EXHIBIT 4.1


 


PURCHASE AGREEMENT


 


 


                                THIS
PURCHASE AGREEMENT (“Agreement”) is made as of the 8th day of March, 2002 by
and among Conductus, Inc., a Delaware corporation (the “Company”), and the
Investors set forth on the signature pages affixed hereto (each an “Investor”
and collectively the “Investors”).


 


Recitals


 


                A.            The Company and the Investors are
executing and delivering this Agreement in reliance upon the exemption from
securities registration afforded by the provisions of Regulation D (“Regulation
D”), as promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended; and


 


                B.            The Investors wish to purchase from
the Company, and the Company wishes to sell and issue to the Investors, upon
the terms and conditions stated in this Agreement, (i) an aggregate of
2,950,000 shares of common stock, par value $0.0001 per share, of the Company
(the “Common Stock”), and (ii) warrants in the form attached hereto as Exhibit
A (the “Warrants”) to purchase an aggregate of 1,475,000 shares of Common
Stock; and


 


                C.            Contemporaneous with the sale of the
Common Stock and Warrants, the parties hereto will execute and deliver a
Registration Rights Agreement, in the form attached hereto as Exhibit B (the
“Registration Rights Agreement”), pursuant to which the Company will agree to
provide certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and applicable
state securities laws.


 


                                In
consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:


 


                1.             Definitions.  In addition to those terms defined above and
elsewhere in this Agreement, for the purposes of this Agreement, the following
terms shall have the meanings here set forth:


 


                                “Affiliate”
means, with respect to any Person, any other Person which directly or
indirectly Controls, is Controlled by, or is under common Control with, such
Person.


 


                                “Business
Day” means a day, other than a Saturday or Sunday, on which banks in New
York City are open for the general transaction of business.


 


                                “Company’s
Knowledge” means the actual knowledge of the officers of the Company.


 


 

















 


                                “Control”
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.


 


                                “Intellectual
Property” means all of the following: (i) patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice); (ii) trademarks, service marks, trade dress, trade names,
corporate names, logos, slogans and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations, applications and renewals for any of
the foregoing; (v) trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, business and marketing plans, and customer
and supplier lists and related information); and (vi) proprietary computer
software (including but not limited to data, data bases and documentation).


 


                                “Material
Adverse Effect” means a material adverse effect on the assets, liabilities,
results of operations, condition (financial or otherwise), business, or
prospects of the Company and its subsidiaries taken as a whole.


 


                                “Nasdaq”
means The NASDAQ Stock Market, Inc.


 


                                “Person”
means an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint venture, sole
proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.


 


                                “Purchase
Price” means Five Million Nine Hundred Thousand Dollars ($5,900,000).


 


                                “Registration
Statement” shall mean any registration statement of the Company filed under
the 1933 Act that covers the resale of any of the Registrable Securities (as
such term is defined in the Registration Rights Agreement) pursuant to the provisions
of the Registration Rights Agreement.


 


                                “SEC
Filings” has the meaning set forth in Section 4.6.


 


                                “Securities”
means the Shares, the Warrants and the Warrant Shares.


 


                                “Shares”
means the shares of Common Stock being purchased by the Investors hereunder.


 


                                “Subsidiary”
has the meaning set forth in Section 4.1.


 


                                “Transaction
Documents” means this Agreement, the Warrants and the Registration Rights
Agreement.


 


 


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                                “Warrant
Shares” means the shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants.


 


                                “1933
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.


 


                                “1934
Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.


 


                2.             Purchase and Sale of the Shares
and Warrants.  Subject to the terms
and conditions of this Agreement, on the Closing Date, each of the Investors
shall severally, and not jointly, purchase, and the Company shall sell and
issue to the Investors, the Shares and Warrants in the respective amounts set
forth opposite the Investors’ names on the signature pages attached hereto in
exchange for the Purchase Price paid as specified in Section 3 below.


 


                3.             Closing.  Upon confirmation that the conditions to
closing specified herein have been satisfied, the Company shall deliver to
Lowenstein Sandler PC, in trust, a certificate or certificates, registered in
such name or names as the Investors may designate, representing the Shares, and
the Warrants, with instructions that such certificates and the Warrants are to
be held for release to the Investors only upon payment of the Purchase Price to
the Company.  Upon receipt by Lowenstein
Sandler PC of the certificates and the Warrants, each Investor shall promptly
cause a wire transfer in same day funds to be sent to the account of the
Company as instructed in writing by the Company, in an amount representing such
Investor’s pro rata portion of the Purchase Price as set forth on the signature
pages to this Agreement.  On the date
(the “Closing Date”) the Company receives such funds, the certificates
evidencing the Shares and the Warrants shall be released to the Investors (the
“Closing”).  The purchase and sale of
the Shares and Warrants shall take place at the offices of Lowenstein Sandler
PC, 1330 Avenue of the Americas, 21st Floor, New York, New York, or at such
other location and on such other date as the Company and the Investors shall
mutually agree.


 


                4.             Representations and Warranties
of the Company.  The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the “Disclosure Schedules”):


 


                                4.
1          Organization, Good Standing
and Qualification.  Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power and authority to carry on its business as
now conducted and to own its properties. 
Each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
makes such qualification or leasing necessary unless the failure to so qualify
has not and could not reasonably be expected to have a Material Adverse
Effect.  The Company’s subsidiaries are
reflected on Schedule 4.1 hereto (the “Subsidiaries”).


 


                                4.2           Authorization.  The Company has full power and authority and
has taken all requisite action on the part of the Company, its officers,
directors and shareholders necessary 


 


 


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for (i) the authorization, execution and
delivery of the Transaction Documents, (ii) authorization of the performance of
all obligations of the Company hereunder or thereunder, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Securities.  The Transaction Documents constitute the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject to principles of equity and to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally.


 


                                4.3           Capitalization.  Schedule 4.3 sets forth (a) the
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company’s stock plans; and (d) the
number of shares of capital stock issuable and reserved for issuance pursuant
to securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock of the
Company.  All of the issued and
outstanding shares of the Company’s capital stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of pre-emptive rights
and were issued in full compliance with applicable law.  All of the issued and outstanding shares of
capital stock of each Subsidiary have been duly authorized and validly issued
and are fully paid, nonassessable and free of pre-emptive rights, were issued
in full compliance with applicable law and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim.  No Person is entitled to
pre-emptive or similar statutory or contractual rights with respect to any
securities of the Company.  Except as
described on Schedule 4.3, there are no outstanding warrants, options,
convertible securities or other rights, agreements or arrangements of any
character under which the Company or any of its Subsidiaries is or may be
obligated to issue any equity securities of any kind and except as contemplated
by this Agreement, neither the Company nor any of its Subsidiaries is currently
in negotiations for the issuance of any equity securities of any kind.  Except as described on Schedule 4.3
and except for the Registration Rights Agreement, there are no voting
agreements, buy-sell agreements, option or right of first purchase agreements
or other agreements of any kind among the Company and any of the
securityholders of the Company relating to the securities of the Company held
by them.  No Person has any presently
outstanding or future arising right to require the Company to register any
securities of the Company under the 1933 Act, whether on a demand basis or in
connection with the registration of securities of the Company for its own
account or for the account of any other Person.


 


                                Schedule
4.3 sets forth a true and complete table setting forth the pro forma
capitalization of the Company on a fully diluted basis giving effect to (i) the
issuance of the Shares and the Warrants, (ii) any adjustments in other
securities resulting from such issuance, and (iii) the exercise or conversion
of all outstanding securities. Except as described on Schedule 4.3, the
issuance and sale of the Securities hereunder will not obligate the Company to
issue shares of Common Stock or other securities to any other Person (other
than the Investors) and will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding security.


 


                                Except
as set forth in Schedule 4.3, the Company does not have outstanding
shareholder purchase rights or any similar arrangement in effect giving any
Person the right to purchase any equity interest in the Company upon the
occurrence of certain events.


 


 


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                                4.4           Valid Issuance.  The Shares have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable free and clear of all encumbrances
and restrictions, except for restrictions on transfer set forth in this
Agreement or imposed by applicable securities laws.  The Warrants have been duly and validly authorized.  Upon the due exercise of the Warrants,
including the payment of the exercise price specified therein, the Warrant
Shares issuable upon such exercise will be validly issued, fully paid and
non-assessable free and clear of all encumbrances and restrictions, except for
restrictions on transfer set forth in this Agreement or imposed by applicable
securities laws.  The Company has
reserved a sufficient number of shares of Common Stock for issuance upon the
exercise of the Warrants.


 


                                4.5           Consents.  The execution, delivery and performance by
the Company of the Transaction Documents and the offer, issuance and sale of
the Securities require no consent of, action by or in respect of, or filing
with, any Person, governmental body, agency, or official other than filings
that have been made pursuant to applicable state securities laws and post-sale
filings pursuant to applicable state and federal securities laws which the
Company undertakes to file within the applicable time periods.  The Company and its Board of Directors have
taken all necessary action, if any, to render inapplicable any control share,
acquisition, business combination, shareholder rights plan (including any
distribution under a rights agreement) or other anti-takeover provision under
the Company’s Certificate of Incorporation, By-laws or the laws of any
jurisdiction that is or could become applicable to the Investors as a result of
the transactions contemplated hereby, including without limitation, the
issuance of the Securities and the ownership, disposition or voting of the
Securities by the Investors or the exercise of any right granted to the
Investors pursuant to this Agreement or the other Transaction Documents.


 


                                4.6           Delivery of SEC Filings; Business.  The Company has made available to the
Investors the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (the “10-K”), and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the 10-K and prior to the date
hereof (collectively, the “SEC Filings”). 
The SEC Filings are the only filings required of the Company pursuant to
the 1934 Act for such period.  The
Company and its Subsidiaries are engaged only in the business described in the
SEC Filings and the SEC Filings contain a complete and accurate description in
all material respects of the business of the Company and its Subsidiaries,
taken as a whole.


 


                                4.7           Use of Proceeds.  The proceeds of the sale of the Common Stock
and the Warrants hereunder shall be used by the Company for working capital and
general corporate purposes.


 


                                4.8           No Material Adverse Change.  Since December 31, 2000, except as
identified and described in the SEC Filings, there has not been:


 


                                                (i)            any change in the consolidated
assets, liabilities, financial condition or operating results of the Company
from that reflected in the financial statements included in the 10-K, except
for changes in the ordinary course of business which have not and 


 


 


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could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;


 


                                                (ii)           any declaration or payment of any
dividend, or any authorization or payment of any distribution, on any of the
capital stock of the Company, or any redemption or repurchase of any securities
of the Company;


 


                                                (iii)          any material damage, destruction or
loss, whether or not covered by insurance to any assets or properties of the
Company or its Subsidiaries;


 


                                                (iv)          any waiver, not in the ordinary course
of business, by the Company or any Subsidiary of a material right or of a
material debt owed to it;


 


                                                (v)           any satisfaction or discharge of any
lien, claim or encumbrance or payment of any obligation by the Company or a
Subsidiary, except in the ordinary course of business and which is not material
to the assets, properties, financial condition, operating results or business
of the Company and its Subsidiaries taken as a whole (as such business is
presently conducted and as it is proposed to be conducted);


 


                                                (vi)          any change or amendment to the
Company’s Certificate of Incorporation or By-laws, or material change to any
material contract or arrangement by which the Company or any Subsidiary is
bound or to which any of their respective assets or properties is subject;


 


                                                (vii)         any material labor difficulties or
labor union organizing activities with respect to employees of the Company or
any Subsidiary;


 


                                                (viii)        any material transaction entered into by
the Company or a Subsidiary other than in the ordinary course of business;


 


                                                (ix)           the loss of the services of any key
employee, or material change in the composition or duties of the senior
management of the Company or any Subsidiary;


 


                                                (x)            the loss of any customer, or the
threat by a customer to terminate or materially reduce its relationship with
the Company or a Subsidiary, which has had or could reasonably be expected to
have a Material Adverse Effect; or


 


                                                (xi)           any other event or condition of any
character that has had or could reasonably be expected to have a Material
Adverse Effect.


 


                                4.9           SEC Filings; S-3 Eligibility.


 


                                                (a)           At the time of filing thereof, the
SEC Filings complied as to form in all material respects with the requirements
of the 1934 Act and did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the 


 


 


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statements made therein, in the light of the
circumstances under which they were made, not misleading.


 


                                                (b)           During the preceding two years, each
registration statement and any amendment thereto filed by the Company pursuant
to the 1933 Act and the rules and regulations thereunder, as of the date such
statement or amendment became effective, complied as to form in all material
respects with the 1933 Act and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and each prospectus
filed pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as
of the closing of any sale of securities pursuant thereto did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.


 


                                                (c)           The Company is eligible to use Form
S-3 to register the Registrable Securities (as such term is defined in the
Registration Rights Agreement) for sale by the Investors as contemplated by the
Registration Rights Agreement.


 


                                4.10         No Conflict, Breach, Violation or
Default.  The execution, delivery
and performance of the Transaction Documents by the Company and the issuance
and sale of the Securities will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under
(i) the Company’s Certificate of Incorporation or the Company’s Bylaws, both as
in effect on the date hereof (copies of which have been made available to the
Investors before the date hereof), or (ii)(a) any statute, rule, regulation or
order of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company, any Subsidiary or any of their respective
assets or properties, or (b) any agreement or instrument to which the Company
or any Subsidiary is a party or by which the Company or a Subsidiary is bound or
to which any of their respective assets or properties is subject.  The Company has received irrevocable waivers
of any rights of first offer, rights of first refusal or other preemptive or
other subscription rights that may apply to the issuance and sale of the
Securities as contemplated hereby, the Company has complied with the terms of
any such rights and any such waivers with respect thereto, and such waivers are
in full force and effect.  Such waivers
do not require the Company or any other Person to take or refrain from taking
any action.  True and complete copies of
such waivers have been provided to the Investors prior to the execution and
delivery of this Agreement.


 


                                4.11         Tax Matters.  Neither the Company nor any Subsidiary is
delinquent in the filing of any tax return required to have been filed by the
Company or such Subsidiary.  All taxes
shown on such returns or, to the Company’s Knowledge, otherwise due and owing
by the Company or any Subsidiary have been timely paid.  The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the assessment
of any additional taxes, penalties or interest for any fiscal period or audits
by any federal, state or local taxing authority except for any assessment which
is not material to the Company and its Subsidiaries, taken as a whole.  All 


 


 


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taxes
and other assessments and levies that the Company or any Subsidiary is required
to withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party prior to the date such
taxes or assessments became delinquent. 
There are no tax liens or claims pending or, to the Company’s Knowledge,
threatened against the Company or any Subsidiary or any of their respective
assets or property.  Except as described
on Schedule 4.11, there are no outstanding tax sharing agreements or
other such arrangements between the Company and any Subsidiary or other
corporation or entity.


 


                                4.12         Title to Properties.  Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real
properties and all other properties and assets owned by it, in each case free
from liens, encumbrances and defects that would materially affect the value of
such properties and assets, taken as a whole, or materially interfere with the
use made or currently planned to be made by them of such properties and assets,
taken as a whole; and except as disclosed in the SEC Filings, the Company and
each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.


 


                                4.13         Certificates, Authorities and
Permits.  The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company
or such Subsidiary, could reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.


 


                                4.14         No Labor Disputes.  No material labor dispute with the employees
of the Company or any Subsidiary exists or, to the Company’s Knowledge, is
imminent.


 


                                4.15         Intellectual Property.


 


                                                (a)           No Intellectual Property of the
Company or its Subsidiaries which is necessary for the conduct of Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted has been or is now involved in any
cancellation, dispute or litigation, and, to the Company’s Knowledge, no such
action is threatened.  No patent of the
Company or its Subsidiaries has been or is now involved in any interference,
reissue, re-examination or opposition proceeding.


 


                                                (b)           All of the licenses and sublicenses
and consent, royalty or other agreements concerning Intellectual Property which
are necessary for the conduct of Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted to which the Company or any Subsidiary is a party or by which any of
their assets are bound (other than  generally commercially available,
non-custom, off-the-shelf software application programs having a retail
acquisition price of less than $10,000 per license) (collectively, “License
Agreements”) are valid and binding obligations of the Company or its
Subsidiaries that are parties thereto and, to the Company’s Knowledge, the
other parties thereto, enforceable in accordance with their terms, except to
the extent that enforcement thereof may be 


 


 


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limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally,
and there exists no event or condition which will result in a material violation
or breach of or constitute (with or without due notice or lapse of time or
both) a default by the Company or any of its Subsidiaries under any such
License Agreement.


 


                                                (c)           The Company and its Subsidiaries own
or have the valid right to use all of the Intellectual Property that is
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted and
for the ownership, maintenance and operation of the Company’s and its
Subsidiaries’ properties and assets, free and clear of all liens, encumbrances,
adverse claims or obligations to license all such owned Intellectual Property,
other than licenses entered into in the ordinary course of the Company’s and
its Subsidiaries’ businesses.  The
Company and its Subsidiaries have a valid and enforceable right to use all
other Intellectual Property used or held for use in the respective businesses
of the Company and its Subsidiaries. 
The Company and its Subsidiaries have the right to use all of the owned
and licensed Intellectual Property which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted in all jurisdictions in which
they conduct their businesses.


 


                                                (d)           The Company and each of its
Subsidiaries have taken reasonable steps to maintain, police and protect the
Intellectual Property which it owns and which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted, including the execution of
appropriate confidentiality agreements and intellectual property and work
product assignments and releases. 
Except as described in Schedule 4.15, to the Company’s Knowledge,
(1) the conduct of the Company’s and its Subsidiaries’ businesses as currently
conducted does not infringe or otherwise impair or conflict with (collectively,
“Infringe”) any Intellectual Property rights of any third party, and (2) the
Intellectual Property rights of the Company and its Subsidiaries which are
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted are
not being Infringed by any third party. 
There is no litigation or order pending or outstanding or, to the
Company’s Knowledge, threatened or imminent, that seeks to limit or challenge
or that concerns the ownership, use, validity or enforceability of any
Intellectual Property of the Company and its Subsidiaries and the Company’s and
its Subsidiaries’ use of any Intellectual Property owned by a third party, and,
to the Company’s Knowledge, there is no valid basis for the same.


 


                                                (e)           The consummation of the transactions
contemplated hereby will not result in the alteration, loss, impairment of or
restriction on the Company’s or any of its Subsidiaries’ ownership or right to
use any of the Intellectual Property which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted.


 


                                                (f)            All software owned by the Company or
any of its Subsidiaries, and, to the Company’s Knowledge, all software licensed
from third parties by the Company or 


 


 


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any
of its Subsidiaries, (i) is free from any material defect, bug, virus, or
programming, design or documentation error; (ii) operates and runs in a
reasonable and efficient business manner; and (iii) conforms in all material
respects to the specifications and purposes thereof.


 


                                                (g)           The Company and its Subsidiaries have
taken reasonable steps to protect the Company’s and its Subsidiaries’ rights in
their confidential information and trade secrets.  Each employee, consultant and contractor who has had access to
proprietary Intellectual Property which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has executed an agreement to
maintain the confidentiality of such Intellectual Property and has executed
appropriate agreements that are substantially consistent with the Company’s
standard forms thereof.  Except under
confidentiality obligations, there has been no material disclosure of any of
the Company’s or its Subsidiaries’ confidential information or trade secrets to
any third party.


 


                                4.16         Environmental Matters.  Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, and is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company’s Knowledge,
threatened investigation that might lead to such a claim.


 


                                4.17         Litigation.  Except as described on Schedule 4.17,
there are no pending actions, suits or proceedings against or affecting the Company,
its Subsidiaries or any of its or their properties; and to the Company’s
Knowledge, no such actions, suits or proceedings are threatened or
contemplated.


 


                                4.18         Financial Statements.  The financial statements included in each
SEC Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles applied on a consistent basis (except as may be disclosed
therein or in the notes thereto, and, in the case of quarterly financial
statements, as permitted by Form 10-Q under the 1934 Act).  Except as set forth in the financial
statements of the Company included in the SEC Filings filed prior to the date
hereof or as described on Schedule 4.18, neither the Company nor any of
its Subsidiaries has incurred any liabilities, contingent or otherwise, except
those incurred in the ordinary course of business, consistent (as to amount and
nature) with past practices since the date of such financial statements, none
of which, individually or in the aggregate, have had or could reasonably be
expected to have a Material Adverse Effect.


 


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                                4.19         Insurance Coverage.  The Company and each Subsidiary maintain in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and
risks against which it is customary for comparably situated companies to
insure.


 


                                4.20         Compliance with Nasdaq Continued
Listing Requirements.  The Company
is in compliance with applicable Nasdaq continued listing requirements.  There are no proceedings pending or, to the
Company’s Knowledge, threatened against the Company relating to the continued
listing of the Company’s Common Stock on Nasdaq and the Company has not
received any notice of, nor to the Company’s Knowledge is there any basis for,
the delisting of the Common Stock from Nasdaq.


 


                                4.21         Brokers and Finders.  Except for Soundview Technology Group, the
fees and expenses of which shall be paid by the Company, no Person will have,
as a result of the transactions contemplated by this Agreement, any valid
right, interest or claim against or upon the Company, any Subsidiary or an
Investor for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of the
Company.


 


                                4.22         No Directed Selling Efforts or
General Solicitation.  Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D)
in connection with the offer or sale of any of the Securities.


 


                                4.23         No Integrated Offering.  Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.


 


                                4.24         Private Placement.  The offer and sale of the Securities to the
Investors as contemplated hereby is exempt from the registration requirements
of the 1933 Act.


 


                                4.25         Questionable Payments. 
Neither the Company nor any of its Subsidiaries nor, to
the Company’s Knowledge, any of their respective current or former
shareholders, directors, officers, employees, agents or other Persons acting on
behalf of the Company or any Subsidiary, has on behalf of the Company or any
Subsidiary or in connection with their respective businesses: (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries
on the books and records of the Company or any 


 


-11-

















 


 


Subsidiary; or (e) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment of any
nature.


 


                                4.26         Transactions with Affiliates.  Except as disclosed in SEC Filings made on
or prior to the date hereof or as disclosed on Schedule 4.26, none of
the officers or directors of the Company and, to the Company’s Knowledge, none
of the employees of the Company is presently a party to any transaction with
the Company or a Subsidiary or to a presently contemplated transaction (other
than for services as employees, officers and directors) that would be required
to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the
1933 Act, without regard to the dollar thresholds contained in such Item.


 


                                4.27         Disclosures.  Neither the Company nor any Person acting on
its behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information.  The written materials
delivered to the Investors in connection with the transactions contemplated by
the Transaction Documents do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading.


 


                5.             Representations and Warranties
of the Investors.  Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:


 


                                5.1           Organization and Existence.  The Investor is a validly existing
corporation, limited partnership or limited liability company and has all
requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.


 


                                5.2           Authorization.  The execution, delivery and performance by
the Investor of the Transaction Documents have been duly authorized and the
Transaction Documents will each constitute the valid and legally binding
obligation of the Investor, enforceable against the Investor in accordance with
their terms, subject to principles of equity and to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability, relating to or affecting creditors’ rights generally.


 


                                5.3           Purchase Entirely for Own Account.  The Securities to be received by the
Investor hereunder will be acquired for the Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same
in violation of the 1933 Act.  The
Investor is not a registered broker dealer or an entity engaged in the business
of being a broker dealer.


 


                                5.4           Investment Experience.  The Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.


 


-12-

















 


 


                                5.5           Disclosure of Information.  The Investor has had an opportunity to
receive all additional information related to the Company requested by it and
to ask questions of and receive answers from the Company regarding the Company,
its business and the terms and conditions of the offering of the
Securities.  The Investor acknowledges
receipt of copies of the SEC Filings. 
Neither such inquiries nor any other due diligence investigation
conducted by the Investor shall modify, amend or affect the Investor’s right to
rely on the Company’s representations and warranties contained in this
Agreement.


 


                                5.6           Restricted Securities.  The Investor understands that the Securities
are characterized as “restricted securities” under the U.S. federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.


 


                                5.7           Legends.  It is understood that, until the earlier of
(i) registration for resale pursuant to the Registration Rights Agreement and
receipt by the Company of the Investor’s written confirmation that such Securities
will not be disposed of except in compliance with the 1933 Act or (ii) the time
when such Securities may be sold pursuant to Rule 144(k), certificates
evidencing such Securities may bear the following or any similar legend:


 


                                                (a)           “The securities represented hereby
may not be transferred unless (i) such securities have been registered for sale
pursuant to the Securities Act of 1933, as amended, (ii) such securities may be
sold pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel
satisfactory to it that such transfer may lawfully be made without registration
under the Securities Act of 1933 or qualification under applicable state
securities laws.”


 


                                                (b)           If required by the authorities of any
state in connection with the issuance of sale of the Securities, the legend
required by such state authority.


 


                                Upon
the earlier of (i) registration for resale pursuant to the Registration Rights
Agreement and receipt by the Company of the Investor’s written confirmation
that such Securities will not be disposed of except in compliance with the 1933
Act or (ii) Rule 144(k) becoming available the Company shall, upon an
Investor’s written request, promptly, and in any case within three (3) Business
Days, cause certificates evidencing the Securities to be replaced with
certificates which do not bear such restrictive legends, and Warrant Shares
subsequently issued in respect of the Warrants shall not bear such restrictive
legends provided the provisions of either clause (i) or clause (ii) above, as
applicable, are satisfied with respect to such Warrant Shares.


 


                                5.8           Accredited Investor.  The Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.


 


                                5.9           No General Solicitation.  The Investor did not learn of the investment
in the Securities as a result of any public advertising or general
solicitation.


 


-13-

















 


 


                                5.10         Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Investors.


 


                                5.11         Company Financing Requirements.  The Investor acknowledges that it has been
advised by the Company that (i) the Company is not currently profitable, (ii)
the operation of the Company at its current revenue and expense levels uses the
Company’s available cash, (iii) the Company does not know when (if ever), the
Company will generate cash flows sufficient to meet its ongoing operating and
capital needs, (iv) as a result the continued operation of the Company is
expected to be dependent on the Company’s ability to obtain additional
financing, and (v) there is no assurance that the Company will be able to
obtain additional financing or that such financing will be available to the
Company upon terms deemed favorable by the Company or by the Investor.


 


                                5.12         Trading Representations.  On the date hereof, the Investor does not
have an open short position in the Common Stock and has not sold or agreed to
sell, directly or indirectly, any shares of Common Stock or any interest
therein to another Person.  Prior to the
earlier of (i) the termination of this Agreement, or (ii) the Closing Date, the
Investor will not sell or agree to sell, directly or indirectly, any shares of
Common Stock or any interest therein to another Person.  The Investor has complied and will comply in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder in connection with its investment
in the Company.


 


                6.  Conditions to Closing.


 


                                6.1           Conditions to the Investors’
Obligations. The obligation of the Investors to purchase the Securities at
the Closing is subject to the fulfillment to the Investors’ satisfaction, on or
prior to the Closing Date, of the following conditions, any of which may be
waived by the Investors agreeing hereunder to purchase a majority of the Shares
and Warrants (the “Required Investors”):


 


                                                (a)           The representations and warranties
made by the Company in Section 4 hereof qualified as to materiality shall be
true and correct at all times prior to and on the Closing Date, except to the
extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct
as of such earlier date, and, the representations and warranties made by the
Company in Section 4 hereof not qualified as to materiality shall be true and
correct in all material respects at all times prior to and on the Closing Date,
except to the extent any such representation or warranty expressly speaks as of
an earlier date, in which case such representation or warranty shall be true
and correct in all material respects as of such earlier date.  The Company shall have performed in all
material respects all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.


 


                                                (b)           The Company shall have obtained in a
timely fashion any and all consents, permits, approvals, registrations and
waivers necessary or appropriate for 


 


-14-

















 


consummation
of the purchase and sale of the Securities all of which shall be in full force
and effect.


 


                                                (c)           The Company shall have executed and
delivered the Registration Rights Agreement.


 


                                                (d)           On or prior to March 21, 2002, the
Company shall have entered into one or more agreements in substantially the
form hereof and otherwise in form and substance reasonably satisfactory to the
Investors (the “Other Investment Agreements”) pursuant to which the Company
agrees to sell shares of Common Stock and warrants to purchase Common Stock to
one or more of the Persons previously identified to the Investors or other
similar investors on the same or better (as to the Company) economic terms
(including as to price) as contemplated hereby (the “Other Investment”).


 


                                                (e)           The Other Investment shall have been
consummated in accordance with the terms of the Other Investment Agreements
and, together with the gross proceeds of the sale of the Shares and Warrants,
shall result in gross proceeds to the Company of at least Seven Million Three
Hundred Thousand Dollars ($7,300,000).


 


                                                (f)            The Company shall have received (A)
written notice from Nasdaq to the effect that the issuance and sale of the
Securities as contemplated hereby will not require shareholder approval
pursuant to the requirements of Nasdaq Marketplace Rule 4350(i), and (B) oral
confirmation from Nasdaq that the Shares and the Warrant Shares shall have been
approved for inclusion in The Nasdaq National Market System upon official notice
of issuance.


 


                                                (g)           No judgment, writ, order, injunction,
award or decree of or by any court, or judge, justice or magistrate, including
any bankruptcy court or judge, or any order of or by any governmental
authority, shall have been issued, and no action or proceeding shall have been
instituted by any governmental authority, enjoining or preventing the
consummation of the transactions contemplated hereby or in the other
Transaction Documents.


 


                                                (h)           The Company shall have delivered a
Certificate, executed on behalf of the Company by its Chief Executive Officer
or its Chief Financial Officer, dated as of the Closing Date, certifying to the
fulfilment of the conditions specified in subsections (a), (b), (e), (f) and
(g) of this Section 6.1.


 


                                                (i)            The Company shall have delivered a
Certificate, executed on behalf of the Company by its Secretary, dated as of
the Closing Date, certifying the resolutions adopted by the Board of Directors
of the Company approving the transactions contemplated by this Agreement and
the other Transaction Documents and the issuance of the Securities, certifying
the current versions of the Certificate of Incorporation and Bylaws of the
Company and certifying as to the signatures and authority of persons signing
the Transaction Documents and related documents on behalf of the Company.


 


                                                (j)            The Investors shall have received an
opinion from Orrick, Herrington & Sutcliffe LLP, the Company’s counsel,
dated as of the Closing Date, in form and 


 


-15-

















 


substance
reasonably acceptable to the Investors and addressing such legal matters as the
Investors may reasonably request.


 


                                                (k)           No stop order or suspension of
trading shall have been imposed by Nasdaq, the SEC or any other governmental regulatory
body with respect to public trading in the Common Stock.


 


                                6.2           Conditions to Obligations of the
Company. The Company’s obligation to sell and issue the Securities at the
Closing is subject to the fulfillment to the satisfaction of the Company on or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:


 


                                                (a)           The representations and warranties
made by the Investors in Section 5 hereof, other than the representations and
warranties contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the
“Investment Representations”), shall be true and correct in all material
respects when made, and shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been made on and
as of said date.  The Investment
Representations shall be true and correct in all respects when made, and shall
be true and correct in all respects on the Closing Date with the same force and
effect as if they had been made on and as of said date.  The Investors shall have performed in all
material respects all obligations and conditions herein required to be
performed or observed by them on or prior to the Closing Date.


 


                                                (b)           The Investors shall have executed and
delivered the Registration Rights Agreement.


 


                                                (c)           The Investors shall have delivered
the Purchase Price to the Company.


 


                                6.3           Termination of Obligations to
Effect Closing; Effects.


 


                                                (a)           The obligations of the Company, on
the one hand, and the Investors, on the other hand, to effect the Closing shall
terminate as follows:


 


                                                                (i)            Upon the mutual written consent of
the Company and the Required Investors;


 


                                                                (ii)           By the Company if any of the
conditions set forth in Section 6.2 shall have become incapable of fulfillment,
and shall not have been waived by the Company;


 


                                                                (iii)          By the Required Investors if any of
the conditions set forth in Section 6.1 shall have become incapable of
fulfillment, and shall not have been waived by the Required Investors; or


 


-16-

















 


                                                                (iv)          By either the Company or the Required
Investors if the Closing has not occurred on or prior to April 30, 2002;


 


provided,
however, that, except in the case of clause (i) above, the party seeking to
terminate its obligation to effect the Closing shall not then be in breach of
any of its representations, warranties, covenants or agreements contained in
this Agreement or the other Transaction Documents if such breach has resulted
in the circumstances giving rise to such party’s seeking to terminate its
obligation to effect the Closing.


 


                                (b)           In the event of termination by the
Company or the Required Investors of their obligations to effect the Closing
pursuant to this Section 6.3, written notice thereof shall forthwith be given
to the other parties hereto and the obligation of all parties to effect the
Closing shall be terminated, without further action by any party.  Nothing in this Section 6.3 shall be deemed
to release any party from any liability for any breach by such party of the
terms and provisions of this Agreement or the other Transaction Documents or to
impair the right of any party to compel specific performance by any other party
of its obligations under this Agreement or the other Transaction Documents.


 


                7.             Covenants and Agreements of the
Company.


 


                                7.1           Reservation of Common Stock.  The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for the exercise of the Warrants, such
number of shares of Common Stock as shall from time to time equal the number of
shares sufficient to permit the exercise of the Warrants issued pursuant to
this Agreement in accordance with their respective terms.


 


                                7.2           Reports.  The Company will furnish to Investors and/or
their assignees holding at least 100,000 shares of Common Stock (each, a “Major
Investor”) such information relating to the Company and its Subsidiaries as
from time to time may reasonably be requested from the Chief Financial Officer
of the Company by such Major Investors; provided, however, that such Major
Investors shall hold in confidence any confidential or proprietary information
received from the Company and identified as such at the time of disclosure such
information and shall use any such confidential or proprietary information
solely for the purpose of monitoring and evaluating their investment in the
Company and; provided, further, that the Company shall not be required to
provide any information to the Major Investors which, if disclosed to such
Major Investors pursuant to the terms of this Section 7.2, would, in the good
faith judgment of the Company, cause the Company or any Subsidiary to violate
the terms of a confidentiality undertaking binding on the Company or such
Subsidiary.  Each Major Investor
acknowledges that it is aware, and that it will advise its representatives who
are given access to such information, that the United States securities laws
may prohibit a Person who has material, non-public information concerning
matters that may be disclosed to it pursuant to this Section 7.2 from
purchasing or selling securities of the Company or a company which may be, or
may be affiliated with, a party to a business arrangement or proposed business
arrangement with the Company or from communicating such information to any
other Person under circumstances in which it is reasonably foreseeable that
such person is likely to purchase or sell such securities.  The Company shall not disclose material
nonpublic information to any Investor, or to advisors to 


 


-17-

















 


or representatives of any Investor, unless
prior to disclosure of such information the Company identifies such information
as being material nonpublic information and provides the Investor, such
advisors and representatives with the opportunity to accept or refuse to accept
such material nonpublic information for review.


 


                                7.3           No Conflicting Agreements.  The Company will not take any action, enter
into any agreement or make any commitment that would conflict or interfere in
any material respect with the obligations to the Investors under the
Transaction Documents.


 


                                7.4           Compliance with Laws.  The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of
all governmental authorities.


 


                                7.5           Listing of Underlying Shares and
Related Matters.  Promptly following
the date hereof, the Company shall take all necessary action to cause the
Shares and the Warrant Shares to be approved for listing on the Nasdaq National
Market System no later than the Closing Date. 
Further, if the Company applies to have its Common Stock or other
securities traded on any other principal stock exchange or market, it shall
include in such application the Shares and the Warrant Shares and will take
such other action as is necessary to cause such Common Stock to be so
listed.  The Company will use
commercially reasonable efforts to continue the listing and trading of its
Common Stock on Nasdaq and, in accordance, therewith, will use commercially
reasonable efforts to comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of such exchange, as
applicable.


 


                                7.6           Termination of Covenants.  The provisions of Sections 7.2, 7.3 and 7.4
shall terminate and be of no further force and effect upon the earlier of (i)
the mutual consent of the Company and the Required Investors or (ii) the date
on which the Company’s obligations under the Registration Rights Agreement to
register of maintain the effectiveness of any registration covering the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.


 


                8.             Survival and Indemnification.


 


                                8.1  Survival.  All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement for a period of eighteen months from the Closing
Date; provided, however, that the provisions contained in Section 7 hereof
shall survive in accordance therewith.


 


                                8.2  Indemnification.  The Company agrees to indemnify and hold
harmless, on an after-tax and after insurance recovery basis, each Investor and
its Affiliates and their respective directors, officers, employees and agents
from and against any and all losses, claims, damages, liabilities and expenses
(including without limitation reasonable attorney fees and disbursements and
other expenses incurred in connection with investigating, preparing or
defending any action, claim or proceeding, pending or threatened and the costs
of enforcement hereof) (collectively, “Losses”) to which such Person may become
subject as a result of any 


 


-18-

















 


breach of representation, warranty, covenant or agreement made by or to
be performed on the part of the Company under the Transaction Documents, and
will reimburse any such Person for all such amounts as they are incurred by
such Person.


 


                                8.3  Conduct of Indemnification Proceedings. 
Promptly after receipt by any Person (the “Indemnified
Person”) of notice of any demand, claim or circumstances which would or might
give rise to a claim or the commencement of any action, proceeding or
investigation in respect of which indemnity may be sought pursuant to Section
8.2, such Indemnified Person shall promptly notify the Company in writing and
the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Person, and shall assume
the payment of all fees and expenses; provided, however,  that
the failure of any Indemnified Person so to notify the Company shall not
relieve the Company of its obligations hereunder except to the extent that the
Company is materially prejudiced by such failure to notify.  In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel (which counsel shall be
reasonably satisfactory to the Company), but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless: (i) the
Company and the Indemnified Person shall have mutually agreed to the retention
of such counsel; or (ii) in the reasonable judgment of counsel to such
Indemnified Person representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.  The Company shall not be liable for any
settlement of any proceeding effected without its written consent, which
consent shall not be unreasonably withheld, but if settled with such consent,
or if there be a final judgment for the plaintiff, the Company shall indemnify
and hold harmless such Indemnified Person from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment.  Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.


 


                9.             Miscellaneous.


 


                                9.1           Successors and Assigns.  This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Required
Investors, as applicable, provided, however, that an Investor may assign its
rights and delegate its duties hereunder in whole or in part to an Affiliate or
to a third party acquiring some portion or all of its Securities in a private
transaction without the prior written consent of the Company or the other
Investors, after notice duly given by such Investor to the Company and the
other Investors, provided, that no such assignment or obligation shall affect
the obligations of such Investor hereunder. 
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective permitted successors and assigns of the
parties.  Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.


 


-19-

















 


 


                                9.2           Counterparts; Faxes.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement may also be executed via facsimile,
which shall be deemed an original.


 


                                9.3           Titles and Subtitles.  The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.


 


                                9.4           Notices.  Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given as hereinafter described (i) if given by personal
delivery, then such notice shall be deemed given upon such delivery, (ii) if
given by telex or telecopier, then such notice shall be deemed given upon
receipt of confirmation of complete transmittal, (iii) if given by mail, then
such notice shall be deemed given upon the receipt of such notice by the
recipient, and (iv) if given by an internationally recognized overnight air
courier, then such notice shall be deemed given upon delivery by such
carrier.  All notices shall be addressed
to the party to be notified at the address as follows, or at such other address
as such party may designate by ten days’ advance written notice to the other
party:


 


                                                If
to the Company:


 


Conductus, Inc.


969 W. Maude Avenue


Sunnyvale, California 94085


Attention: 
Ron Wilderink


Fax: 
(408) 523-9999


 


                                                With
a copy to:


 


Orrick, Herrington & Sutcliffe LLP


400 Sansome Street


San Francisco, California 94111-3143


Attention: 
Richard S. Grey, Esq.


Fax: 
(415) 773-5759


 


                                                If
to the Investors:


 


to the addresses set forth on the signature
pages hereto.


 


                                9.5           Expenses.  The parties hereto shall pay their own costs
and expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of counsel to the Investors at the Closing, but
not in excess of $35,000.  The Company
shall reimburse the Investors upon demand for all reasonable out-of-pocket
expenses incurred by the Investors, including without limitation reimbursement
of attorneys’ fees and disbursements, in connection with any amendment,
modification or waiver of this Agreement or the other 


 


-20-

















 


Transaction Documents.  In the event that legal proceedings are
commenced by any party to this Agreement against another party to this
Agreement in connection with this Agreement or the other Transaction Documents,
the party or parties which do not prevail in such proceedings shall severally,
but not jointly, pay their pro rata share of the reasonable attorneys’ fees and
other reasonable out-of-pocket costs and expenses incurred by the prevailing
party in such proceedings.


 


                                9.6           Amendments and Waivers.  Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Investors.  Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Securities purchased under this Agreement at the time outstanding, each
future holder of all such securities, and the Company.


 


                                9.7           Publicity.  No public release or announcement concerning
the transactions contemplated hereby shall be issued by the Company or the
Investors without the prior consent of the Company (in the case of a release or
announcement by the Investors) or Special Situations Fund III, L.P.  (“SSF”) (in the case of a release or
announcement by the Company) (which consents shall not be unreasonably
withheld), except as such release or announcement may be required by law or the
applicable rules or regulations of any securities exchange or securities
market, in which case the Company or the Investors, as the case may be, shall
allow SSF or the Company, as applicable, to the extent reasonably practicable
in the circumstances, reasonable time to comment on such release or
announcement in advance of such issuance.


 


                                9.8           Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.  To the extent
permitted by applicable law, the parties hereby waive any provision of law
which renders any provision hereof prohibited or unenforceable in any respect.


 


                                9.9           Entire Agreement.  This Agreement, including the Exhibits and
the Disclosure Schedules, and the other Transaction Documents constitute the
entire agreement among the parties hereof with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings, both oral
and written, between the parties with respect to the subject matter hereof and
thereof.


 


                                9.10         Further Assurances.  The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.


 


                                9.11         Governing Law; Consent to
Jurisdiction.  This Agreement shall
be governed by, and construed in accordance with, the internal laws of the
State of New York 


 


-21-

















 


without regard to the choice of law
principles thereof.  Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the courts of the
State of New York located in New York County and the United States District
Court for the Southern District of New York for the purpose of any suit,
action, proceeding or judgment relating to or arising out of this Agreement and
the transactions contemplated hereby. 
Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Agreement.  Each of the parties hereto irrevocably
consents to the jurisdiction of any such court in any such suit, action or
proceeding and to the laying of venue in such court.  Each party hereto irrevocably waives any objection to the laying
of venue of any such suit, action or proceeding brought in such courts and
irrevocably waives any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum.


 


[signature page follows]


 


 


 


 


 


 


 


 


 


 


 


 


 


-22-

















 


 


                                IN
WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
authorized officers to execute this Agreement as of the date first above
written.


 


	
  The Company:

  	
   

  	
  CONDUCTUS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ RON WILDERINK

  	
   

  
	
   

  	
   

  	
  Name: Ron Wilderink

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  Vice President of Finance and

  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
						



 


-23-

















 


	
  The Investors:

  	
   

  	
  SPECIAL SITUATIONS FUND
  III, L.P.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ DAVID GREENHOUSE

  	
   

  
	
   

  	
   

  	
  Name: David Greenhouse

  	
   

  
	
   

  	
   

  	
  Title: General Partner

  	
   

  
					



 


Aggregate Purchase Price:  $2,850,000


Number of Shares:  1,425,000


Number of Warrants:  712,500


 


Address
for Notice:


 


	
   

  	
  153 E. 53rd Street

  	
   

  
	
   

  	
  55th Floor

  	
   

  
	
   

  	
  New York, NY  10022

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Lowenstein Sandler PC

  	
   

  
	
   

  	
  65 Livingston Avenue

  	
   

  
	
   

  	
  Roseland, NJ  07068

  	
   

  
	
   

  	
  Attn:  John D. Hogoboom, Esq.

  	
   

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
				



 


	
   

  	
  SPECIAL SITUATIONS CAYMAN
  FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DAVID GREENHOUSE

  	
   

  
	
   

  	
  Name: David Greenhouse

  	
   

  
	
   

  	
  Title: General Partner

  	
   

  
	
   

  	
   

  	
   

  
				



 


Aggregate Purchase Price:  $950,000


Number of Shares:  475,000


Number of Warrants:  237,500


 


Address
for Notice:


	
   

  	
  153 E. 53rd Street

  	
   

  
	
   

  	
  55th Floor

  	
   

  
	
   

  	
  New York, NY  10022

  	
   

  
	
   

  	
   

  	
   

  



 


 


-24-

















 


	
   

  	
  with a copy to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Lowenstein Sandler PC

  	
   

  
	
   

  	
  65 Livingston Avenue

  	
   

  
	
   

  	
  Roseland, NJ  07068

  	
   

  
	
   

  	
  Attn:  John D. Hogoboom, Esq.

  	
   

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
				



 


	
   

  	
  SPECIAL SITUATIONS PRIVATE
  EQUITY FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DAVID GREENHOUSE

  	
   

  
	
   

  	
  Name: David Greenhouse

  	
   

  
	
   

  	
  Title: General Partner

  	
   

  
	
   

  	
   

  	
   

  
				



 


Aggregate Purchase Price:  $1,400,000


Number of Shares:  700,000


Number of Warrants:  350,000


 


	
   

  	
  153 E. 53rd Street

  	
   

  
	
   

  	
  55th Floor

  	
   

  
	
   

  	
  New York, NY  10022

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Lowenstein Sandler PC

  	
   

  
	
   

  	
  65 Livingston Avenue

  	
   

  
	
   

  	
  Roseland, NJ  07068

  	
   

  
	
   

  	
  Attn:  John D. Hogoboom, Esq.

  	
   

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
				



 


	
   

  	
  SPECIAL SITUATIONS
  TECHNOLOGY FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DAVID GREENHOUSE

  	
   

  
	
   

  	
  Name: David Greenhouse

  	
   

  
	
   

  	
  Title: General Partner

  	
   

  
	
   

  	
   

  	
   

  
				



 


Aggregate Purchase Price:  $700,000


Number of Shares:  350,000


 


 


-25-

















 


Number of Warrants:  175,000


 


Address
for Notice:


	
   

  	
  153 E. 53rd Street

  	
   

  
	
   

  	
  55th Floor

  	
   

  
	
   

  	
  New York, NY  10022

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Lowenstein Sandler PC

  	
   

  
	
   

  	
  65 Livingston Avenue

  	
   

  
	
   

  	
  Roseland, NJ  07068

  	
   

  
	
   

  	
  Attn:  John D. Hogoboom, Esq.

  	
   

  
	
   

  	
  Telephone:

  	
  973.597.2500

  
	
   

  	
  Facsimile:

  	
  973.597.2400

  
				



 


 


 


 


 


 


 


 


 


 


 


 


 


-26-