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<SEC-DOCUMENT>0000927016-01-501691.txt : 20010628
<SEC-HEADER>0000927016-01-501691.hdr.sgml : 20010628
ACCESSION NUMBER: 0000927016-01-501691
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20010331
FILED AS OF DATE: 20010627
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AMERICAN SUPERCONDUCTOR CORP /DE/
CENTRAL INDEX KEY: 0000880807
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731]
IRS NUMBER: 042959321
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0331
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-19672
FILM NUMBER: 1669212
BUSINESS ADDRESS:
STREET 1: TWO TECHNOLOGY DR
CITY: WESTBOROUGH
STATE: MA
ZIP: 01581
BUSINESS PHONE: 5088364200
MAIL ADDRESS:
STREET 1: TWO TECHNOLOGY DR
CITY: WESTBOROUGH
STATE: MA
ZIP: 01581
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d10k.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2001
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 0-19672
American Superconductor Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 04-2959321
(IRS Employer
(State or other jurisdiction Identification Number)
of incorporation or organization)
01581
Two Technology Drive (Zip Code)
Westborough, Massachusetts
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (508) 836-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
On April 30, 2001, the aggregate market value of voting Common Stock held by
nonaffiliates of the Registrant was $307,722,964 based on the closing price of
the Common Stock on the Nasdaq National Market on April 30, 2001.
The number of shares of Common Stock outstanding as of April 30, 2001 was
20,280,191.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Form 10-K Part
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<S> <C>
Definitive Proxy Statement with respect to the Annual Part III
Meeting of Stockholders for the fiscal year ended
March 31, 2001, to be filed with the Securities and
Exchange Commission by June 27, 2001.
</TABLE>
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- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
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Part I
1. Business.......................................................... 1
2. Properties........................................................ 17
3. Legal Proceedings................................................. 18
4. Submission of Matters to a Vote of Security Holders Stockholder
Matters........................................................... 18
Part II
5. Market for Registrant's Common Equity and Related................. 20
6. Selected Financial Data........................................... 20
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 21
7A. Quantitative and Qualitative Disclosure About Market Risk......... 21
8. Financial Statements and Supplementary Data....................... 21
9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 21
Part III
10. Directors and Executive Officers of the Registrant................ 21
11. Executive Compensation............................................ 21
12. Security Ownership of Certain Beneficial Owners and Management.... 21
13. Certain Relationships and Related Transactions.................... 21
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 22
</TABLE>
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
For this purpose, any statements contained herein that relate to future events
or conditions, including without limitation, the statements under "Item 1.
Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and located elsewhere herein regarding
industry prospects and the Company's prospective results of operations or
financial position, may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such forward-looking statements represent management's current
expectations and are inherently uncertain. The important factors discussed
below under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Future Operating Results," among others,
could cause actual results to differ materially from those indicated by
forward-looking statements made herein and presented elsewhere by management
from time to time. Any such forward-looking statements represent management's
estimates as of the date of this Annual Report on Form 10-K. While the Company
may elect to update such forward-looking statements at some point in the
future, it disclaims any obligation to do so, even if subsequent events cause
its views to change. These forward-looking statements should not be relied
upon as representing the Company's views as of any date subsequent to the date
of this Annual Report on Form 10-K.
Item 1. Business
Overview
American Superconductor Corporation is a world leader in developing products
using superconducting materials and power electronic switches. We offer two
core enabling technologies and products: high temperature superconductor (HTS)
wires and power electronic switches. We sell products based on these
technologies to electrical equipment manufacturers, industrial power users,
and businesses that produce and deliver power.
1
<PAGE>
We develop and manufacture HTS wire capable today of carrying more than 140
times the electrical current of conventional copper wire of the same
dimensions. We have also developed and commercialized advanced power
electronic switches that control, modulate, and move large amounts of power
with higher efficiency and at lower cost than competing products for power
levels greater than 50 kilowatts (50kW).
Leveraging these core products is fundamental to our commercialization
strategy and has resulted in two other significant products. We also
manufacture and sell superconducting magnetic energy storage (SMES) systems,
which are used by customers to improve power quality and reliability and
increase power transfer capacity in constrained transmission grids. We are
also developing lower cost, higher efficiency, smaller and lighter electric
motors and generators.
Our products, and those sold by electrical equipment manufacturers
incorporating our products, can:
. Dramatically increase the reliability and power transfer capacity
("bandwidth") of power delivery systems;
. Substantially improve the quality of electric power delivered to
customers;
. Greatly reduce the manufacturing and operating costs of primary
electrical equipment, including generators and motors; and
. Conserve energy resources used to produce electricity, such as oil, gas
and coal, by more efficiently conducting electricity and converting it
into useful forms.
Consistent with bringing our revolutionary products to market on a global
basis, we have established a number of strategic relationships with market
leaders, including: Pirelli Cables and Systems; the GE Industrial Systems
division of the General Electric Company; Rockwell Automation, an operating
unit of Rockwell International Corporation; ALSTOM Power Conversion, Inc.;
Litton Industries' Litton Ship Systems group; and Electricite de France.
We believe there will be significant market demand for our products because
of the following factors:
. Demand for electrical power is rapidly growing on a global basis;
. The power delivery infrastructure in many developed nations is severely
constrained in its ability to safely carry and deliver large amounts of
power;
. Power reliability and power quality are increasingly important as
economies transition to computerized and digital electronic systems;
. Domestic policy is now acknowledging the need to upgrade the transmission
and distribution grid as part of an effective long-term national energy
policy; and
. Environmental threats from global industrialization and population growth
continue to influence nations to encourage environmentally friendly power
technologies.
Market Overview
Power Demand and Transmission Capacity
Over the next 10 years, domestic demand for electric power is expected to
increase approximately 25%. This large projected increase is being driven in
part by the trend toward electrification of energy use throughout the world.
Rapid growth in the use of computers, the Internet and telecommunications
products has created a significant increase in demand for power to run
computers and other microprocessor-based components and devices that depend on
electricity. Projected growth rates for power consumption by these newer
technologies are far higher than for traditional uses of power, which have
historically grown in proportion to the GNP. This growth in power consumption,
especially for higher quality and more reliable power to support digital
applications, is a major driver for all of our businesses.
2
<PAGE>
We believe another major factor in our expected growth will be the need for
massive improvements to the nation's transmission infrastructure. As
identified in a report by President Bush's National Energy Policy Development
Group (NEPDG), transmission capacity is already insufficient to meet today's
needs. The graph below illustrates the decline in transmission asset
investment over the last decade while generating capacity increased.
[GRAPH APPEARS HERE]
The NEPDG report signals an important shift in federal energy policy,
including recognition of critical deficiencies in the national transmission
grid and identification of specific initiatives favorable to our
commercialization objectives.
Among other conclusions, the report specifically recommends that the
President direct appropriate federal agencies to examine the benefits of
establishing a national transmission grid to meet the energy needs of the
growing U.S. economy. It further recommends that the Secretary of the U.S.
Department of Energy (DOE) be directed to identify transmission bottlenecks
and specific measures to remove such bottlenecks. The report specifically
recommends that the President direct the DOE to expand research on
transmission reliability and superconductivity. It also cites the need for
incentives for adequate investment in the transmission system and formation of
companies dedicated to transmission facility operation. We believe we are well
positioned to benefit from expected future improvements in transmission
capacity, reliability and efficiency consistent with the proposed national
energy policy.
In the summer of 1999, failures of overloaded power cables in a number of
U.S. cities indicated the need to upgrade the power delivery infrastructure to
keep pace with increasing power demand. Several years ago, the Electric Power
Research Institute estimated that 2,200 miles of U.S. urban power cables were
candidates for replacement. We believe this figure has increased in recent
years. We estimate that the annual addressable worldwide market for HTS power
cables for both power transmission and distribution applications is $5
billion.
Power Quality and Reliability
The reliability of the power supply network and the quality of the power
delivered are becoming increasingly important in today's economy. Many of the
new computer and telecommunications applications that are driving increased
demand for power incorporate silicon chips that require a higher level of
power reliability and quality. Voltage instability and low voltage in the
power delivery network are significant problems for modern computers and
telecommunications equipment. As the Internet economy grows, avoiding downtime
due to power-related problems will become increasingly important. In addition,
the increased use of sensitive electronics in manufacturing has led to more
frequent and abrupt shutdowns of industrial operations because of voltage
sags.
3
<PAGE>
Protection against power quality problems such as voltage sags lasting two
seconds or less can provide significant economic value to large industrial
users of power. Such momentary sags cause more than 90% of all plant
shutdowns, which can last from hours to days and be very costly. According to
a Sandia National Laboratories study, the annual cost to U.S. businesses of
power disturbances is $150 billion, with $114 billion or 76% resulting from
voltage sags and undervoltages.
In the past, electric utilities have attempted to enhance the reliability of
networks primarily by installing more power lines. Power suppliers are finding
it increasingly difficult to get permits for new lines due to environmental,
health, safety, property value and aesthetic concerns. As a result, both power
users and electric utilities are seeking new solutions for power quality and
reliability problems.
We believe we are well positioned to participate in the significant
increases in investment in the grid that are expected to occur over the next
decade and beyond. We anticipate that our participation in this growing
opportunity will be through sales of SMES and related products, and through
sales of HTS wires for high-capacity power cables that increase the power
bandwidth of existing rights of way.
Power Electronic Switches
After power is generated or transported over wires, it nearly always
requires switching to a more useful form specific to end-use applications.
Driven in part by the trend toward a global digital economy, the complexity of
switching power into useful forms is increasing. This in turn is driving the
market for power switching applications. Industry experts estimate that more
than 20% of all power generated in the U.S. goes through power electronic
switches and that this amount will increase with higher demand for more
reliable power, including distributed generation.
Frost & Sullivan estimates the annual worldwide alternating current
(AC)/direct current (DC) switching power supply market at approximately $9.4
billion, growing to about $18.3 billion in 2005. AC/DC power supplies
constitute the largest part of the power electronics market, and product sales
have historically been concentrated in the information technology area. Power
electronic switches are also widely used in the electric power,
transportation, industrial, and defense sectors to condition and control
power.
Key trends in power electronic switches applied to power infrastructure
markets include greater modularization and standardization, demand for smaller
units with higher power density, and ongoing consolidation of a fragmented
market for power electronic switches.
Motors and Generators
The market for large electric motors and generators is well developed, with
strong competitors and intense pricing pressure. We estimate that the annual
worldwide market for commercial motors (machines with ratings of 1,000
horsepower (hp) or higher) is approximately $1 billion, and that the worldwide
market for electrical generators (with power ratings over 30 megawatts (MW))
is approximately $2 billion per year. Large electric machine production today
is labor intensive, requires a large fixed asset investment, and does not lend
itself to mass production techniques. As a result, many large motor and
generator manufacturers are seeking opportunities to reduce manufacturing
and/or investment costs to improve profitability.
We believe an initial market penetration for HTS motors will be in
transportation applications, particularly electric ship propulsion for cruise,
cargo and naval vessels, where major size and weight savings can provide a key
benefit by increasing design flexibility and operating profits. The annual
market for ship propulsion motors and generators is expected to grow to $2-4
billion in the next decade, from approximately $400 million today.
Our Solutions
Based on an intellectual property estate of more than 370 patents and
patents pending, we are a world leader in two core technologies: HTS wires and
power electronic switches. These enabling technologies are required to meet
the needs of the 21st century power infrastructure. We sell some products,
such as SMES systems, directly to end users, and sell other products through
original equipment manufacturers, as in the case of power cables.
4
<PAGE>
Our products are designed to be incorporated in a wide range of end products
including electric power cables, industrial motors and generators, ship
propulsion motors, distributed power applications such as microturbines, fuel
cells and wind turbines, and uninterruptible power supply (UPS) systems.
HTS Wire for Power Transmission Cables
One of our two core products is HTS wire. When cooled to -324(degrees)
Fahrenheit, our HTS wire today carries more than 140 times the electrical
current of copper wire of the same dimensions. We believe an important
application for our HTS wire will be high-capacity power cables, which are the
backbone of the power delivery infrastructure. The performance levels and
mechanical properties of our HTS wire are sufficient today to meet the
technical and commercial requirements for cables for urban power delivery
systems.
HTS cables can provide a variety of advantages over conventional copper
cables. HTS cables can be installed in existing conduits, rather than building
more conduits for traditional cables, which eliminates excavation costs and
significantly reduces construction and engineering costs. Such costs typically
account for up to 70% of total system costs for underground transmission
projects in urban areas. In addition, replacing copper cables in existing
power systems with HTS cables frees up underground cable conduits for other
uses, such as telecommunications, high-speed Internet and cable television. We
also believe that installation of HTS cables in existing urban conduits will
allow the elimination of some substations within cities, improving system
operation and potentially freeing up real estate for other uses. We believe
that the advantages of HTS cables will also be very attractive to businesses
that distribute power in suburban settings, many of which find it increasingly
difficult to secure clearance for installation of new overhead power lines.
Because of the high power capacity of our HTS wire, underground power cables
using our HTS wire will contain much less wire, yet will have the potential to
carry up to five times more power than copper-wire cables of the same
dimensions. We expect the first use of our HTS wire in power cables for a
utility network to occur in the second half of 2001, when Pirelli and Detroit
Edison energize three 120-meter HTS power cables in a downtown Detroit
substation. These three superconducting cables are replacing nine copper-wire
cables, and we believe this project will be an important demonstration of the
commercial viability of HTS power cables. In August 2000, we completed
delivery of approximately 29 kilometers of HTS wire, which Pirelli used to
manufacture HTS power cables for the Detroit Edison demonstration project.
Management expects that an announcement regarding the use of HTS power cables
in the Detroit grid will occur by December 31, 2001, after the HTS cable
system has been energized to serve 14,000 Detroit Edison customers.
[ART APPEARS HERE]
5
<PAGE>
Superconducting Magnetic Energy Storage (SMES) Systems
Our power quality and reliability solutions are based on proprietary power
conversion electronics, HTS wire and superconducting electricity storage
coils. Because the wire in a coil of superconducting material has no
resistance to the passage of electrical current, large amounts of electricity
can be stored in those coils and removed instantaneously. These features, made
possible by integrating our proprietary superconducting storage devices and
power electronic switches, provide the basis for a product line called
superconducting magnetic energy storage, or SMES. We offer two SMES products:
. Power Quality SMES, known as PQ-SMES, addresses power quality problems
faced by industrial users of electricity; and
. Distributed-SMES, known as D-SMES, addresses power reliability problems
in power delivery networks.
The PQ-SMES system protects industrial power users from the adverse effects
of momentary voltage drops. Similarly, D-SMES systems protect electric
utilities by stabilizing voltage in power networks, by injecting large amounts
of power from a storage coil and power electronic converters to restore the
voltage to normal levels. Both SMES products provide solutions at very high
power levels--typically 5MW and greater. Our SMES products use proprietary
electromagnets made with low temperature superconducting (LTS) wire combined
with proprietary power electronic switches. We have also incorporated HTS
wire--rather than copper wire--into our SMES products to carry power in and
out of the LTS storage coils, significantly reducing manufacturing and
operating costs.
In 1997, we introduced PQ-SMES to provide "high nines" power--very high
quality power--at industrial and commercial sites. Our key target customer for
PQ-SMES is semiconductor manufacturers, which understand the impact of voltage
sags on productivity and the resulting high cost of downtime. As of May 31,
2001, we had sold three PQ-SMES systems worldwide to semiconductor producers.
Introduced in 1999, D-SMES dramatically increases power grid reliability for
utilities and power transmission companies by addressing dynamic voltage
problems and increasing power flow through the grid. We had sold 11 D-SMES
systems worldwide as of May 31, 2001.
D-SMES systems increase large-scale power flow through existing transmission
assets, significantly improving grid power bandwidth. As noted in the "Market
Overview" section, low levels of investment in U.S. transmission grids have
contributed to a shortfall in network capacity. D-SMES is also a cost-
effective and readily deployable solution. Given these factors and the current
federal emphasis on increasing transmission capacity and reducing related
regulatory hurdles, we anticipate future demand for D-SMES by utilities and
transmission companies.
In April 2000, we formed a strategic marketing and sales alliance with GE
Industrial Systems to bring co-branded D-SMES and PQ-SMES products to market.
We believe that GE is a strong market channel for these products. Our first
order as a result of this new alliance was received in September 2000 from
Entergy Corporation, one of the largest U.S. utility companies. In May 2001,
we and GE Industrial Systems announced a follow-on order from Entergy. We
believe this follow-on order confirms that D-SMES has crossed an important
market acceptance threshold in demonstrating its ability to increase power
transfer cost effectively on large-scale utility transmission systems.
Power Electronic Switches
Utilities have historically relied on slow electromechanical switches and
passive devices, such as capacitors and tap changing transformers, to manage
the power grid. However, digital age demand for better power reliability and
quality calls for higher performance through faster switching devices and
active grid management. Power electronic switches that control, modulate and
move large amounts of power faster and with far less disruption than
electromechanical switches are essential to active grid management. We have
leading-edge expertise in this area based on our years of experience with
power electronics applications for our SMES product
6
<PAGE>
line, which incorporates both superconductor and advanced power electronic
switch technologies. Together with HTS wires, our power electronic switches
are a core technology.
In June 2000, we acquired the assets of Integrated Electronics, LLC ("IE")
of Milwaukee, Wisconsin, a manufacturer of power electronic switches utilizing
state-of-the-art power semiconductors. IE had been one of our co-developers
and suppliers of advanced power electronic switch modules for use in our SMES
product line. The power electronic switches used in our SMES product line
convert electrical energy stored in superconducting electromagnets in the form
of DC power into controlled AC power. This type of power electronic switch is
called an inverter. Over the past year, IE has been integrated into our
company. Our product development and marketing efforts are now focused on
expanding the customer base beyond our existing business units.
In October 2000, we announced the launch of the PowerModule(TM) line of
power converters as a merchant product--that is, for sale to customers other
than our SMES business. Target markets for our power electronic switches
include distributed generation equipment such as fuel cells and microturbines,
other power quality devices such as flywheels and batteries, and electronic
motor drives for transportation systems such as locomotives, ships, and
electric or hybrid electric vehicles, all focused on power levels of 50kW or
higher. We plan to expand our power electronics technology base and develop
new products for other market segments where power technologies are important.
With our highly differentiable power electronic switch product, we believe we
have an opportunity to develop a leadership position in the marketplace for
advanced power electronics in the higher power range.
We believe our power conversion technology is more advanced than our
competitors' in the areas of power density, standardization and
programmability. Additionally, our technology allows customers to protect
proprietary control algorithms unique to their businesses by placing a
firewall between programming functions accessible to customers, and
programming functions accessible to us. Our approach to protecting customers'
intellectual property is believed important because it allows for more product
standardization while simultaneously providing customers more flexibility in
the design, application, and modification of their proprietary application
control strategies. Derivative benefits are expected to be shorter product
development cycle time, lower manufacturing costs, and improved quality
control.
We received two non-SMES orders for PowerModules in March 2001. One is for a
wind turbine application and the other is for a battery-backed UPS system.
7
<PAGE>
HTS Electric Motors and Generators
Superconducting motors and generators are new types of rotating machines
that employ HTS windings in place of conventional copper coils. Because HTS
wire can carry larger currents than copper wire, these windings are capable of
generating significantly more powerful magnetic fields in a given volume.
Utilizing our 11 years of design and development experience in the area of HTS
rotating machines, we have created proprietary designs for HTS motors and
generators that we expect will greatly reduce the cost of manufacturing this
equipment. Advances in coil design make it possible for superconducting motors
and generators to match the power output of equally rated conventional
machines with as little as one-fifth the size and weight. The smaller size and
compact nature of superconducting machines allows them to be manufactured at
lower cost than equivalent conventional motors and generators.
[ART APPEARS HERE]
We believe a primary initial use for HTS motors will be in transportation
applications, particularly naval and commercial ship electric propulsion,
where critical size and weight savings can increase ship design flexibility.
Electric drives have already penetrated the cruise ship segment because of
advantages over competing mechanical systems. The increased power density,
higher operating efficiency and inherent quietness of HTS-based marine
propulsion systems will significantly expand the advantages of electric
propulsion systems.
In June 1999, we were awarded a contract by the U.S. Navy's Office of Naval
Research (ONR) for the preliminary design of a 25 MW (33,500-hp) HTS motor for
ship propulsion. In January 2000, the U.S. Navy announced that it is targeting
electric drives for all future propulsion systems in its warships. Follow-on
design and development contracts were awarded to us by ONR in October 2000 and
April 2001.
ALSTOM Power Conversion, Inc., a world leader in the design, manufacture and
deployment of electric motors for ship propulsion, is working as a
subcontractor to us on the U.S. Navy program. Initial sea trials of an HTS
motor are expected to commence by December 31, 2003.
In July 2000, we successfully demonstrated operation of the world's first
1,000-hp HTS motor in collaboration with Rockwell Automation Power Systems.
This high-efficiency motor was designed to operate at half the electrical
losses of a conventional motor of the same power rating.
We are building an ultra-compact 5,000-hp HTS motor that we plan to test by
the end of July 2001. As of March 31, 2001, we had built and tested all of the
HTS components and many subsystems for this motor, including new power
electronics for controlling the motor, powering the HTS windings and
monitoring performance.
8
<PAGE>
We plan to build and test an HTS generator by March 31, 2002. The
developments we achieved in HTS motor technology apply to generators as well,
which are basically motors run in reverse.
We have a separate business unit focused on developing and commercializing
HTS motor and generator technology. We intend to team with one or more
established motor and generator manufacturers to form a jointly owned business
for manufacturing and marketing HTS motors and generators to accelerate
commercialization of this technology. If we are successful in establishing
that jointly owned business, we intend to sell HTS components and systems to
that business.
Cooling Systems
We are designing and fabricating cooling systems to support our
superconducting products, which will operate only if the wire or coils are
cooled below their critical temperature. Our HTS materials, which maintain
their superconductivity at higher temperatures than LTS materials, are cooled
with liquid nitrogen or with special refrigerators known as cryocoolers. In
particular, the HTS wire used to manufacture HTS power cables is typically
cooled by flowing liquid nitrogen, a non-toxic liquid, through the hollow core
of the cables. In contrast to oil, which is typically used to dissipate the
heat generated by running an electrical current through copper wires or is
used as an electrical insulating medium in some cables and most large
transformers, the liquid nitrogen used to cool our HTS wire is non-flammable
and presents fewer environmental hazards than those associated with the use of
oil. Liquid nitrogen is also significantly less expensive than oil.
Our LTS materials require cooling to lower temperatures than HTS materials.
Liquid helium combined with cryogenic, or very low temperature, refrigerators
is used to cool the magnetic coils in our SMES products.
Strategic Relationships, Research Arrangements and Government Contracts
We have a number of strategic relationships, research arrangements and
government contracts. Our most significant strategic corporate agreements are
with Pirelli, GE Industrial Systems ("GE"), Electricite de France ("EDF"),
ALSTOM Power Conversion, Inc., and Litton Ship Systems. We believe strategic
relationships, research arrangements and government contracts provide the
following important benefits:
. Several of our strategic partners will be critical in developing and
demonstrating commercial applications for our HTS and SMES products;
. Several of these relationships, particularly those with Pirelli and GE,
provide a potentially large channel to market;
. Various parties to these arrangements provide us with critical funding.
From inception through March 31, 2001, we received approximately $65
million of funding under research and development contracts.
Approximately 67% of this funding came from the private sector, with the
balance from government agencies;
. They provide us with development and marketing rights to important
technologies; and
. They assist us in meeting benchmarks.
The Pirelli alliance was originally established in February 1990 and has
encompassed a series of different agreements intended to combine Pirelli's
cable technology, manufacturing and marketing expertise with our proprietary
wire-manufacturing technologies for the purpose of developing and producing
HTS wire for cables. The Pirelli agreements contain provisions governing the
manufacture, sale and use of our HTS cable wire in cables used to transmit
both electric power and control signals. In general, Pirelli is obligated to
buy this HTS wire exclusively from us or to pay us royalties for any of the
wire it manufactures, and we are obligated to sell this cable wire exclusively
to Pirelli, for use in these applications anywhere in the world other than
Japan. We have exclusive manufacturing rights for this wire in North America
for these applications, and Pirelli may obtain manufacturing rights in Europe
and other parts of the world, subject to the payment of royalties to us.
Through March 31, 2001, Pirelli had provided us with a cumulative total of
$21.6 million in development funding,
9
<PAGE>
including $5.5 million from the most recent development contract dated
December 15, 1999, under which Pirelli has agreed to provide us with up to
$13.8 million in additional funding over the five-year period from October 1,
1999 through September 30, 2004. Portions of this contract are subject to
cancellation provisions. The latest agreement focuses on development of
second-generation HTS wire as well as further improvements to our currently
available HTS wire.
In April 2000, we entered into a marketing and sales alliance with GE
Industrial Systems giving GE the exclusive right to offer our D-SMES product
line to U.S. utilities and the right to sell PQ-SMES systems to certain of its
global industrial accounts. Last April, we and GE introduced a co-branded SMES
product offering.
The EDF relationship was established in April 1997. It involves:
. Exchange of information relating to developments in HTS technology and
related fields and trends in the electricity industry; and
. Review of technical, industrial and commercial topics through an advisory
board comprising representatives from both parties.
As part of the EDF alliance, in 1997 a subsidiary of EDF purchased 1.0
million shares of our common stock for $10.0 million. EDF's subsidiary
currently owns 1.15 million shares of common stock, representing approximately
5.7% of our outstanding common stock.
During fiscal 2001, we formed two additional strategic relationships we
believe will be important to the development and commercialization of HTS
shipboard propulsion motors.
We selected ALSTOM Power Conversion, a business of ALSTOM, as a
subcontractor on our U.S. Navy contract. ALSTOM Power Conversion is a market
leader in the design and manufacture of electric ship propulsion systems. The
parent company, ALSTOM, based in Paris, is a global leader in electric power
generation, electric motors and electric power systems.
We also formed a strategic alliance with Litton Ship Systems, a business
unit of Litton Industries and one of the nation's leading shipbuilders. The
purpose of this alliance is to collaborate on the use of HTS technology for
commercial and naval ships.
We have also established a number of collaborative research relationships
with organizations such as Industrial Research, Ltd. in New Zealand, several
U.S. Department of Energy laboratories, the University of Wisconsin Applied
Superconductivity Center, MIT and EPRI. We are also party to a number of
government contracts, with entities such as Wright-Patterson Air Force Base
and the U.S. Department of Energy, relating to the development and supply of
prototype products.
Superconductivity
A superconductor is a perfect conductor of electricity. It carries direct
current with 100% efficiency because no energy is dissipated by resistive
heating. Direct current in a superconducting loop can flow undiminished
forever. Superconductors can also conduct alternating current but with some
slight loss of energy.
Superconducting materials lose all resistance to the flow of direct
electrical current and nearly all resistance to the flow of alternating
electrical current when they are cooled below a critical temperature. The
critical temperature is different for each superconducting material.
Superconducting materials known today, including both HTS materials and LTS
materials, need to be cooled to very low temperatures to act as
superconductors.
10
<PAGE>
The graph below illustrates the complete loss of resistance to the flow of
electricity through wire of an LTS material (niobium-titanium alloy) and an
HTS material (bismuth-based, copper oxide ceramic) at their critical
temperature. The HTS material in this chart has no electrical resistance below
108 Kelvin (-265 degrees Fahrenheit). The LTS material in this chart has no
electrical resistance below 10 Kelvin (-441 degrees Fahrenheit).
[GRAPH APPEARS HERE]
A combination of three conditions must be met for a material to exhibit
superconducting behavior:
. The material must be cooled below its critical temperature (Tc);
. The current passing through a cross-section of the material must be below
a level known as the critical current density (Jc); and
. The magnetic field to which the material is exposed must be below a value
known as the critical magnetic field (H).
The initial discovery of superconducting materials was made in 1911. Before
1986, no known superconductor had a critical temperature above 23 Kelvin. Zero
Kelvin is the absolute zero of temperature, and is the equivalent of -459
degrees Fahrenheit; 23 Kelvin is the equivalent of -418 degrees Fahrenheit.
Although it is possible to cool LTS materials to their critical temperature,
that cooling process is expensive and often difficult, which limits the
commercial applications of LTS technology.
In 1986, a breakthrough in superconductivity occurred when two scientists,
Dr. K. Alex Muller and Dr. J. Georg Bednorz, at an IBM laboratory in Zurich,
Switzerland, identified a ceramic oxide compound, an HTS material, which was
shown to be superconductive at 36 Kelvin (-395 degrees Fahrenheit). This
discovery earned them the Nobel Prize for Physics in 1987, which is one of the
four Nobel Prizes that have been awarded for work on superconductivity. A
series of related ceramic oxide compounds that have higher critical
temperatures have been subsequently discovered. Some of these materials are
being actively used throughout the world and by us for practical wire
applications. During the same period, a variety of organic materials have been
discovered, in a class called "fullerenes," with critical temperatures
intermediate between the high temperature ceramic oxides and low temperature
metallic superconductors. Because of the expense and complexity of
synthesizing the fullerenes and also their limited performance in a magnetic
field, these have generally not been actively considered for wire
applications.
In early 2001, it was discovered that a well-known and widely available
material, MgB2, has a superconducting transition temperature at 40 Kelvin
(-387 degrees Fahrenheit). Because of its potential low cost and ease of
synthesis, work has been initiated around the world to investigate its
potential for wire application. We have also initiated work on MgB2 as a
potential wire material, both within the company and under outside contract.
If its performance in magnetic fields could be further improved in spite of
its relatively low transition temperature, it could find long-term application
in areas such as motor coils operation at 30 Kelvin. We believe our expertise
in composite wire fabrication methods will help enable us to develop a wire
process for MgB2.
11
<PAGE>
Status of Our HTS Wire Development
We have been successful in developing and producing HTS wire with
performance levels sufficient to meet the technical needs for applications
such as cables for urban power transmission systems and motors with power
ratings of over 5,000 hp. We believe the electrical and mechanical properties
of this wire, including its ability to withstand forces of tension,
compression and bending during device manufacturing and operation, are
adequate for present applications.
Although we have made rapid progress recently in improving performance
levels of our HTS wire, commercial viability of applications must be
established through demonstrations. We will also need to:
. Successfully address the engineering challenges of applying our
manufacturing techniques to the production of HTS wires in greater
quantities;
. Increase manufacturing capacity for HTS wire; and
. Reduce the manufacturing costs for our HTS wire.
HTS Wire Production Techniques
We produce HTS wire by a variety of techniques. Our principal technique
involves deformation processing, which is in some respects closely analogous
to the technique used in the existing metal wire industry. In this approach, a
metal tube, typically silver, is packed with an oxide precursor powder and
sealed. The tube is then deformed into a wire shape by a variety of
deformation processing techniques such as extrusion, wire-drawing,
multifilamentary bundling, and rolling. Finally, the wire is heat-treated to
transform the precursor powder inside the wire into a high-temperature
superconductor. We consider the resulting composite structure, in this case
consisting of many fine superconducting filaments embedded in a metal matrix,
to be one preferred method of achieving flexibility and durability in our wire
and wire products. The composite structure is the subject of a patent owned by
MIT, based on an invention by Dr. Gregory Yurek, our Chairman of the Board,
President and Chief Executive Officer and a founder, and a former professor at
MIT, and Dr. John Vander Sande, a professor at MIT, a founder, and a member of
our Board of Directors. This patent is licensed to us on an exclusive basis
until 2011. Our wire production techniques could also apply to brittle
MgB2.
In the past few years, we have made significant progress improving the wire
price performance ratio of our HTS wire. The following graph shows these price
performance ratio improvements, as measured by the price per meter of wire
divided by the electric current it carries as measured in kilo-amperes.
[GRAPH APPEARS HERE]
12
<PAGE>
During fiscal 2001, we improved first-generation HTS wire performance by
40%. We are currently quoting a price/performance ratio for volume sales one-
third below that of a year ago. This price/performance ratio decreased due to
lower manufacturing costs and higher performance. We also recently introduced
other new features to enhance the performance of our multifilamentary
composite wire. For example, we have added oxide particles to the silver metal
to enhance its strength. We also laminate thin layers of stainless steel or
other metal on the faces of the HTS tape-shaped wire, which further
strengthens and protects the wire.
Within the past few years, very high levels of current carrying performance
have been reported in small laboratory samples of HTS coated conductor wire by
a variety of laboratories, including our own. Coated conductor wire, also
referred to as second-generation wire, is made of a thick film of HTS material
deposited on a flexible base, typically with a buffer layer in between. We
have studied several HTS coated conductor processes and believe that some of
these processes have the potential for use in manufacturing the next
generation of HTS wire with high current-carrying capacity and lower cost than
multifilamentary composite wire. We are pursuing the development of these
processes with a significant internal program currently accounting for 80% of
our materials research and development expenditures. We are also collaborating
with Oak Ridge National Laboratory, MIT, Los Alamos National Laboratory,
Lawrence Berkeley National Laboratory, and other organizations in the research
and development of this technology. We have fabricated coated conductor wire
samples at high-performance levels. However, these have been short lengths of
wire, to date, and there can be no assurance that we will succeed in
developing this technology for commercial use. Commercial development of
second-generation wire is targeted for 2005-2006.
Manufacturing
We produce our HTS wire at our 102,000 square-foot Westborough,
Massachusetts, headquarters facility, where we currently manufacture HTS wire
at the rate of 500 kilometers per year. In Westborough, we have implemented
statistical process control techniques and have defined manufacturing
procedures for low-cost, reliable manufacturing operations.
In August 2000, we began construction of a 355,000-square foot facility at
the Devens Commerce Center in Devens, Massachusetts. We expect to partially
occupy the building and begin to install and test new manufacturing equipment
in the summer of 2001. Full production is expected to begin in early 2002. We
plan to use this new facility to expand our HTS wire production to meet our
goal of producing thousands of kilometers of HTS wire per year to meet
expected demand for applications such as power transmission cables, motors and
generators.
We manufacture our commercial SMES systems at our 60,000-square-foot
manufacturing facility in Middleton, Wisconsin. We assemble our SMES systems
by combining components purchased from other parties with our proprietary LTS
and HTS components, which we manufacture ourselves. We have developed
manufacturing infrastructure including discrete work centers to support our
current production, assembly and testing capacity of 48 SMES systems per year.
We obtain our power electronic switches from a contract manufacturer who
assembles our proprietary design exclusively for us. We maintain a prototype
assembly capability in-house that also can serve as a back-up manufacturing
source.
Sales and Marketing
We plan to sell our HTS wire and wire products through both a direct sales
force and through marketing and distribution alliances with third parties. We
are building a direct sales organization that can effectively demonstrate the
advantages of our products over both more traditional products and competitive
superconducting products.
13
<PAGE>
We expect to leverage the technical knowledge of our sales force with the
strengths of our strategic alliance partners in understanding customer needs
and creating market demand for new electrical products based on our HTS and
SMES products. These partners include:
. Pirelli, the world's largest producer of power cables;
. GE Industrial Systems, a global leader in manufacturing products used to
distribute, protect and control electrical power and equipment;
. Rockwell, a leading manufacturer of large industrial motors;
. EDF, one of the world's largest electric utilities;
. ALSTOM Power Conversion, a market leader in the design and manufacture of
electric ship propulsion systems; and
. Litton Ship Systems, one of the nation's leading shipbuilders.
We also expect to enter into arrangements with other third parties for the
marketing and distribution of our HTS products, including arrangements with
original equipment manufacturers, commonly known as OEMs, in which our
products--particularly coils of HTS wire--are included as a component of a
larger product such as a motor or generator.
We are developing several sales and distribution channels for our SMES
products, including a direct sales organization, distributors and OEMs. We
have distribution agreements with utility companies in Europe and South
Africa. With GE, we are marketing a co-branded SMES product offering. We are
also developing several sales and distribution channels for power electronic
switch products, including a direct sales organization, distributors and OEMs.
We have added experienced transmission network planners to provide marketing
and sales support for our D-SMES product. These individuals, who are
experienced in the analysis and design of transmission and distribution
networks, will help prospective customers to develop familiarity with our new
technology and to assess the beneficial impact D-SMES can provide in the
operation of their network systems. We plan to continue to build system
planning expertise and to add a portfolio of value-added services for our
utility customers.
Competition
As we begin to market and sell our superconducting products, we will face
intense competition both from vendors of traditional products and from
competitors in the superconductor field. There are a number of companies in
the U.S., Europe, Japan and Australia engaged in the development of HTS
products. For HTS wire, our principal competitors presently include:
. Several Japanese companies, such as Sumitomo Electric Industries,
Hitachi, Furukawa Electric Co. and Fujikura;
. Several European companies, such as Vacuumschmelze GmbH and Trithor in
Germany, Nordic Superconductor Technologies in Denmark, Nexans in France,
and Oxford Instruments in England; and
. Several companies in the U.S., such as 3M, Intermagnetics General and
EURUS Technologies.
We do not know of any companies currently selling low-temperature SMES
products that compete with our SMES products. However, there is a government-
sponsored program in Japan to develop SMES systems for power quality
applications. ACCEL Instruments GmbH in Germany is also exploring this
technology. Our SMES products also compete against:
. Static VAR compensators (SVC) and static compensator (STATCOM) devices
produced by Siemens, ABB and Mitsubishi Electric;
. Dynamic voltage restorers produced by companies such as Siemens and ABB;
. A high power, battery-based power electronics solution provided by S&C
Electric;
14
<PAGE>
. Flywheels offered by various companies around the world; and
. Battery-based UPS systems, which are widely manufactured and used around
the world.
We believe our PowerModules, which are programmable for many different
applications, have a higher power density and a lower cost of manufacturing
than power electronic switches made by others. Competitors for our
PowerModules include Ecostar, Inverpower, SatCon, Semikron and Trace, which is
part of Xantrex.
Many of our competitors have substantially greater financial resources,
research and development, manufacturing and marketing capabilities than we do.
In addition, as the HTS market and the power quality and reliability market
develop, other large industrial companies may enter these fields and compete
with us.
Patents, Licenses and Trade Secrets
HTS Patent Background
Since the discovery of high temperature superconductors in 1986, the HTS
industry has been characterized by rapid technical advances, which in turn
have resulted in a large number of patents--including overlapping patents--
relating to superconductivity being applied for and granted worldwide. As a
result, the patent situation in the field of HTS technology and products is
unusually complex.
An important part of our business strategy is to develop a strong patent
position in all our technology areas. Our patent portfolio comprises both
patents we own and patents we license from others. We devote substantial
resources to building a strong patent position and we believe that we have
significantly strengthened our position in the past several years. As of March
31, 2001, we owned (either alone or jointly) over 75 U.S. patents--as compared
to over 55 as of March 31, 2000--and had over 100 U.S. patent applications
(jointly or solely owned) on file. We also held licenses from third parties
covering over 60 issued U.S. patents and over 15 U.S. patent applications.
Together with the international counterparts of each of these patents, patent
applications and licenses, we own more than 370 patents and patent
applications worldwide, and have rights through exclusive and non-exclusive
licenses to more than 180 additional patents and patent applications. We
believe that our current patent position, together with our expected ability
to obtain licenses from other parties to the extent necessary, will provide us
with sufficient proprietary rights to develop and sell our products. However,
for the reasons described below, there can be no assurance that this will be
the case.
Despite the strength of our patent position, a number of U.S. and foreign
patents and patent applications of third parties relate to our current
products, to products we are currently developing, or to technology we are now
using in the development or production of our products. We may need to acquire
licenses to those patents, or to successfully contest the scope or validity of
those patents, or to design around patented processes or applications.
If companies holding patents or patent applications that we need to license
are competitors of ours, we believe the strength of our patent portfolio will
significantly improve our ability to enter into license or cross-license
arrangements with these companies. However, there can be no assurance that we
will be able to obtain all necessary licenses from competitors on commercially
reasonable terms, or at all.
We may be required to obtain licenses to some patents and patent
applications held by companies or other institutions, such as national
laboratories or universities, not directly competing with us. Those
organizations may not be interested in cross-licensing or, if willing to grant
licenses, may charge unreasonable royalties. We have successfully obtained
licenses from a number of such organizations, including Lucent Technologies,
Superlink of New Zealand, Oak Ridge National Laboratories, MIT, and Lawrence
Berkeley Laboratories, with royalties we consider reasonable. Based on our
past experience, we are optimistic that we will be able to obtain any other
necessary licenses on commercially reasonable terms. However, there can be no
assurance that we will be able to do so.
15
<PAGE>
Failure to obtain all necessary licenses upon reasonable terms could
significantly reduce the scope of our business and have a material adverse
effect on our results of operations. We do not now know the likelihood of
successfully contesting the scope or validity of patents held by others. In
any event, we could incur substantial costs in challenging the patents of
other companies. Moreover, the nature of HTS patents is such that third
parties are likely to challenge some of our patents or patent applications,
and we could incur substantial costs in defending the scope and validity of
our own patents or patent applications whether or not a challenge is
ultimately successful.
The sections that follow give more detailed information on the different
areas related to designing and manufacturing superconducting products:
. The choice of materials used to make HTS products;
. The wire processing methods to be applied to those materials and the wire
architecture;
. The components or subsystems to be fabricated and the fabrication methods
to be used; and
. SMES systems and power electronic switches.
Choice of HTS Materials
At any given time, we will have a preference for using one or a few specific
HTS materials in the production of our products. Any HTS material we use is
likely to be covered by one or more patents or patent applications held by
other parties.
We have obtained licenses to patents and patent applications covering some
HTS materials, including an exclusive license from Superlink and a non-
exclusive license from Lucent Technologies. However, we may have to obtain
additional licenses to HTS materials.
HTS Wire Processing and Wire Architecture
We are concentrating on two main methods for processing HTS materials into
wire. One produces multifilamentary composite wire, and the other produces a
coated conductor wire architecture. Our strategy is to obtain a proprietary
position in each of these methodologies through a combination of patents,
licenses and proprietary know-how. If alternative processes become more
promising in the future, we will also seek to develop a proprietary position
in these alternative processes.
We have filed a number of patent applications that are applicable to
multifilamentary and coated conductor wire architecture. Some of these
applications have been issued as patents in the United States and abroad,
while others are pending. We have acquired an exclusive license from MIT and a
non-exclusive license from Oak Ridge National Laboratories to intellectual
property relating to coated conductors, and a non-exclusive license from
Lucent Technologies relating to the production of multifilamentary composite
wire. We also have acquired certain intellectual property rights in the coated
conductor area through our collaboration with EPRI.
We have an exclusive license from MIT under an issued U.S. patent that
covers the architecture of multifilamentary composite wire, specifically the
composite of HTS ceramics and noble metals such as silver. We have also filed
for patents on laminate structures for this wire and on new architectures for
coated conductor wire.
A number of other companies have also filed patent applications, and in some
instances these have become issued patents, on various aspects of wire
processing and wire architecture. To the extent that any of these issued or
pending patents might cover the wire processing methodologies or wire
architectures we use, we may be required to obtain licenses under those
patents; however, there is no assurance that we will be able to do so.
16
<PAGE>
HTS Component and Subsystem Fabrication Patents; HTS Application Patents
We have received several patents and filed a significant number of
additional patent applications regarding:
. The design and fabrication of electromagnetic coils and electromagnets;
. The integration of these products with an appropriate coolant or
cryocooler;
. The application of these products to specific end uses; and
. HTS motor and generator designs.
Since the HTS motor and generator field is relatively new, we believe we are
building a particularly strong patent position in this area. A number of other
companies have also filed, and in some instances have received, patents on
various applications of HTS wire and component and subsystem fabrication
methods. If any existing or future patents cover any of these aspects of our
operations, we may be required to obtain licenses under those patents.
SMES Systems and Power Electronic Switches
We have received several patents and filed a significant number of
additional patent applications on power quality and reliability systems,
including the distributed SMES concept. We have acquired a non-exclusive
license from Argonne National Laboratory on a cryogenic connector for SMES
applications. We believe we have a strong patent position in the SMES area and
are studying whether any third party patents apply to our technology. We have
also filed a series of patent applications on our proprietary power electronic
switches.
Trade Secrets
Some of the important technology used in our operations and products is not
covered by any patent or patent application owned by or licensed to us.
However, we take steps to maintain the confidentiality of this technology by
requiring all employees and all consultants to sign confidentiality agreements
and limiting access to confidential information. However, no assurance can be
given that these measures will prevent the unauthorized disclosure or use of
that information. In addition, there is no assurance that others, including
our competitors, will not independently develop the same or comparable
technology.
Employees
As of March 31, 2001, we employed a total of 404 persons, 39 of whom have
Ph.D.'s in material science, physics or related fields. None of our employees
are represented by a labor union. We believe that our employee relations are
good.
Item 2. Properties
Our headquarters are located in approximately 102,000 square feet of space
in Westborough, Massachusetts under a lease that expires on May 31, 2003. We
have an option to extend the lease for an additional five-year term.
Additionally, we occupy approximately 60,000 square feet of space in
Middleton, Wisconsin and approximately 30,000 square feet at a separate
facility in Westborough, Massachusetts. We occupy the Middleton facilities
under two leases that expire on December 31, 2003. The additional Westborough
facility is occupied under a lease that expires in September 2005. In August
2000, we began construction of a 355,000 square foot facility for HTS wire
manufacturing at the Devens Commerce Center in Devens, Massachusetts. We
expect to partially occupy the building and begin training new employees in
the summer of 2001.
Our power electronics business is currently operated out of 14,500 square
feet of leased space in two buildings in Milwaukee. In March 2001,
construction began on a new 50,000-square-foot leased facility near Milwaukee
to house our growing power electronics business. We expect to consolidate our
power electronics business in this new facility by the end of 2001.
17
<PAGE>
Item 3. Legal Proceedings
We are not involved in any legal proceedings other than routine litigation
incidental to our business which we do not consider material.
Item 4. Submission of Matters to a Vote of Security-Holders
No matters were submitted to a vote of the Company's security-holders during
the fourth quarter of the fiscal year ended March 31, 2001.
18
<PAGE>
MANAGEMENT
The tables and biographical summaries set forth below contain certain
information with respect to our executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Gregory J. Yurek............... 54 President, Chief Executive Officer and
Chairman of the Board of Directors
Roland E. Lefebvre............. 51 Executive Vice President and Chief
Operating Officer
Alexis P. Malozemoff........... 57 Senior Vice President and Chief Technical
Officer
Stanley D. Piekos.............. 53 Senior Vice President, Corporate
Development, Chief Financial Officer,
and Secretary
Thomas M. Rosa................. 48 Chief Accounting Officer, Corporate
Controller and Assistant Secretary
</TABLE>
Gregory J. Yurek co-founded American Superconductor in 1987 and has been
President since March 1989, Chief Executive Officer since December 1989 and
Chairman of the Board of Directors since October 1991. Dr. Yurek also served
as Vice President and Chief Technical Officer from August 1988 until March
1989 and as Chief Operating Officer from March 1989 until December 1989. Prior
to joining American Superconductor, Dr. Yurek was a Professor of Materials
Science and Engineering at MIT for 13 years. Dr. Yurek has been a director of
American Superconductor since 1987.
Roland E. Lefebvre joined American Superconductor in May 1996 as our Vice
President, Sales and Marketing and was elected our Executive Vice President
and Chief Operating Officer in May 1998. Prior to joining American
Superconductor, Mr. Lefebvre spent 23 years at General Electric Company in a
variety of positions, most recently as General Manager, National Account
Sales.
Alexis P. Malozemoff joined American Superconductor as our Vice President,
Research and Development in January 1991 and was elected our Chief Technical
Officer in January 1993 and Senior Vice President in May 1998. Prior to
joining American Superconductor, Dr. Malozemoff spent 19 years at IBM in a
variety of research and management positions, most recently as IBM Research
Coordinator for High Temperature Superconductivity.
Stanley D. Piekos joined American Superconductor in February 1998 as our
Chief Financial Officer, Vice President, Corporate Development, and Secretary,
and was elected Senior Vice President in July 2000. From June 1994 until
February 1998, Mr. Piekos served as Vice President and Chief Financial Officer
of Brooks Automation, Inc., a supplier of robotics and controls to the
semiconductor production equipment industry. For the nine years prior to June
1994, Mr. Piekos was employed by Helix Technology Corporation, a manufacturer
of cryogenic equipment, most recently as Vice President and Chief Financial
Officer. During his first fifteen years in business, Mr. Piekos held a variety
of positions in financial management and marketing with W.R. Grace & Co., a
global manufacturer of specialty chemicals and industrial equipment.
Thomas M. Rosa joined American Superconductor in October 1992 as our
Corporate Controller and was elected our Chief Accounting Officer and
Assistant Secretary in July 1998. Prior to joining American Superconductor,
Mr. Rosa spent 10 years in a variety of financial management positions at
Prime Computer, Wang Laboratories and Lockheed Sanders, most recently as
Division Controller at Prime Computer.
19
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "AMSC" since 1991. The following table sets forth the high
and low price per share of the Company's Common Stock as reported on the
Nasdaq National Market for the two most recent fiscal years:
<TABLE>
<CAPTION>
Common
Stock Price
-----------------
High Low
-------- --------
<S> <C> <C>
Fiscal year ended March 31, 2000:
First quarter............................................ 15 11/16 8 1/2
Second quarter........................................... 16 3/4 11 13/16
Third quarter............................................ 28 7/8 15 1/2
Fourth quarter........................................... 75 1/8 25 3/16
Fiscal year ended March 31, 2001:
First quarter............................................ 51 19 5/8
Second quarter........................................... 61 7/8 30 3/8
Third quarter............................................ 55 15/16 22 1/2
Fourth quarter........................................... 34 7/8 13 1/4
</TABLE>
The number of shareholders of record on June 8, 2001 was 595.
Item 6. Selected Financial Data
The selected consolidated financial data presented below for the fiscal
years ended March 31, 2001, 2000, 1999 and 1998 have been derived from the
Company's consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial data for
the fiscal year ended March 31, 1997 have been derived from the combination of
the Company's consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants, and the
Superconductivity, Inc. ("SI") financial statements that have been audited by
other independent accountants. In addition, the combination of the separate
audited financial statements of the Company and SI for the fiscal year ended
March 31, 1997 has been audited by PricewaterhouseCoopers LLP. This financial
data should be read in conjunction with the Consolidated Financial Statements
and the Notes thereto and the other financial information appearing elsewhere
in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year ended March 31, 2001
-------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues......................... 16,768 15,113 11,257 15,129 10,551
Net loss......................... (21,676) (17,598) (15,326) (12,378) (13,337)
Net loss per share............... (1.08) (1.11) (1.01) (1.06) (1.27)
Total assets..................... 239,927 248,914 48,130 19,551 26,581
Working capital.................. 108,808 135,681 30,459 5,059 318
Cash, cash equivalents and long-
term marketable securities...... 160,225 218,655 31,572 8,009 16,031
Stockholders' equity............. 227,564 240,944 43,958 12,859 16,501
</TABLE>
20
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item is attached as Appendix A hereto and
is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk through derivative financial
instruments and other financial instruments, such as investments in short-term
marketable securities and long-term debt, is not material.
Item 8. Financial Statements and Supplementary Data
All financial statements required to be filed hereunder are filed as
Appendix B hereto, are listed under Item 14(a), and are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The response to this item is contained in part under the caption "Executive
Officers of the Company" in Part I of this Annual Report on Form 10-K, and in
part in the Company's Proxy Statement for the Annual Meeting of Stockholders
for the fiscal year ended March 31, 2001 (the "2001 Proxy Statement") in the
sections "Election of Directors--Nominees," and "Section 16 Beneficial
Ownership Reporting Compliance," which sections are incorporated herein by
reference.
Item 11. Executive Compensation
The response to this item is contained in the 2001 Proxy Statement in the
sections "--Executive Compensation," "--Employment Agreements with Senior
Executives," and "--Compensation Committee Interlocks and Insider
Participation," which sections are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The response to this item is contained in the 2001 Proxy Statement in the
section "Beneficial Ownership of Common Stock," which section is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The response to this item is contained in the 2001 Proxy Statement in the
section "Executive Compensation--Certain Business Relationships," which
section is incorporated herein by reference.
21
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as Appendix B hereto and are included as
part of this Annual Report on Form 10-K:
Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
The Company is not filing any financial statement schedules as part of
this Annual Report on Form 10-K because they are not applicable or the
required information is included in the financial statements or notes
thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the Company's
fiscal year ended March 31, 2001.
(c) The list of Exhibits filed as a part of this Annual Report on Form 10-K is
set forth on the Exhibit Index immediately preceding such Exhibits, and is
incorporated herein by reference.
22
<PAGE>
Appendix A
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
American Superconductor Corporation was founded in 1987. We are focused on
developing, manufacturing and selling products using two core technologies:
high temperature superconductor ("HTS") wires and power electronic switches
for electric power applications. We also assemble superconductor wires and
power electronic switches into fully-integrated products, such as
superconducting magnetic energy storage ("SMES") systems and ship propulsion
motors, which we sell to end users.
We derive our revenues from contracts to perform research and development,
product sales and prototype development contracts. We recognize revenues from
our research and development and prototype development contracts based on the
percentage of completion method measured by the relationship of costs incurred
to total contract costs. We recognize revenues from product sales upon
shipment, installation or acceptance, where applicable, or for some programs,
on the percentage of completion method of accounting.
RESULTS OF OPERATIONS
Fiscal Years Ended March 31, 2001 and March 31, 2000
Revenues
Total revenues increased to $16,768,000 in fiscal 2001 from $15,113,000 in
fiscal 2000. Revenues from our SMES business unit increased $5,813,000 to
$9,315,000 in fiscal 2001 from $3,502,000 in fiscal 2000, as a result of
increased SMES product sales. Revenues in our HTS business unit were
$7,453,000, or $4,158,000 less than the $11,611,000 recorded in fiscal 2000.
Lower HTS revenues were the result of a reduction in research and development
contract revenues, which decreased from $10,439,000 in fiscal 2000 to
$3,186,000 in fiscal 2001. This decrease was primarily due to the completion
in fiscal 2000 of development contracts with Asea Brown Boveri (ABB), EDF, and
the Electric Power Research Institute, which had revenues of $1,050,000,
$1,050,000, and $825,000, respectively, in fiscal 2000, and a reduction of
$2,250,000 in revenues recorded from our research and development contract
with Pirelli. Fiscal 2000 revenues from Pirelli included $2,500,000 of
retroactive funding for work performed prior to the October 1, 1999 effective
start date of the latest Pirelli development contract. Additionally, U. S.
Government Small Business Innovation Research ("SBIR") funding decreased by
$1,936,000 in fiscal 2001 due to our increased focus on commercialization and
reduced level of government SBIR proposal submission activity. These
reductions in HTS contract revenues were partially offset by an increase of
$1,439,000 in HTS wire sales and an increase of $1,114,000 in Navy prototype
development contract revenues.
In addition to reported revenues, we also received funding of $262,000 in
fiscal 2001 under government cost-sharing agreements, compared to $1,967,000
in fiscal 2000. Funding from government cost-sharing agreements is recorded as
an offset to research and development and selling, general and administrative
expenses, as required by government contract accounting guidelines, rather
than as revenue.
Costs and expenses
Total costs and operating expenses in fiscal 2001 were $51,163,000 compared
to $34,586,000 in fiscal 2000. Costs of revenue, which include costs of
research and development contracts and costs of product sales and prototype
development contracts, decreased by $578,000 to $14,116,000 in fiscal 2001
compared to $14,694,000 in fiscal 2000. A $7,190,000 reduction in costs of
revenue related to lower contract revenue was largely offset by a $6,612,000
increase in costs of revenue associated with greater product sales and
prototype development contracts in fiscal 2000.
A-1
<PAGE>
Adjusted research and development ("R&D") expenses, which include amounts
classified as costs of revenue and amounts offset by cost sharing funding,
increased to $28,846,000 in fiscal 2001 from $22,632,000 in fiscal 2000. This
increase was due to the continued scale-up of our internal research and
development activities, including the hiring of additional personnel, the
purchases of materials and equipment, and higher spending on licenses and
consultants/outside contractors. A portion of the R&D expenditures related to
externally funded development contracts has been classified as costs of
revenue (rather than as R&D expenses). A significantly higher proportion of
R&D expenditures was classified as costs of revenue in fiscal 2000 due to the
higher level of Pirelli and other contract revenues. Additionally, a portion
of R&D expenses was offset by cost sharing funding. Net R&D expenses
(exclusive of amounts classified as costs of revenue and amounts offset by
cost sharing funding) increased to $22,832,000 in the year ended March 31,
2001 from $13,206,000 for fiscal 2000.
Our R&D expenditures are summarized as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
3/31/2001 3/31/2000
----------- -----------
<S> <C> <C>
R&D expenses per Consolidated Statements of
Operations........................................... $22,832,000 $13,206,000
R&D expenditures on development contracts classified
as Costs of revenue.................................. 5,879,000 8,412,000
R&D expenditures offset by cost sharing funding....... 135,000 1,014,000
----------- -----------
Adjusted R&D expenses................................. $28,846,000 $22,632,000
=========== ===========
</TABLE>
Adjusted selling, general and administrative ("SG&A") expenses, which
include amounts classified as costs of revenue and amounts offset by cost
sharing funding, were $16,163,000 in fiscal 2001, compared to $11,684,000 in
fiscal 2000. These increases were primarily due to the hiring of additional
personnel and related expenses incurred to support corporate development and
marketing activities and future planned growth. A significantly higher
proportion of SG&A expenditures was classified as costs of revenue in fiscal
2000 due to the higher level of Pirelli and other contract revenues.
Additionally, a portion of SG&A expenses was offset by cost sharing funding.
Net SG&A expenses (exclusive of amounts classified as costs of revenues and
amounts offset by cost sharing funding) increased to $14,215,000 in the year
ended March 31, 2001 from $6,686,000 for fiscal 2000.
Our SG&A expenditures are summarized as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
3/31/2001 3/31/2000
----------- -----------
<S> <C> <C>
SG&A expenses per Consolidated Statements of
Operations........................................... $14,215,000 $ 6,686,000
SG&A expenditures on development contracts classified
as Costs of revenue.................................. 1,821,000 4,045,000
SG&A expenditures offset by cost sharing funding...... 127,000 953,000
----------- -----------
Adjusted SG&A expenses................................ $16,163,000 $11,684,000
=========== ===========
</TABLE>
Non-operating expenses / Interest income
Interest income increased to $12,555,000 in fiscal 2001 from $1,871,000 in
fiscal 2000. This increase reflects the higher cash balances available for
investment as a result of receiving $205,625,000 in net proceeds from our
March 2000 public offering of 3,500,000 shares of common stock.
We expect to continue to incur operating losses in the next year, as we
continue to devote significant financial resources to our research and
development activities and commercialization efforts.
We expect to be a party to agreements which, from time to time, may result
in costs incurred exceeding expected revenues under such contracts. We may
enter into such agreements for a variety of reasons including, but not limited
to, entering new product application areas, furthering the development of key
technologies, and advancing the demonstration of commercial prototypes in
critical market applications.
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<PAGE>
Fiscal Years Ended March 31, 2000 and March 31, 1999
Revenues
Total revenues increased to $15,113,000 in fiscal 2000 from $11,257,000 in
fiscal 1999. Revenues from our SMES business unit increased $1,992,000 to
$3,502,000 in fiscal 2000 from $1,510,000 in fiscal 1999 as a result of
increased SMES product sales. Revenues in our HTS business unit were
$11,611,000, or $1,863,000 more than the $9,748,000 recorded in fiscal 1999.
Higher HTS revenues were primarily associated with increased funding from a
new Pirelli development program, and higher prototype development revenues
from a U.S. Navy contract for the conceptual design of an HTS ship propulsion
motor.
In addition to reported revenues, we also received funding of $1,967,000 in
fiscal 2000 under government cost-sharing agreements, compared to $1,953,000
in fiscal 1999. Funding from government cost-sharing agreements is recorded as
an offset to research and development and selling, general and administrative
expenses, as required by government contract accounting guidelines, rather
than as revenue.
Costs and expenses
Total costs and operating expenses in fiscal 2000 were $34,586,000 compared
to $28,508,000 in fiscal 1999. Costs of revenue increased to $14,694,000 in
fiscal 2000 compared to $12,021,000 in fiscal 1999. This increase reflects the
higher SMES product sales and the increase in prototype development revenues.
Adjusted R&D expenses increased to $22,632,000 in fiscal 2000 from
$18,751,000 in fiscal 1999. This increase was due to the continued scale-up of
our internal research and development activities in both the HTS and SMES
business units, including the hiring of additional personnel, the purchases of
materials and equipment and the payment of patent licensing fees. A portion of
the R&D expenditures related to externally funded development contracts has
been classified as costs of revenue (rather than as R&D expenses). These R&D
expenditures that were included as costs of revenue increased by $1,077,000
during fiscal 2000 compared to fiscal 1999. This increase was due to the
higher level of contract and prototype development revenue in fiscal 2000,
compared to fiscal 1999. Additionally, a portion of R&D expenses was offset by
cost sharing funding. Net R&D expenses (exclusive of amounts classified as
costs of revenues and amounts offset by cost sharing funding) increased to
$13,206,000 in fiscal 2000 from $10,409,000 in fiscal 1999.
Our R&D expenditures are summarized as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
3/31/2000 3/31/1999
----------- -----------
<S> <C> <C>
R&D expenses per Consolidated Statements of
Operations........................................... $13,206,000 $10,409,000
R&D expenditures on development contracts classified
as Costs of revenue.................................. 8,412,000 7,335,000
R&D expenditures offset by cost sharing funding....... 1,014,000 1,007,000
----------- -----------
Adjusted R&D expenses................................. $22,632,000 $18,751,000
=========== ===========
</TABLE>
Adjusted SG&A expenses were $11,684,000 in fiscal 2000, compared to
$9,765,000 in fiscal 1999. These increases were primarily due to the hiring of
additional personnel and related expenses incurred to support corporate
development and marketing activities and future planned growth. A portion of
the SG&A expenditures related to externally funded development contracts has
been classified as costs of revenue (rather than as SG&A expenses). SG&A
expenditures included as costs of revenue increased by $1,304,000 during
fiscal 2000 compared to fiscal 1999. This increase was due to the higher level
of contract and prototype development revenue in fiscal 2000, compared to
fiscal 1999. Additionally, a portion of SG&A expenses was offset by cost
sharing funding. Net SG&A expenses (exclusive of amounts classified as costs
of revenues and amounts offset by cost sharing funding) increased to
$6,686,000 in fiscal 2000 from $6,078,000 in fiscal 1999.
A-3
<PAGE>
Our SG&A expenditures are summarized as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
3/31/2000 3/31/1999
----------- ----------
<S> <C> <C>
SG&A expenses per Consolidated Statements of
Operations............................................ $ 6,686,000 $6,078,000
SG&A expenditures on development contracts classified
as Costs of revenue................................... 4,045,000 2,741,000
SG&A expenditures offset by cost sharing funding....... 953,000 946,000
----------- ----------
Adjusted SG&A expenses................................. $11,684,000 $9,765,000
=========== ==========
</TABLE>
Non-operating expenses/Interest income
Interest income decreased to $1,871,000 in fiscal 2000, from $1,921,000 in
fiscal 1999. This decrease primarily reflects lower cash, cash equivalents and
long-term marketable securities balances available for investment as a result
of cash being used to fund our operations and to purchase capital equipment.
This was partially offset by increased interest income in March 2000 as a
result of our public offering of 3,500,000 shares of common stock in March
2000. We received net proceeds (after the underwriters discount but before
deducting offering expenses) of $205,625,000 from this offering.
Interest expense was $0 in fiscal 2000 compared to $9,800 in fiscal 1999.
This decrease reflects the retirement of all long-term debt in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, we had cash, cash equivalents and long-term marketable
securities totaling $160,225,000 compared to cash, cash equivalents and long-
term marketable securities totaling $218,655,000 at March 31, 2000. The
principal uses of cash during the year ended March 31, 2001 were $26,424,000
for funding of our operations, and $36,081,000 for the acquisition of capital
equipment, primarily for construction in progress on our new HTS manufacturing
facility in Devens, Massachusetts.
Long-term accounts receivable of $1,250,000 represents the amount due after
March 31, 2002 on the $2,500,000 recognized as revenue in the year ended March
31, 2000 for R&D work performed by us prior to the effective date (October 1,
1999) of the latest Pirelli agreement. The $2,500,000 payment by Pirelli for
R&D performed before October 1, 1999 is guaranteed by the agreement and is
payable in quarterly installments over the five-year period between October 1,
1999 and September 30, 2004.
Long-term inventory of $3,787,000 represents SMES units that have been
delivered to our customer, Wisconsin Public Service Corporation ("WPS"). As
the sale of these units is subject to certain return and buyback terms until
after 2002, we have deferred recognition of the revenue related to this sale
until the buyback provisions lapse. Long-term deferred revenue of $3,787,000
represents the payment received related to this sale.
Goodwill of $1,108,000 at March 31, 2001 represents the excess of the
purchase price paid for the acquisition of substantially all of the assets of
Integrated Electronics, LLC ("IE") on June 1, 2000, over the fair value of
IE's assets, less amortization. The IE transaction was accounted for under the
purchase method of accounting. Goodwill was initially calculated to be
$1,329,000, and is being amortized over a five-year period beginning June 1,
2000, in an amount equal to $22,000 per month. Results of operations for IE
since June 1, 2000 are incorporated in our consolidated financial results.
We have potential funding commitments (exclusive of amounts included in
accounts receivable) of approximately $12,436,000 to be received after March
31, 2001 from strategic partners and government and commercial customers,
compared to $20,064,000 at March 31, 2000. However, these commitments,
including $2,497,000 on U. S. government contracts as of March 31, 2001, are
subject to certain cancellation provisions. Of the current commitment amount
of $12,436,000 (which excludes a $3,125,000 Navy contract awarded in April
2001), approximately 40% is potentially collectable within the next 12 months.
A-4
<PAGE>
The Company had outstanding commitments related to the construction of its
new HTS wire manufacturing facility in Devens, Massachusetts of approximately
$34,929,000 at March 31, 2001.
Our policy is to invest available funds in short-term, intermediate-term,
and long-term investment grade marketable securities, including but not
limited to government obligations, repurchase agreements, certificates of
deposit and money market funds.
We believe that our existing capital resources will be sufficient to fund
our operations until we reach profitability. However, we may need additional
funds sooner than anticipated if our performance deviates significantly from
our current business plan, if there are significant changes in competitive or
other market factors, or if unforeseen circumstances arise. There can be no
assurance that such funds, whether from equity or debt financing, development
contracts or other sources, will be available, or available under terms
acceptable to us, if at all.
To date, inflation has not had a material impact on our financial results.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative instrument's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999.
In June 1999, FASB issued Statement 137, which defers the effective date to
fiscal years beginning after June 15, 2000. A company may also implement the
Statement as of the beginning of any fiscal quarter after issuance. Statement
133 cannot be applied retroactively. Statement 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998). We
believe the impact on our financial statements of adopting Statement 133 will
be immaterial.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition," which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. There was no impact on our current financial statements as
a result of adopting this interpretation.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting
for Certain Transactions Involving Stock Compensation--an Interpretation of
APB Opinion No. 25". This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1,
2000, but certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. To the extent
that this Interpretation covers events occurring during the period after
December 15, 1998, or January 12, 2000, but before the effective date of July
1, 2000, the effects of applying this Interpretation are recognized on a
prospective basis from July 1, 2000. There was no impact on our current
financial statements as a result of adopting FIN 44. We believe the future
impact on our financial statements as a result of this interpretation will be
immaterial.
A-5
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk through derivative financial instruments and
other financial instruments, such as investments in short-term marketable
securities and long-term debt, is not material.
FUTURE OPERATING RESULTS
Various statements included herein, as well as other statements made from
time to time by our representatives, which relate to future matters (including
but not limited to statements concerning our future commercial success)
constitute forward looking statements and are made under the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. There are
a number of important factors which could cause our actual results of
operations and financial condition in the future to vary from that indicated
in such forward looking statements. Factors that may cause such differences
include, without limitation, the risks, uncertainties and other information
set forth below.
We have a history of operating losses and we expect to continue to incur
losses in the future.
We have been principally engaged in research and development activities. We
have incurred net losses in each year since our inception. Our net loss for
fiscal 1999, fiscal 2000 and fiscal 2001 was $15,326,000, $17,598,000 and
$21,676,000, respectively. Our accumulated deficit as of March 31, 2001 was
$128,492,000. We expect to continue to incur operating losses in the next year
and there can be no assurance that we will ever achieve profitability.
There are a number of technological challenges that must be successfully
addressed before our superconducting products can gain widespread commercial
acceptance.
Many of our products are in the early stages of commercialization and
testing, while others are still under development. We do not believe any
company has yet successfully developed and commercialized significant
quantities of HTS wire or wire products. There are a number of technological
challenges that we must successfully address to complete our development and
commercialization efforts. For example, we face engineering challenges in
producing HTS wire in longer lengths and commercial quantities. We also
believe that several years of further development in the cable and motor
industries will be necessary before a substantial number of additional
commercial applications for our HTS wire in these industries can be developed
and proven. We may also need to improve the quality of our HTS wire to expand
the number of commercial applications for it. We may be unable to meet such
technological challenges. Delays in development, as a result of technological
challenges or other factors, may result in the introduction of our products
later than anticipated.
The commercial uses of superconducting products are very limited today, and a
widespread commercial market for our products may not develop.
To date, there has been no widespread commercial use of HTS products.
Although LTS products are currently used in some commercial applications,
commercial acceptance of LTS products, other than for medical magnetic
resonance imaging and superconducting magnetic energy storage products, has
been significantly limited by the cooling requirements of LTS materials. Even
if the technological hurdles currently limiting commercial uses of HTS and LTS
products are overcome, it is uncertain whether a robust commercial market for
those new and unproven products will ever develop. It is possible that the
market demands we currently anticipate for our HTS and LTS products will not
develop and that superconducting products will never achieve widespread
commercial acceptance.
We expect to spend significant amounts on the expansion of our manufacturing
capacity, and our expansion projects may not be successful.
In anticipation of significantly increased demand for our products, we are
currently building a facility exclusively dedicated to HTS wire manufacturing
at the Devens Commerce Center in Devens, Massachusetts. Over the next
A-6
<PAGE>
year, we plan to continue to use a large portion of the net proceeds from our
March 2000 stock offering to fund the construction and purchase equipment for
the new HTS wire manufacturing facility in Devens. We can only estimate the
costs of this project, and the actual costs may be significantly in excess of
our estimates. In addition, the completion of those new facilities may be
delayed, or we may experience start-up difficulties or other problems once
those facilities become operational. Finally, if increased demand for our
products does not materialize, we will not generate sufficient revenue to
offset the cost of establishing and operating these facilities.
We have no experience manufacturing our HTS products in commercial quantities.
To be financially successful, we will have to manufacture our products in
commercial quantities at acceptable costs while also preserving the quality
levels achieved in manufacturing these products in limited quantities. This
presents a number of technological and engineering challenges for us. We
cannot assure you that we will be successful in developing product designs and
manufacturing processes that permit us to manufacture our HTS products in
commercial quantities at commercially acceptable costs while preserving
quality. In addition, we may incur significant start-up costs and unforeseen
expenses in our product design and manufacturing efforts.
We have historically focused on research and development activities and have
limited experience in marketing and selling our products.
We have been primarily focused on research and development of our
superconducting products. Consequently, our management team has limited
experience directing our commercialization efforts which are essential to our
future success. To date, we only have limited experience marketing and selling
our products, and there are very few people anywhere who have significant
experience marketing or selling superconducting products. Once our products
are ready for commercial use, we will have to develop a marketing and sales
organization that will effectively demonstrate the advantages of our products
over both more traditional products and competing superconducting products or
other technologies. We may not be successful in our efforts to market this new
and unfamiliar technology, and we may not be able to establish an effective
sales and distribution organization.
We may decide to enter into arrangements with third parties for the
marketing or distribution of our products, including arrangements in which our
products, such as HTS wire, are included as a component of a larger product,
such as a motor. We have entered into a marketing and sales alliance with GE
Industrial Systems giving GE the exclusive right to offer our Distributed-SMES
(D-SMES) product line in the United States to utilities and the right to sell
industrial Power Quality-SMES (PQ-SMES) systems to certain of GE's global
industrial accounts. By entering into marketing and sales alliances, the
financial benefits to us of commercializing our products are dependent on the
efforts of others. We may not be able to enter into marketing or distribution
arrangements with third parties on financially acceptable terms, and third
parties may not be successful in selling our products or applications
incorporating our products.
We depend on our strategic relationships with our corporate partners for the
successful development and marketing of applications for our superconducting
products.
Our business strategy depends upon strategic relationships with corporate
partners, which are intended to provide funding and technologies for our
development efforts and assist us in marketing and distributing our products.
Although we currently are party to a number of strategic relationships, we may
not be able to maintain these relationships, and these relationships may not
be technologically or commercially successful.
We have an agreement with Pirelli relating to HTS wire for cables used to
transmit both electric power and control signals. In general, we are obligated
to sell our HTS cable wire exclusively to Pirelli, and Pirelli is obligated to
buy this HTS wire exclusively from us or to pay us royalties for any of this
wire that it manufactures for use in these applications anywhere in the world
other than Japan. Pirelli continues to provide us with substantial funding and
has been critical in assisting us in the development and commercialization of
HTS cable
A-7
<PAGE>
wire. Consequently, we are significantly dependent on Pirelli for the
commercial success of this cable wire in these applications.
As we move toward commercialization of several of our products, we plan to
use strategic alliances as an important means of marketing and selling our
products. We have entered into a marketing and sales alliance with GE giving
GE the exclusive right to offer our D-SMES product line in the United States
to utilities and the right to sell industrial PQ-SMES systems to certain of
GE's global industrial accounts. Any strategic relationships established may
not provide us with the commercial benefits we anticipate. See "Business--
Strategic Relationships, Research Arrangements and Government Contracts" for a
description of our significant strategic relationships.
Our products face intense competition both from superconducting products
developed by others and from traditional, non-superconducting products and
alternative technologies.
As we begin to market and sell our superconducting products, we will face
intense competition both from competitors in the superconducting field and
from vendors of traditional products and new technologies. There are many
companies in the United States, Europe, Japan and Australia engaged in the
development of HTS products, including Sumitomo Electric Industries, 3M,
Intermagnetics General and Nordic Superconductor Technologies. The
superconducting industry is characterized by rapidly changing and advancing
technology. Our future success will depend in large part upon our ability to
keep pace with advancing HTS and LTS technology and developing industry
standards. Our SMES products compete with a variety of non-superconducting
products such as dynamic voltage restorers, static VAR compensators ("SVC's"),
static compensators ("STATCOMS"), flywheels, power electronic switches and
battery-based power supply systems. In addition, competition for our Power
Modules includes products from Ecostar, Inverpower, Satcon, Semikron and
Trace. Research efforts and technological advances made by others in the
superconducting field or in other areas with applications to the power quality
and reliability markets may render our development efforts obsolete. Many of
our competitors have substantially greater financial resources, research and
development, manufacturing and marketing capabilities than we have. In
addition, as the HTS, power quality and power reliability markets develop,
other large industrial companies may enter those fields and compete with us.
See "Business--Competition" for more information on the competition we face.
Third parties have or may acquire patents that cover the high temperature
superconducting materials we use or may use in the future to manufacture our
products.
We expect that some or all of the HTS materials and technologies we use in
designing and manufacturing our products are or will become covered by patents
issued to other parties, including our competitors. If that is the case, we
will need either to acquire licenses to these patents or to successfully
contest the validity of these patents. The owners of these patents may refuse
to grant licenses to us, or may be willing to do so only on terms that we find
commercially unreasonable. If we are unable to obtain these licenses, we may
have to contest the validity or scope of those patents to avoid infringement
claims by the owners of these patents. It is possible that we will not be
successful in contesting the validity or scope of a patent, or that we will
not prevail in a patent infringement claim brought against us. Even if we are
successful in such a proceeding, we could incur substantial costs and
diversion of management resources in prosecuting or defending such a
proceeding. See "Business--Patents, Licenses and Trade Secrets" for more
information on this subject.
There are numerous patents issued in the field of superconducting materials
and our patents may not provide meaningful protection for our technology.
We own or have licensing rights under many patents and pending patent
applications. However, the patents that we own or license may not provide us
with meaningful protection of our technologies, and may not prevent our
competitors from using similar technologies, for a variety of reasons, such
as:
. the patent applications that we or our licensors file may not result in
patents being issued;
. any patents issued may be challenged by third parties; and
A-8
<PAGE>
. others may independently develop similar technologies not protected by
our patents or design around the patented aspects of any technologies we
develop.
Moreover, we could incur substantial litigation costs in defending the
validity of our own patents. We also rely on trade secrets and proprietary
know-how to protect our intellectual property. However, our non-disclosure
agreements and other safeguards may not provide meaningful protection for our
trade secrets and other proprietary information. See "Business--Patents,
Licenses and Trade Secrets" for more information on this subject.
Our success is dependent upon attracting and retaining qualified personnel.
Our success will depend in large part upon our ability to attract and retain
highly qualified research and development, management, manufacturing,
marketing and sales personnel. Hiring those persons may be especially
difficult due to the specialized nature of our business. In addition, the
demand for qualified personnel is particularly acute in the New England and
Wisconsin areas, where most of our operations are located, due to the
currently low unemployment rate in these regions.
We are particularly dependent upon the services of Dr. Gregory J. Yurek, our
co-founder and our Chairman of the Board, President and Chief Executive
Officer, and Dr. Alexis P. Malozemoff, our Chief Technical Officer. The loss
of the services of either of those individuals could significantly damage our
business and prospects.
A-9
<PAGE>
Appendix B
Report of Independent Accountants
To the Board of Directors and Stockholders of
American Superconductor Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income, stockholders'
equity and cash flows present fairly, in all material respects, the financial
position of American Superconductor Corporation (the "Company") at March 31,
2001 and 2000, and the results of its operations and its cash flows for each
of the three years in the period ended March 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, MA
May 11, 2001
B-1
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
----------------------------
2001 2000
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 89,063,299 $ 126,917,768
Accounts receivable............................ 13,416,068 7,317,009
Inventory...................................... 14,300,928 7,347,668
Prepaid expenses and other current assets...... 603,744 809,129
------------- -------------
Total current assets......................... 117,384,039 142,391,574
Property and equipment:
Land........................................... 4,138,104 --
Construction in progress-building and
equipment..................................... 23,285,351 1,051,349
Equipment...................................... 26,667,800 19,249,385
Furniture and fixtures......................... 2,225,296 1,670,029
Leasehold improvements......................... 4,741,947 3,006,814
------------- -------------
61,058,498 24,977,577
Less: accumulated depreciation................... (18,746,317) (15,199,346)
------------- -------------
Property and equipment, net...................... 42,312,181 9,778,231
Long-term marketable securities.................. 71,161,804 91,737,449
Long-term accounts receivable.................... 1,250,000 1,750,000
Long-term inventory.............................. 3,787,000 1,899,282
Net investment in sales-type lease............... -- 279,110
Goodwill......................................... 1,107,735 --
Other assets..................................... 2,924,153 1,078,610
------------- -------------
Total assets................................. $ 239,926,912 $ 248,914,256
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......... $ 8,576,022 $ 6,339,023
Deferred revenue............................... -- 371,250
------------- -------------
Total current liabilities.................... 8,576,022 6,710,273
Long-term deferred revenue....................... 3,787,000 1,259,883
Commitments (Note 8)
Stockholders' equity:
Common stock, $.01 par value
Authorized shares-50,000,000; issued and
outstanding shares-20,290,596 in 2001 and
19,734,714 in 2000............................ 202,906 197,347
Additional paid-in capital..................... 355,843,848 348,903,034
Deferred compensation.......................... (424,266) (530,333)
Deferred contract costs........................ (336,347) (637,552)
Accumulated other comprehensive income (loss).. 769,641 (172,515)
Accumulated deficit............................ (128,491,892) (106,815,881)
------------- -------------
Total stockholders' equity....................... 227,563,890 240,944,100
------------- -------------
Total liabilities and stockholders' equity....... $ 239,926,912 $ 248,914,256
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
B-2
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Contract revenue................... $ 3,185,537 $ 10,438,700 $ 9,238,013
Product sales and prototype
development contracts............. 13,581,987 4,674,435 2,019,289
------------ ------------ ------------
Total revenues................... 16,767,524 15,113,135 11,257,302
Costs and expenses:
Costs of revenue-contract
revenue........................... 3,135,440 10,325,194 9,225,243
Costs of revenue-product sales and
prototype development contracts... 10,980,753 4,368,989 2,795,380
Research and development........... 22,832,357 13,206,073 10,409,414
Selling, general and
administrative.................... 14,214,542 6,685,593 6,078,243
------------ ------------ ------------
Total costs and expenses......... 51,163,092 34,585,849 28,508,280
Interest income...................... 12,555,411 1,870,541 1,921,373
Interest expense..................... -- -- (9,827)
Other income (expense), net.......... 164,146 4,343 13,256
------------ ------------ ------------
Net loss............................. $(21,676,011) $(17,597,830) $(15,326,176)
============ ============ ============
Net loss per common share
Basic.............................. $ (1.08) $ (1.11) $ (1.01)
============ ============ ============
Diluted............................ $ (1.08) $ (1.11) $ (1.01)
============ ============ ============
Weighted average number of common
shares outstanding
Basic.............................. 20,127,348 15,820,074 15,131,679
============ ============ ============
Diluted............................ 20,127,348 15,820,074 15,131,679
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
B-3
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss............................. $(21,676,011) $(17,597,830) $(15,326,176)
Other comprehensive income (loss)
Foreign currency translation....... (8,591) (14,897) (6,535)
Unrealized gains (losses) on
investments....................... 950,747 (168,010) 17,019
------------ ------------ ------------
Other comprehensive income (loss).... 942,156 (182,907) 10,484
Comprehensive income (loss).......... $(20,733,855) $(17,780,737) $(15,315,692)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
B-4
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ ($21,676,011) ($17,597,830) ($15,326,176)
Adjustments to reconcile net loss to
net cash used by operations:
Depreciation and amortization...... 4,098,904 2,253,581 1,939,189
Deferred compensation expense...... 106,067 106,067 --
Deferred warrant costs............. 354,495 444,862 328,263
Stock compensation expense......... 222,014 96,962 204,511
Changes in operating asset and
liability accounts :
Accounts receivable............... (5,546,781) (4,967,798) (1,107,576)
Inventory......................... (8,580,998) (4,222,398) (1,794,579)
Prepaid expenses and other current
assets........................... 205,385 (270,644) 6,943
Accounts payable and accrued
expenses......................... 2,236,999 2,167,075 838,486
Deferred revenue--current and
long-term........................ 2,155,867 1,631,133 (187,285)
------------ ------------ ------------
Net cash used by operating
activities...................... (26,424,059) (20,358,990) (15,098,224)
Cash flows from investing activities:
Purchase of property and
equipment......................... (35,897,926) (5,932,079) (3,613,900)
Purchase of long-term marketable
securities........................ -- (85,302,630) (442,334)
Sale of long-term marketable
securities........................ 21,526,392 -- --
Purchase of assets of Integrated
Electronics, LLC. ................ (755,000) -- --
Net investment in sales-type
lease............................. 279,110 8,000 58,830
Increase in other assets........... (2,175,930) (584,266) (488,177)
------------ ------------ ------------
Net cash used in investing
activities...................... (17,023,354) (91,810,975) (4,485,581)
Cash flows from financing activities:
Payments on notes payable.......... -- -- (29,609)
Payments on long-term debt......... -- -- (3,141,793)
Net proceeds from issuance of
common stock...................... 5,592,944 214,118,591 45,882,207
Net cash provided by financing
activities...................... 5,592,944 214,118,591 42,710,805
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... (37,854,469) 101,948,626 23,127,000
Cash and cash equivalents at
beginning of year................... 126,917,768 24,969,142 1,842,142
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 89,063,299 $126,917,768 $ 24,969,142
============ ============ ============
Supplemental schedule of cash flow
information:
Cash paid for interest............. $ 0 $ 0 $ 119,789
Noncash issuance of common stock... $ 1,406,206 $ 203,029 $ 204,511
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
B-5
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Deferred Other Total
Number of Par Paid-in Deferred Contract Comprehensive Accumulated Stockholders'
Shares Value Capital Compensation Costs Income (Loss) Deficit Equity
---------- -------- ------------ ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
31, 1998.......... 11,756,793 $117,568 $ 87,961,911 $ -- $(1,328,446) $ (92) $ (73,891,875) $ 12,859,066
Exercise of stock
options.......... 99,976 1,000 266,250 267,250
Secondary public
offering of
common stock..... 3,504,121 35,041 45,579,916 45,614,957
Stock compensation
expense.......... 17,766 178 204,333 204,511
Amortization of
deferred warrant
costs............ 18,208 310,055 328,263
Unrealized loss on
investments...... (6,535) (6,535)
Cumulative
translation
adjustment....... 17,019 17,019
Net loss.......... (15,326,176) (15,326,176)
---------- -------- ------------ --------- ----------- -------- ------------- ------------
Balance at March
31, 1999.......... 15,378,656 $153,787 $134,030,618 $ -- $(1,018,391) $ 10,392 $ (89,218,051) $ 43,958,355
Exercise of stock
options.......... 692,737 6,927 9,051,762 9,058,689
Secondary public
offering of
common stock..... 3,500,000 35,000 205,024,902 205,059,902
Exercise of stock
warrants......... 82,264 823 (823) 0
Deferred
compensation..... 74,000 740 635,660 (636,400) 0
Amortization of
deferred
compensation..... 106,067 106,067
Stock compensation
expense.......... 7,057 70 96,892 96,962
Amortization of
deferred warrant
costs............ 64,023 380,839 444,862
Unrealized loss on
investments...... (168,010) (168,010)
Cumulative
translation
adjustment....... (14,897) (14,897)
Net loss.......... (17,597,830) (17,597,830)
---------- -------- ------------ --------- ----------- -------- ------------- ------------
Balance at March
31, 2000.......... 19,734,714 197,347 348,903,034 (530,333) (637,552) (172,515) (106,815,881) 240,944,100
Exercise of stock
options.......... 490,068 4,901 5,572,335 5,577,236
Purchase of IE.... 37,500 375 1,077,750 1,078,125
Exercise of stock
warrants......... 18,253 182 15,526 15,708
Amortization of
deferred
compensation..... 106,067 106,067
Stock compensation
expense.......... 10,061 101 221,913 222,014
Amortization of
deferred warrant
costs............ 53,290 301,205 354,495
Unrealized gain on
investments...... 950,747 950,747
Cumulative
translation
adjustment....... (8,591) (8,591)
Net loss.......... (21,676,011) (21,676,011)
---------- -------- ------------ --------- ----------- -------- ------------- ------------
Balance at March
31, 2001.......... 20,290,596 $202,906 $355,843,848 $(424,266) $ (336,347) $769,641 $(128,491,892) $227,563,890
========== ======== ============ ========= =========== ======== ============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
B-6
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS
1. Nature of the Business
American Superconductor Corporation (the "Company"), which was formed on
April 9, 1987, is a world leader in developing and manufacturing products
using superconducting materials and power electronic switches for electric
power applications. The focus of the Company's development and
commercialization efforts is on electrical equipment for use by electric
utilities and industrial and commercial users of electrical power. For large-
scale applications, the Company's development efforts are focused on high
temperature superconducting ("HTS") power transmission cables, motors,
generators and transformers. In the area of industrial power quality and
transmission network power reliability, the Company is focused on marketing
and selling commercial superconducting magnetic energy storage ("SMES")
devices, on development and commercialization of new SMES products, and on
development of power electronic subsystems, in the area of power quality and
transmission network reliability for industrial, commercial and utility
customers. The Company operates in two business segments.
The Company currently derives a substantial portion of its revenue from
research and development contracts. The Company has recorded contract revenue
related to research and development contracts of $3,185,537, $10,438,700 and
$9,238,013 for the fiscal years ended March 31, 2001, 2000 and 1999,
respectively. As discussed in Note 9, a significant portion of this current
contract revenue relates to a development contract with Pirelli Cable and
Systems ("Pirelli").
Research and development ("R&D") and selling, general and administrative
expenses ("SG&A") which are incurred on development contracts are classified
as costs of revenue rather than as R&D and SG&A expenses and were
approximately as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
3/31/2001 3/31/2000 3/31/1999
---------- ---------- ----------
<S> <C> <C> <C>
Research and development expenses......... $5,879,000 $8,412,000 $7,335,000
Selling, general and administrative
expenses................................. $1,821,000 $4,045,000 $2,741,000
</TABLE>
2. Summary of Significant Accounting Policies
A summary of the Company's significant accounting policies follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances are
eliminated.
On June 1, 2000, the Company acquired substantially all of the assets of
Integrated Electronics, LLC ("IE"). The IE acquisition was accounted for under
the purchase method of accounting. Goodwill of $1,329,282 represented the
excess of the purchase price of $1,833,125 over the fair value of the acquired
assets of $503,843 at June 1, 2000. The purchase price consisted of cash paid
to IE of $675,000, miscellaneous transaction costs of $80,000, and the value
of 37,500 shares of the Company's common stock at June 1, 2000 of $1,078,125.
The fair value of the assets acquired were accounts receivable of $52,278,
inventory of $259,980, and fixed assets of $191,585. These asset purchases are
included under "Purchase of assets of Integrated Electronics, LLC" in the
Consolidated Statements of Cash Flows for the period ended March 31, 2001 and
thus are excluded from the "Changes in operating asset and liability accounts"
section of the Consolidated Statements of Cash Flows.
Certain prior year amounts have been reclassified to be consistent with
current year presentation.
B-7
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Cash equivalents
consist of government obligations, short-term certificates of deposit,
repurchase agreements, and other debt instruments.
Accounts Receivable
Due to scheduled billing requirements specified under certain contracts, a
portion of the Company's accounts receivable balance at March 31, 2001 and
2000 was unbilled. The unbilled portion included in the accounts receivable
balance was approximately $5,815,000 or 43% of total accounts receivable and
$4,419,000 or 60% of total accounts receivable at March 31, 2001 and 2000,
respectively. The Company expects most of the unbilled balance at March 31,
2001 to be billed in the first quarter of the fiscal year ending March 31,
2002, excluding the unbilled receivable associated with the Pirelli
development contract that is billable and collectable over the next 12 months.
Included in accounts receivable is $5,749,000 due from one customer related to
the joint marketing of SMES units with the Company.
Long-term Accounts Receivable
Long-term accounts receivable consist of amounts due more than 12 months
from the balance sheet date. The $1,250,000 account balance represents the
amount due after March 31, 2002 on the $2,500,000 recognized as revenue in the
year ended March 31, 2000 for R&D work performed by the Company prior to the
effective date (October 1, 1999) of the latest Pirelli agreement. The
$2,500,000 of revenue recognized from Pirelli for R&D performed before October
1, 1999 is guaranteed by the agreement and is payable in quarterly
installments over the five-year period between October 1, 1999 and September
30, 2004.
Long-term Marketable Securities
Long-term marketable securities, with original maturities of more than 12
months when purchased, consist primarily of U.S. Treasury Notes, U.S.
government agency securities, corporate bonds and other debt securities, in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company determines the appropriate classification of its marketable securities
at the time of purchase and re-evaluates such classification as of each
balance sheet date.
Inventories
Inventories are stated at the lower of cost (determined on a first-in first-
out basis) or market.
Long-term Inventory
Long-term inventory of $3,787,000 represents SMES units that have been
ordered and delivered to our customer, Wisconsin Public Service Corporation
("WPS"). As the sale of these units is subject to certain return and buyback
provisions until after 2002, the Company has deferred recognition of the
revenue related to this sale until the buyback provisions lapse. Long-term
deferred revenue of $3,787,000 represents the payment received related to this
sale.
Property and Equipment
Equipment and Furniture and fixtures are recorded at cost and depreciated
using the straight-line method over their estimated useful lives, which range
from 3 to 7 years. Leasehold improvements are recorded at cost and amortized
over the shorter of the useful life of the improvement or the remaining term
of the lease.
B-8
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Expenditures for maintenance and repairs are expensed as incurred. Upon
retirement or other disposition of assets, the costs and related accumulated
depreciation are eliminated from the accounts and the resulting gain or loss
is reflected in income.
Goodwill
Goodwill of $1,107,735 at March 31, 2001 represents the excess of the
purchase price paid for the acquisition of substantially all of the assets of
IE on June 1, 2000, over the fair value of IE's assets, less amortization. The
IE transaction was accounted for under the purchase method of accounting.
Goodwill was initially calculated to be $1,329,282, and is being amortized
over a five-year period beginning June 1, 2000, in an amount equal to $22,155
per month. Results of operations for IE since June 1, 2000 are incorporated in
our consolidated financial results.
Other Assets
Other assets at March 31, 2001 and 2000 consisted of the following:
<TABLE>
<CAPTION>
2001 2000
---------- ----------
<S> <C> <C>
Licenses........................................... $1,070,747 $ 940,747
Patents............................................ 2,601,705 570,950
Deposits........................................... 75,823 60,649
---------- ----------
3,748,275 1,572,346
Less: accumulated amortization..................... (824,122) (493,736)
---------- ----------
$2,924,153 $1,078,610
========== ==========
</TABLE>
External license and patent costs are amortized to expense on a straight-
line basis over periods not exceeding 7 years. The carrying value of
intangible assets is periodically reviewed by the Company and impairments are
recognized when the expected future operating cash flows derived from such
intangible assets is less than their carrying value.
Effective March 31, 1998, the Company signed an agreement with Lucent
Technologies, Inc. ("Lucent") granting the Company a royalty-bearing, non-
exclusive, worldwide license for superconductor wire under Lucent's portfolio
of high temperature superconductor patents and patent applications. The
license runs from March 31, 1998 until the expiration of the last-to-expire
patent in the portfolio.
Effective November 17, 1999, the Company signed an agreement with
Massachusetts Institute of Technology ("MIT") granting the Company an
exclusive, royalty-bearing, worldwide license for second-generation wire,
tape, and conductors made under an MIT patent and patent application. The
license is exclusive until the first to occur of eight years after the first
commercial sale of a licensed product or eight years after the first
commercial use of a licensed process, or November 17, 2010. Thereafter the
license remains exclusive as long as running royalties paid to MIT remain
above a certain amount per year, or becomes non-exclusive until the end of the
term of the patent rights.
Effective March 1, 2000, the Company signed an agreement with Oak Ridge
National Laboratory ("ORNL") granting the Company a royalty-bearing, non-
exclusive, worldwide license for second-generation superconductor wire or tape
made under ORNL patents and patent applications. The license runs from March
1, 2000 until the expiration of the last-to-expire licensed patent.
B-9
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Effective October 27, 2000, the Company signed a development and license
agreement with Lawrence Berkeley National Laboratory ("LBL") granting the
Company a royalty-bearing, exclusive, worldwide license for second-generation
superconductor wire or tape made under LBL patents that are developed under
this agreement. The license runs from October 27, 2000 until the expiration of
the last-to-expire licensed patent.
Revenue Recognition
The Company has entered into contracts to perform research and development
(see Note 9). Revenues from these contracts and prototype development
contracts are recognized utilizing the percentage of completion method,
measured by the relationship of costs incurred to total contract costs. Costs
include direct engineering and development costs and applicable overhead. The
Company recognizes its revenue on product sales upon shipment, installation or
acceptance, where applicable, or for certain contracts, on the percentage of
completion method of accounting measured by the relationship of total costs
incurred to total contract costs. Customer deposits are recorded as deferred
revenue until the related sales are recognized. The Company rents equipment to
customers on a monthly basis and recognizes rental income as it is earned.
Research and Development Costs
Research and development costs are expensed as incurred.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each fiscal year end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce net deferred tax assets to the amount expected to be
realized. No current or deferred income taxes have been provided because of
the net operating losses incurred by the Company since its inception.
Computation of Net Loss per Common Share
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" which requires presentation of basic earnings
per share ("EPS") and, for companies with complex capital structures, diluted
EPS. Basic EPS excludes dilution and is computed by dividing net income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS includes dilution and is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
include the effect of the exercise of stock options and warrants. For the
years ended March 31, 2001, 2000 and 1999, common equivalent shares of
2,523,769, 1,788,401 and 655,843, respectively, were not included in the
calculation of diluted EPS as the effect of these was antidilutive.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the local
currency. The assets and liabilities of this operation are translated into
U.S. dollars at the exchange rate in effect at the balance sheet date and
income and expense items are translated at average rates for the period.
Cumulative translation adjustments are excluded from net loss and shown as a
separate component of stockholders' equity. Foreign currency transaction gains
and losses are included in the net loss and have not been material to date.
B-10
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact future results of operations and cash flows.
The Company invests its cash and cash equivalents with high-credit, quality
financial institutions and invests primarily in investment grade-marketable
securities, including, but not limited to, government obligations, repurchase
agreements, and money market funds.
The Company's accounts receivable are comprised of amounts owed by
government agencies and commercial companies. The Company does not require
collateral or other security to support customer receivables. The Company
believes any credit losses will not be material.
3. Long-term Marketable Securities
Long-term marketable securities at March 31, 2001 and 2000 consisted of U.S.
government and government agency securities and corporate bonds:
<TABLE>
<CAPTION>
2001 2000
----------- -----------
<S> <C> <C>
Aggregate Cost................................... $70,352,896 $91,879,288
Fair Value....................................... 71,161,804 91,737,449
Gross Unrealized Gain (Loss)..................... $ 808,908 $ (141,839)
</TABLE>
The Company's long-term marketable securities are classified as available-
for-sale securities and, accordingly, are recorded at amortized cost plus
accrued interest which approximates fair value. The difference between cost
and fair value is included in stockholders' equity. All of these securities
mature in one to three years.
4. Inventories
Inventories at March 31, 2001 and 2000 consisted of the following:
<TABLE>
<CAPTION>
2001 2000
----------- ----------
<S> <C> <C>
Raw materials....................................... $ 4,476,701 $3,819,059
Work-in-progress.................................... 9,408,480 2,926,799
Finished goods...................................... 415,747 601,810
----------- ----------
$14,300,928 $7,347,668
=========== ==========
</TABLE>
5. Accounts payable and accrued expenses
Accounts payable and accrued expenses at March 31, 2001 and 2000 consisted
of the following:
<TABLE>
<CAPTION>
2001 2000
---------- ----------
<S> <C> <C>
Accounts payable.................................... $3,281,217 $3,230,176
Accrued employee expenses........................... 326,184 645,384
Accrued executive bonus............................. 369,802 694,363
Accrued expenses.................................... 3,832,565 1,221,680
Accrued vacation.................................... 766,254 547,420
---------- ----------
$8,576,022 $6,339,023
========== ==========
</TABLE>
B-11
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
6. Income Taxes
The reconciliation between the statutory federal income tax rate and the
Company's effective income tax rate is shown below.
<TABLE>
<CAPTION>
Year ended
March 31
------------------
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate..................... (34)% (34)% (34)%
State income taxes, net federal benefit............... (6)% (6)% (6)%
Nondeductible expenses................................ 1 % 1 % 1 %
Research & development credit......................... (3)% (2)% (4)%
Valuation allowance................................... 42 % 41 % 43 %
--- --- ---
Effective income tax rate............................. 0 % 0 % 0 %
=== === ===
</TABLE>
The principal components of the Company's deferred tax liabilities and
assets were the following:
<TABLE>
<CAPTION>
March 31
--------------------------
2001 2000
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward................... $ 58,784,000 $ 42,776,000
Research and development and other credits........ 2,648,000 1,845,000
Depreciation and other............................ 1,846,000 1,071, 000
Valuation allowance............................... (63,278,000) (45,692,000)
------------ ------------
Net............................................. $ -- $ --
============ ============
</TABLE>
At March 31, 2001 the Company had available for federal income tax purposes
net operating loss carryforwards of approximately $150,324,000, which expire
in years 2005 through 2020. This includes approximately $15,086,000 of SI
acquired net operating losses which begin to expire in 2003, and their
utilization by the Company will be subject to annual limitations. The Company
has recorded a deferred tax asset of approximately $12,475,000 reflecting the
benefit of deductions from the exercise of stock options. This deferred tax
asset has been fully reserved until it is more likely than not that the tax
benefit from the exercise of stock options will be realized. The benefit from
this $12,475,000 will be recorded as a credit to additional paid-in capital
when realized. Research and development and other credit carryforwards
amounting to approximately $2,648,000 are available to offset federal and
state income taxes and expire in years 2005 through 2020. Under current tax
law, the utilization of net operating loss carryforwards may be subject to
annual limitations in the event of certain changes in ownership.
7. Stockholders' Equity
The Offerings
On March 6, 2000 the Company completed a public offering of 3,500,000 shares
of its common stock and received net proceeds (after the underwriters discount
but before deducting offering expenses) of $205,625,000. On April 22, 1998 the
Company completed a public offering of 3,504,121 shares of its common stock
and received net proceeds (after the underwriters discount but before
deducting offering expenses) of $46,114,000, of which approximately $3,142,000
was used to retire the Company's subordinated notes.
B-12
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Stock-Based Compensation Plans
The Company has adopted the disclosure only option under Statement of
Financial Accounting Standards (SFAS) 123 "Accounting for Stock-Based
Compensation". Pro forma information regarding net income and earnings per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
Consistent with the method of SFAS 123, the Company's net loss and net loss
per share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the fiscal years ended
March 31,
----------------------------
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C> <C>
Net loss (in thousands)......... As reported $(21,676) $(17,598) $(15,326)
Pro forma $(25,446) $(21,368) $(17,960)
Loss per share.................. As reported $ (1.08) $ (1.11) $ (1.01)
Pro forma $ (1.26) $ (1.35) $ (1.19)
</TABLE>
The pro forma amounts include the effects of all activity under the
Company's stock-based compensation plans since April 1, 1997. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for grants: a
weighted average risk free interest rate of 5.7%, 6.0% and 5.3% in fiscal
2001, fiscal 2000 and fiscal 1999, respectively; expected stock price
volatility of 85% for fiscal 2001, 65% for fiscal 2000 and 60% for fiscal
1999; no dividends; and a weighted average life of the options of 5 years. The
weighted average fair value of options granted during fiscal 2001, fiscal 2000
and fiscal 1999 was $24.85 per share, $7.45 per share and $7.36 per share,
respectively. The above amounts may not be indicative of future expense
because amounts are recognized over the vesting period and the Company expects
it will have additional grants and related activity under these plans in the
future.
The Company has six stock option plans including three Directors' Plans. The
stock option plans (the "Plans") include the 1987 Stock Plan (the "1987
Plan"), the 1993 Stock Option Plan (the "1993 Plan"), the 1996 Stock Incentive
Plan (the "1996 Plan"), the 1991 Director Stock Option Plan (the "1991
Director Plan"), the 1994 Director Stock Option Plan (the "1994 Director
Plan"), and the 1997 Director Stock Option Plan (the "1997 Director Plan").
The Board of Directors authorized the issuance of 74,000 shares of restricted
stock to certain officers in fiscal year 2000. The restriction on sale can be
removed upon meeting certain corporate performance targets. The Company
recorded expenses of $106,067 and $106,067 in fiscal 2001 and fiscal 2000,
respectively, related to this issuance. Additionally, the Board of Directors
authorized options for an additional 175,000 shares related to the acquisition
of IE. All options issued under the IE plan are nonqualified. The Plans are
administered by the Compensation Committee of the Board of Directors and
permit the Company to sell or award common stock or to grant stock options for
the purchase of common stock.
The Plans provide for the issuance of incentive stock options and non-
qualified stock options to purchase the Company's common stock. In the case of
incentive stock options, the exercise price shall be equal to at least the
fair market value of the common stock, as determined by the Board of
Directors, on the date of grant. The 1991, 1994 and 1997 Director Plans are
stock option plans for members of the Board of Directors who are not also
employees of the Company ("outside directors"). The 1997 Director Plan
provides for the automatic grant of stock options for the purchase of common
stock by outside directors at an exercise price equal to fair market value at
the grant date. No further grants may be made under the 1987 Plan, the 1991
Director Plan or the 1994 Director Plan.
B-13
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Options granted under the Plans generally become exercisable in equal annual
increments over a four or five year period and expire 10 years from the date
of grant or from two to three months after termination of employment.
The following table summarizes information about stock options outstanding
at March 31,2001.
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Price At 3/31/01 Life Price at 3/31/01 Price
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.00- 5.89 74,329 0.1 $ 0.01 74,329 $ 0.01
5.89-11.78 1,489,302 7.3 10.22 586,920 9.74
11.78-17.66 978,998 7.4 13.09 448,368 13.14
17.66-23.55 397,330 3.1 20.55 395,730 20.56
23.55-29.44 747,850 9.1 26.01 0 0.00
29.44-35.33 750,000 9.3 32.56 0 0.00
35.33-41.21 66,500 9.6 36.82 0 0.00
41.21-47.10 41,500 9.6 46.13 0 0.00
47.10-58.88 41,000 8.9 58.88 10,000 58.88
--------- ------ --------- ------
$ 0.00-58.88 4,586,809 $18.93 1,515,347 $13.42
========= =========
</TABLE>
B-14
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at March 31, 2001.
The following table summarizes the information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
Weighted average Number
Shares Exercise Price Exercisable
--------- ---------------- -----------
<S> <C> <C> <C>
Outstanding at March 31, 1998.... 2,624,490 $ 12.63 1,215,883
--------- --------- ---------
Granted........................ 765,550 12.08
Exercised...................... (99,976) 2.67
Canceled....................... (54,538) 11.51
--------- --------- ---------
Outstanding at March 31, 1999.... 3,235,526 $ 12.82 1,563,057
Granted........................ 946,750 13.11
Exercised...................... (692,737) 13.10
Canceled....................... (24,818) 10.42
--------- --------- ---------
Outstanding at March 31, 2000.... 3,464,721 $ 12.86 1,398,191
Granted........................ 1,703,200 29.33
Exercised...................... (490,068) 11.61
Canceled....................... (91,044) 14.48
--------- --------- ---------
Outstanding at March 31, 2001.... 4,586,809 18.93 1,515,347
========= ========= =========
Available for grant at March 31,
2001............................ 1,593,587
=========
</TABLE>
Stock Purchase Warrants
The Company recorded an increase to additional paid-in capital and a
corresponding charge to deferred warrant costs of approximately $336,000 in
January 1998 related to the issuance of stock purchase warrants for 250,500
shares of common stock at an exercise price of $10.20 per share which become
exercisable over a five-year period following the date of grant. These
warrants were granted in consideration of ongoing financial services being
provided to the Company. Expense related to these warrants was approximately
$67,000, $67,000 and $67,000 for the fiscal years ended March 31, 2001, 2000
and 1999, respectively.
The Company also granted warrants in 1996 and 1998 to the Electric Power
Research Institute (EPRI). See Note 9.
8. Commitments
The Company rents its headquarters in Westborough, Massachusetts under an
operating lease, which expires in May 2003. In October 2000 the Company leased
additional facilities in Westborough for the development of electric motor and
generator technology under an operating lease that expires in 2005. The
Company also rents operating facilities near Madison, Wisconsin under two
leases, which expire on December 31, 2003, and two facilities near Milwaukee,
Wisconsin, under leases which expire in 2001. The Company has an option to
extend the Westborough, Massachusetts and Madison, Wisconsin leases for
additional five-year periods. Under all leases the Company pays for real
estate taxes, certain insurance coverage and operating expenses.
B-15
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
Rent expense under the leases mentioned above were as follows:
<TABLE>
<CAPTION>
2001 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Rent expense.............................. $1,435,000 $1,228,000 $1,154,000
---------- ---------- ----------
</TABLE>
Minimum future lease commitments at March 31, 2001 were as follows:
<TABLE>
<CAPTION>
For the years ended March 31 Total
---------------------------- ---------
<S> <C>
2002............................................................. 1,572,000
2003............................................................. 1,512,000
2004............................................................. 656,000
2005............................................................. 276,000
2006............................................................. 138,000
</TABLE>
The Company had outstanding commitments related to the construction of its
new HTS wire manufacturing facility in Devens, Massachusetts of approximately
$34,929,000 at March 31, 2001.
9. Research and Development Agreements
In December 1999, the Company extended its development contract with Pirelli
Cables and Systems, a stockholder of the Company, to jointly develop high
temperature superconducting cable wires. Pirelli agreed to provide the Company
with up to $13,800,000 in additional funding over the five-year period between
October 1, 1999 and September 30, 2004. $3,500,000 of that funding was
recognized as revenue in fiscal 2000, of which $2,500,000 was for R&D work
performed by the Company prior to the effective date (October 1, 1999) of the
latest Pirelli agreement. The Pirelli alliance was originally established in
February 1990; in the 11-year period between 1990 and March 31, 2001, the
Company received development funding of approximately $21,600,000 from
Pirelli.
In fiscal 1998, the Company entered into research and development contracts
with Asea Brown Boveri (ABB) and EDF, an affiliate of which is a stockholder
of the Company, to develop HTS wire for power transformers. The ABB and EDF
agreements, each of which called for the payment of $5,000,000 in development
fees to the Company over four years, were terminated in April 2000, with ABB
having paid a cumulative total of $4,350,000 and EDF $4,450,000. The Company
recorded revenues under these contracts as follows:
<TABLE>
<CAPTION>
2001 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Pirelli................................... $2,000,000 $4,250,000 $2,000,000
ABB....................................... -- 1,050,000 1,025,000
EDF....................................... -- 1,050,000 1,600,000
---------- ---------- ----------
$2,000,000 $6,350,000 $4,625,000
========== ========== ==========
</TABLE>
Future funding commitments under the Pirelli contract are $8,300,000 through
September 2004. At March 31, 2001, $1,750,000 due under the development
contract with Pirelli was included in accounts receivable, of which $1,250,000
was classified as long-term.
In March 1996, the Company entered into a strategic alliance with the
Electric Power Research Institute (EPRI) to develop and commercialize a
possible next-generation HTS wire. This agreement ended on March 31, 2000. In
March 1996, under the first phase of the agreement, the Company granted a
warrant for 100,000 shares of common stock to EPRI at $14.00 per share which
became exercisable over a five-year period following the date of grant. In
March 1998, under the second phase of the agreement, the Company granted to
EPRI another
B-16
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
warrant to purchase 110,000 shares of common stock of the Company at $13.94
per share, which become exercisable over the next five years. The Company will
receive exclusive license rights to intellectual property from EPRI. The
Company recorded an increase to additional paid-in capital and a corresponding
charge to deferred contract costs of $618,000 and $637,000 in fiscal 1998 and
1997, respectively, relating to these warrants. Warrant expense related to
these agreements was approximately $234,000, $314,000 and $243,000 for the
fiscal years ended March 31, 2001, 2000 and 1999, respectively.
10. Cost sharing arrangements
The Company has entered into several cost-sharing arrangements with various
agencies of the United States government. Funds paid to the Company under
these agreements are used to directly offset the Company's research and
development and selling, general and administrative expenses and to purchase
capital equipment. The Company recorded costs and funding under these
agreements of $645,000 and $262,000, respectively, for fiscal 2001, of
$3,971,000 and $1,967,000, respectively, for fiscal 2000, and $4,325,000 and
$1,953,000, respectively, for fiscal 1999. At March 31, 2001, total funding
received to date under these agreements was $12,812,000. Future funding
expected to be received under existing agreements is approximately $1,433,000
subject to continued future funding allocations.
11. Employee Benefit Plans
The Company has implemented a deferred compensation plan under Section
401(k) of the Internal Revenue Code. Any contributions by the Company are
discretionary. The company instituted a stock match program in July 1998 under
which the Company matched 25% of the first 4% of eligible contributions to the
plan. Effective July 1, 2000 this contribution increased to 6% of eligible
contributions. The Company recorded expense of $234,472, $128,687 and $80,575
in fiscal years 2001, 2000 and 1999, respectively, and corresponding charges
to additional paid-in capital related to this program. The Company does not
have post-retirement or post-employment benefit plans.
12. Related Party Transaction
The company recorded a sale of $1,100,000 on the shipment of a SMES unit to
a division of EDF, the Company's largest shareholder.
13. Business Segment Information
The Company has adopted Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). The Company has two reportable business segments as defined by FAS
131--High Temperature Superconducting ("HTS") business segment, and the
Superconducting Magnetic Energy Storage ("SMES") business segment.
The HTS business segment develops and commercializes HTS wire, wire products
and systems. The focus of this segment's development effort is on power
transmission cables and electric motors and generators.
The SMES business segment is focused on marketing and selling commercial low
temperature SMES devices, on development and commercialization of new SMES
products, and on development and commercialization of power electronic
switches for the power quality and reliability marketplace.
B-17
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
The operating segment results for the HTS and SMES business segments are as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31
----------------------------------------
Net Sales 2001 2000 1999
--------- ------------ ------------ ------------
<S> <C> <C> <C>
HTS............................ $ 7,452,539 $ 11,610,772 $ 9,747,580
SMES........................... 9,314,985 3,502,363 1,509,722
------------ ------------ ------------
Total........................ $ 16,767,524 $ 15,113,135 $ 11,257,302
============ ============ ============
<CAPTION>
Operating Income (loss) 2001 2000 1999
----------------------- ------------ ------------ ------------
<S> <C> <C> <C>
HTS............................ $(25,858,051) $(12,448,859) $(10,981,720)
SMES........................... (6,943,149) (5,788,754) (5,246,240)
Unallocated corporate
expenses...................... (1,594,368) (1,235,101) (1,023,018)
------------ ------------ ------------
Total........................ $(34,395,568) $(19,472,714) $(17,250,978)
============ ============ ============
</TABLE>
The segment assets for the HTS and SMES business segments are as follows
<TABLE>
<CAPTION>
March 31,
-------------------------
2001 2000
------------ ------------
<S> <C> <C>
HTS............................................. $ 48,501,903 $ 16,265,634
SMES............................................ 31,199,906 13,993,405
Corporate cash and marketable securities........ 160,225,103 218,655,217
------------ ------------
Total......................................... $239,926,912 $248,914,256
============ ============
</TABLE>
Other significant segment information is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
--------------------------------
Depreciation and amortization 2001 2000 1999
----------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
HTS...................................... $3,095,359 $1,838,225 $1,641,449
SMES..................................... 1,003,545 415,356 297,740
---------- ---------- ----------
Total.................................. $4,098,904 $2,253,581 $1,939,189
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31,
----------------------
Capital expenditures 2001 2000
-------------------- ----------- ----------
<S> <C> <C>
HTS................................................. $33,165,330 $4,017,478
SMES................................................ 2,915,591 1,914,601
----------- ----------
Total............................................. $36,080,921 $5,932,079
=========== ==========
</TABLE>
The accounting policies of the business segments are the same as those
described in Note 2, except that certain corporate expenses which we do not
believe are specifically attributed or allocable to either business segment
have been excluded from the segment operating loss.
B-18
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
14. Quarterly Financial Data
Fiscal year ended March 31, 2001:
<TABLE>
<CAPTION>
December
June 30, September 30, 31, March 31,
Three Months Ended 2000 2000 2000 2001
- ------------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Total Revenues.......... $ 3,924,000 $ 4,718,000 $ 5,607,000 $ 2,519,000
Operating loss.......... $(7,956,000) $(8,557,000) $(7,279,000) $(10,604,000)
Net loss................ $(4,457,000) $(5,045,000) $(4,130,000) $ (8,044,000)
Net loss per common
share.................. $ (0.22) $ (0.25) $ (0.20) $ (0.41)
</TABLE>
Fiscal year ended March 31, 2000:
<TABLE>
<CAPTION>
June 30, September 30, December March 31,
Three Months Ended 1999 1999 31, 1999 2000
- ------------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues........... $ 2,270,000 $ 2,533,000 $ 5,032,000 $ 5,278,000
Operating loss........... $(5,333,000) $(5,097,000) $(3,113,000) $(5,930,000)
Net loss................. $(4,994,000) $(4,789,000) $(2,883,000) $(4,932,000)
Net loss per common
share................... $ (0.32) $ (0.31) $ (0.19) $ (0.29)
</TABLE>
15. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.
Statement 133, as amended by Statement 138, effective July 1, 2000, is
effective for fiscal years beginning after June 15, 1999. In June 1999, FASB
issued Statement 137 which defers the effective date to fiscal years beginning
after June 15, 2000. A company may also implement the Statement as of the
beginning of any fiscal quarter after issuance. Statement 133 cannot be
applied retroactively. Statement 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired or substantively modified after December
31, 1997 (and, at the company's election, before January 1, 1998). We believe
the impact on our financial statements of adopting Statement 133 will be
immaterial.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition," which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. There was no impact on our current financial statements as
a result of adopting this interpretation.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting
for Certain Transactions Involving Stock Compensation--an Interpretation of
APB Opinion No. 25". This interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in
B-19
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS--(Continued)
a business combination. This interpretation is effective July 1, 2000, but
certain conclusions in this interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this interpretation are recognized on a prospective basis
from July 1, 2000. There was no impact on our current financial statements as
a result of adopting FIN 44. We believe the future impact on our financial
statements as a result of this interpretation will be immaterial.
B-20
<PAGE>
OFFICERS, DIRECTORS AND FOUNDERS
Board of Directors Executive Officers
Gregory J. Yurek, Ph.D. Gregory J. Yurek, Ph.D.
President, Chief Executive Officer and President, Chief Executive Officer
Chairman of the Board and Chairman of the Board
Albert J. Baciocco, Jr. Roland E. Lefebvre
Vice Admiral, U.S. Navy (Retired) Executive Vice President and
President, The Baciocco Group, Inc. Chief Operating Officer
Colonel Frank Borman Alexis P. Malozemoff, Ph.D.
President, Patlex Corporation Senior Vice President and
Chief Technical Officer
Clayton M. Christensen
Professor of Business Administration, Stanley D. Piekos
Harvard Business School Senior Vice President, Corporate
Development,
Peter O. Crisp Chief Financial Officer, and
Vice Chairman, Secretary
Rockefeller Financial Services, Inc.
Thomas M. Rosa
Richard Drouin, O.C., Q.C. Chief Accounting Officer, Corporate
Partner, McCarthy Tetrault Controller,
Former Chairman and Chief And Assistant Secretary
Executive Officer,
Hydro-Quebec Founders
Gerard Menjon Yet-Ming Chiang, Ph.D.
Executive Vice President Kyocera, Professor of Ceramics
Head of Research & Development Division, Department of Materials Science
Electricite de France Massachusetts Institute of
Technology
Andrew G.C. Sage, II
President, Sage Capital Corporation David A. Rudman, Ph.D.
Project Leader
John B. Vander Sande, Ph.D. Electro Magnetic Technology Division
Cecil and Ida Green National Institute of Technologies
Distinguished Professor and Standards
Department of Materials
Science and Engineering John B. Vander Sande, Ph.D
Director, Cambridge-MIT Institute (see above)
Massachusetts Institute of Technology
Gregory J. Yurek, Ph.D.
(see above)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN SUPERCONDUCTOR CORPORATION
By: /s/ Gregory J. Yurek
--------------------
Gregory J. Yurek
Chairman of the Board, President and
Chief Executive Officer
Date: June 27, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Gregory J. Yurek Director, Chairman of the Board, ) June 27, 2001
- -------------------- President and Chief Executive Officer )
Gregory J. Yurek (Principal Executive Officer) )
/s/ Stanley Piekos Chief Financial Officer, Senior Vice ) June 27, 2001
- ------------------ President, Corporate Development )
Stanley Piekos (Principal Financial Officer) )
)
/s/ Thomas Rosa Chief Accounting Officer and Corporate ) June 27, 2001
- --------------- Controller (Principal Accounting )
Thomas Rosa Officer) )
)
/s/ Albert J. Baciocco, Jr. Director ) June 27, 2001
- ---------------------------
Albert J. Baciocco, Jr. )
)
/s/ Frank Borman Director ) June 27, 2001
- ----------------
Frank Borman )
)
/s/ Clayton M. Christensen Director ) June 27, 2001
- --------------------------
Clayton M. Christensen )
)
/s/ Peter O. Crisp Director ) June 27, 2001
- ------------------
Peter O. Crisp )
)
/s/ Richard Drouin Director ) June 27, 2001
- ------------------
Richard Drouin )
)
/s/ Gerard Menjon Director ) June 27, 2001
- -----------------
Gerard Menjon )
)
/s/ Andrew G.C. Sage, II Director ) June 27, 2001
- ------------------------
Andrew G.C. Sage, II )
)
/s/ John B. Vander Sande Director ) June 27, 2001
- ------------------------
John B. Vander Sande )
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Registrant (1)
3.2 Amended and Restated By-laws of the Registrant (2)
4.1 Specimen Certificate for shares of Common Stock, $.01 par value,
of the Registrant (3)
4.2 Rights Agreement dated as of October 30, 1998 between the
Registrant and American Stock Transfer & Trust Company, as Rights
Agent (4)
4.3 Amendment No. 1 to Rights Agreement, dated as of January 29, 1999
between the Registrant and American Stock Transfer & Trust
Company, as Rights Agent (5)
$$10.1 Employment Agreement dated as of December 4, 1991 between the
Registrant and Gregory J. Yurek (3)
$$10.2 Employment Agreement dated as of December 4, 1991 between the
Registrant and Alexis P. Malozemoff (3)
10.3 Form of Employee Nondisclosure and Developments Agreement (3)
$$10.4 Employee Nondisclosure and Developments Agreement dated as of
December 26, 1990 between the Registrant and Alexis P.
Malozemoff (3)
$$10.5 Noncompetition Agreement dated as of July 10, 1987 between the
Registrant and John Vander Sande (3)
$10.6 License Agreement between the Registrant and MIT dated as of
July 6, 1987 (3)
$10.7 License Agreement between the Registrant and MIT dated as of
January 31, 1989 (3)
$10.8 License Agreement dated as of August 1, 1991 (3)
$10.9 License Agreement dated as of September 1, 1991 (3)
$10.10 Second Amendment dated as of January 27, 1992 between the
Registrant and MIT amending the License Agreement dated as of
July 6, 1987 between the Registrant and MIT (6)
$10.11 Technology Development and Patent Licensing Agreement dated
October 7, 1992 among the Registrant and Electricity Corporation
of New Zealand Limited and Industrial Research Limited (7)
<PAGE>
$$10.12 Employment Agreement dated as of December 31, 1992 between
American Superconductor Europe GmbH and Dr. Gero Papst (7)
10.13 Lease dated March 9, 1993 between CGLIC on Behalf of its Separate
Account R, as Landlord, and the Registrant (7)
10.14 First Amendment to Lease between CGLIC, on Behalf of its Separate
Account R, as Landlord, and the Registrant, as Tenant dated
October 27, 1993 (8)
$$10.15 1993 Stock Option Plan (7)
10.16 Agreement dated January 1, 1994 between Pirelli Cavi S.p.A. and
the Registrant (9)
$10.17 Agreement between Pirelli Cavi S.p.A. and American Superconductor
Corporation, dated October 1, 1995 (12)
10.18 Technology Development and Patent Licensing Agreement, First
Amendment dated August 7, 1993 among the Registrant and
Electricity Corporation of New Zealand and Industrial Research
Limited (8)
10.19 Subcontract Agreement effective as of September 30, 1993 by and
between the Registrant and Reliance Electric Company (10)
$10.20 Fourth Amendment, dated May 15, 1995, to the Exclusive License
Agreement between the Registrant and MIT dated July 6, 1987 (11)
$$10.21 1996 Stock Incentive Plan
$10.22 Management Agreement between Electric Power Research Institute,
Inc. and American Superconductor Corporation, effective January
1, 1996 (12)
$10.23 Technology License Agreement between Electric Power Research
Institute, Inc. and American Superconductor Corporation,
effective January 1, 1996 (12)
$10.24 Warrant granted to Electric Power Research Institute, Inc. by
American Superconductor Corporation, dated March 26, 1996 (12)
10.25 Strategic Alliance Agreement by and among the Registrant and
CHARTH (Compagnie Holding D'Applications Et De Realisations
Thermiques Et Hydrauliques), dated as of April 1, 1997 (13)
$$10.26 1997 Director Stock Option Plan
$10.27 Patent License Agreement between Lucent Technologies Inc. and the
Registrant, dated as of March 31, 1998 (14)
$10.28 Agreement dated April 1, 1997 by and among Electricite de France
and the Registrant (14)
<PAGE>
$10.29 Agreement effective April 1, 1997 by and between ABB Transmission
& Distribution Technology Ltd. and the Registrant (14)
$10.30 1999 Program Addendum between Pirelli Cavi e Sistemi S.p.A and
the Registrant dated as of October 1, 1999 (15)
21.1 Subsidiaries
- ---------
(1) Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-3, as amended (File No. 333-95261).
(2) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000 filed with the
Commission on November 14, 2000.
(3) Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1, as amended (File No. 33-43647).
(4) Incorporated by reference to Exhibit to the Registrant's Registration
Statement on Form 8-A filed with the Commission on November 2, 1998.
(5) Incorporated by reference to Exhibit to the Registration Registration
Statement on Form 8-A/A filed with the Commission on March 12, 1999.
(6) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K filed with the Commission on June 29, 1992.
(7) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K filed with the Commission on June 29, 1993.
(8) Incorporated by reference to Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1993 filed with the
Commission on January 26, 1994.
(9) Incorporated by reference to Exhibits to Amendment No. 1 to the
Registrant's Quarterly Report on Form 10-Q/A for the quarter ended December
31, 1993 filed with the Commission on March 28, 1994.
(10) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K filed with the Commission on June 29, 1994.
(11) Incorporated by reference to Exhibits to the Registrant's Annual
Report on Form 10-K filed with the Commission on June 29, 1995.
(12) Incorporated by reference to Exhibits to the Registrant's Annual Report
on Form 10-K/A filed with the Commission on March 10, 1997.
<PAGE>
(13) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K filed with the Commission on June 30, 1997.
(14) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K filed with the Commission on June 26, 1998.
(15) Incorporated by reference to Exhibits to the Registrant's Current Report on
Form 8-K filed with the Commission on January 24, 2000.
$ Confidential treatment previously requested and granted with respect to
certain portions, which portions were omitted and filed separately with the
Commission.
$$ Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>2
<FILENAME>dex1021.txt
<DESCRIPTION>1996 STOCK INCENTIVE PLAN
<TEXT>
<PAGE>
Exhibit 10.21
AMERICAN SUPERCONDUCTOR CORPORATION
AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
1. Purpose
-------
The purpose of this Amended and Restated 1996 Stock Incentive Plan (the
"Plan") of American Superconductor Corporation, a Delaware corporation (the
"Company"), is to advance the interests of the Company by enhancing its ability
to attract and retain key employees, consultants and others who are in a
position to contribute to the Company's future growth and success.
2. Definitions
-----------
"Award" means any Option, Stock Appreciation Right, Performance Shares,
Restricted Stock or Unrestricted Stock awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means a committee of not less than two members of the Board
appointed by the Board to administer the Plan, provided that so long as the
Common Stock is registered under Section 12 of the Exchange Act and Rule 16b-3
under the Exchange Act ("Rule 16b-3") incorporates the concept of disinterested
administration, each member of the Committee shall be a "disinterested person"
within the meaning of Rule 16b-3.
"Common Stock" means the Common Stock, $.01 par value per share, of the
Company.
"Company" means American Superconductor Corporation and, except where the
context otherwise requires, all present and future subsidiaries of American
Superconductor Corporation as defined in Section 424(f) of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Board, to receive amounts due or exercise rights
of the Participant in the event of the Participant's death. In the absence of
an effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Board in
good faith or in the manner established by the Board from time to time.
<PAGE>
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Participant" means a person selected by the Board to receive an Award
under the Plan.
"Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals established for a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Exchange Act
or any successor provision.
"Restricted Period" means the period of time selected by the Board during
which shares subject to a Restricted Stock Award may be repurchased by or
forfeited to the Company.
"Restricted Stock" means shares of Common Stock awarded to a Participant
under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
Fair Market Value of shares of Common Stock over the exercise price awarded to a
Participant under Section 7.
"Unrestricted Stock" means shares of Common Stock awarded to a Participant
under Section 9(c).
3. Administration
--------------
The Plan will be administered by the Board. The Board shall have authority
to make Awards and to adopt, amend and repeal such administrative rules,
guidelines and practices relating to the Plan as it shall deem advisable from
time to time, and to interpret the provisions of the Plan. The Board's
decisions shall be final and binding. No member of the Board shall be liable
for any action or determination relating to the Plan made in good faith. To the
extent permitted by applicable law, the Board may delegate to one or more
executive officers of the Company the power to make Awards to Participants who
are not Reporting Persons and all determinations under the Plan with respect
thereto, provided that the Board shall fix the maximum amount of such Awards to
be made by such executive officers and a maximum amount for any one Participant.
To the extent permitted by applicable law, the Board may appoint a Committee to
administer the Plan and, in such event, all references to the Board in the Plan
shall mean such Committee or the Board. All decisions by the Board or the
Committee pursuant to the Plan shall be final and binding on all persons having
or claiming any interest in the Plan or in any Award.
-2-
<PAGE>
4. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors who are expected to contribute to the Company's future growth and
success, other than persons who have irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. Incentive Stock Options may be awarded
only to persons eligible to receive Incentive Stock Options under the Code.
5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b) below, Awards may be
made under the Plan for up to 4,850,000 shares of Common Stock. Notwithstanding
the foregoing, the number of shares of Common Stock for which Performance Share
Awards may be granted may not exceed 25% of the total number of shares of Common
Stock for which Awards may be made under the Plan (as such number may be
increased from time to time). If any Award in respect of shares of Common Stock
expires or is terminated unexercised or is forfeited for any reason or settled
in a manner that results in fewer shares outstanding than were initially
awarded, the shares subject to such Award or so surrendered, as the case may be,
to the extent of such expiration, termination, forfeiture or decrease, shall
again be available for award under the Plan, subject, however, in the case of
Incentive Stock Options, to any limitation required under the Code and provided
that shares made available pursuant to this sentence shall be available for
Awards to Reporting Persons only to the extent consistent with Rule 16b-3.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) In the event that there occurs any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or other similar transaction
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available under
the Plan, then the Board, subject, in the case of Incentive Stock Options, to
any limitation required under the Code, shall equitably adjust any or all of (i)
the number and kind of shares in respect of which Awards may be made under the
Plan, (ii) the number and kind of shares subject to outstanding Awards, and
(iii) the award, exercise or conversion price with respect to any of the
foregoing, and if considered appropriate, the Board may make provision for a
cash payment with respect to an outstanding Award, provided that the number of
shares subject to any Award shall always be a whole number.
(c) The Board may grant Awards under the Plan in substitution for
stock and stock based awards held by employees of another corporation who
concurrently become employees of the Company as a result of a merger or
consolidation of the employing corporation with the Company (or a subsidiary of
the Company) or the acquisition by the Company (or a subsidiary of the Company)
of property or stock of the employing corporation. The substitute Awards shall
be granted on such terms and conditions as the Board considers appropriate in
the circumstances.
(d) Subject to adjustment under Section 5(b), (i) the maximum
number of shares with respect to which an Option, may be granted to any employee
under the Plan shall not exceed 2,000,000 shares per calendar year and (ii) the
maximum number of shares with respect
-3-
<PAGE>
to which any other Award may be granted to any employee under the Plan shall not
exceed 250,000 per calendar year. For purposes of calculating such maximum
number pursuant to clause (i) or (ii) above, (a) an Option or other Award shall
continue to be treated as outstanding notwithstanding its repricing,
cancellation or expiration and (b) the repricing of an outstanding Option or
other Award, or issuance of an Option or other Award in substitution for a
cancelled Option or other Award shall be deemed to constitute the grant of a new
additional Option or other Award separate from the original grant of the Option
or other Award that is repriced or cancelled.
6. Stock-Options
-------------
(a) General
-------
(i) Subject to the provisions of the Plan, the Board may award
Incentive Stock Options and Nonstatutory Stock Options, and determine the number
of shares of Common Stock to be covered by each Option, the option price of such
Option and the conditions and limitations applicable to the exercise of such
Option. The terms and conditions of Incentive Stock Options shall be subject to
and comply with Section 422 of the Code, or any successor provision, and any
regulations thereunder.
(ii) The Board shall establish the exercise price at the time
each Option is awarded. In the case of Incentive Stock options, such price shall
not be less than 100% of the Fair Market Value of the Common Stock on the date
of award.
(iii) Each Option shall be exercisable at such times and subject
to such terms and conditions as the Board may specify in the applicable Award or
thereafter. The Board may impose such conditions with respect to the exercise of
Options, including conditions relating to applicable federal or state securities
laws, as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the payment
of the exercise price by delivery of cash or check in an amount equal to the
exercise price of such Options or, to the extent permitted by the Board at or
after the award of the Option, by (A) delivery of shares of Common Stock owned
by the optionee for at least six months (or such shorter period as is approved
by the Board), valued at their Fair Market Value, (B) delivery of a promissory
note of the optionee to the Company on terms determined by the Board, (C)
delivery of an irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, (D) payment of such other lawful
consideration as the Board may determine, or (E) any combination of the
foregoing.
(v) The Board may provide for the automatic award of an Option
upon the delivery of shares to the Company in payment of the exercise price of
an Option for up to the number of shares so delivered.
(vi) The Board may at any time accelerate the time at which all
or any part of an Option may be exercised.
-4-
<PAGE>
(b) Incentive Stock Options
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall,
at the time of grant, be specifically designated as such in the option agreement
covering such Incentive Stock Options. The Option exercise period shall not
exceed ten years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to
be granted under the Plan is, at the time of the grant of such option, the owner
of stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company (after taking into account the attribution of
stock ownership rule of Section 424(b) and of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(x) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than 110% of
the Fair Market Value of one share of Common Stock at the time of
grant; and
(y) The option exercise period shall not exceed five
years from the date of grant.
(iii) For so long as the Code shall so provide, options granted
to any employee under the Plan (and any other incentive stock option plans of
the Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option may be exercised unless, at the
time of such exercise, the Participant is, and has been continuously since the
date of grant of his or her Option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised within
the period of three months after the date the Participant ceases to be
an employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided, that the
--------
agreement with respect to such Option may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a Nonstatutory Stock Option under the Plan;
(y) if the Participant dies while in the employ of the
Company, or within three months after the Participant ceases to be
such an employee, the Incentive Stock Option may be exercised by the
Participant's Designated Beneficiary within the period of one year
after the date of death (or within such lesser period as may be
specified in the applicable Option agreement); and
-5-
<PAGE>
(z) if the Participant becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor provision
thereto) while in the employ of the Company, the Incentive Stock
Option may be exercised within the period of one year after the date
of disability (or within such lesser period as may be specified in the
applicable Option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
(v) Incentive Stock Options shall not be assignable or
transferable by the person to whom they are granted, either voluntarily or by
operation of law, except by will or the laws of descent and distribution, and,
during the life of the optionee, shall be exercisable only by the optionee.
7. Stock Appreciation Rights
-------------------------
(a) The Board may grant SARs entitling recipients on exercise of the
SAR to receive an amount, in cash or Common Stock or a combination thereof (such
form to be determined by the Board), determined in whole or in part by reference
to appreciation in the Fair Market Value of the Common Stock between the date of
the Award and the exercise of the Award. A SAR shall entitle the Participant to
receive, with respect to each share of Common Stock as to which the SAR is
exercised, the excess of the share's Fair Market Value on the date of exercise
over its Fair Market Value on the date the SAR was granted. The Board may also
grant SARs that provide that, following a change in control of the Company (as
defined by the Board at the time of the Award), the holder of such SAR will be
entitled to receive, with respect to each share of Common Stock subject to the
SAR, an amount equal to the excess of a specified value (which may include an
average of values) for a share of Common Stock during a period preceding such
change in control over the Fair Market Value of a share of Common Stock on the
date the SAR was granted.
(b) SARs may be granted in tandem with, or independently of, Options
granted under the Plan. A SAR granted in tandem with an Option which is not an
Incentive Stock Option may be granted either at or after the time the Option is
granted. A SAR granted in tandem with an Incentive Stock Option may be granted
only at the time the Option is granted.
(c) When SARs are granted in tandem with Options, the following
provisions will apply:
(i) The SAR will be exercisable only at such time or times,
and to the extent, that the related Option is exercisable and will be
exercisable in accordance with the procedure required for exercise of the
related Option.
(ii) The SAR will terminate and no longer be exercisable upon
the termination or exercise of the related Option, except that a SAR granted
with respect to less than the full number of shares covered by an Option will
not be reduced until the number of shares as
-6-
<PAGE>
to which the related Option has been exercised or has terminated exceeds the
number of shares not covered by the SAR.
(iii) The Option will terminate and no longer be exercisable
upon the exercise of the related SAR.
(iv) The SAR will be transferable only with the related
Option.
` (v) A SAR granted in tandem with an Incentive Stock Option
may be exercised only when the market price of the Common Stock subject to the
Option exceeds the exercise price of such Option.
(d) A SAR not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the Board may
specify.
(e) The Board may at any time accelerate the time at which all or any
part of the SAR may be exercised.
8. Performance Shares
------------------
(a) The Board may make Performance Share Awards entitling recipients
to acquire shares of Common Stock upon the attainment of specified performance
goals. The Board may make Performance Share Awards independent of or in
connection with the granting of any other Award under the Plan. The Board in its
sole discretion shall determine the performance goals applicable under each such
Award, the periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Board may rely on the performance goals and other
standards applicable to other performance plans of the Company in setting the
standards for Performance Share Awards under the Plan.
(b) Performance Share Awards and all rights with respect to such
Awards may not be sold, assigned, transferred, pledged or otherwise encumbered.
(c) A Participant receiving a Performance Share Award shall have the
rights of a stockholder only as to shares actually received by the Participant
under the Plan and not with respect to shares subject to an Award but not
actually received by the Participant. A Participant shall be entitled to receive
a stock certificate evidencing the acquisition of shares of Common Stock under a
Performance Share Award only upon satisfaction of all conditions specified in
the agreement evidencing the Performance Share Award.
(d) The Board may at any time accelerate or waive any or all of the
goals, restrictions or conditions imposed under any Performance Share Award.
9. Restricted and Unrestricted Stock
---------------------------------
(a) The Board may grant Restricted Stock Awards entitling recipients
to acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their purchase price (or to require
forfeiture of such shares if purchased at no cost)
-7-
<PAGE>
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable Restricted
Period or Restricted Periods established by the Board for such Award. Conditions
for repurchase (or forfeiture) may be based on continuing employment or service
or achievement of pre-established performance or other goals and objectives.
(b) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by the Board,
during the applicable Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Board may determine. Any certificates issued in
respect of shares of Restricted Stock shall be registered in the name of the
Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the Restricted Period, the Company (or such
designee) shall deliver such certificates to the Participant or if the
Participant has died, to the Participant's Designated Beneficiary.
(c) The Board may, in its sole discretion, grant (or sell at a
purchase price determined by the Board, which shall not be lower than 85% of
Fair Market Value on the date of sale) to Participants shares of Common Stock
free of any restrictions under the Plan ("Unrestricted Stock").
(d) The purchase price for each share of Restricted Stock and
Unrestricted Stock shall be determined by the Board of Directors and may not be
less than the par value of the Common Stock. Such purchase price may be paid in
the form of past services or such other lawful consideration as is determined by
the Board
(e) The Board may at any time accelerate the expiration of the
Restricted Period applicable to all, or any particular, outstanding shares of
Restricted Stock.
10. General Provisions Applicable to Awards
---------------------------------------
(a) Applicability of Rule 16b-3. Those provisions of the Plan which
---------------------------
make an express reference to Rule 16b-3 shall apply to the Company only at such
time as the Company's Common Stock is registered under the Exchange Act, or any
successor provision, and then only to Reporting Persons.
(b) Reporting Person Limitations. Notwithstanding any other provision
----------------------------
of the Plan, to the extent required to qualify for the exemption provided by
Rule 16b-3, (i) any Option, SAR, Performance Share Award or other similar right
related to an equity security issued under the Plan to a Reporting Person shall
not be transferable other than by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I or the Employee Retirement Income Security Act ("ERISA"), or the rules
thereunder, and shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's guardian or legal representative, and (ii)
the selection of a Reporting Person as a Participant and the terms of his or her
Award shall be determined only in accordance with the applicable provisions of
Rule 16b-3.
-8-
<PAGE>
(c) Documentation. Each Award under the Plan shall be evidenced by an
-------------
instrument delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Board (or its designee) considers necessary or
advisable. Such instruments may be in the form of agreements to be executed by
both the Company and the Participant, or certificates, letters or similar
documents, acceptance of which will evidence agreement to the terms thereof and
of this Plan.
(d) Board Discretion. Except as otherwise provided by the Plan, each
----------------
type of Award may be made alone, in addition to or in relation to any other type
of Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly. Except as otherwise provided by the Plan
or a particular Award, any determination with respect to an Award may be made by
the Board at the time of award or at any time thereafter.
(e) Termination of Status. Subject to the provisions of Section
---------------------
6(b)(iv), the committee shall determine the effect on an Award of the
disability, death, retirement, authorized leave of absence or other termination
of employment or other status of a Participant and the extent to which, and the
period during which, the Participant's legal representative, guardian or
Designated Beneficiary may exercise rights under such Award.
(f) Mergers, Etc. In the event of a consolidation, merger or other
------------
reorganization in which all of the outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (an "Acquisition") or in the event of a liquidation of the
Company, the Board of Directors of the Company, or - the board of directors of
any corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions as to outstanding Awards: (i)
provide that such Awards shall be assumed, or substantially equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof) on such terms as the Board determines to be appropriate, (ii)
upon written notice to Participants, provide that all unexercised Options or
SARs will terminate immediately prior to the consummation of such transaction
unless exercised by the Participant within a specified period following the date
of such notice, (iii) in the event of an Acquisition under the terms of which
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the Acquisition (the
"Acquisition Price"), make or provide for a cash payment to Participants equal
to the difference between (A) the Acquisition Price times the number of shares
of Common Stock subject to outstanding Options or SARs (to the extent then
exercisable at prices not in excess of the Acquisition Price) and (B) the
aggregate exercise price of all such outstanding Options or SARs in exchange for
the termination of such Options and SARS, and (iv) provide that all or any
outstanding Awards shall become exercisable or realizable in full prior to the
effective date of such Acquisition.
(g) Withholding. The Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in respect of Awards under the Plan no later than the date of the
event creating the tax liability. In the Board's discretion, and subject to such
conditions as the Board may establish, such tax obligations may be paid in whole
or in part in shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value. The
-9-
<PAGE>
Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Participant.
(h) Foreign Nationals. Awards may be made to Participants who are
-----------------
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Board considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
(i) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(j) Cancellation and New Grant of Options. The Board of Directors
-------------------------------------
shall have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding Options under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the cancelled options or (ii) the
amendment of the terms of any and all outstanding Options under the Plan to
provide an option exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Options.
(k) Conditions on Delivery of Stock. The Company will not be
-------------------------------
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan (i) until
all conditions of the Award have been satisfied or removed, (ii) until, in the
opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with, (iii) if the outstanding Common Stock is at
the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
notice of issuance, and (iv) until all other legal matters in connection with
the issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Common Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of the Award, such representations or agreements as the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Common Stock bear an appropriate legend restricting
transfer.
11. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any
--------------------------------------
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or service
for the Company. The Company expressly reserves the right at any time to dismiss
a Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
-10-
<PAGE>
(b) No Rights As Stockholder. Subject to the provisions of the
------------------------
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the record holder thereof.
(c) Exclusion from Benefit Computations. No amounts payable upon
-----------------------------------
exercise of Awards granted under the Plan shall be considered salary, wages or
compensation to Participants for purposes of determining the amount or nature of
benefits that Participants are entitled to under any insurance, retirement or
other benefit plans or programs of the Company.
(d) Effective Date and Term. The Plan shall become effective on April
-----------------------
17, 1996, the date it was adopted by the Board of Directors, but no Incentive
Stock Option granted under the Plan shall become exercisable unless and until
the Plan shall have been approved by the Company's stockholders. If such
stockholder approval is not obtained within twelve months after the date of the
Board's adoption of the Plan, no Options previously granted under the Plan shall
be deemed to be Incentive Stock Options and no Incentive Stock Options shall be
granted thereafter. No Award may be made under the Plan after April 17, 2006,
but Awards previously granted may extend beyond that date.
(e) Amendment of Plan. The Board may amend, suspend or terminate the
-----------------
Plan or any portion thereof at any time, provided that no amendment shall be
made without stockholder approval if such approval is necessary to comply with
any applicable tax or regulatory requirement, including any requirements for
compliance with Rule 16b-3. Amendments requiring stockholder approval shall
become effective when adopted by the Board of Directors, but no Incentive Stock
Option granted after the date of such amendment shall become exercisable (to the
extent that such amendment to the Plan was required to enable the Company to
grant such Incentive Stock Option to a particular Participant) unless and until
such amendment shall have been approved by the Company's stockholders. If such
stockholder approval is not obtained within twelve months of the Board's
adoption of such amendment, any Incentive Stock Options granted on or after the
date of such amendment shall terminate to the extent that such amendment to the
Plan was required to enable the Company to grant such option to a particular
Participant.
(f) Governing Law. The provisions of the Plan shall be governed by
-------------
and interpreted in accordance with the laws of the State of Delaware.
First adopted by the Board of Directors on
April 17, 1996 and by the Stockholders on
September 6, 1996. First amendment adopted
by the Board of Directors on May 27, 1998
and by the Stockholders on July 29, 1998.
Second amendment adopted by the Board of
Directors on May 2, 2000 and by the
Stockholders on July 28, 2000.
-11-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>3
<FILENAME>dex1026.txt
<DESCRIPTION>1997 DIRECTOR STOCK OPTION PLAN
<TEXT>
<PAGE>
Exhibit 10.26
AMERICAN SUPERCONDUCTOR CORPORATION
AMENDED AND RESTATED 1997 DIRECTOR STOCK OPTION PLAN
1. Purpose.
-------
The purpose of this Amended and Restated 1997 Director Stock Option Plan
(the "Plan") of American Superconductor Corporation (the "Company") is to
encourage stock ownership in the Company by outside directors of the Company
whose continued services are considered essential to the Company's future
success and to provide them with a further incentive to remain as directors of
the Company.
2. Administration.
--------------
The Board of Directors shall supervise and administer the Plan. Grants of
stock options under the Plan and the amount and nature of the options to be
granted shall be automatic in accordance with Section 5. However, all questions
concerning interpretation of the Plan or any options granted under it shall be
resolved by the Board of Directors and such resolution shall be final and
binding. No director or person acting pursuant to the authority delegated by
the Board of Directors shall be liable for any action or determination relating
to or under the Plan made in good faith.
3. Participation in the Plan.
-------------------------
Directors of the Company who are not full-time employees of the company or
any subsidiary of the Company ("Outside Directors") shall be eligible to receive
options under the Plan, except that Directors of the Company who are
representatives of an equity holder of the Company shall not be eligible to
receive options under the Plan.
4. Stock Subject to the Plan.
-------------------------
(a) The maximum number of shares of the Company's Common Stock, par value
$.01 per share ("Common Stock"), which may be issued under the Plan shall be
640,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares covered by the
unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
<PAGE>
5. Terms, Conditions and Form of Options.
-------------------------------------
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the President or the Executive Vice President,
Corporate Development, shall from time to time approve, which agreements shall
comply with and be subject to the following terms and conditions:
(a) Option Grant Dates and Shares Subject to Option. Options will be
-----------------------------------------------
granted under the Plan as follows:
(i) Initial Grants to Current Outside Directors. Provided that any
-------------------------------------------
stock options previously granted to a person serving as an Outside Director
under another director stock option plan of the Company are vested completely or
that such Outside Director has not yet been granted an option, an option to
purchase 40,000 shares of Common Stock shall be granted automatically to each
person serving as an Outside Director of the Company upon the approval of the
Plan by the stockholders of the Company. For persons serving as Outside
Directors whose stock options previously granted under another director stock
option plan of the Company have not vested completely as of the date of the
approval of the Plan by the stockholders of the Company, an option to purchase
40,000 shares of Common Stock shall be granted automatically on the first
business day following the date that such stock options are vested completely,
provided that such person is serving as an Outside Director as of such date.
(ii) Initial Grants to Future Outside Directors. An option to
------------------------------------------
purchase 40,000 shares of Common Stock shall be granted automatically to each
Outside Director first elected to the Board of Directors after the date of the
approval of the Plan by the stockholders of the Company, upon the date of his or
her initial election to the Board of Directors.
(iii) Subsequent Grants to Current Outside Directors. Provided that
----------------------------------------------
any stock options previously granted under the Plan pursuant to subsection (i)
above to a person serving as an Outside Director are vested completely, an
option to purchase 40,000 shares of Common Stock shall be granted automatically
to each person serving as an Outside Director of the Company upon approval of
this subsection by the stockholders of the Company. For persons serving as
Outside Directors whose stock options previously granted under the Plan have not
vested completely as of the date of approval of this subsection by the
stockholders of the Company, an option to purchase 40,000 shares of Common Stock
shall be granted automatically on the first business day following the date that
such stock options are vested completely, provided that such person is serving
as an Outside Director as of such date.
(b) Option Exercise Price. The option exercise price per share for each
---------------------
option granted under the Plan shall be equal to the fair market value per share
of Common Stock on the date of grant, which shall be determined as follows: (i)
if the Common Stock is listed on the Nasdaq National Market or another
nationally recognized exchange or trading system as of the date on which a
determination of fair market value is to be made, the fair market value per
share shall be deemed to be the last reported sale price per share of Common
Stock thereon on such date (or, if no such price is reported on such date, such
price on the nearest preceding date on which such a price is reported); and (ii)
if the Common Stock is not listed on the Nasdaq National Market or another
nationally recognized exchange or trading system as of the date on
-2-
<PAGE>
which a determination of fair market value is to be made, the fair market value
per share shall be as determined by the Board of Directors.
(c) Transferability of Options. Except as the Board of Directors may
--------------------------
otherwise determine, options shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the optionee, shall be exercisable only by
the optionee. References to a optionee, to the extent relevant in the context,
shall include references to authorized transferees, if any.
(d) Vesting Period.
--------------
(i) General. Each option granted under the Plan shall become
-------
exercisable in equal annual installments over the four year period following the
date of grant.
(ii) Acceleration Upon An Acquisition Event. Notwithstanding the
--------------------------------------
foregoing, each outstanding option granted under the Plan shall immediately
become exercisable in full in the event an Acquisition Event (as defined in
Section 8) of the Company occurs.
(e) Termination. Each option shall terminate, and may no longer be
-----------
exercised, on the earlier of the (i) the date ten years after the date of grant
or (ii) the date 60 days after the optionee ceases to serve as a director of the
Company for any reason, whether by death, resignation, removal or otherwise.
(f) Exercise Procedure. Options may be exercised only by written notice to
------------------
the Company at its principal office accompanied by (i) payment in cash or by
certified or bank check of the full consideration for the shares as to which
they are exercised or (ii) an irrevocable undertaking, in form and substance
satisfactory to the Company, by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (iii) delivery of irrevocable
instructions, in form and substance satisfactory to the Company, to a broker to
deliver promptly to the Company cash or a check sufficient to pay the exercise
price.
(g) Exercise by Representative Following Death of Director. An optionee,
------------------------------------------------------
by written notice to the Company, may designate one or more persons (and from
time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. Limitation of Rights.
--------------------
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
----------------------------------
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
optionee shall be entitled to continue as a director for any period of time.
-3-
<PAGE>
(b) No Stockholder Rights for Options. An optionee shall have no rights as
---------------------------------
a stockholder with respect to the shares covered by his or her option until the
date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 7) for which the record date is prior to the date such certificate is
issued. Notwithstanding the foregoing, in the event the Company effects a split
of the Common Stock by means of a stock dividend, and the distribution date
(i.e., the date on which the closing market price of the Common Stock on a stock
exchange or trading system is adjusted to reflect the split) is subsequent to
the record date for such stock dividend, an optionee who exercises an option
between the close of business on such record date and the close of business on
such distribution date shall be entitled to receive the stock dividend with
respect to the shares of Common Stock acquired upon such option exercise,
notwithstanding the fact that such shares were not outstanding as of the close
of business on such record date.
(c) Compliance with Securities Laws. Each option shall be subject to the
-------------------------------
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or the disclosure of non-
public information or the satisfaction of any other condition is necessary as a
condition to, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors.
7. Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan and (ii) the number and class of security and exercise price per
share subject to each outstanding option shall be appropriately adjusted by the
Company to the extent the Board shall determine, in good faith, that such an
adjustment is necessary and appropriate. No fractional shares will be issued
under the Plan on account of any such adjustments. If this Section 7 applies and
Section 8 also applies to any event, Section 8 shall be applicable to such event
and this Section 7 shall not be applicable.
Notwithstanding the foregoing, in the event the Company effects a split of
the Common Stock by means of a stock dividend, and the distribution date (i.e.,
the date on which the closing market price of the Common Stock on a stock
exchange or trading system is adjusted to reflect the split) is subsequent to
the record date for such stock dividend, an optionee who exercises an option
between the close of business on such record date and the close of business on
such distribution date shall be entitled to receive the stock dividend with
respect to the shares of Common Stock acquired upon such option exercise,
notwithstanding the fact that such shares were not outstanding as of the close
of business on such record date.
8. Acquisition Events.
-------------------
Consequences of Acquisition Events. Upon the occurrence of an Acquisition
----------------------------------
Event (as defined below), or the execution by the Company of any agreement with
respect to an
-4-
<PAGE>
Acquisition Event, the Board shall take any one or more of the following actions
with respect to then outstanding options: (i) provide that outstanding options
shall be assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof), provided that any such
options substituted for such options shall satisfy, in the determination of the
Board, the requirements of Section 424(a) of the Internal Revenue Code of 1986,
as amended; (ii) upon written notice to the optionees, provide that all then
unexercised options will become exercisable in full as of a specified time (the
"Acceleration Time") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the optionees between the Acceleration Time and the
consummation of such Acquisition Event; and (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding options shall terminate upon consummation of such Acquisition Event
and each optionee shall receive, in exchange therefor, a cash payment equal to
the amount (if any) by which (A) the Acquisition Price multiplied by the number
of shares of Common Stock subject to such outstanding options (whether or not
then exercisable), exceeds (B) the aggregate exercise price of such options.
An "Acquisition Event" shall mean: (x) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (y) any sale of all or substantially all of the assets
of the Company; or (z) the complete liquidation of the Company.
9. Modification, Extension and Renewal of Options.
----------------------------------------------
The Board of Directors shall have the power to modify or amend outstanding
options; provided, however, that no modification or amendment may (i) have the
effect of altering or impairing any rights or obligations of any option
previously granted without the consent of the optionee, or (ii) modify the
number of shares of Common Stock subject to the option (except as provided in
Section 7).
10. Termination and Amendment of the Plan.
-------------------------------------
The Board of Directors may suspend, terminate or discontinue the Plan or
amend it in any respect whatsoever; provided, however, that without approval of
the stockholders of the Company, no amendment may (i) increase the number of
shares subject to the Plan (except as provided in Section 7), or (ii) effect any
action which requires approval of the stockholders pursuant to the rules or
requirements of the Nasdaq National Market or any other exchange on which the
Common Stock of the Company is listed.
11. Notice.
------
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
-5-
<PAGE>
12. Governing Law.
-------------
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
13. Stockholder Approval.
--------------------
The Plan is conditional upon stockholder approval of the Plan within one
year from its date of adoption by the Board of Directors, and no option may be
granted under the Plan until such stockholder approval is obtained.
First adopted by the Board of Directors on
July 24, 1997 and approved by the
shareholders on September 5, 1997. First
amendment adopted by the Board of Directors
on May 2, 2000 and by the stockholders on
July 28, 2000.
-6-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>4
<FILENAME>dex211.txt
<DESCRIPTION>SUBSIDIARIES
<TEXT>
<PAGE>
EXHIBIT 21.1
Subsidiaries
1. American Superconductor Europe GmbH (*) - established in Germany
2. ASC Devens LLC (*) - incorporated in Delaware
3. ASC Securities Corp. (*) - incorporated in Massachusetts
4. Superconductivity, Inc. (*) - incorporated in Delaware
* Wholly owned subsidiary of American Superconductor Corporation
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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