**EXHIBIT 10.39**

 

**PATENT LICENSE AGREEMENT**

 

**between**

 

**LUCENT TECHNOLOGIES GRL CORPORATION**

 

**and**

 

**CONDUCTUS, INC.**

 

 

**Effective as of April 1, 1999**

 

 

**Relating to Superconducting Materials**

 

 

 

CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THISDOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION

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**PATENT LICENSE AGREEMENT**

** **

**TABLE OF CONTENTS**

 
| **ARTICLE  I - GRANTS OF LICENSES**        |
|--------------------------------------------|
|                                       |   |
| **1.01**                                   | **Grant** |
| **1.02**                                   | **Duration** |
| **1.03**                                   | **Scope** |
|                                       |   |
| **ARTICLE  II - FEES AND PAYMENTS**        |
|                                       |   |
| **2.01**                                   | **Fee** |
| **2.02**                                   | **Royalties** |
| **2.03**                                   | **Accrual** |
| **2.04**                                   | **Records and Adjustments** |
| **2.05**                                   | **Reports and Payments** |
|                                       |   |
| **ARTICLE  III - TERMINATION**             |
|                                       |   |
| **3.01**                                   | **Breach** |
| **3.02**                                   | **Voluntary Termination** |
| **3.03**                                   | **Survival** |
|                                       |   |
| **ARTICLE  IV - MISCELLANEOUS PROVISIONS** |
|                                       |   |
| **4.01**                                   | **Disclaimer** |
| **4.02**                                   | **Nonassignability** |
| **4.03**                                   | **Addresses** |
| **4.04**                                   | **Taxes** |
| **4.05**                                   | **Choice  of Law** |
| **4.06**                                   | **Publicity** |
| **4.07**                                   | **Integration** |
| **4.08**                                   | **Dispute Resolution** |
|                                       |   |
| **DEFINITIONS APPENDIX**                   |

 

 

**** Confidential materialredacted and filed separately with the Commission.

 

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**PATENT LICENSE AGREEMENT**

 

This Patent License Agreement(“Agreement”) is between the following Parties: LUCENT TECHNOLOGIES GRLCORPORATION, a Delaware corporation (“GRL”), having an office at Suite 105,14645 N.W. 77th Avenue, Miami Lakes, Florida 33014, and CONDUCTUS, INC., aDelaware corporation (“CONDUCTUS”), having an office at 969 West Maude Avenue,Sunnyvale, California 94086.  ThisAgreement is effective on April 1, 1999 (“Effective Date”).  The Parties agree as follows:*

 

**ARTICLEI**

**GRANTS OF LICENSES**

 

**1.01        Grant**

 

GRL grants to the CONDUCTUSunder GRL’s PATENTS personal, nonexclusive and nontransferable licenses for:

 

COMMUNICATIONS PRODUCTS

HEALTHCARE PRODUCTS

NMR COIL SETS

SQUID SENSORS

 

and no other products.

 

**1.02        Duration**

 

All licenses granted hereinunder any patent shall continue for the entire unexpired term of such patentprovided CONDUCTUS is in compliance with its obligations under this Agreement.

 

**1.03        Scope**

 

(a)           The licenses granted are licenses to make, have made andimport in the United States and to use, lease, sell and offer for saleworld-wide LICENSED PRODUCTS.

 

(b)           Licenses granted herein are not to be construed either (i)as consent by GRL to any act which may be performed by CONDUCTUS, except to theextent

 

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* Any term in capital letterswhich is defined in the Definitions Appendix shall have the meaning specified therein.

 

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impacted by GRL’s PATENTS, or(ii) to include licenses to contributorily infringe or induce infringementunder U.S. law or a foreign equivalent thereof.

 

(c)           The grant of each license hereunder includes the right ofCONDUCTUS to grant sublicenses within the scope of such license to CONDUCTUS’sSUBSIDIARIES for so long as they remain its SUBSIDIARIES.  Any such sublicense may be made effectiveretroactively, but not prior to the effective date hereof, nor prior to thesublicensee’s becoming a SUBSIDIARY of CONDUCTUS.

 

**ARTICLEII**

**FEES AND PAYMENTS**

 

**2.01        Fee**

 

(a)           In payment for the grant of rights hereunder by GRL toCONDUCTUS, CONDUCTUS agrees to pay to GRL an initial nonrefundable fee of[****]

 

(b)           For the convenience of the Parties, CONDUCTUS shall paythe fee specified in Section 2.01(a) in four installments as specified in thetable below.

 
| **Installment** |   | **Amount** |   | **Due Date** |
|-----------------|--------|------------|--------|--------------|
| 1               |   | $          | [****] |         | July 15, 1999 |
| 2               |   | $          | [****] |         | September 15, 1999 |
| 3               |   | $          | [****] |         | January 15, 2000 |
| 4               |   | $          | [****] |         | April 15, 2000 |

 

(c)           In no event shall any fee paid or any portion thereofunder this Section 2.01 be refundable or creditable toward royalties or otherpayments due under this Agreement.

 

**2.02        Royalties**

 

(a)           In addition to the fee specified in Section 2.01 andsubject to Section 2.02(c), royalty shall be payable to GRL at the rate of[****] on each TYPE 1 LICENSED PRODUCT which is sold, leased, or put into useby CONDUCTUS or any of its SUBSIDIARIES licensed pursuant to Section1.03(c).  Royalty shall be payable toGRL at the rate of [****] on each TYPE 2 LICENSED PRODUCT which is sold,leased, or put into use by CONDUCTUS or any of its SUBSIDIARIES licensedpursuant to Section 1.03(c).  Suchroyalty rates shall be applied, except as otherwise provided in this ArticleII, to the FAIR MARKET VALUE of such LICENSED PRODUCTS.  No royalty shall be due on LICENSED PRODUCTSsold to LUCENT or its SUBSIDIARIES.

 

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(b)           If CONDUCTUS purchases a product which product is solely amaterial claimed in one or more of GRL’s PATENTS from a third party, whichproduct is purchased from a third party licensed under one or more of GRL’sPATENTS to make, have made and/or import said product and such third partyprovides written notice to such effect at the time of purchase, then theroyalty rate specified in Section 2.02(a) for any LICENSED PRODUCTincorporating or manufactured using said product shall be reduced by [****]

 

(c)           No royalty under this Section 2.02 shall be due on thesale, lease or use of any LICENSED PRODUCT prior to April 26, 2003.

 

**2.03        Accrual**

 

(a)           Royalty shall accrue upon the first sale, lease or puttinginto use of such LICENSED PRODUCT. (Rebuilding or enlarging any product shallbe deemed to be a first putting into use of such product).  Obligations to pay accrued royalties shallsurvive termination of licenses and rights pursuant to Article III and theexpiration of any patent.

 

(b)           When a company ceases to be a SUBSIDIARY of CONDUCTUS,royalties which have accrued with respect to any products or revenues of suchcompany, but which have not been paid, shall become payable with CONDUCTUS’snext scheduled royalty payment.

 

**2.04        Records and Adjustments**

 

(a)           CONDUCTUS shall keep full, clear and accurate records withrespect to all sales and with respect to LICENSED PRODUCTS and shall furnishany information which GRL may reasonably prescribe from time to time to enableGRL to ascertain the proper royalty due hereunder on account of products sold,leased and put into use by CONDUCTUS or any of its SUBSIDIARIES.  CONDUCTUS shall retain such records withrespect to sales and with respect to each LICENSED PRODUCT for at least seven(7) years.  GRL shall have the rightthrough its accredited auditors to make an examination, during normal businesshours, of all records and accounts bearing upon the amount of royalty payableto it hereunder.  Prompt adjustmentshall be made to compensate for any errors or omissions disclosed by suchexamination.

 

(b)           Independent of any such examination, GRL will credit toCONDUCTUS the amount of any overpayment of royalties made in error which isidentified and fully explained in a written notice to GRL delivered withintwelve (12) months after the due date of the payment which included suchalleged overpayment, provided that GRL is able to verify, to its ownsatisfaction, the existence and extent of the overpayment.

 

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(c)           No refund, credit or other adjustment of royalty paymentsshall be made by GRL except as provided in this Section 2.04.  Rights conferred by this Section 2.04 shallnot be affected by any statement appearing on any check or other document,except to the extent that any such right is expressly waived or surrendered bya party having such right and signing such statement.

 

**2.05        Reports and Payments**

 

Within sixty (60) days afterthe end of each semiannual period ending on March 31st or September 30th,commencing with the semiannual period during which April 26, 2003 occurs,CONDUCTUS shall furnish to GRL at the address specified in Section 4.05 astatement certified by a responsible official of CONDUCTUS showing in a  manner acceptable to GRL:

 

(i)                                     allTYPE 1 LICENSED PRODUCTS and TYPE 2 LICENSED PRODUCTS which were sold, leasedor put into use during such semiannual period;

 

(ii)                                  theFAIR MARKET VALUES of such TYPE 1 LICENSED PRODUCTS and TYPE 2 LICENSEDPRODUCTS; and

 

(iii)                               theamount of royalty payable thereon without regard to any exclusions orreductions of royalty pursuant to Sections 2.02(a) and (b); and

 

(iv)                              thenet amount payable after application of such reductions of royalty.

 

If no TYPE 1 LICENSED PRODUCTor TYPE 2 LICENSED PRODUCT has been so sold, leased or put into use, thestatement shall show that fact.

 

(c)           Within such sixty (60) day period specified in Section2.05, CONDUCTUS shall pay in United States dollars to GRL at the addressspecified in Section 4.03 the royalties payable in accordance with suchstatement.  Any conversion to United Statesdollars shall be at the prevailing rate for bank cable transfers as quoted forthe last day of such semiannual period by leading United States banks in NewYork City dealing in the foreign exchange market.

 

(d)           Overdue payments hereunder shall be subject to a latepayment charge calculated at an annual rate of three percentage points (3%)over the prime rate or successive prime rates (as posted in New York Cityduring delinquency.  If the amount ofsuch charge exceeds the maximum permitted by law, such charge shall be reducedto such maximum.

 

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**ARTICLE III**

**TERMINATION**

 

**3.01        Breach**

 

Inthe event of a breach of this Agreement by CONDUCTUS, GRL may, in addition toany other remedies that it may have, at any time terminate all licenses andrights granted by it hereunder by not less than two (2) months’ written noticespecifying such breach, unless within the period of such notice all breachesspecified therein shall have been remedied.

 

**3.02        VoluntaryTermination**

 

(a)           By written notice GRL, CONDUCTUS mayvoluntarily terminate all or a specified portion of the licenses and rightsgranted to it hereunder.  Such noticeshall specify the effective date (not more than six (6) months prior to thegiving of said notice) of such termination.

 

(b)           Failure to pay any installment of thefee due pursuant to Section 2.01 within ten (10) days of the due date for suchinstallment shall be considered to be a voluntary termination by CONDUCTUS,effective upon such due date, of all rights and licenses under this Agreement.  Upon such voluntary termination, suchinstallment and any remaining installments of the fee due pursuant to Section2.01 shall be payable immediately.

 

**3.03        Survival**

 

Anytermination of licenses and rights of CONDUCTUS under the provisions of thisArticle III shall not affect CONDUCTUS’s licenses, rights and obligations withrespect to any MAGNETIC PRODUCT made prior to such termination.

 

**ARTICLE IV**

**MISCELLANEOUSPROVISIONS**

 

**4.01        Disclaimer**

 

**Neither GRL nor any of its RELATED COMPANIESmakes any representations, extends any warranties of any kind, assumes anyresponsibility or obligations whatever, or confers any right by implication,estoppel or otherwise, other than the licenses and rights herein expresslygranted.**

 

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**4.02        Nonassignability**

 

(a)           GRL has entered into this Agreementin contemplation of personal performance by CONDUCTUS and it is GRL’s intentionthat a transfer of CONDUCTUS’s licenses or rights not occur without GRL’sexpress written consent.

 

(b)           Neither this Agreement nor anylicenses or rights hereunder, in whole or in part, shall be assignable ortransferable by CONDUCTUS (by operation of law or otherwise) without GRL’sexpress written consent.

 

(c)           Any purported assignment or transferof this Agreement or licenses or rights hereunder by CONDUCTUS without GRL’snecessary consent shall be void (without affecting any other licenses or rightshereunder).

 

(d)           Notwithstanding the provisions ofSection 4.02(a-c), if CONDUCTUS is acquired by a third party prior to April 25,2003, which third party (i) is not a COMPETITOR of GRL or any of its RELATEDCOMPANIES and (ii) is not engaged, as of the date on which CONDUCTUS isacquired, in litigation on any matter with GRL or any of its RELATED COMPANIES,then this Agreement may be assigned to such third party provided that suchthird party agrees:

 

(i)                         to pay GRL a lump sum of [****] United States dollars (U.S. $[****]) on the date this Agreement is assigned;or

 

(ii)                      to pay GRL a lump sum of [****] United States dollars (U.S. $[****]) on the date this Agreement is assignedand to amend the royalty provisions of Section 2.02(a) so that the royalty forTYPE 1 LICENSED PRODUCTS is ****]and for TYPE 2 LICENSED PRODUCTS is [****]

 

CONDUCTUSshall provide to GRL written notice of both the acquisition and which of (i) or(ii) above has been selected by the third party.

 

(e)           Notwithstanding the provisions ofSection 4.02(a-c), if CONDUCTUS is acquired by a third party on or after April25, 2003, which third party (i) is not a COMPETITOR of GRL or any of itsRELATED COMPANIES and (ii) is not engaged, as of the date on which CONDUCTUS isacquired, in litigation on any matter with GRL or any of its RELATED COMPANIES,then this Agreement may be assigned to such third party provided that suchthird party agrees:

 

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(i)                         to pay GRL a lump sum of United Statesdollars (U.S. $ [****]) on thedate this Agreement is assigned; or

 

(ii)                      to pay GRL a lump sum of [****] United States dollars (U.S. $ [****]) on the date this Agreement is assignedand to amend the royalty provisions of Section 2.02(a) so that the royalty forTYPE 1 LICENSED PRODUCTS is [****]and for TYPE 2 LICENSED PRODUCTS is [****]

 

CONDUCTUSshall provide to GRL written notice of both the acquisition and which of (i) or(ii) above has been selected by the third party.

 

**4.03        Addresses**

 

(a)           Any notice or other communicationhereunder shall be sufficiently given to CONDUCTUS when sent by certified mailaddressed to CONDUCTUS’s office specified above, or to GRL when sent bycertified mail addressed to Contract Administrator, Intellectual PropertyOrganization, Lucent Technologies GRL Corporation, Suite 105, 14645 N.W. 77thAvenue, Miami Lakes, Florida 33014, United States of America. Changes in suchaddresses may be specified by written notice.

 

(b)           Payments by CONDUCTUS shall be madeto GRL at Lucent Technologies GRL Corporation, General Post Office, P.O. Box6219, New York, New York 10087-6219, United States of America or by wiretransfer at Chase Manhattan Bank, Account Number: 323857752, Swift Code:CHASUS33, ABA Code: 021000021.  Changesin such address or account may be specified by written notice.

 

**4.04        Taxes**

 

CONDUCTUSshall pay any tax, duty, levy, customs fee, or similar charge (“taxes”),including interest and penalties thereon, however designated, imposed as aresult of the operation or existence of this Agreement, including taxes whichCONDUCTUS is required to withhold or deduct from payments to GRL, except (i)net income taxes imposed upon GRL by any governmental entity within the UnitedStates (the fifty (50) states and the District of Columbia), and (ii) netincome taxes imposed upon GRL by jurisdictions outside the United States whichare allowable as a credit against the United States Federal income tax of GRLor any of its SUBSIDIARIES.  In orderfor the exception in (ii) to be effective, CONDUCTUS must furnish to GRLevidence sufficient to satisfy the United States taxing 

 

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authoritiesthat such taxes have been paid.  Suchevidence must be furnished to GRL within thirty (30) days of issuance by thelocal taxing authority.

 

**4.05        Choice of Law**

 

TheParties agree that the law of New York, exclusive of its conflict of lawprovisions, shall apply in any dispute arising with respect to this Agreement.

 

**4.06        Publicity**

 

(a)           Nothing in this Agreement shall beconstrued as conferring upon CONDUCTUS or its SUBSIDIARIES any right to includein advertising, packaging or other commercial activities related to aCOMMUNICATIONS PRODUCT, HEALTHCARE PRODUCT, NMR COIL SET, and/or SQUID SENSOR,any reference to GRL or any of its RELATED COMPANIES, their trade names,trademarks or service marks in a manner which would be likely to causeconfusion or to indicate that such COMMUNICATIONS PRODUCT, HEALTHCARE PRODUCT,NMR COIL SET and/or SQUID SENSOR is in any way certified by GRL or any of itsRELATED COMPANIES.

 

(b)           Each Party agrees to maintain thecontents of this Agreement in confidence. However, GRL and its RELATED COMPANIES may disclose the royaltyreduction provision of Section 2.02(b) to potential licensees of intellectualproperty relating to high temperature superconducting materials.

 

(c)           Each Party may make announcementsrelating to the existence of this Agreement. Each Party agrees, however, to submit each announcement for approval tothe other Party, whose approval shall not be unreasonably withheld.  If a Party does not respond within thirty(30) days from receipt of an announcement submitted to it for approval, suchannouncement shall be deemed approved by such Party.

 

**4.07        Integration**

 

ThisAgreement sets forth the entire agreement and understanding between the Partiesas to the subject matter hereof and merges all prior discussions betweenthem.  Neither of the Parties shall bebound by any warranties, understandings, modifications or representations withrespect to such subject matter other than as expressly provided herein or in awriting signed with or subsequent to execution hereof by an authorizedrepresentative of the Party to be bound thereby.

 

**4.08        DisputeResolution**

 

(a)           If a dispute arises out of or relatesto this Agreement, or the breach, termination or validity thereof, the Partiesagree to submit the dispute to a sole 

 

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mediatorselected by the Parties or, at any time at the option of a Party, to mediationby the American Arbitration Association ("AAA").  If not thus resolved, it shall be referredto a sole arbitrator selected by the Parties within thirty (30) days of themediation, or in the absence of such selection, to AAA arbitration which shallbe governed by the United States Arbitration Act.

 

(b)           Any award made (i) shall be a bareaward limited to a holding for or against a Party and affording such remedy asis deemed equitable, just and within the scope of the agreement; (ii) shall bewithout findings as to issues (including but not limited to patent validityand/or infringement) or a statement of the reasoning on which the award rests;(iii) may in appropriate circumstances (other than patent disputes) includeinjunctive relief; (iv) shall be made within four (4) months of the appointmentof the arbitrator; and (v) may be entered in any court.

 

(c)           The requirement for mediation andarbitration shall not be deemed a waiver of any right of termination under thisAgreement and the arbitrator is not empowered to act or make any award otherthan based solely on the rights and obligations of the Parties prior to anysuch termination.

 

(d)           The arbitrator shall be knowledgeablein the legal and technical aspects of this Agreement and shall determine issuesof arbitrability but may not limit, expand or otherwise modify the terms ofthis Agreement.

 

(e)           The place of mediation andarbitration shall be New York City.

 

(f)            Each Party shall bear its ownexpenses but those related to the compensation and expenses of the mediator andarbitrator shall be borne equally.

 

(g)           A request by a Party to a court forinterim measures shall not be deemed a waiver of the obligation to mediate andarbitrate.

 

(h)           The arbitrator shall authority toaward only compensatory damages.  Thearbitrator shall no authority to award punitive or other damages, and eachParty irrevocably waives any claim thereto.

 

(i)            The Parties, their representatives,other participants and the mediator and arbitrator shall hold the existence,content and result of mediation and arbitration in confidence.

 

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**IN WITNESS WHEREOF**, each of the Parties has caused thisAgreement to be executed in duplicate originals by its duly authorizedrepresentatives on the respective dates entered below.

 
|   | **LUCENT TECHNOLOGIES GRL CORPORATION** |                   |
|--------|-----------------------------------------|------------------------|
|   |                                    |                   |
|   | By:                                     | /s/ M. R. Greene       |   |
|   |                                    | M. R. Greene           |   |
|   |                                    | Chairman               |   |
|   |                                    |                   |
|   | Date:                                   | 6-11-99                |   |
|   |                                    |                   |
|   |                                    |                   |
|   | **CONDUCTUS, INC.**                     |                   |
|   |                                    |                   |
|   | By:                                     | /s/ Charles E. Shalvoy |   |
|   |                                    | Charles E. Shalvoy     |   |
|   |                                    | President and CEO      |   |
|   |                                    |                   |
|   | Date:                                   | 6/3/99                 |   |
|        |                                         |                        |  |  |  |  |

 

 

**THIS AGREEMENT DOESNOT BIND OR OBLIGATE EITHER PARTY**

**IN ANY MANNER UNLESSDULY EXECUTED BY AUTHORIZED**

**REPRESENTATIVES OFBOTH PARTIES**

 

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**DEFINITIONS APPENDIX**

 

**COMPETITOR** means a legal entity providing serviceand/or products in microelectronics (including but not limited to integratedcircuits and optoelectronics), business communications systems (including butnot limited to messaging, voice/date and call center systems), opticalnetworking systems, switching and access systems, wireless network products,systems and infrastructure, network products (including but not limited tofiber products and power systems for communication products) and all naturalimprovements and extension therefrom. The term does not include a legal entity whose sales of the aboveproducts constitute less than one percent (1%) of such legal entity’srevenue.  The term also does not includeSuperconducting Technologies Inc., Illinois Superconductor Corp., NorthropGrumman and General Dynamics.

 

**COMMUNICATIONS PRODUCT** means components for the transmission andreception of radio frequency signals including, but not limited to, front-endreceivers and antennas.

 

**FAIR MARKET VALUE** means, with respect to any item sold,leased or put into use, the greater of (i) the selling price which a sellerwould realize from an unaffiliated buyer in an arm’s length sale of anidentical product in the same quantity and at the same time and place as suchsale, lease or putting into use; or (ii) the selling price actually obtainedfor such product in the form in which it is sold, whether or not assembled (andwithout excluding therefrom any components or subassemblies thereof which areincluded in such selling price).

 

Indetermining “selling price” the following shall be excluded:

 

(a)                      usual trade discounts actually allowed tounaffiliated persons or entities;

(b)                     packing costs;

(c)                      costs of insurance and transportation; and

(d)                     import, export, excise, sales and valueadded taxes, and customs duties.

 

**GRL’s PATENTS** means any patent issuing from U.S. patentapplication serial number 021,229 filed March 3, 1987, having inventorsBatlogg, Cava and van Doser (presently involved in interference 101,981) andany reissues, divisionals, continuations, continuations-in-part and foreignequivalents thereof.

 

**HEALTHCARE PRODUCT** means a detector for magnetic resonanceimaging.

 

**LICENSED PRODUCTS** means any product specified in Section1.01.

 

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**NMR COIL SET** means patterned and tested radio frequencydevices for use in Nuclear Magnetic Resonance (NMR) systems.

 

**RELATED COMPANIES**means, with respect to GRL: (i) anySUBSIDIARY of GRL, (ii) the parent company of GRL, Lucent Technologies, Inc.and/or (iii) any SUBSIDIARY of such parent company.

 

**SQUID SENSOR**means superconducting quantum interferencedevices (SQUIDs) for measuring magnetic properties of materials for use in thefield of healthcare and for research.

 

**SUBSIDIARY**of a company means a corporation or otherlegal entity (i) the majority of whose shares or other securities entitled tovote for election of directors (or other managing authority) is now orhereafter controlled by such company either directly or indirectly; or (ii)which does not have outstanding shares or securities but the majority of whoseownership interest representing the right to manage such corporation or otherlegal entity is now or hereafter owned and controlled by such company eitherdirectly or indirectly; but any such corporation or other legal entity shall bedeemed to be a SUBSIDIARY of such company only as long as such control orownership and control exists.

 

**TYPE 1 LICENSED PRODUCT** means a COMMUNICATIONS PRODUCT.

 

**TYPE2 LICENSED PRODUCT** means a HEALTHCARE PRODUCT, NMRCOIL SET and/or a SQUID SENSOR.

 

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