of the independent directors of the Board of Directors of
Debtor, (b) such shares were purchased pursuant to such plan, (c) the purchase
price paid by the employees to acquire the shares was at least equal to the
market value of such shares on the date of such purchase, and (d) the Debtor
repurchases such shares for no more than the purchase price paid by such
employee; (xiii) the Debtor, without the written consent of the Lender, sells,
leases or otherwise disposes of any of its assets outside of the ordinary course
of business, other than sales of equipment with a fair market value of less than
$50,000 (any consent to the disposition of any assets may be conditioned on a
specific use of the proceeds of disposition); (xiv) the Debtor, without the
written consent of the Lender, lends money, gives credit or makes advances in
excess of $100,000 to any person, firm, joint venture or corporation or in any
amount to officers, directors, employees, subsidiaries and affiliates of the
Debtor, except loans, credits or advances in existence or committed on the date
hereof and which the Debtor has informed Lender in writing prior to the date
hereof, and made in the ordinary course of business; and (xv) the Debtor,
without the written consent of the Lender, assumes, guarantees, endorses,
contingently agrees to purchase or otherwise becomes liable upon the obligation
of any officer, director, employee, subsidiary or affiliate of the Debtor, or
upon the obligation in excess of $50,000 of any person, firm, partnership, joint
venture or corporation not an officer, director, employee, subsidiary or
affiliate of the Debtor, except by the endorsement of negotiable instruments for
deposit or collection and except assumptions, guarantees, endorsements and
contingencies in existence or committed on the date hereof and which the Debtor
has informed the Lender in writing prior to the date hereof, and similar
transactions in the ordinary course of business.

Upon the occurrence of an Event of Default: (a) if an Event of Default specified
in clause (iii) or (iv) above shall occur, the outstanding principal balance and
accrued interest hereunder together with any additional amounts payable
hereunder shall be immediately due and payable without demand or notice of any
kind; (b) if any other Event of Default shall occur, the outstanding principal
balance and accrued interest hereunder together with any additional amounts
payable hereunder, at the Lender’s option and without demand or notice of any
kind, may be accelerated and become immediately due and payable; (c) at the
Lender’s option, this Note will bear interest at the Default Rate from the date
of the occurrence of the Event of Default; and (d) the Lender may exercise from
time to time any of the rights and remedies available under this Note and
available under applicable law.

6. Power to Confess Judgment. Upon the occurrence of any Event of Default as set
forth above, the Lender may institute appropriate proceedings at law or equity
to collect the outstanding principal amount and accrued but unpaid interest then
due (by acceleration or otherwise) and proceed therein to final judgment and
execution thereon, with interest, together with costs and expenses.

 

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The Debtor hereby empowers any attorney of any court of record, after the
occurrence of any Event of Default hereunder, to appear for the Debtor and, with
or without complaint filed, confess judgment, or a series of judgments, against
the Debtor in favor of the Lender or any holder hereof for the entire principal
balance of this Note, all accrued interest and all other amounts due hereunder,
together with costs of suit and an attorney’s commission of the greater of 10%
of such principal and interest or $1,000 added as a reasonable attorney’s fee,
and for doing so, this Note or a copy verified by affidavit shall be a
sufficient warrant. The Debtor hereby forever waives and releases all errors in
said proceedings and all rights of appeal and all relief from any and all
appraisement, stay or exemption laws of any state now in force or hereafter
enacted. Interest on any such judgment shall accrue at the Default Rate.

No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as the Lender shall elect until such time as the Lender shall have
received payment in full of the debt, interest and costs. Notwithstanding the
attorney’s commission provided for in the preceding paragraph (which is included
in the warrant for purposes of establishing a sum certain), the amount of
attorneys’ fees that the Lender may recover from the Debtor shall not exceed the
actual attorneys’ fees incurred by the Lender.

7. Subordination. The payment of principal and interest on this Note is
subordinated in right of payment, to the extent and in the manner provided in
this Section 7, to the prior payment in full of all Senior Debt. No payment of
principal or interest shall be made on account of this Note upon the receipt by
Debtor from the holder of Senior Debt of notice of (i) the maturity of any part
or all of the Senior Debt, by lapse of time, acceleration or otherwise, unless
and until all matured principal and interest thereon shall have been paid in
full, (ii) any default in the payment of principal or interest on any Senior
Debt when the same becomes due and payable, unless and until such default shall
have been cured or waived, or (iii) any other default with respect to the Senior
Debt contractually permitting the holder of the Senior Debt to accelerate the
maturity thereof immediately without further notice or the expiration of any
applicable grace periods, unless and until the earlier of such other default
having been cured or waived or 60 days from the date such notice was given;
provided that a cessation in payments of principal or interest pursuant to
clause (iii) above may only occur once in any 365-day period. For purposes of
this Note, “Senior Debt” shall mean (x) all principal (not to exceed
$2,500,000), interest, fees and other sums payable from time to time under or
with respect to any revolving line of credit which Debtor may establish from
time to time with a bank or similar institution and (y) the remaining principal
(not to exceed $200,000), interest, fees and other sums payable from time to
time under that certain Master Lease Agreement dated as of March 18, 1999
between Debtor and Leasing Technologies International, Inc. Senior Debt shall
also include any indebtedness the proceeds of which are used to refinance, renew
or replace Senior Debt in a principal amount which may not exceed the principal
amount of the Senior Debt so refinanced, renewed or replaced. Lender agrees to
execute any form of subordination agreement reasonably requested by the holder
of any Senior Debt, generally consistent with the foregoing provisions.

8. Miscellaneous. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing (except as may
be agreed otherwise above with respect to borrowing requests) and will be
effective upon receipt. Such notices and other communications may be
hand-delivered, sent by facsimile transmission with confirmation of delivery and
a copy sent by first-class mail, or sent by nationally recognized overnight
courier service, to the addresses for the Lender and the Debtor set forth above
or to such other address as either may give to the other in writing for such
purpose. No delay or omission on the Lender’s part to exercise any right or
power arising hereunder will impair any such right or power or be considered a
waiver of any such right or power, nor will the Lender’s action or inaction
impair any such right or power. No modification, amendment or waiver of any
provision of this Note nor consent to any departure by the Debtor therefrom will
be effective unless made in a writing signed by the Lender. The Debtor agrees to
pay on demand, to the extent permitted by law, all costs and expenses incurred
by the Lender in the enforcement of its rights in this Note and in any security
therefor, including without limitation reasonable fees and expenses of the
Lender’s counsel. If any provision of this Note is found to be invalid by a
court, all the other provisions of this Note will remain in full force and
effect. The Debtor and all other makers and endorsers of this Note hereby
forever waive presentment, protest, notice of dishonor and notice of
non-payment. The Debtor also waives all defenses based on suretyship or
impairment of collateral. This Note shall bind the Debtor and its successors and
assigns, and the benefits hereof shall inure to the benefit of the Lender and
its successors and assigns; provided, however, that the Debtor may not assign
this Note in whole or in part without the Lender’s written consent and the
Lender at any time may assign this Note in whole or in part.

This Note has been delivered to and accepted by the Lender and will be deemed to
be made in the Commonwealth of Pennsylvania. THIS NOTE WILL BE INTERPRETED AND
THE RIGHTS AND LIABILITIES OF THE LENDER AND THE DEBTOR DETERMINED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCLUDING ITS CONFLICT

 

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OF LAWS RULES. The Debtor hereby irrevocably consents to the exclusive
jurisdiction of any state or federal court in the county or judicial district
where the Lender’s office indicated above is located; provided that nothing
contained in this Note will prevent the Lender from bringing any action,
enforcing any award or judgment or exercising any rights against the Debtor
individually, against any security or against any property of the Debtor within
any other county, state or other foreign or domestic jurisdiction. The Debtor
acknowledges and agrees that the venue provided above is the most convenient
forum for both the Lender and the Debtor. The Debtor waives any objection to
venue and any objection based on a more convenient forum in any action
instituted under this Note. No failure or delay on the part of the Lender in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.

9. WAIVER OF JURY TRIAL. THE DEBTOR IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE
DEBTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE DEBTOR
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

The Debtor acknowledges that it has read and understood all the provisions of
this Note, including the confession of judgment and waiver of jury trial, and
has been advised by counsel as necessary or appropriate.

WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.

      WITNESS / ATTEST:   SUPERCONDUCTOR TECHNOLOGIES INC.  
____________________________________________________  
By:____________________________________________________
(SEAL)   Print Name:__________________________________________   Print
Name:_____________________________________________  
Title:________________________________________________  
Title:__________________________________________________ (Include title only if
an officer of entity signing to the right)    

 

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Disclosure for Confession of Judgment

     On or about the date hereof, Superconductor Technologies Inc. (the
“Debtor”), has executed, and/or is executing, a Term Note (the “Note”) pursuant
to which the Debtor is obligated to repay monies to RGC International Investors,
LDC (the “Lender”).

     A. The Debtor acknowledges and agrees that the Note contains provisions
under which the Lender may enter judgment by confession against the Debtor.
Being fully aware of its rights to prior notice and a hearing on the validity of
any judgment or other claims that may be asserted against it by the Lender
thereunder before judgment is entered, the Debtor hereby freely, knowingly and
intelligently waives these rights and expressly agrees and consents to the
Lender entering judgment against it by confession pursuant to the terms thereof.

     B. The Debtor certifies that a representative of the Lender specifically
called the confession of judgment provisions in the Note to the attention of the
Debtor, and/or that the Debtor was represented by legal counsel in connection
with the Note.

      WITNESS / ATTEST:   SUPERCONDUCTOR TECHNOLOGIES INC.  
____________________________________________________  
By:___________________________________________________   Print
Name:__________________________________________   Print
Name:_____________________________________________  
Title:________________________________________________  
Title:__________________________________________________ (Include title only if
an officer of entity signing to the right)