AMERICAN SUPERCONDUCTOR CORP /DE/, S-3/A, 2000-02-29

AMERICAN SUPERCONDUCTOR CORP /DE/
S-3/A, 2000-02-29
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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As filed with the Securities and Exchange Commission on February 29, 2000

Registration No. 333-95261
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3

AMENDMENT NO. 2
TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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AMERICAN SUPERCONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 04-2959321
(State of other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
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TWO TECHNOLOGY DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
(508) 836-4200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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GREGORY J. YUREK
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN SUPERCONDUCTOR CORPORATION
Two Technology Drive
Westborough, Massachusetts 01581
(508) 836-4200
(Name, address, including zip code, and telephone number, including
area code, of agent for service)

Copy of Communications to:

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PATRICK J. RONDEAU, ESQ. WINTHROP B. CONRAD, JR., ESQ.
HALE AND DORR LLP DAVIS POLK & WARDWELL
60 State Street 450 Lexington Avenue
Boston, Massachusetts 02109 New York, New York 10017
(617) 526-6000 (212) 450-4000
</TABLE>

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement. [_]
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE

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Proposed
Proposed maximum maximum
Title of each class of Amount to be offering price per aggregate Amount of
securities to be registered registered (1) share (2) offering price (2) registration fee (3)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value..................... 3,450,000 $60.75 $209,587,500 $55,332
</TABLE>

(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of
1933, as amended, based on the average of the high and low prices of the
Registrant's Common Stock reported on the Nasdaq National Market on
February 25, 2000.

(3) A filing fee of $24,421 was previously paid in connection with the
previous filing of this Registration Statement relating to the
registration of 3,450,000 shares of the Registrant's common stock at a
proposed maximum aggregate offering price of $92,503,125. An additional
filing fee of $30,911 is being paid with this filing relating to the
registration of such shares of the Registrant's common stock hereunder at
the proposed maximum aggregate offering price of $209,587,500.

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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed without +
+notice. American Superconductor may not sell these securities until the +
+registration statement filed with the Securities and Exchange Commission is +
+effective. This prospectus is not an offer to sell these securities, and +
+American Superconductor is not soliciting offers to buy these securities, in +
+any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus (Not Complete)

Issued February 29, 2000

3,000,000 Shares

American Superconductor LOGO Appears Here

Common Stock

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American Superconductor Corporation is offering 3,000,000 shares of common
stock in a firmly underwritten offering.

-----------

Our common stock is traded on the Nasdaq National Market under the symbol
"AMSC." On February 28, 2000, the last reported sale price of our common stock
on the Nasdaq National Market was $69 1/4 per share.

-----------

Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 7.

-----------

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<CAPTION>
Per Share Total
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<S> <C> <C>
Offering Price.................................................. $ $
Discounts and Commissions to Underwriters....................... $ $
Offering Proceeds to Company.................................... $ $
</TABLE>

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

American Superconductor Corporation has granted the underwriters the right to
purchase up to 450,000 additional shares of common stock to cover any over-
allotments. The underwriters can exercise this right at any time within thirty
days after the offering. Banc of America Securities LLC expects to deliver the
shares of common stock to investors on , 2000.

Banc of America Securities LLC

CIBC World Markets

Robertson Stephens

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, 2000
<PAGE>

[Captions and graphics appearing on inside front cover and gatefold:

. Caption "Superconductor Technology and Products for Electric Power
Applications"

. Picture of our manufacturing line with the caption, "Our pilot HTS wire
manufacturing facility, Westborough, Massachusetts."

. Picture of a truck delivering a SMES unit with the caption, "SMES system is
delivered to a foundry near Graz, Austria."

. Picture of a manufacturing line with the caption, "Assembly of prototype
1,000 horsepower motor incorporating HTS rotor coils."

. Picture of a Pirelli test facility with the caption, "Pirelli tests prototype
HTS cable at facility in Milan, Italy. (Photo courtesy of Pirelli/EPRI)"

. Picture of Detroit Edison's Frisbie Station with the caption "Detroit
Edison's Frisbie Station, site of the first planned demonstration of HTS
cable in a live utility grid."

. Caption "Superconductor Applications: Increasing the Capacity and Reliability
of Electric Power Systems"

. Picture of HTS wire with the caption, "HTS wire carries more than 100 times
the electrical current carried by copper wire of the same dimensions."

. Picture of a map of Wisconsin with the caption, "Wisconsin Public Service
Corporation will deploy a
D-SMES system in its northern transmission loop, a network approximately 200
miles in circumference in the Wausau and Eagle River areas."]
<PAGE>

TABLE OF CONTENTS

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Page
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Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 11
Use of Proceeds.......................................................... 11
Price Range of Common Stock and Dividend Policy.......................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 23
Management............................................................... 36
Principal Stockholders................................................... 39
Description of Capital Stock............................................. 41
Underwriting............................................................. 43
Legal Matters............................................................ 45
Experts.................................................................. 45
Additional Information................................................... 45
Incorporation of Documents by Reference.................................. 45
Index to Financial Statements............................................ F-1
</TABLE>

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.

3
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PROSPECTUS SUMMARY

This summary provides an overview of the key aspects of the offering.
Because this is a summary, it may not contain all of the information that is
important to you. You should read the entire prospectus carefully, including
the "Risk Factors" section and the financial statements and related notes
contained therein. Unless otherwise indicated, all information in this
prospectus assumes that the underwriters will not exercise their over-allotment
option. The terms "American Superconductor," "we," "us" and "our" as used in
this prospectus refer to American Superconductor Corporation.

AMERICAN SUPERCONDUCTOR

We are a world leader in developing and manufacturing products using
superconducting materials for electric power applications. Our products, and
products sold by electrical equipment manufacturers that incorporate our
products, can:

. dramatically increase the capacity and reliability of power delivery
networks and

. significantly reduce the manufacturing costs of electrical equipment such
as motors and generators.

Superconducting materials are perfect conductors of electricity when they
are cooled below a critical temperature. Our core product is high temperature
superconducting wire, or HTS wire, which, when cooled to very low temperatures,
carries more than 100 times the electrical current carried by copper wire of
the same dimensions. We also manufacture and sell commercial superconducting
magnetic energy storage, or SMES, systems for the power quality and reliability
markets. We sell our products to electrical equipment manufacturers, industrial
power users and businesses that produce and deliver power.

Market Overview

The worldwide demand for electricity has been increasing rapidly in recent
years, driven in large part by rapid growth in the use of computers, the
Internet and telecommunications products. Industry sources have estimated that
the share of all U.S. electricity consumed by computer-based microprocessors is
13% and that within two decades, 30% to 50% of the nation's electricity supply
may be required to meet the direct and indirect needs of the Internet. Industry
sources also project that as many as one billion computers will be connected to
the Internet worldwide by 2005, requiring an amount of power equal to the
entire electric output in the United States today. We believe, however, that
power transmission and distribution networks have not been maintained, expanded
or improved to keep pace with this escalating demand for electric power.

4
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Our Solutions

We believe our HTS wire, which can be used in high-capacity power cables
that are the backbone of the power delivery infrastructure, can help meet the
increasing demand for more electric power. Underground power cables using our
HTS wire have the potential to carry two to five times more power than copper-
wire cables of the same dimensions that contain a much larger quantity of wire.

Our SMES products protect industrial power users from the adverse effects of
momentary drops in voltage in power networks and provide electric utilities
with a means of stabilizing voltage in their power networks by quickly
releasing large quantities of power from a storage coil to restore the voltage
to its normal level. Our SMES products use low temperature superconducting, or
LTS, electromagnets combined with power semiconductor devices. We offer two
SMES product lines:

. Power Quality SMES, known as PQ-SMES, addresses power quality problems
faced by industrial users of electricity. We sold our first commercial PQ-
SMES unit in June 1997, and as of January 31, 2000 we had 10 PQ-SMES units
in use by customers and we had received orders for another three PQ-SMES
units for installation at customer sites.

. Distributed-SMES, known as D-SMES, addresses power reliability problems in
power delivery networks. We introduced D-SMES in February 1999 and as of
January 31, 2000 we had received orders for seven D-SMES units.

We are also developing and manufacturing HTS wire and coils for use in
electrical equipment such as large industrial motors and electric generators.
We believe that HTS-based motors and generators will be significantly less
expensive to manufacture than traditional motors and generators. We expect
these products will create additional revenue growth opportunities for us in
the future.

Strategic Relationships

We have a number of strategic relationships with leading companies in the
power delivery and electrical equipment industries. These alliances have
provided us with approximately $60 million in research and development funding
as well as other important benefits such as insights into applications for our
technology. As our products reach the commercialization stage, our strategic
partners will be critical in developing and demonstrating commercial
applications for our HTS products, and we expect that some of these companies
will also be customers or resellers for our products. Our strategic partners
include:

. Pirelli, the world's largest producer of power cables;

. ABB Power Transmission and Distribution Company, the world's leading
manufacturer of transformers;

. Rockwell, a leading manufacturer of large industrial motors; and

. Electricite de France, known as EDF, one of the world's largest electric
utilities.

Corporate Information

American Superconductor was incorporated in Delaware on April 9, 1987. Our
corporate offices are located at Two Technology Drive, Westborough,
Massachusetts 01581 and our telephone number is (508) 836-4200. Our World Wide
Web site address is www.amsuper.com. The information in our Web site is not
incorporated by reference into this prospectus.

5
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COMMON STOCK OFFERING

Common stock offered................ 3,000,000 shares

Common stock outstanding after the 18,628,150 shares
offering...........................

Use of proceeds..................... For expansion of manufacturing operations
and other general corporate purposes.

Nasdaq National Market symbol....... AMSC

The number of shares of our common stock to be outstanding after the
offering is based on the number of shares outstanding as of December 31, 1999
and does not take into account 4,421,633 shares reserved for issuance upon
exercise of outstanding stock options and warrants as of December 31, 1999.

SUMMARY CONSOLIDATED FINANCIAL DATA

Adjusted research and development expenses consist of research and
development expenses plus research and development expenses related to
externally funded development contracts included in costs of revenue, and
research and development expenses offset by cost-sharing funding under
government contracts. We believe that adjusted research and development
expenses provide useful information as to our aggregate research and
development spending.

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As of
December 31, 1999
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As
Actual Adjusted
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(unaudited)
(in thousands)
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Balance Sheet Data
Cash, cash equivalents and long-term marketable
securities............................................... $14,344 $ 209,179
Working capital........................................... 14,556 209,391
Total assets.............................................. 40,564 235,399
Stockholders' equity...................................... 33,590 228,425
</TABLE>

The as adjusted balance sheet data as of December 31, 1999 gives effect to
the sale by us of the 3,000,000 shares of common stock offered under this
prospectus, at an assumed public offering price of $69 1/4 per share, after
deducting the estimated underwriting discounts and commissions and offering
expenses.

6
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RISK FACTORS

This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risk factors and the
other information included or incorporated by reference in this prospectus
before investing in our common stock. Our business, financial condition and
results of operations could be seriously harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks,
and you may lose all or part of your investment.

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 1998, fiscal 1999 and the first nine months of fiscal 2000 was
$12,378,000, $15,326,000 and $12,667,000, respectively. Our accumulated
deficit as of December 31, 1999 was $101,885,000. We expect to continue to
incur operating losses for at least the next few years and we may never become
profitable.

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 several 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.

We intend to spend approximately $40 million over the next two years to
purchase equipment and leasehold improvements for a new manufacturing facility
for our HTS wire products and a new manufacturing facility for our SMES
systems. We have not yet finalized plans or executed contracts for these
projects. Accordingly, we can only estimate the costs of these projects, and
the actual costs may be significantly in excess of our estimates. In addition,
we may be unable to lease suitable space for our new facilities on
commercially acceptable terms, 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, we are expanding our
manufacturing facilities in anticipation of significantly increased demand for
our products. If this demand does not materialize, we will not generate
sufficient revenue to offset the cost of establishing and operating these
facilities.

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We have no experience manufacturing our 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 and SMES
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. If we do so, the financial benefits to us of commercializing
our products would be 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 royalities 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 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 may not be successful in establishing these relationships, and
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.

8
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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 3M, Siemens, Alcatel and Sumitomo
Electric Industries. 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. In addition, our SMES products compete with a
variety of non-superconducting products such as dynamic voltage restorers and
battery-based power supply systems. 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

. 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

9
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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.

We may require substantial additional funds in the future to execute our
business plan.

We believe that our existing capital resources, including the anticipated
proceeds of this offering, will be sufficient to fund our operations as
planned for at least the next two years. However, we may need additional funds
sooner than anticipated if our performance deviates significantly from our
current business plan, if there is a significant change in competitive or
other market factors or if unforeseen circumstances arise. Those funds, if
needed, may not be available to us on acceptable terms, if at all. If
financing is not available, we may be required to reduce, delay or eliminate
certain research and development, marketing or manufacturing activities or to
license or sell to others some of our proprietary technology. Those steps
could impair or delay our development and commercialization efforts.

Our common stock may experience extreme market price and volume fluctuations.

The market price of our common stock has historically experienced
significant volatility and may continue to experience such volatility in the
future. Factors such as technological achievements by us and our competitors,
the establishment of development or strategic relationships with other
companies, our introduction of commercial products, and our financial
performance may have a significant effect on the market price of our common
stock. In addition, the stock market in general, and the stock of high
technology companies in particular, have in recent years experienced extreme
price and volume fluctuations, which are often unrelated to the performance or
condition of particular companies. Such broad market fluctuations could
adversely affect the market price of our common stock. Following periods of
volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against a company.
If we become subject to this kind of litigation in the future, it could result
in substantial litigation costs, a damages award against us and the diversion
of our management's attention.

We have anti-takeover provisions which may make it difficult for a third party
to acquire us.

We have adopted a shareholders rights plan, and we are subject to the
provisions of an anti-takeover statute under Delaware law. Those provisions
may make it more difficult for a third party to acquire us, even if such an
acquisition might be favored by many of our stockholders. See "Description of
Capital Stock" for a description of those provisions.

Purchasers will experience immediate and substantial dilution of their
investment.

Purchasers of our common stock in this offering will pay a price per share
which is substantially higher than the net tangible book value per share of
our currently outstanding common stock. Consequently, purchasers of common
stock in this offering will suffer dilution of $56.99 per share from their
investment. See "Dilution" for an explanation of this calculation.

10
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FORWARD-LOOKING STATEMENTS

We have made some statements in this prospectus, including some under
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere,
which constitute forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any results, levels of activity, performance or achievements
expressed or implied by any forward-looking statements. These factors include,
among other things, those listed under "Risk Factors" and elsewhere in this
prospectus. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "intends,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or the negative of these terms or other comparable terminology.
Although we believe that the expectations reflected in forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the 3,000,000 shares of
our common stock will be approximately $194.8 million after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by us, assuming a public offering price of $69 1/4 per share. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $224.1 million.

We intend to use the net proceeds from this offering as follows:

. approximately $30 million for leasehold improvements and equipment for a
new plant for manufacturing HTS wire;

. approximately $10 million for leasehold improvements and equipment for a
new SMES systems manufacturing facility; and

. approximately $10 million for costs, including costs of contract
manufacturers, associated with designing and manufacturing HTS motors.

We plan to use the remainder of the net proceeds for general corporate
purposes, including funding our operations and acquiring capital equipment.
The amounts listed above are estimates only, and the exact amounts we spend
for these purposes will depend upon a number of factors, such as the actual
costs for these projects, the progress of our commercialization and
development efforts and the status of our relationships with strategic
partners. Pending the uses described above, we intend to invest the net
proceeds of this offering in interest-bearing, investment-grade marketable
securities.

11
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our 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 sale
prices per share of our common stock as reported on the Nasdaq National Market
for the periods indicated.
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
Fiscal Year Ended March 31, 1998
First quarter............................................. $12 1/4 $ 8 1/8
Second quarter............................................ 13 3/8 8 1/2
Third quarter............................................. 14 3/4 8 1/4
Fourth quarter............................................ 15 1/8 8 1/2
Fiscal Year Ended March 31, 1999
First quarter............................................. 18 1/4 11 1/2
Second quarter............................................ 13 5/8 6 3/8
Third quarter............................................. 12 1/8 6 1/8
Fourth quarter............................................ 14 5/8 8 3/8
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 (through February 28, 2000)................ 75 1/8 25 3/16
</TABLE>

A recent reported last sale price per share for our common stock on the
Nasdaq National Market is set forth on the cover page of this prospectus.

We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not anticipate paying any cash
dividends in the foreseeable future.

12
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999:

. on an actual basis and

. on an as adjusted basis to reflect the issuance and sale of 3,000,000
shares of our common stock in this offering at an assumed public
offering price of $69 1/4 per share, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by
us.

This table excludes 4,421,633 shares of our common stock reserved as of
December 31, 1999 for issuance upon exercise of outstanding options and
warrants. You should read this table together with our financial statements
and accompanying notes and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.

<TABLE>
<CAPTION>
December 31, 1999
---------------------
Actual As Adjusted
-------- -----------
(unaudited)
(in thousands)

<S> <C> <C>
Cash, cash equivalents and long-term marketable
securities.............................................. $ 14,344 $209,179
======== ========
Long-term debt........................................... 0 0
-------- --------
Stockholders' equity:
Common Stock, $.01 par value; 50,000,000 shares
authorized; 15,628,150 shares issued and outstanding,
actual; 18,628,150 shares issued and outstanding, as
adjusted.............................................. 156 186
Additional paid-in capital............................. 136,125 330,930
Deferred warrant costs................................. (733) (733)
Accumulated other comprehensive income (loss).......... (73) (73)
Accumulated deficit.................................... (101,885) (101,885)
-------- --------
Total stockholders' equity........................... 33,590 228,425
-------- --------
Total capitalization................................. $ 33,590 $228,425
======== ========
</TABLE>

13
<PAGE>

DILUTION

Our net tangible book value as of December 31, 1999 was approximately
$33,590,000, or $2.15 per share. Net tangible book value per share represents
our total tangible assets less our total liabilities, divided by the aggregate
number of shares of our common stock outstanding. After giving effect to the
sale of the 3,000,000 shares of our common stock in this offering at an
assumed public offering price of $69 1/4 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by us, our net tangible book value at December 31, 1999 would have been
approximately $228,425,000 or $12.26 per share. This represents an immediate
increase in net tangible book value per share of $10.11 to existing
stockholders and an immediate dilution of $56.99 per share to new investors.
Dilution per share represents the difference between the amount per share paid
by the new investors in this offering and the net tangible book value per
share at December 31, 1999, giving effect to this offering. The following
table illustrates this per share dilution to new investors.

<TABLE>
<S> <C> <C>
Assumed public offering price per share.......................... $69.25
Net tangible book value per share as of December 31, 1999...... $ 2.15
Increase in net tangible book value per share attributable to
new investors................................................. $10.11
------
Net tangible book value per share after this offering............ 12.26
------
Dilution per share to new investors.............................. $56.99
======
</TABLE>

These calculations assume no exercise of stock options and warrants
outstanding as of December 31, 1999. As of December 31, 1999, there were
options and warrants outstanding to purchase an aggregate of 4,421,633 shares
of our common stock at a weighted average exercise price of $12.47 per share.
To the extent all of these options and warrants had been exercised as of
December 31, 1999, net tangible book value per share after this offering would
be $12.30 and total dilution to investors would be $56.95.

14
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for the fiscal
years ended March 31, 1998 and 1999 have been derived from our consolidated
financial statements that have been audited by PricewaterhouseCoopers LLP,
independent accountants. The financial data for each of the three fiscal years
in the period ended March 31, 1997 have been derived from the combination of
our consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants, and the
Superconductivity, Inc. financial statements that have been audited by other
independent accountants. In addition, the combination of the separate audited
financial statements of American Superconductor and Superconductivity, Inc.
for the two fiscal years in the period ended March 31, 1997 has been audited
by PricewaterhouseCoopers LLP. The financial data for the nine month periods
ended December 31, 1998 and 1999 and as of such dates have been derived from
the unaudited consolidated financial statements of American Superconductor. In
the opinion of our management, such unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of our operating
results and financial position for such periods and as of such dates. Our
operating results for the nine months ended December 31, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal
year ending March 31, 2000.

Costs of revenue include research and development expenses and selling,
general and administrative expenses incurred in connection with work performed
under development contracts. Adjusted research and development expenses
consist of research and development expenses plus research and development
expenses related to externally funded development contracts included in costs
of revenue, and research and development expenses offset by cost-sharing
funding under government contracts. We believe that adjusted research and
development expenses provide useful information as to our aggregate research
and development spending. The financial data presented below should be read in
conjunction with the other financial information appearing elsewhere in this
prospectus or incorporated by reference.

15
<PAGE>

<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended March 31, December 31,
---------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------- ------- -------- -------- -------- -------- --------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenues:
Contract revenue...... $ 6,596 $ 7,526 $ 6,867 $ 9,274 $ 9,238 $ 6,855 $ 8,712
Product sales and
prototype development
contracts............ 1,107 2,366 2,937 5,013 1,888 819 1,070
Rental/other revenue.. 889 872 747 842 131 100 53
------- ------- -------- -------- -------- -------- --------
Total revenues...... 8,593 10,764 10,551 15,129 11,257 7,774 9,835
Costs and expenses:
Costs of revenue...... 7,993 11,553 10,577 14,333 12,021 8,294 9,898
Research and
development.......... 5,349 5,704 8,477 8,641 10,409 7,491 8,999
Selling, general and
administrative....... 3,924 4,538 4,291 4,910 6,078 4,978 4,482
------- ------- -------- -------- -------- -------- --------
Total costs and
expenses........... 17,267 21,796 23,345 27,884 28,508 20,763 23,379
Transaction fees........ -- -- (710) (155) -- -- --
Interest income....... 1,873 1,585 1,177 782 1,921 1,528 871
Interest expense...... (212) (215) (356) (239) (10) (10) --
Other income (expense)
net.................... (23) (38) (693) (11) 13 12 6
------- ------- -------- -------- -------- -------- --------
Net loss................ $(7,036) $(9,698) $(13,377) $(12,378) $(15,326) $(11,459) $(12,667)
======= ======= ======== ======== ======== ======== ========
Net loss per common
share (basic and
diluted)............... $ (0.69) $ (0.94) $ (1.27) $ (1.06) $ (1.01) $ (0.76) $ (0.82)
======= ======= ======== ======== ======== ======== ========
Weighted average number
of common shares
outstanding (basic and
diluted)............... 10,249 10,352 10,498 11,658 15,132 15,052 15,465
Other Data
Research and development
expenses............... $ 5,349 $ 5,704 $ 8,477 $ 8,641 $ 10,409 $ 7,491 $ 8,999
Adjusted research and
development expenses... $10,054 $11,544 $ 14,678 $ 17,048 $ 18,751 $ 13,323 $16,204
</TABLE>
<TABLE>
<CAPTION>
As of
As of March 31, December 31,
-------------------------------------- ------------
1995 1996 1997 1998 1999 1999
------- ------- ------- ------ ------- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash, cash equivalents and
long-term marketable
securities............... $33,653 $26,519 $16,031 $8,009 $31,572 $14,344
Working capital........... 2,341 5,101 318 5,059 30,459 14,556
Total assets.............. 44,887 35,856 26,581 19,551 48,130 40,564
Total long-term debt...... 1,693 1,898 3,074 3,142 -- --
Stockholders' equity...... 38,416 29,780 16,501 12,859 43,958 33,590
</TABLE>

16
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various
factors, including those described under "Risk Factors" and elsewhere in this
prospectus. You should read the following discussion in conjunction with our
financial statements and related notes included elsewhere in this prospectus.

American Superconductor was founded in 1987. On April 8, 1997, we acquired
Superconductivity, Inc., which is now being operated as our SMES business
unit, in a transaction accounted for under the pooling of interests method of
accounting. Accordingly, our consolidated financial statements combine our
financial operating results and cash flows with those of Superconductivity,
Inc. as if they had been combined for all periods presented.

We derive our revenues from contracts to perform research and development,
product sales, prototype development contracts, and the monthly fees that we
charge customers to rent equipment. 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 generally recognize revenues from product sales upon
shipment, or for some programs, on the percentage of completion method of
accounting. We recognize rental revenues as they are earned.

Revenues do not include funding from government cost-sharing agreements
related to our joint development programs with government agencies. This
funding is recorded as an offset to research and development and selling,
general and administrative expenses, as required by government contract
accounting guidelines.

Results of Operations

Nine Months Ended December 31, 1999 and December 31, 1998

For the nine months ended December 31, 1999, our revenues were $9,835,000
as compared to $7,774,000 for the same period of the prior year. Revenues for
the nine-month period increased by $2,061,000 compared to the same period of
the prior year due primarily to a new research and development agreement with
Pirelli, which was effective October 1, 1999 and under which we recognized
$3,000,000 in third-quarter revenue. Of that revenue, $2,500,000 was
attributable to past research and development work performed prior to October
1, 1999.

For the nine months ended December 31, 1999, we also recorded funding of
$1,446,000 under government cost-sharing agreements with the Department of
Energy compared to $1,293,000 for the same period of the prior year. We
anticipate that a portion of our funding in the future will continue to come
from cost-sharing agreements as we continue to develop joint programs with
government agencies. 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 revenues.

Total costs and expenses for the nine months ended December 31, 1999 were
$23,379,000 compared to $20,763,000 for the same period of the prior year. The
increase in costs and expenses was primarily the result of our increased
investment in research and development.

Adjusted research and development expenses, or R&D expenses, which include
amounts classified as costs of revenue and amounts offset by cost-sharing
funding, increased to $16,204,000 in the nine months ended December 31, 1999
from $13,323,000 for the same period of the prior year. This increase was due
to the continued scale-up of our internal research and development activities
including the hiring of additional personnel and the purchases of materials
and equipment. Over half of the increase occurred in our SMES business unit,
where adjusted research and development expenses increased by $1,800,000 in
the nine-month period ended December 31, 1999 from the same period of the
prior year, as a result of higher R&D spending to

17
<PAGE>

support our D-SMES product line. 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 during the nine-month period ended December 31,
1999 were $6,460,000, compared to $5,165,000 for the same period of the prior
year. R&D expenditures classified as costs of revenue increased by $1,295,000
in the nine-month period ended December 31, 1999 due primarily to the higher
contract revenue associated with the new R&D agreement with Pirelli.
Additionally, R&D expenses that were offset by cost-sharing funding were
$745,000 and $667,000 for the nine months ended December 31, 1999 and December
31, 1998, respectively. Net R&D expenses, (exclusive of amounts classified as
costs of revenue and amounts offset by cost-sharing funding) were $8,999,000
in the nine months ended December 31, 1999 compared to $7,491,000 for the same
period of the prior year.

Adjusted selling, general and administrative expenses, or SG&A expenses,
which include amounts classified as costs of revenue and amounts offset by
cost-sharing funding, increased to $8,479,000 for the nine months ended
December 31, 1999 from $7,671,000 for the same period of the prior year. This
increase was primarily due to the hiring of additional personnel and related
expenses incurred to support corporate development activities and future
planned growth, as well as increased marketing activities, primarily in the
SMES business unit. 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). These SG&A expenditures that were included as costs of
revenue during the nine-month period ended December 31, 1999 were $3,297,000
compared to $2,067,000 for the same period of the prior year. SG&A
expenditures classified as costs of revenue increased by $1,230,000 in the
nine-month period ended December 31, 1999 due primarily to the higher contract
revenue associated with the new R&D agreement with Pirelli. Additionally, SG&A
expenses that were offset by cost-sharing funding were $700,000 and $626,000
for the nine months ended December 31, 1999 and 1998, respectively. Net SG&A
expenses (exclusive of amounts classified as costs of revenue and amounts
offset by cost-sharing funding) were $4,482,000 in the nine months ended
December 31, 1999 compared to $4,978,000 for the same period of the prior
year.

Interest income was $871,000 in the nine months ended December 31, 1999
compared to $1,528,000 for the same period of the prior year. This decrease
primarily reflects the reduced cash balances available for investment as a
result of cash being used to fund the our operations and purchase capital
equipment.

We incurred no interest expense in the nine months ended December 31, 1999
as compared to $10,000 in the same period of the prior year. This decrease
reflects our retirement of all long-term debt in the quarter ended June 30,
1998.

We expect to continue to incur operating losses for at least the next few
years, as we continue to devote significant financial resources to its
research and development activities and commercialization efforts.

We expect to be 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.

Fiscal Years Ended March 31, 1999 and March 31, 1998

Total revenues decreased to $11,257,000 in fiscal 1999 from $15,129,000 in
fiscal 1998. Revenues from our SMES business unit declined $2,053,000 to
$1,510,000 in fiscal 1999 from $3,563,000 in fiscal 1998. This was due to a
decrease in SMES shipments in fiscal 1999 which we believe is attributable to
the longer than expected sales cycle associated with industrial power quality
SMES sales, and lower rental/other revenues. HTS business unit revenues
decreased to $9,748,000 in fiscal 1999 from $11,566,000 in fiscal 1998. This
decrease was primarily due to lower prototype development contract revenues.

In addition to reported revenues, we also received funding of $1,953,000 in
fiscal 1999 under government cost-sharing agreements as compared to $1,771,000
in fiscal 1998. 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.

18
<PAGE>

Our total operating expenses in fiscal 1999 were $28,508,000 compared to
$27,884,000 in fiscal 1998. Costs of revenue, which include costs of research
and development contracts and costs of product sales and prototype development
contracts, decreased to $12,021,000 in fiscal 1999 compared to $14,333,000 in
fiscal 1998. This decrease reflects a reduction in SMES shipments and the
decrease in prototype development revenues. Costs of revenue in fiscal 1999
were also affected by unfavorable manufacturing variances related to the lower
SMES production.

Adjusted R&D expenses, which include amounts classified as costs of revenue
and amounts offset by cost- sharing funding, increased to $18,751,000 in
fiscal 1999 from $17,048,000 in fiscal 1998. 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 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 during fiscal 1999 and
fiscal 1998 were $7,335,000 and $7,494,000, respectively. Additionally, R&D
expenses that were offset by cost-sharing funding were $1,007,000 and $913,000
in fiscal 1999 and 1998, respectively. Net R&D expenses (exclusive of amounts
classified as costs of revenue and amounts offset by cost-sharing funding)
increased to $10,409,000 in fiscal 1999 from $8,641,000 the prior year.

Adjusted SG&A expenses, which include amounts classified as costs of
revenue and amounts offset by cost- sharing funding, were $9,765,000 in fiscal
1999 as compared to $9,162,000 in fiscal 1998. These increases were primarily
due to our hiring of additional personnel and related expenses incurred to
support our 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 during fiscal
1999 and fiscal 1998 were $2,741,000 and $3,394,000, respectively. The SG&A
amounts offset by cost-sharing funding were $946,000 and $858,000 in fiscal
years 1999 and 1998, respectively. Net SG&A expenditures (exclusive of amounts
classified as costs of revenue and amounts offset by cost-sharing funding)
increased to $6,078,000 in fiscal 1999 from $4,910,000 the prior year.

Interest income increased to $1,921,000 in fiscal 1999, as compared to
$782,000 in fiscal 1998. This increase primarily reflects the higher cash
balances available for investment as a result of our public offering of
3,504,121 shares of common stock on April 22, 1998. We received net proceeds
(after the underwriters' discount but before deducting offering expenses) of
$46,114,000 from the 1998 offering.

Interest expense decreased to $9,800 in fiscal 1999 compared to $239,000 in
fiscal 1998. This decrease reflects the retirement of long-term debt following
the offering.

Fiscal Years Ended March 31, 1998 and March 31, 1997

Total revenues increased 43% to $15,129,000 in fiscal 1998 from $10,551,000
in fiscal 1997. This increase was due primarily to higher contract revenue
associated with the ABB/EDF joint development program to develop HTS wire for
power transformers. The agreements with ABB and EDF were signed in fiscal
1998, and contributed $3,075,000 in contract revenue in fiscal 1998, compared
to $700,000 in contract revenue and $300,000 in product sale revenue from ABB
in fiscal 1997.

In addition, contract revenue was also positively affected by a $700,000
contract with the Electric Power Research Institute and by an increase in work
performed on seven Phase II Small Business Innovation Research grants, five of
which were awarded during fiscal 1998, from the Department of Energy,
Department of Defense, and National Science Foundation. At the SMES business
unit, fiscal 1998 product sales increased $1,518,000 compared to fiscal 1997,
which was largely offset by a decrease in contract revenue of $1,426,000.
Revenue was also positively affected by the recognition of $565,000 in product
sales by Applied Engineering Technologies, Ltd., which was acquired on July
31, 1997, four months into our fiscal year. Fiscal 1997 contract revenue
included $825,000 relating to a research and development agreement with Inco
Alloys International, which was discontinued on December 31, 1996.

19
<PAGE>

In addition to reported revenues, we also received funding of $1,771,000 in
fiscal 1998 under government cost-sharing agreements as compared to $1,706,000
in fiscal 1997. 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.

Our total operating expenses in fiscal 1998 were $27,884,000 compared to
$23,345,000 in fiscal 1997. Costs of revenue, which include costs of research
and development contracts and costs of product sales and prototype development
contracts, increased to $14,333,000 in fiscal 1998 compared to $10,577,000 in
fiscal 1997. This increase reflects expenditures to support the increase in
contract and prototype development revenues, including our hiring of
additional personnel and purchases of materials and equipment. Included in
cost of revenue is a write-down provision of $445,000 in fiscal 1997. This
provision was required to adjust the carrying values of certain items of
inventory to their fair values.

Adjusted R&D expenses, which include amounts classified as costs of revenue
and amounts offset by cost- sharing funding, increased to $17,048,000 in
fiscal 1998 from $14,678,000 in fiscal 1997. 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 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 during fiscal 1998 and
fiscal 1997 were $7,494,000 and $5,322,000, respectively. Additionally, R&D
expenses that were offset by cost-sharing funding were $913,000 and $879,000
in fiscal 1998 and 1997, respectively. Net R&D expenses (exclusive of amounts
classified as costs of revenue and amounts offset by cost-sharing funding)
increased to $8,641,000 in fiscal 1998 from $8,477,000 the prior year.

Adjusted SG&A expenses were $9,162,000 in fiscal 1998 as compared to
$7,305,000 in fiscal 1997. These increases were primarily due to additional
recruiting, legal, consulting, and marketing expenses incurred to support the
overall increase in our revenues and research and development activities, as
well as increases in executive bonuses and other compensation. 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 during fiscal 1998 and fiscal 1997
were $3,394,000 and $2,186,000, respectively. The SG&A amounts offset by cost-
sharing funding were $858,000 and $828,000 in fiscal years 1998 and 1997,
respectively. Net SG&A expenses (exclusive of amounts classified as costs of
revenue and amounts offset by cost-sharing funding) were $4,910,000 in fiscal
1998 as compared to $4,291,000 in fiscal 1997.

Interest income decreased to $782,000 in fiscal 1998, as compared to
$1,177,000 in fiscal 1997. 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, pay
liabilities and transaction costs related to the two mergers, and to purchase
capital equipment. Interest expense decreased from $356,000 in fiscal 1997 to
$239,000 in fiscal 1998 primarily due to the payoff of notes payable and the
reduction in long-term debt. Other expense, net is comprised primarily of
miscellaneous taxes net of gains on the disposition of excess capital
equipment.

Merger related fees of $710,000 in fiscal 1997 related to the costs
incurred through March 31, 1997 in connection with our acquisition of
Superconductivity, Inc. and consisted primarily of financial advisory and
legal fees. In fiscal 1998, we incurred an additional $155,000 in transaction
fees resulting from professional fees relating to both the Superconductivity,
Inc. ($76,000) and the Applied Engineering Technologies ($79,000)
acquisitions. In fiscal 1997 Superconductivity, Inc. incurred professional
fees relating to a terminated merger negotiation amounting to $670,000.

Liquidity and Capital Resources

At December 31, 1999, we had cash, cash equivalents and long-term
marketable securities of $14,344,000 compared to $31,572,000 at March 31,
1999. The principal uses of cash during the nine months ended December 31,
1999 were the funding of our operations and the acquisition of capital
equipment, primarily for research and development and manufacturing.

20
<PAGE>

At March 31, 1999, we had cash, cash equivalents and long-term marketable
securities totaling $31,572,000 compared to cash, cash equivalents and long-
term marketable securities totaling $8,009,000 at March 31, 1998. This
increase was primarily due to the public offering of 3,504,121 shares of
common stock on April 22, 1998. We received net proceeds (after the
underwriters discount but before deducting offering expenses) of $46,114,000
as a result of this offering. In fiscal 1999, $15,098,000 was used to fund our
operations. Approximately $3,142,000 was used for the retirement of long-term
debt. Additionally, $3,614,000 of cash was used for the purchase of capital
equipment, primarily for research and development and manufacturing.

As of March 31, 1999, we had potential funding commitments of approximately
$10,326,000 to be received after March 31, 1999 from strategic partners and
government agencies. As of December 31, 1999, we had potential funding
commitments of $24,711,000 to be received after December 31, 1999 from
strategic partners and government and commercial customers. However, these
commitments, including $5,862,000 on U.S. government contracts and
subcontracts as of December 31, 1999, are subject to certain cancellation or
buyback provisions.

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, including the anticipated
proceeds of this offering, will be sufficient to fund our operations as
planned for at least the next two years. 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.

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.

Year 2000 Issues

We devoted efforts to addressing a universal problem commonly referred to
as "Year 2000 Compliance," which relates to the ability of computer programs
and systems to properly recognize and process date sensitive information
before and after January 1, 2000. Many computer programs and systems recognize
dates using two-digit year data (rather than four-digit data), and therefore
may be unable to determine the correct four-digit year. Failure to properly
recognize and process date information may cause such programs and systems to
fail to operate or to operate with erroneous results.

We have not encountered any significant Year 2000 compliance problems or
events prior to or subsequent to January 1, 2000. We have analyzed and
continue to analyze our internal information technology systems ("IT systems")
to identify any computer programs that are not Year 2000 compliant and will
continue to implement any changes required to make such systems Year 2000
compliant. We believe that our critical IT systems will continue to function
without substantial Year 2000 compliance problems. We have identified only a
few non-critical, but important, IT systems that needed replacement due to
Year 2000 concerns, and we replaced these IT systems with Year 2000 compliant
systems providing increased functionality. We believe all of our IT systems
were made Year 2000 capable in a time frame that avoided any material adverse
effect on us. We also evaluated our critical equipment and critical systems
that contain embedded software and we believe that all of our critical non-IT
systems will continue to function without Year 2000 compliance problems.

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A substantial portion of the current products we are developing,
manufacturing and/or selling, including HTS wire and related products, contain
no computer programs and, as such, pose no significant Year 2000 compliance
concerns. Our SMES business unit has previously manufactured several SMES
units that contained computer systems that may have been susceptible to Year
2000 compliance problems. We have upgraded and tested these systems to insure
Year 2000 compliance. We have not encountered any significant Year 2000
compliance problems or events prior or subsequent to January 1, 2000 within
the SMES business unit or with its products. However, our products are often
used by our customers in systems that contain third-party products. Therefore,
even though our current products may be Year 2000 compliant, the failure of
such third-party products to be Year 2000 compliant, or to properly interface
with our current products, may result in systems failures.

We have investigated each of our significant vendors, suppliers, financial
service organizations, service providers and customers to confirm that our
operations will not be materially adversely affected by the failure of any
such third party to have Year 2000 compliant computer programs. This process
has included questionnaires, interviews, on-site visits and other available
means. Additionally, we established contingency plans to reduce our exposure
resulting from any non-compliance of third parties. First, we increased
inventories of critical and/or important components prior to January 1, 2000,
thereby decreasing our dependence on suppliers that may not have been Year
2000 compliant. Second, we reviewed delivery schedules with our major
customers to insure these customers are able to accept ordered products after
January 1, 2000, even if their internal computer systems are not operating
properly. We have not experienced any significant instances where Year 2000
compliance has affected delivery or receipt of supplies and products.

We estimate that, through December 31, 1999, we have spent less than
$150,000 to remediate Year 2000 issues in our IT systems. We do not expect to
spend any additional significant amounts to remediate Year 2000 issues in our
IT systems. We accelerated into fiscal 1999 the planned replacement of our e-
mail software, and have completed the implementation of our new financial
systems software to avoid potential Year 2000 problems. For the development,
deployment and testing of SMES system computer upgrades to remedy Year 2000
problems, we spent, through December 31, 1999, approximately $50,000. All such
expenditures are included in the budgets of our various departments tasked
with various aspects of the Year 2000 project. No IT projects were deferred
due to our Year 2000 efforts.

We do not currently believe that any of the foregoing has had or will have
a material adverse effect on our financial condition or our results of
operations. However, the process of evaluating our products and third-party
products and systems is ongoing. Although not expected, failures of critical
suppliers, critical customers, critical IT systems, critical non-IT systems or
products sold by us could have a material adverse effect on our financial
condition or results of operations. Year 2000 compliance has many issues and
aspects, not all of which we are able to accurately forecast or predict. There
is no way to assure that Year 2000 compliance will not have adverse effects on
us, and some of these effects could be material. Many of our statements
related to Year 2000 are forward-looking statements and actual results could
differ materially from those anticipated.

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BUSINESS

Overview

We are a world leader in developing and manufacturing products using
superconducting materials for electric power applications. Superconducting
materials are perfect conductors of electricity when they are cooled below a
critical temperature. We sell our products to electrical equipment
manufacturers, industrial power users and businesses that produce and deliver
power. Our products, and products sold by electrical equipment manufacturers
that incorporate our products, can:

. dramatically increase the capacity and reliability of power delivery
networks;

. significantly reduce the manufacturing costs of electrical equipment
such as motors and generators;

. improve the quality of electric power delivered to industrial sites;

. lower electrical operating costs and increase productivity for
industrial power users; and

. conserve resources such as oil, gas and coal, which are used to produce
electricity, by conducting electricity more efficiently.

We believe there will be significant market demand for our products because
of the following factors:

. there is an increasing demand for power by businesses and consumers;

. the current power delivery infrastructure is constrained; and

. the reliability and quality of the power being delivered is becoming
increasingly important.

Our core product is high temperature superconducting wire, or HTS wire,
which, when cooled to very low temperatures, carries more than 100 times the
electrical current carried by copper wire of the same dimensions. We believe
that an important application for our HTS wire will be high-capacity power
cables, which are the backbone of the power delivery infrastructure. We also
develop and manufacture products that incorporate HTS wire, such as HTS coils
for use in motors and generators. The performance levels and mechanical
properties of our HTS wire are sufficient today to meet the technical needs
for applications such as cables for urban power delivery systems and very high
horsepower motors (over 5,000 horsepower). We expect the first use of our HTS
wire in power cables for a utility network will occur by the end of calendar
year 2000, when Pirelli will install three 400-foot HTS power cables in a
Detroit substation in replacement of nine copper-wire cables. We believe this
project will be an important demonstration of the commercial viability of HTS
power cables. We expect the first use of our HTS wire in an industrial motor
will occur in early calendar year 2000 when Rockwell Automation Power Systems
will test a 1,000 horsepower motor in their facilities. We expect this motor
will be used in an industrial site during calendar year 2000. We believe this
will provide a significant demonstration of the commercial viability of HTS
motors.

We also manufacture and sell commercial superconducting magnetic energy
storage, or SMES, systems for the power quality and reliability markets. Our
power quality SMES, or PQ-SMES, products, which incorporate low temperature
superconductor (LTS) electromagnets and HTS wire, protect industrial power
users from the adverse effects of momentary drops in voltage in power networks
by quickly releasing large quantities of power from a storage coil to restore
the voltage to its normal level. We sold our first commercial PQ-SMES unit in
June 1997, and as of January 31, 2000 we had 10 PQ-SMES units in use by
customers requiring high-quality power to maintain sensitive industrial
processes in industries including paper, plastics and automotive parts
manufacturing, and to maintain critical information processing, military and
research applications. We also have received orders for three additional PQ-
SMES units from two semiconductor customers seeking to protect their
facilities from being shut down due to momentary sags in voltage. In February
1999, we launched a new product that we call distributed SMES, or D-SMES,
which uses the same basic components as PQ-SMES but which is used at
substations within large-scale transmission networks to protect them against
power reliability problems such as voltage instability and low voltage
problems. As of January 31, 2000, we had received orders for seven D-SMES
units.

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We plan to use a portion of the net proceeds of this offering to increase
our manufacturing capacity for HTS wire, to provide wire for demonstrations of
applications such as cables and motors in the near term, to achieve reduced
manufacturing costs associated with higher volume production, and to have the
wire production capacity in place as the commercial viability of various
applications is demonstrated. We also plan to use a portion of the net
proceeds of this offering to increase our manufacturing capacity for our SMES
products.

Market Overview

Power Demand

Since we were founded in 1987, the total demand for electricity in the
United States has increased by 35%. This growth continues a long-term trend
toward electrification of energy use throughout the developed world. While
total per capita energy consumption in the United States has remained
essentially flat since the early 1970s, the portion of energy consumed in the
form of electricity has grown from 25% in 1970 to 40% in 1998. The rapid
growth in the use of computers, the Internet and telecommunications products
has created a significant increase in demand for power to run computer
equipment, cellular base stations and the many other components and devices
that depend on electricity.

Projected growth rates for power consumption by these new technologies are
far higher than for traditional uses of power, which have historically grown
roughly in proportion to GNP growth. These new uses of electricity were
minimal or non-existent 10 years ago. Industry sources have estimated that the
share of all U.S. electricity consumed by computer-based microprocessors is
13% and that within two decades, given the rapid growth of the Internet, 30%
to 50% of the nation's electricity supply may be required to meet the direct
and indirect needs of the Internet. Industry sources also project that as many
as one billion computers will be connected to the Internet worldwide by 2005,
requiring an amount of power equal to the entire electric output in the U.S.
today. Thus, the growth of the digital and Internet economies will drive
demand for significantly increased amounts of electric power in the future.

While the demand for electricity is increasing, the ability of electric
utilities to deliver power to users by way of power transmission and
distribution cables is being taxed severely. Although electricity use has
increased 35% over the last 12 years, investments in the transmission and
distribution systems that deliver power to users have increased by only 18%
during that period. Power failures in a number of major cities in the United
States during the summer of 1999, caused in several cases by failures of
overloaded power cables, indicate that the power delivery infrastructure must
be upgraded to keep pace with the increased demand for power. Several years
ago, the Electric Power Research Institute, known as EPRI, estimated that
there were 2,200 miles of power cables in the United States alone that were
candidates for replacement, and we believe that this figure has increased in
recent years. We estimate that the worldwide market for cables for both power
transmission and distribution applications that could be addressed by HTS
power cables is $4.8 billion per year.

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 the
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
drops. Protection against power quality problems such as momentary--typically
less than two-second--voltage sags can provide significant economic value to
large industrial users of power. According to EPRI, the cost of power
disruptions in the United States is approximately $30 billion per year.
Industry sources have estimated that the North American market for power
quality solutions for large and facility-scale equipment was approximately
$485 million in 1998 and will grow to approximately $865 million by 2003. We
estimate that the market for power reliability solutions addressing voltage
stability and low voltage in transmission networks is currently $500 million
per year in the United States.

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In the past, electric utilities have attempted to enhance the reliability
of their 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
their power quality and reliability problems.

Motors and Generators

The market for large electric motors--that is, motors with at least 1,000
horsepower power ratings--and generators is a well-developed market
characterized by many competitors and intense price competition. We estimate
that the worldwide market for these motors is approximately $1 billion per
year, and that the worldwide market for electrical generators with power
ratings over 30 megawatts is approximately $2 billion per year. Large electric
motor production today is labor intensive, requires a large fixed asset
investment and does not lend itself well to mass production techniques. As a
result, many large motor and generator manufacturers are seeking opportunities
to reduce their manufacturing and/or investment costs to improve
profitability.

Our Solutions

Our products, and products sold by electrical equipment manufacturers that
incorporate our products, can address the growing demand for increased power
capacity and reliability. Our products are also intended to enhance the
profitability of businesses that manufacture and sell electrical equipment
such as motors and generators.

HTS Wire for Power Transmission Cables

We believe our core product, HTS wire, which can be used in high-capacity
power cables that are the backbone of the power delivery infrastructure, can
help meet the increasing demand for more electric power. Our currently
available HTS wire has at least 100 times the power capacity of copper wire of
the same dimensions. 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 two to five times more power than copper-wire
cables of the same dimensions.

HTS cables can provide a variety of advantages over conventional copper
cables. Using HTS cables that are installed in existing conduits, rather than
building additional conduits for more traditional cables, can eliminate
excavation costs and significantly reduce construction and engineering costs,
which typically account for up to 70% of the total system costs for
underground transmission projects in urban systems involving conventional
cables. In addition, using HTS power cables to replace copper cables in
existing power systems would free up underground cable conduits for other
uses, such as telecommunications, high-speed Internet and cable television. We
also believe that the installation of HTS cables in existing urban conduits
will allow the elimination of some substations within cities, 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 overhead power lines.

During the second calendar quarter of 2000, we expect to complete the
manufacture of approximately 18 miles of HTS wire for our strategic alliance
partner, Pirelli, the largest power cable manufacturer in the world. Pirelli
will use this HTS wire to manufacture three 400-foot HTS power cables, which
are targeted to be installed in a substation in Detroit by the end of calendar
year 2000 in replacement of nine copper-wire cables. We believe this will
represent the world's first use of HTS power cables in a power transmission
network. These three HTS cables will carry 100 megawatts of power, the same
amount carried by the existing nine copper-wire cables. The HTS wire in these
new cables will weigh approximately 900 pounds, as compared to the
approximately 18,000 pounds of copper wire in the cables they will replace. We
expect to deliver by June 2000 an additional 10 miles of HTS wire to Pirelli
for cable demonstration projects in Italy and France. Pirelli and American
Superconductor are targeting additional HTS cable demonstrations over the next
several years.

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Superconducting Magnetic Energy Storage (SMES) Systems

We offer a line of superconducting magnetic energy storage (SMES) products
that can provide solutions for industrial power quality problems faced by
industrial users of power and transmission network power reliability problems
faced by electric utilities. 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 the stored electricity can be
removed from the coil very rapidly. These features provide the basis for our
line of SMES products, which protect industrial power users from the adverse
effects of momentary drops in voltage in power networks and provide electric
utilities with a means of stabilizing voltage in their power networks by
quickly releasing large quantities of power from a storage coil to restore the
voltage to its normal level. Our SMES products use LTS electromagnets combined
with power semiconductor devices. 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, which has significantly reduced the cost of manufacture and the
electrical operating costs of our SMES products.

Our SMES power quality products are currently employed by industrial users
of power to prevent motors and sensitive electronic devices from being
disrupted by momentary dips in voltage that occur in power distribution
networks, thereby saving companies the associated cost of factory downtime,
damaged equipment and lost productivity. Industry sources estimate that more
than 80% of these disruptions to industrial operations are caused by voltage
sags that last less than two seconds. Our SMES products, with their large
energy storage capacities and fast recharging capabilities, can provide a
solution to momentary aberrations in power quality. We are also selling our
SMES systems to electric utilities. We believe our SMES products can provide
utilities with more effective, lower cost and quicker solutions for problems
of voltage instability and low voltage in large-scale transmission networks.

We offer two SMES product lines:

. Power Quality SMES, known as PQ-SMES, addresses power quality problems
faced by industrial users of electricity.

. Distributed-SMES, known as D-SMES, addresses power reliability problems
in power delivery networks.

Our PQ-SMES systems are typically installed at industrial and manufacturing
sites with electrical loads greater than three megawatts. As of January 31,
2000, we had 10 SMES units in use by customers requiring high-quality power to
maintain sensitive industrial processes in industries including paper,
plastics and automotive parts manufacturing, and to maintain critical
information processing, military and research applications. These 10 units
have in excess of 35 years of cumulative field operation. We have also
received orders for installation of three additional PQ-SMES units at two
semiconductor production sites.

In February 1999, we introduced our D-SMES product, which solves voltage
stability and low voltage problems in large-scale transmission networks. D-
SMES systems are based on the same building blocks used to manufacture PQ-SMES
products and, like PQ-SMES products, are housed in easy-to-install 48-foot
trailer units. D-SMES systems consist of one or more SMES units installed at
substations throughout a power transmission network, and these units may be
easily moved to different locations within the network as needs change. We
believe that the application of SMES technology to the problem of power
network reliability represents a significant growth opportunity for our
superconductor technology. Through January 31, 2000, we have received orders
for seven D-SMES units. We expect that the first installation of our D-SMES
product will be comprised of six units in a utility transmission network and
will be completed by June 2000. These units are subject to a buy-back
provision and therefore revenue will only be recognized as this buy-back
provision expires. We do not anticipate including buy-back provisions in
future D-SMES sales transactions.

HTS Wire and Coils for Motors and Generators

We are developing and manufacturing HTS wire and coils for large industrial
motors with a power rating of over 1,000 horsepower, which are typically used
to run pump, fan and compressor systems. These motors currently use
approximately 25% of all electricity generated in the United States. We are
also developing and

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manufacturing HTS wire and coils for electric generators used by power
producers to generate electricity. We believe HTS-based motors and generators
will be significantly less expensive to manufacture and operate, more
efficient, and smaller and lighter than traditional motors and generators. We
have formed an Electric Motors and Generators business unit focused on
commercializing our HTS motor and generator technology.

We believe that HTS technology will initially be applied to industrial
motors that have power ratings of 1,000 horsepower or greater. We are working
with Rockwell Automation Power Systems, an operating unit of Rockwell
International Corporation, to jointly develop 1,000 horsepower and 5,000
horsepower demonstration motors as part of a government-sponsored program. Our
role is primarily to supply HTS coils and the refrigerators to cool these
coils for use in the demonstration motors. In 1999 we manufactured and
delivered HTS coils to Rockwell for use in the first 1,000 horsepower HTS
demonstration motor. We expect that this motor will be operational in the
first quarter of calendar year 2000. We also expect to deliver HTS coils to
Rockwell for a 5,000 horsepower motor in calendar year 2001. Rockwell markets
large industrial electric motors under the Reliance Electric brand name.

We also plan to develop and manufacture HTS motors and generators using our
HTS wire. Utilizing our 10 years of design and development experience in the
area of HTS industrial motors, we have created proprietary designs for HTS
motors and generators that we expect will dramatically reduce the cost of
manufacturing this equipment. Our large HTS motors and generators currently
under design are as small as one-tenth the size of a conventional machine of
the same power rating and should operate at higher efficiency. We currently
intend to team with one or more motor and generator manufacturers to form a
joint venture for manufacturing HTS motors and generators. If we are
successful in establishing such a joint venture, we intend to sell HTS
components to the joint venture enterprise.

In June 1999, we were awarded a contract by the U.S. Office of Naval
Research to design a 25,000 horsepower HTS motor for ship propulsion. We
believe that ship propulsion applications, both for Navy and merchant ships,
represent an attractive market for HTS motors and generators.

HTS Wire and Cables for Transformers and Other HTS Products

We are developing, in cooperation with Electricite de France (known as EDF)
and ABB Power Transmission and Distribution Company, HTS wire and cables
specifically for use in transformers. Utilities and industrial power customers
use transformers to increase and decrease voltage levels. We believe that HTS
transformers will offer a number of improved features compared to conventional
transformers, as well as entirely new functionality with important utility
systems benefits such as improved voltage regulation. This special HTS wire is
also designed to provide fault current limiting functionality, which
instantaneously protects a power network from electrical surges caused by
events such as lightning. We expect that HTS transformers will be
approximately half the size and weight of conventional transformers, which
would increase existing substation capacity, reduce land area needed for new
substations, and greatly relieve transportation challenges currently faced by
electric utilities. HTS transformers would use liquid nitrogen, which is less
expensive than oil, is non-flammable, and poses fewer environmental risks than
the oil surrounding copper coils in conventional transformers. We expect that
the first delivery of our HTS transformer wire for prototype applications will
occur in calendar year 2001 and will consist of over 40 miles of wire.

We also sell HTS current leads--which are conductors that carry electric
current but minimal heat into ultra-low temperature environments--to a variety
of customers including MRI manufacturers and particle accelerator
laboratories.

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

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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, EDF and ABB. We believe strategic relationships, research
arrangements and government contracts provide us with the following important
benefits:

. Several of our strategic partners will be critical in developing and
demonstrating commercial applications for our HTS products.

. Several of these relationships, particularly those with Pirelli and ABB,
provide a potential direct market for our HTS wire.

. Various parties to these arrangements provide us with critical funding.
From inception through December 31, 1999, we received approximately $60
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.

. 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. The
terms of the current agreement relating to joint development activities for
this HTS wire expired on September 30, 1999. Pirelli provided us with a total
of $16.1 million in development funding through September 30, 1999. We signed
a new development agreement with Pirelli on 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. This
new agreement focuses on the development of the next generation HTS wire as
well as further improvements to our currently available HTS wire.

The EDF relationship was established in April 1997. It involves:

. the exchange of information relating to developments in HTS technology
and related fields and trends in the electricity industry;

. the review of technical, industrial and commercial topics by the parties
through an advisory board comprising representatives from both our
company and EDF; and

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. a development program, in conjunction with ABB, on HTS wire for
transformers and support of our next generation wire program.

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
1.1 million shares of common stock, representing approximately 7.0% of our
outstanding common stock. EDF has agreed to pay us an aggregate of $5.0
million between 1997 and 2001 as development fees; $4.1 million had been
recorded as revenue as of September 30, 1999. The remaining funding commitment
may be terminated upon 90 days notice by either party.

The ABB relationship is designed to combine ABB's transformer technology,
manufacturing and marketing expertise with our proprietary HTS wire
technologies for the purpose of developing and producing special HTS wire and
cables for transformers. In 1998, ABB agreed to pay us an aggregate of $5.0
million between 1997 and 2001 as development fees; $4.0 million had been
recorded as revenue as of September 30, 1999. The remaining funding commitment
may be terminated upon 90 days notice by either party.

In January 1999, we and ABB received an award from the U.S. Department of
Energy to install a 10 million volt-amperes HTS transformer in a U.S. electric
utility network, and EDF and ABB plan to test a 10 million volt-amperes HTS
transformer in the Paris area in the second half of calendar year 2001.

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 through its Superconductivity Partnership
Initiative, 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.

The graph on the following page 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).

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[CHART 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).

. The magnetic field to which the material is exposed must be below a value
known as the critical magnetic field (Hc).

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.

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 very high horsepower
motors such as motors with power ratings over 5,000 horsepower. We believe
that 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 also adequate for present applications.

Although we have made rapid progress recently in improving the performance
levels of our HTS wire, the commercial viability of applications for this wire
still needs to be established through demonstrations. We will also need to:

. successfully address the manufacturing engineering challenges necessary
to apply our manufacturing techniques to the production of HTS wires in
longer lengths and in greater quantities;

30
<PAGE>

. increase our manufacturing capacity for HTS wire; and

. reduce the manufacturing costs for our HTS wire.

We believe that several years of further development and demonstration of HTS
applications will be necessary before HTS products are widely accepted on a
commercial basis. We also believe that several years of further operation in a
scaled-up manufacturing environment will be necessary before HTS wire costs
decrease to the levels required for our wire to achieve broader market
penetration.

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 imbedded in a metal matrix,
to be one preferred method of achieving flexibility and durability in our wire
and wire products. The multifilamentary 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 founder, and
a former professor at MIT, and Dr. John Vander Sande, a professor at MIT and a
member of our Board of Directors. This patent is licensed to us on an
exclusive basis until 2010.

We also recently introduced 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.
Coated conductor 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 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. We are also collaborating with EPRI, Los Alamos National
Laboratory, Oak Ridge National Laboratory, MIT and other organizations in the
research and development of this technology. We have fabricated coated
conductor wire samples at high-performance levels. However, to date, these
have been short lengths of wire and there can be no assurance that we will
succeed in developing this technology for commercial use.

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 150 miles per year. In Westborough, we have implemented
statistical process control techniques and have defined manufacturing
procedures for low-cost, reliable manufacturing operations. Our goal is to
increase our wire manufacturing capacity by a factor of two, to 300 miles per
year, by March 2000. Based on our business development plan, we expect that
the existing facility will provide sufficient wire manufacturing capacity to
support our needs through December 2001.

We expect to lease a new manufacturing facility for our HTS operations
within the next year, and we plan to use a portion of the net proceeds of this
offering to purchase leasehold improvements and equipment for that new
facility. We plan to use this new facility to expand our HTS wire production
to meet our goal of producing thousands of miles of HTS wire per year to meet
expected demand for applications such as power transmission cables, motors and
generators.

31
<PAGE>

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 enable
production, assembly and testing of 48 SMES systems per year, a capability we
expect to have in place in the second calendar quarter of 2000.

We expect to lease additional manufacturing space for our SMES operations
within the next year, and we plan to use a portion of the net proceeds of this
offering to purchase leasehold improvements and equipment for that new
facility.

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.

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 wire.
These partners include:

. Pirelli, the world's largest producer of power cables;

. ABB, the world's leading manufacturer of transformers;

. Rockwell, a leading manufacturer of large industrial motors; and

. EDF, one of the world's largest electric utilities.

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 North America, Europe
and South Africa.

We have recently added experienced transmission network planners to provide
marketing and sales support for our D-SMES product, which was introduced in
February 1999. 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 to accelerate
sales growth and 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 superconducting field. There are a number of companies in
the United States, Europe, Japan and Australia engaged in the development of
HTS products. For HTS wire and applications, our principal competitors
presently include:

. several Japanese companies, such as Sumitomo Electric Industries,
Hitachi, Furukawa Electric Co. and Fujikura;

. several European companies, such as Siemens AG and Vacuumschmelze GmbH in
Germany, Nordic Superconductor Technologies in Denmark, Alcatel in
France, and B.I.C.C. and Oxford Instruments in England; and

. several companies in the U.S., such as 3M, Intermagnetics General and
EURUS Technologies.

32
<PAGE>

Each of these companies is devoting significant efforts to the development of
flexible, long-length HTS wire. Most of these companies, as well as others
such as Toshiba, are also developing HTS magnets and/or systems.

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:

. dynamic voltage restorers produced by companies such as Siemens;

. flywheels under development by various companies around the world;

. static VAR compensators; and

. battery-based, uninterruptible power supply systems, which are widely
manufactured and used around the world.

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 both the HTS area and the SMES area. 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 January 31, 2000, we owned (either alone or jointly) over 50 U.S. patents--
as compared to 29 as of March 31, 1998--and had over 90 U.S. patent
applications (jointly or solely owned) on file. We also held licenses from
third parties covering over 50 issued U.S. patents and over 10 U.S. patent
applications. We believe that our current patent position, together with our
expected ability to obtain licenses from other parties to the extent
necessary, provide us with sufficient proprietary rights to enable us to
develop and sell HTS and SMES products in the manner contemplated by this
prospectus. 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, which are not directly competing with us. Those
organizations may not be interested in cross-licensing or, if willing to grant
licenses, may charge higher royalties. We have successfully obtained licenses
from a number of such organizations, including Lucent Technologies, Superlink
of New Zealand and MIT, 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.

33
<PAGE>

If we are unable to obtain all necessary licenses upon reasonable terms,
that 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 which 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.

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
coated conductor wire architecture. Our strategy is to obtain a proprietary
position in each of these methodologies through a combination of patents,
licensing 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 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 options to exclusively
license additional intellectual property 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
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 have been 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.

34
<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

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 believe we have a strong patent
position in the SMES area.

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 December 31, 1999, we employed a total of 263 persons, 25 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.

Properties

Our operations are located in approximately 102,000 square feet of space in
Westborough, Massachusetts, and approximately 60,000 square feet of space in
Middleton, Wisconsin. We occupy our Westborough facility under a lease which
expires on May 31, 2003, and we have an option to extend the lease for an
additional five-year term. We occupy the Middleton facilities under two leases
which expire on December 31, 2003. We expect to lease additional space for our
manufacturing operations within the next year.

Legal Proceedings

We are not involved in any legal proceedings other than routine litigation
incidental to our business which we do not consider material.

35
<PAGE>

MANAGEMENT

The tables and biographical summaries set forth below contain certain
information with respect to our directors, executive officers and certain
other senior managers as of December 31, 1999:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Gregory J. Yurek........................ 52 President, Chief Executive
Officer and Chairman of the
Board of Directors
Roland E. Lefebvre...................... 49 Executive Vice President and
Chief Operating Officer
Alexis P. Malozemoff.................... 55 Senior Vice President and Chief
Technical Officer
Stanley D. Piekos....................... 52 Vice President, Corporate
Development, Chief Financial
Officer, Treasurer and Secretary
Ross S. Gibson.......................... 41 Vice President, Human Resources
John B. Howe............................ 43 Vice President, Electric
Industry Affairs
Thomas M. Rosa.......................... 46 Chief Accounting Officer,
Corporate Controller and
Assistant Secretary
Maxwell Mulholland...................... 39 General Manager, Electric Motors
and Generators Business Unit
Robert E. Schwall....................... 52 Vice President, Product
Engineering
John D. Scudiere........................ 45 Vice President and General
Manager, HTS Business Unit
Charles W. Stankiewicz.................. 40 General Manager, SMES Business
Unit
Albert J. Baciocco, Jr.................. 68 Director
Frank Borman............................ 71 Director
Peter O. Crisp.......................... 67 Director
Richard Drouin.......................... 67 Director
Gerard J. Menjon........................ 50 Director
Andrew G. C. Sage, II................... 73 Director
John B. Vander Sande.................... 55 Director
</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, Treasurer and
Secretary. 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

36
<PAGE>

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.

Ross S. Gibson joined American Superconductor as our Vice President, Human
Resources in July 1997. From April 1992 until June 1997, Mr. Gibson served in
a variety of positions at Cambridge Neuroscience, Inc., most recently as Vice
President, Human Resources and Administration and Chief Administrative
Officer. Mr. Gibson has also held positions at Lifeline Systems, Lotus
Development and General Motors.

John B. Howe joined American Superconductor in November 1997 as our
Director, Electric Industry Affairs and was elected our Vice President,
Electric Industry Affairs in May 1998. From November 1995 until September
1997, Mr. Howe was Chairman of the Massachusetts Department of Public
Utilities. For the five and one-half years prior to November 1995, Mr. Howe
served in various positions, most recently as Vice President, Regulatory and
Government Affairs, for U.S. Generating Company.

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.

Maxwell Mulholland joined American Superconductor in November 1999 as
General Manager of our Electric Motors and Generators Business Unit. Prior to
joining American Superconductor, Mr. Mulholland was a principal consultant in
the High Technology Industries Practice of PricewaterhouseCoopers Management
Consulting Services for four years. He also served as an engineering officer
in the U.S. Navy's Nuclear Propulsion Program and has over 11 years of
experience in the operation, maintenance, and overhaul of nuclear power
plants.

Robert E. Schwall joined American Superconductor in April 1993 and was
elected Vice President, Engineered Products in April 1996 and Vice President,
Product Engineering in April 1999. From March 1984 until April 1993, Dr.
Schwall served in a variety of research and management positions at IBM, most
recently as Department Manager at the IBM T. J. Watson Research Center.

John D. Scudiere joined American Superconductor in November 1993 and was
promoted to Vice President, Manufacturing in July 1994, Vice President,
Operations in May 1996, and Vice President and General Manager, HTS Business
Unit in April 1999. Prior to joining American Superconductor, Mr. Scudiere was
Director of Programs and Marketing at Oxford Superconductor Technology, a
superconductor manufacturer, from August 1990 to October 1993. He also
previously held positions at General Electric and Intermagnetics General
Corporation.

Charles W. Stankiewicz joined American Superconductor in July 1998 as
General Manager of our SMES Business Unit, based in Madison, Wisconsin. For 10
years prior to joining American Superconductor, Mr. Stankiewicz worked for
ABB, most recently as Vice President of Power Development and before that as
Vice President, Industrial Steam and Gas Turbines.

Albert J. Baciocco, Jr. has been President of The Baciocco Group, Inc., a
technical and management consulting practice in strategic planning, technology
investment and implementation since 1987. Preceding this, he served in the
U.S. Navy for 34 years, principally within the nuclear submarine force and
directing the Department of the Navy research and technology development
enterprise, achieving the rank of Vice Admiral. Admiral Baciocco is a director
of Honeywell, Inc. He is a Trustee of the South Carolina Research Authority, a
member of the Naval Studies Board of the National Research Council, and serves
on several boards and committees of government, industry and academe. Admiral
Baciocco has been a director of American Superconductor since April 1997.

Frank Borman has been Chairman of the Board of Directors of DBT Online
Inc., an on-line provider of integrated database servers and related reports,
since August 1996, and President of Patlex Corporation, a

37
<PAGE>

company engaged in enforcing and exploiting laser-related patents, since 1988.
He also served as Chief Executive Officer and a director of Patlex from
September 1995 until August 1996, as Chairman and Chief Executive Officer of
Patlex from 1988 to December 1992, and as Chairman of AutoFinance Group, Inc.
(AFG) from December 1992 to September 1995, during which period Patlex was a
subsidiary of AFG. Mr. Borman served as Vice Chairman of the Board of
Directors of Texas Air Corporation from 1986 to 1991. From 1969 to 1986, he
served in various capacities for Eastern Airlines, including President, Chief
Executive Officer and Chairman of the Board of Directors. Mr. Borman served in
the United States Air Force from 1950 to 1970. Mr. Borman currently serves as
a director of The Home Depot, Inc. and Thermo Instrument Systems. Mr. Borman
has been a director of American Superconductor since 1992.

Peter O. Crisp has been Vice Chairman of Rockefeller Financial Services,
Inc. since December 1997. Previously, he was a General Partner of Venrock
Associates, a venture capital firm based in New York, since 1969. Mr. Crisp is
also a director of Evans & Sutherland Computer Corporation, Thermedics, Inc.,
Thermo Electron Corporation, ThermoTrex Corporation and United States Trust
Corporation. Mr. Crisp has been a director of American Superconductor since
1987.

Richard Drouin has been a partner at McCarthy Tetrault, a law firm based in
Montreal, Canada, since December 1995. Mr. Drouin is also Vice Chairman of
Morgan Stanley Canada Limited. Mr. Drouin was the Chairman and Chief Executive
Officer of Hydro-Quebec, a public electric utility based in Canada, from April
1988 to September 1995. Mr. Drouin is a director of Abitibi Consolidated, CT
Financial Services Inc., Provigo Inc., Stelco Inc., TVA Group Inc. and Memotec
Communications Inc. Mr. Drouin has been a director of American Superconductor
since February 1996.

Gerard J. Menjon has been Executive Vice President, Head of the Research
and Development Division, of Electricite de France, a French public electric
utility (EDF), since December 1994 and was the Senior Vice President, Business
Development, of EDF from February 1992 to November 1994. Mr. Menjon has been a
director of American Superconductor since April 1997.

Andrew G.C. Sage, II has been President of Sage Capital Corporation since
1974. Immediately prior to that time, he served as President of the investment
banking firm of Lehman Brothers. Presently, he is Chairman of Robertson Ceco
Corporation, a prefabricated metal buildings company, and a director of
Worldport Communications, an international telephone company. Throughout his
career, Mr. Sage has served in Board and executive positions for numerous
public companies. Mr. Sage has been a director of American Superconductor
since April 1997.

John B. Vander Sande co-founded American Superconductor. He has been a
professor at MIT specializing in the microstructure of materials since 1971
and was Associate Dean and Acting Dean of Engineering at MIT from 1992 to
1999. Dr. Vander Sande has been a director of American Superconductor since
1990.

38
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership
of our common stock as of December 31, 1999, and as adjusted to reflect the
sale of the shares of common stock offered by this prospectus, by:

. each person known by us to be the beneficial owner of more than 5% of our
common stock;

. each of our directors;

. each of our executive officers; and

. all of our directors and executive officers as a group.

Unless otherwise noted below, to our knowledge, each person has sole voting
and investment power over the shares shown as beneficially owned except to the
extent authority is shared by spouses under applicable law and except as set
forth in the footnotes to the table. The number of shares of our common stock
outstanding used in calculating the percentage ownership for each person
listed includes the shares of common stock underlying options held by such
person that are exercisable within 60 days after December 31, 1999, but
excludes shares of common stock underlying options held by any other person.
Percentage ownership is based on 15,628,150 shares of common stock outstanding
as of December 31, 1999, and an additional 3,000,000 shares of our common
stock to be outstanding upon completion of this offering.

<TABLE>
<CAPTION>
Percentage of
Common Stock
Outstanding
------------------------------
Number of Shares
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders
E.D.F. Capital
Investissement, S.A., a sub-
sidiary of Electricite de
France, S.A................. 1,100,000 7.04% 5.91%
Capital Guardian Trust Com-
pany (1).................... 825,000 5.28% 4.43%
Frontier Capital Management
Co., Inc (2)................ 816,200 5.22% 4.38%
State of Wisconsin Investment
Board (3)................... 810,900 5.19% 4.35%
Directors
Gregory J. Yurek (4)......... 571,562 3.56% 3.00%
Albert J. Baciocco, Jr. (5).. 20,000 * *
Frank Borman (6)............. 56,500 * *
Peter O. Crisp (7)........... 92,603 * *
Richard Drouin (8)........... 53,000 * *
Gerard J. Menjon (9)......... 18,000 * *
Andrew G.C. Sage, II (10).... 53,000 * *
John B. Vander Sande (11).... 142,562 * *
Other Executive Officers
Roland E. Lefebvre (12)...... 87,000 * *
Alexis D. Malozemoff (13).... 240,950 1.52% 1.28%
Stanley D. Piekos (14)....... 74,000 * *
Ross S. Gibson (15).......... 16,600 * *
John B. Howe (16)............ 28,600 * *
Thomas M. Rosa (17).......... 10,800 * *
All directors and executive
officers as a group
(14 persons) (18)........... 1,465,177 8.79% 7.45%
</TABLE>

- --------
*less than 1%

39
<PAGE>

(1) Information is derived from a Form 13F filed with the Securities and
Exchange Commission by Capital Guardian Trust Company on November 12,
1999.
(2) Information is derived from a Form 13F filed with the Securities and
Exchange Commission by Frontier Capital Management Co., Inc. on November
8, 1999.
(3) Information is derived from a Schedule 13G/A filed with the Securities
and Exchange Commission by the State of Wisconsin Investment Board on
January 25, 2000.
(4) Includes 6,662 shares held by Dr. Yurek's wife and children, 428,000
shares subject to outstanding stock options and 25,000 shares subject to
certain restrictions on transfer and a repurchase right in favor of
American Superconductor.
(5) Includes 18,000 shares subject to outstanding stock options.
(6) Includes 53,500 shares subject to outstanding stock options.
(7) Includes (i) 3,000 shares held by Mr. Crisp's wife and (ii) 61,000
shares subject to outstanding stock options. Mr. Crisp disclaims
beneficial ownership of the shares held by his wife.
(8) Includes 44,000 shares subject to outstanding stock options.
(9) Includes 18,000 shares subject to outstanding stock options. Does not
include any shares beneficially owned by EDF Capital Investissement,
S.A., a subsidiary of Electricite de France, of which Mr. Menjon is an
executive officer.
(10) Comprised of 35,000 shares owned by a limited partnership of which Mr.
Sage is the general partner and 18,000 shares subject to outstanding
stock options.
(11) Includes 46,000 shares subject to outstanding stock options.
(12) Includes 77,000 shares subject to outstanding stock options and 10,000
shares subject to certain restrictions on transfer and a repurchase
right in favor of American Superconductor.
(13) Includes 4,500 shares held in two trusts of which Dr. Malozemoff is the
co-trustee, 181,200 shares subject to outstanding stock options and
5,000 shares subject to certain restrictions on transfer and a
repurchase right in favor of American Superconductor.
(14) Includes 50,000 shares subject to outstanding stock options and 10,000
shares subject to certain restrictions on transfer and a repurchase
right in favor of American Superconductor.
(15) Includes 14,600 shares subject to outstanding stock options and 2,000
shares subject to certain restrictions on transfer and a repurchase
right in favor of American Superconductor.
(16) Includes 11,600 shares subject to outstanding stock options and 2,000
shares subject to certain restrictions on transfer and a repurchase
right in favor of American Superconductor.
(17) Includes 10,800 shares subject to outstanding stock options.
(18) Includes 1,031,700 shares subject to outstanding stock options and
54,000 shares subject to certain restrictions on transfer and a
repurchase right in favor of American Superconductor.

40
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Common Stock

Our authorized capital stock consists of 50,000,000 shares of common stock,
$.01 par value per share. Holders of our common stock are entitled to one vote
for each share held on all matters submitted to a vote of stockholders and do
not have cumulative voting rights. Accordingly, holders of a majority of the
outstanding shares of our common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of our
common stock are entitled to receive ratably such dividends, if any, as may be
declared by our Board of Directors out of funds legally available therefor.
Upon our liquidation, dissolution or winding-up, holders of our common stock
are entitled to receive ratably our net assets available for distribution
after the payment of all our debts and other liabilities. Holders of our
common stock have no preemptive, subscription, redemption or conversion
rights.

Rights Plan

In October 1998, we adopted a Rights Plan. Under the Rights Plan, we
distributed one common stock purchase right as a dividend on each outstanding
share of our common stock. The rights will expire on October 30, 2008, unless
the rights are redeemed or exchanged before that time. Each right entitles the
holder to purchase one share of our common stock at an exercise price of
$60.00 per right, subject to adjustment.

The rights will be exercisable only if a person or group has acquired
beneficial ownership of 15% or more of the outstanding shares of our common
stock or commences a tender or exchange offer that would result in that person
or group owning 15% or more of the outstanding shares of our common stock. If
any person or group becomes the beneficial owner of 15% or more of the shares
of our common stock, except in a tender or exchange offer for all shares at a
fair price as determined by the outside members of our Board of Directors,
each right not owned by the 15% stockholder will entitle its holder to
purchase that number of shares of our common stock which equals the exercise
price of the right dividend by one-half of the market price of our common
stock at the date of the occurrence of the event. In addition, if we are
involved in a merger or other business combination transaction with another
entity in which we are not the surviving corporation or in which our common
stock is changed or converted, or if we sell or transfer 50% or more of our
assets or earning power to another entity, each right will entitle its holder
to purchase that number of shares of common stock of that other entity which
equals the exercise price of the right divided by one-half of the market price
of that common stock at the date of the occurrence of the event. We will
generally be entitled to redeem the rights at $.001 per right at any time
until the tenth business day following public announcement that a 15% stock
position has been acquired and in specified other circumstances.

The rights have certain anti-takeover effects. The rights may cause
substantial dilution to a person or entity that attempts to acquire us on
terms not approved by our Board of Directors, except under the terms of an
offer conditioned on a substantial number of rights being acquired. The rights
should not interfere with any merger or other business combination approved by
our Board of Directors since we may redeem the rights at $.001 per right.

Delaware Anti-Takeover Law

We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner or unless the interested
stockholder acquired at least 85% of the corporation's voting stock (excluding
shares held by designated stockholders) in the transaction in which it became
an interested stockholder. A "business combination" includes mergers, assets
sales and other transactions resulting in a financial benefit to the
interested stockholder. In general, an "interested stockholder" is a person
who, together with affiliates and associates, owns, or within the previous
three years did own, 15% or more of the corporation's voting stock.

41
<PAGE>

Director and Officer Protection

Our certificate of incorporation and by-laws contain provisions which
provide for the indemnification and limitation of liability of directors and
officers. Our by-laws provide that, in general, we shall indemnify each of our
directors and officers against liabilities incurred by reason of the fact that
such person was a director or officer of American Superconductor if such
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of American Superconductor. Our
certificate of incorporation also provides that our directors may not be held
personally liable to American Superconductor or our stockholders for monetary
damages for a breach of fiduciary duty, except in specified circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts of omission not in good faith or which involve intentional misconduct or
a knowing violation of law. However, such limitation of liability would not
apply to violations of the federal securities laws, nor does it limit the
availability of nonmonetary relief in any action or proceeding against a
director.

Transfer Agent

The transfer agent for our common stock is American Stock Transfer & Trust
Company.

42
<PAGE>

UNDERWRITING

We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC, CIBC World
Markets Corp. and FleetBoston Robertson Stephens Inc. are the representatives
of the underwriters. Subject to the terms and conditions set forth in the
underwriting agreement dated , we have agreed to sell to the
underwriters, and the underwriters have severally agreed to purchase from us
the number of shares of common stock listed next to their respective names in
the following table. The underwriting agreement provides that the obligations
of the underwriters are subject to certain conditions precedent, and that the
underwriters are committed to purchase all of such shares of common stock if
any are purchased. However, the underwriters are not obligated to purchase the
shares covered by the underwriters' over-allotment option described below.

<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Banc of America Securities LLC..................................
CIBC World Markets Corp. .......................................
FleetBoston Robertson Stephens Inc..............................
---------
Total......................................................... 3,000,000
=========
</TABLE>

The underwriters initially propose to offer the common stock to the public
on the terms set forth on the cover page of this prospectus. The underwriters
may allow to selected dealers a concession of not more than $ per share,
and the underwriters may allow, and such dealers may reallow, a concession of
not more than $ per share to certain other dealers. After the offering, the
offering price and other selling terms may be changed by the underwriters. The
shares of common stock are offered subject to receipt and acceptance by the
underwriters, and to other conditions, including the right to reject an order
in whole or in part. The underwriters may offer the common stock through a
selling group.

We have granted an option to the underwriters, exercisable during the 30-
day period after the date of this prospectus, to purchase up to a maximum of
450,000 shares of common stock to cover over-allotments, if any, at the same
price as the 3,000,000 shares to be purchased by the underwriters. To the
extent that the underwriters exercise this option, each of the underwriters
will be committed, subject to certain conditions, to purchase such additional
shares of common stock in approximately the same proportion as set forth in
the table above. The underwriters may purchase these shares of common stock
only to cover over-allotments made in connection with the offering.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. Such amounts are shown
assuming no exercise and full exercise of the underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
Paid by
American Superconductor
-----------------------
Full
No Exercise Exercise
----------- -----------
<S> <C> <C>
Per share.......................................... $ $
Total.............................................. $ $
</TABLE>

The underwriting agreement provides that American Superconductor will
indemnify the underwriters and their controlling persons against liabilities,
including civil liabilities, under the Securities Act of 1933, or will
contribute to payments the underwriters may be required to make in respect of
these liabilities.

American Superconductor, its directors, executive officers and some other
stockholders have entered into lock-up agreements with the underwriters. Under
those agreements, American Superconductor and those holders of stock, options
or warrants may not, without the prior written consent of Banc of America
Securities LLC (which consent may be withheld in its sole discretion),
directly or indirectly, sell, offer, contract or grant any

43
<PAGE>

option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or
otherwise dispose of any shares of common stock, options or warrants to
acquire shares of common stock currently or hereafter owned either of record
or beneficially by them, or publicly announce the intention to do any of the
foregoing, for a period commencing on the date of this prospectus and
continuing through the close of trading on the date 90 days after such date.
The restrictions described above do not apply to any bona fide gift of stock
to a person or entity that agrees in writing to be bound by the same terms as
the grantor. Banc of America Securities LLC may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to those lock-up agreements.

In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:

. short sales;

. stabilizing transactions; and

. purchases to cover positions created by short sales.

Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing
or retarding a decline in the market price of the common stock while this
offering is in progress.

The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.

The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:

. over-allotment;

. stabilization;

. syndicate covering transactions; and

. imposition of penalty bids.

As a result of these activities, the price of the common stock may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National
Market, in the over-the-counter-market or otherwise.

In connection with this offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M, under the
Securities Exchange Act of 1934, as amended, during the business day before
the pricing of the offering, before the commencement of offers or sales of the
common stock. Passive market makers must comply with applicable volume and
price limitations and must be identified as passive market makers. In general,
a passive market maker must display its bid at a price not in excess of the
highest independent bid for the security; if all independent bids are lowered
below the passive market maker's bid, however, the bid must then be lowered
when purchase limits are exceeded.

44
<PAGE>

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon by Hale
and Dorr LLP, Boston, Massachusetts. Certain legal matters will be passed upon
for the underwriters by Davis Polk & Wardwell.

EXPERTS

The audited financial statements included in this prospectus, except as
they relate to Superconductivity, Inc. for the twelve months ended December
31, 1996, have been audited by PricewaterhouseCoopers LLP, independent
accountants, and insofar as they relate to Superconductivity, Inc. for the
twelve months ended December 31, 1996, by Smith & Gesteland LLP, independent
accountants, whose reports thereon appear in this prospectus. Such financial
statements have been so included in reliance on the reports of such
independent accountants given on the authority of such firms as experts in
auditing and accounting.

ADDITIONAL INFORMATION

We file reports, proxy statements, and other documents with the Securities
and Exchange Commission. You may read and copy any document we file at the
SEC's public reference room at Judiciary Plaza Building, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. You should call 1-800-SEC-0330 for
more information on the public reference room. Our SEC filings are also
available to you on the SEC's Internet site at http://www.sec.gov.

This prospectus is part of a registration statement that we have filed with
the SEC. The registration statement contains more information than this
prospectus regarding our company and our common stock, including exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the address listed above or from its Internet site.

INCORPORATION OF DOCUMENTS BY REFERENCE

The SEC requires that we incorporate into this prospectus information that
we file with the SEC in other documents. This means that we disclose important
information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be
part of this prospectus. Information contained in this prospectus and
information that we file with the SEC in the future and incorporated by
reference in this prospectus automatically updates and supersedes previously
filed information. We incorporate by reference the documents listed below and
any future filings we make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 prior to the sale of all the
shares covered by this prospectus:

. our Annual Report on Form 10-K for the fiscal year ended March 31, 1999;

. our Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30,
1999, September 30, 1999 and December 31, 1999;

. the description of our common stock contained in the Registration
Statement on Form 8-A filed on November 5, 1991; and

. the Current Report on Form 8-K, filed on January 24, 2000.

You may request a copy of these documents, which will be provided at no
cost, by contacting us at Two Technology Drive, Westborough, Massachusetts
01581, telephone (508) 836-4200.

45
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2

Report of Independent Certified Public Accountants........................ F-3

Consolidated Balance Sheets as of March 31, 1998 and 1999 and December 31,
1999 (unaudited)......................................................... F-4

Consolidated Statements of Operations for the years ended March 31, 1997,
1998 and 1999 and the nine months ended December 31, 1998 and 1999
(unaudited).............................................................. F-5

Consolidated Statements of Cash Flows for the years ended March 31, 1997,
1998 and 1999 and the nine months ended December 31, 1998 and 1999
(unaudited).............................................................. F-6

Consolidated Statements of Stockholders' Equity for the years ended March
31, 1997, 1998 and 1999.................................................. F-7

Notes to Consolidated Financial Statements................................ F-8

Notes to Interim Consolidated Financial Statements........................ F-20
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
American Superconductor Corporation:

In our opinion, the accompanying consolidated balance sheets as of March
31, 1999 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1999 present fairly, in all material respects, the
consolidated financial position of American Superconductor Corporation (the
"Company") at March 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for the three years in the period ended March
31, 1999, in conformity with generally accepted accounting principles. 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 audit. We did not audit the financial statements of Superconductivity,
Inc., a wholly-owned subsidiary, for the 12 months ended December 31, 1996,
which statements reflect net revenues constituting 32% of consolidated net
revenue for the year ended March 31, 1997. Those statements were audited by
other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for
Superconductivity, Inc. is based solely on the report of the other auditors.
We conducted our audit of these statements in accordance with generally
accepted auditing standards, which requires 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 audit provides a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

Boston, Massachusetts
May 11, 1999

F-2
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Superconductivity, Inc.
Middleton, Wisconsin

We have audited the accompanying balance sheet of Superconductivity, Inc.,
as of December 31, 1996, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the year then ended (not
presented separately herein). 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 audit. The financial
statements of Superconductivity, Inc., as of December 31, 1995, and for the
year then ended, were audited by other auditors whose report dated February
29, 1996, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Superconductivity, Inc.,
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles. We have not audited the financial statements of Superconductivity,
Inc. for any period subsequent to December 31, 1996.

/s/ Smith & Gesteland, LLP

Madison, Wisconsin
February 7, 1997

F-3
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
March 31,
--------------------------
December 31,
1998 1999 1999
------------ ------------ ------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......... $ 1,842,142 $ 24,969,142 $ 7,500,549
Accounts receivable................ 2,991,635 4,099,211 5,419,010
Inventory.......................... 3,229,973 5,024,552 7,989,260
Prepaid expenses and other current
assets............................ 545,428 538,485 621,248
------------ ------------ ------------
Total current assets................. 8,609,178 34,631,390 21,530,067
Property and equipment:
Equipment.......................... 12,502,756 15,159,313 19,624,272
Furniture and fixtures............. 946,630 1,243,894 1,324,657
Leasehold improvements............. 1,980,090 2,657,188 2,673,532
------------ ------------ ------------
15,429,476 19,060,395 23,622,461
Less: accumulated depreciation....... (11,006,576) (12,945,765) (14,403,430)
------------ ------------ ------------
Property and equipment, net.......... 4,422,900 6,114,630 9,219,031
Long-term marketable securities...... 6,167,030 6,602,829 6,843,821
Long-term accounts receivable........ -- -- 1,875,000
Net investment in sales-type lease... 345,940 287,110 279,110
Other assets......................... 6,167 494,344 817,057
------------ ------------ ------------
Total assets......................... $ 19,551,215 $ 48,130,303 $ 40,564,086
============ ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses.......................... $ 3,333,462 $ 4,171,948 $ 5,389,848
Deferred revenue................... 187,285 -- 1,583,883
Current portion of long-term debt.. 29,609 -- --
------------ ------------ ------------
Total current liabilities............ 3,550,356 4,171,948 6,973,731
Long-term debt (less current por-
tion)............................... 3,141,793 -- --
Commitments (Note 10)
Stockholders' equity:
Common stock, $.01 par value
Authorized shares--50,000,000;
issued and outstanding--
11,756,793, 15,378,656 and
15,628,150 at March 31, 1998,
March 31, 1999 and December 31,
1999, respectively................ 117,568 153,787 156,282
Additional paid-in capital......... 87,961,911 134,030,618 136,125,045
Deferred warrant costs............. (1,328,446) (1,018,391) (732,761)
Accumulated other comprehensive
income (loss)..................... (92) 10,392 (73,420)
Accumulated deficit................ (73,891,875) (89,218,051) (101,884,791)
------------ ------------ ------------
Total stockholders' equity........... 12,859,066 43,958,355 33,590,355
------------ ------------ ------------
Total liabilities and stockholders'
equity.............................. $ 19,551,215 $ 48,130,303 $ 40,564,086
============ ============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>

AMERICAN SUPERCONDUCTOR

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
1997 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenue...... $ 6,867,444 $ 9,273,901 $ 9,238,013 $ 6,854,899 $ 8,712,050
Product sales and
prototype development
contracts............ 2,936,567 5,013,008 1,888,426 818,714 1,069,569
Rental/other revenue.. 746,546 841,903 130,863 100,148 53,610
------------ ------------ ------------ ------------ ------------
Total revenues...... 10,550,557 15,128,812 11,257,302 7,773,761 9,835,229
Costs and expenses:
Costs of revenue ..... 10,577,376 14,332,712 12,020,623 8,293,914 9,898,198
Research and
development.......... 8,477,365 8,641,102 10,409,414 7,491,248 8,999,343
Selling, general and
administrative....... 4,290,500 4,910,102 6,078,243 4,977,920 4,481,563
------------ ------------ ------------ ------------ ------------
Total costs and
expenses........... 23,345,241 27,883,916 28,508,280 20,763,082 23,379,104
Merger related fees..... (710,105) (154,744) -- -- --
Interest income......... 1,177,386 781,599 1,921,373 1,528,361 871,203
Interest expense........ (356,366) (238,625) (9,827) (9,827) --
Fees--terminated trans-
action................. (669,627) -- -- -- --
Other income (expense),
net.................... (23,777) (11,314) 13,256 11,947 5,932
------------ ------------ ------------ ------------ ------------
Net loss................ $(13,377,173) $(12,378,188) $(15,326,176) $(11,458,840) $(12,666,740)
============ ============ ============ ============ ============
Net loss per common
share
Basic................. $ (1.27) $ (1.06) $ (1.01) $ (0.76) $ (0.82)
============ ============ ============ ============ ============
Diluted............... $ (1.27) $ (1.06) $ (1.01) $ (0.76) $ (0.82)
============ ============ ============ ============ ============
Weighted average number
of common shares
outstanding
Basic................. 10,497,643 11,658,034 15,131,679 15,052,153 15,464,834
============ ============ ============ ============ ============
Diluted............... 10,497,643 11,658,034 15,131,679 15,052,153 15,464,834
============ ============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Nine Months Ended
Year ended March 31, December 31,
---------------------------------------- --------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(13,377,173) $(12,378,188) $(15,326,176) $(11,458,840) $(12,666,740)
Adjustments to
reconcile net loss to
net cash used by
operations:
Merger with AET....... -- (90,569) -- -- --
Forgiveness of notes
receivable........... 206,744 349,368 -- -- --
Depreciation and
amortization......... 1,983,531 2,113,617 1,939,189 1,369,586 1,529,176
Write down of
inventory and
equipment............ 444,538 -- -- -- --
Loss (gain) on
disposals of
property and
equipment............ (9,697) 24,569 -- -- --
Deferred compensation
expense.............. 25,480 25,480 -- -- --
Deferred warrant
costs................ 79,613 260,679 328,263 241,371 334,813
Stock compensation
expense.............. -- 90,842 204,511 173,312 96,962
Interest accrued on
convertible
debentures........... 230,746 -- -- -- --
Changes in operating
asset and liability
accounts:
Accounts receivable.. (1,343,043) (462,031) (1,107,576) (567,591) (3,194,799)
Inventory............ (973,571) 159,289 (1,794,579) (1,643,703) (2,964,708)
Prepaid expenses and
other current
assets.............. (73,592) (205,631) 6,943 (360,085) (82,763)
Accounts payable and
accrued expenses.... -- (1,877,010) 838,486 (457,769) 1,217,900
Note payable-line of
credit.............. 2,082,137 (875,000) --
Deferred revenue..... 625,978 (1,974,510) (187,285) (187,285) 1,583,883
------------ ------------ ------------ ------------ ------------
Net cash used by
operating activities.. (10,098,309) (14,839,095) (15,098,224) (12,891,004) (14,146,276)
Cash flows from
investing activities:
Notes receivable...... (82,815) (18,951) -- -- --
Repayment of notes
receivable........... 100,000 53,190 -- -- --
Purchase of property
and equipment........ (1,451,142) (2,889,245) (3,613,900) (2,421,534) (4,571,403)
Purchase of long-term
marketable
securities........... -- (3,000,000) (442,334) (290,026) (315,467)
Sale of long-term
marketable
securities........... 6,730,101 12,455,443 -- --
Net investment in
sales-type lease..... -- (345,940) 58,830 77,000 8,000
Decrease (increase)
in other assets...... (37,130) 35,861 (488,177) (481,867) (394,224)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) investing
activities............ 5,259,014 6,290,358 (4,485,581) (3,116,427) (5,273,094)
Cash flows from
financing activities:
Payments on notes
payable.............. (131,049) (643,819) (29,609) (29,609) --
Proceeds from notes
payable.............. 5,000 -- -- -- --
Payments on long-term
debt................. -- 4,693 (3,141,793) (3,141,793) --
Proceeds from 10%
convertible
debentures........... 1,200,000 -- -- -- --
Net proceeds from
issuance of common
stock................ 89,097 10,453,045 45,882,207 45,882,461 1,950,777
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities.. 1,163,048 9,813,919 42,710,805 42,711,059 1,950,777
Net increase (decrease)
in cash and cash
equivalents............ (3,676,247) 1,265,182 23,127,000 26,703,628 (17,468,593)
Cash and cash
equivalents at
beginning of year...... 4,261,051 584,804 1,842,142 1,842,142 24,969,142
Effect of SI's excluded
results................ -- (7,844) -- -- --
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents at end of
year................... $ 584,804 $ 1,842,142 $ 24,969,142 $ 28,545,770 $ 7,500,549
============ ============ ============ ============ ============
Supplemental schedule of
cash flow information:
Cash paid for
interest.............. $ 125,620 $ 135,906 $ 119,789 $ 119,789 $ --
Noncash issuance of
common stock.......... -- $ 165,954 $ 204,511 $ 173,312 $ 96,962
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<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, 1996......... 10,422,996 $104,230 $ 75,663,526 $(50,960) $ -- $ (57,368) $ (45,879,546) $ 29,779,882
Exercise of stock
options.......... 82,122 821 88,275 -- -- -- -- 89,096
Amortization of
deferred
compensation..... -- -- -- 25,480 -- -- -- 25,480
Deferred warrant
costs............ -- -- 636,878 -- (636,878) -- -- --
Amortization of
deferred warrant
costs............ -- -- -- -- 79,613 -- -- 79,613
Unrealized loss on
investments...... -- -- -- -- -- (81,691) -- (81,691)
Translation
adjustment....... -- -- -- -- -- (14,494) -- (14,494)
Net loss.......... -- -- -- -- -- -- (13,377,173) (13,337,173)
---------- -------- ------------ -------- ----------- --------- ------------- -------------
Balance at March
31, 1997......... 10,505,118 105,051 76,388,679 (25,480) (557,265) (153,553) (59,256,719) 16,500,713
Exercise of stock
options.......... 166,794 1,668 511,385 -- -- -- -- 513,053
Investment by
EDF.............. 1,000,000 10,000 9,929,994 -- -- -- -- 9,939,994
Merger with AET... 68,306 683 9,317 -- -- -- (100,569) (90,569)
Stock compensation
expense.......... 9,075 91 90,751 -- -- -- -- 90,842
Amortization of
deferred
compensation..... -- -- -- 25,480 -- -- -- 25,480
Deferred warrant
costs............ -- -- 953,638 -- (953,638) -- -- 0
Amortization of
deferred warrant
costs............ -- -- 3,035 -- 182,457 -- -- 185,492
Exercise of
warrants......... 7,500 75 75,112 -- -- -- -- 75,187
Unrealized gain on
investments...... -- -- -- -- -- 176,367 -- 176,367
Cumulative
translation
adjustment....... -- -- -- -- -- (22,906) -- (22,906)
Effect of SI's
excluded
results.......... -- -- -- -- -- -- (2,156,399) (2,156,399)
Net loss.......... -- -- -- -- -- -- (12,378,188) (12,378,188)
---------- -------- ------------ -------- ----------- --------- ------------- -------------
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
========== ======== ============ ======== =========== ========= ============= =============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-7
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following Notes to Consolidated Financial Statements reference the
Balance Sheets as of March 31, 1999 and 1998, the Consolidated Statements of
Operations for the Years Ended March 31, 1999, 1998 and 1997, the Consolidated
Statements of Cash Flows for the Years Ended March 31, 1999, 1998 and 1997,
and the Consolidated Statements of Stockholders' Equity for the Years Ended
March 31, 1999, 1998 and 1997, which have been audited. Notes unique to the
Interim Consolidated Financial Statements for the unaudited periods including
the Balance Sheet as of December 31, 1999, the Consolidated Statements of
Operations for the Nine Months Ended December 31, 1999 and 1998, and the
Consolidated Statements of Cash Flows for the Nine Months Ended December 31,
1999 and 1998 immediately follow these notes and are listed as Notes to
Interim Consolidated Financial Statements.

1. Nature of the Business

American Superconductor Corporation (the "Company"), which was formed on
April 9, 1987, develops and commercializes high temperature superconducting
("HTS") wire, wire products and systems, including current leads, multistrand
conductors, electromagnetic coils, and electromagnets and subsystems
comprising electromagnetics integrated with appropriate cooling systems. The
focus of the Company's development and commercialization efforts is on
electrical equipment for use by electric utilities and industrial users of
electrical power. For large-scale applications, the Company's development
efforts are focused on power transmission cables, motors, transformers,
generators and fault current limiters. In the area of power quality, the
Company is focused on marketing and selling commercial low temperature
superconducting magnetic energy storage ("SMES") devices, on development and
commercialization of new SMES products, and on development of power electronic
subsystems and engineering services for the power quality marketplace. The
Company operates in two business segments.

The Company has devoted a significant part of its efforts to research and
development. The Company has recorded contract revenue related to research and
development contracts of $9,238,013, $9,273,901 and $6,867,444 for the fiscal
years ended March 31, 1999, 1998 and 1997, respectively. As discussed in Note
11, a significant portion of this contract revenue relates to development
contracts with two companies, Pirelli Cavi E Sistemi S.p.A. ("Pirelli") and
Electricite de France ("EDF"), who (through affiliated companies) are
stockholders of the Company. Included in costs of revenue are research and
development expenses of approximately $7,335,000, $7,494,000 and $5,322,000
for the fiscal years ended March 31, 1999, 1998, and 1997, respectively.
Selling, general and administrative expenses also included as costs of revenue
for the fiscal years ended March 31, 1999, 1998 and 1997, were approximately
$2,741,000, $3,394,000 and $2,186,000, respectively.

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. As described more fully in Note 3, on April 8, 1997, the Company
acquired Superconductivity, Inc. ("SI") through the merger of a wholly owned
subsidiary of the Company into SI. These consolidated financial statements
have been prepared following the pooling of interests method of accounting and
reflect the combined financial position, operating results and cash flows of
the Company and SI as if they had been combined for all periods presented.
Prior to the merger, SI's fiscal year end was December 31. Effective with the
merger, SI's fiscal year end was changed to March 31 to conform with the
Company's fiscal year end. The audited results of SI's operations for the
twelve month period ended

F-8
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996 are included in the Company's results of operations for the
fiscal year ended March 31, 1997. As a result, SI's results of operations for
the quarter ended March 31, 1997 are not included in the consolidated
statements of operations. Additionally, SI's cash flow activity for the three
months ended March 31, 1997 is listed as "Effect of SI's excluded results" on
the Consolidated Statement of Cash Flows to account for the difference in the
beginning cash and cash equivalents between December 31, 1996 and March 31,
1997. In the quarter ended March 31, 1997, SI recorded revenues of $262,295
and incurred a net loss of $2,156,399 which included merger expenses of
$1,457,054.

On July 31, 1997 the Company completed a transaction in which the Company
acquired all the outstanding stock of Applied Engineering Technologies, Ltd.
("AET"). The transaction has been accounted for under the pooling of interests
method of accounting. Due to the immaterial effect on the accompanying
consolidated financial statements, the prior periods have not been adjusted to
reflect the effect on the combined financial position, operating results and
cash flows of the Company.

Certain prior year amounts have been reclassified to be consistent with
current year presentation.

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 and
repurchase agreements.

Accounts Receivable

Due to scheduled billing requirements specified under certain contracts, a
portion of the Company's accounts receivable balance at March 31, 1999 and
1998 was unbilled. The unbilled portion included in the accounts receivable
balance was approximately $1,695,000 or 41% of total accounts receivable and
$1,611,000 or 54% of total accounts receivable at March 31, 1999 and 1998,
respectively. The Company expects the unbilled balance at March 31, 1999 to be
billed in the first quarter of next year.

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 and a U.S.
government agency security. These marketable securities are stated at
amortized cost plus accrued interest which approximates fair value. Interest
income is accrued as earned.

Inventories

Inventories are stated at the lower of cost (determined on a first-in
first-out basis) or market.

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. 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.

F-9
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Other Assets

Other assets at March 31, 1999 and 1998 consisted of the following:

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Licenses.............................................. $590,747 $340,747
Patents............................................... 274,485 --
Deposits.............................................. 15,734 6,167
-------- --------
880,966 346,914
Less: accumulated amortization........................ 386,622 340,747
-------- --------
$494,344 $ 6,167
======== ========
</TABLE>

Licenses and patents 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.

Revenue Recognition

The Company has entered into contracts to perform research and development
(see Note 11). 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 generally recognizes its revenue on product sales upon shipment, or,
for certain programs, on the percentage of completion method of accounting.
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 adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" effective for the quarter ended December 31,
1997. SFAS No. 128 requires presentation of basic earnings

F-10
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, 1999, 1998 and 1997, common equivalent shares of
655,843, 736,249 and 688,589, respectively, were not included in the
calculation of diluted EPS as they were considered antidilutive. The Company
has restated net loss per share for all periods presented in the accompanying
consolidated financial statements to reflect net loss per share on both a
basic and a diluted basis.

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.

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 mostly of amounts owed by
government agencies and some 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. The Merger

In April 1997, the Company completed a transaction (the "Merger") with SI.
This transaction, in which the Company acquired all of the outstanding stock
of SI by means of a merger of a subsidiary of the Company into SI, was
accounted for as a pooling of interests. The merger was effected through the
exchange of 942,961 shares of the Company's common stock for all of the issued
and outstanding shares of SI, based on a merger exchange ratio of 0.3292
shares of the Company's common stock for each share of SI common stock.

All fees and expenses related to the merger were expensed as required under
the pooling of interests accounting method. Charges of $75,767 in fiscal 1998
and $710,105 in fiscal 1997 have been recorded in the consolidated statement
of operations reflecting merger expenses incurred in the respective period. SI
incurred merger expenses of $1,457,054 in the quarter ended March 31, 1997. As
noted in Note 2, SI's results of operations for the quarter ended March 31,
1997 are not included in the Company's consolidated statement of operations.
Merger expenses consist principally of financial advisory, legal and
accounting fees.

F-11
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Combined and separate results of the Company and SI for the period
preceding the merger were as follows (in thousands):

<TABLE>
<CAPTION>
ASC SI Combined
-------- ------- --------
<S> <C> <C> <C>
Year ended March 31, 1997
Revenues.................................. $ 7,175 $ 3,376 $ 10,551
Net loss.................................. $(10,422) $(2,955) $(13,377)
</TABLE>

4. Long-term Marketable Securities

Long-term marketable securities at March 31, 1999 and 1998 consisted of the
following:

U.S. government and government agency securities

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Aggregate Cost...................................... $6,576,658 $6,134,324
Fair Value.......................................... $6,602,829 $6,167,030
Gross Unrealized Gain............................... $ 26,171 $ 32,706
</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.

5. Inventories

Inventories at March 31, 1999 and 1998 consisted of the following:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw materials....................................... $1,754,654 $ 743,016
Work-in-progress.................................... 1,843,323 2,388,705
Finished goods...................................... 1,426,575 98,252
---------- ----------
$5,024,552 $3,229,973
========== ==========
</TABLE>

6. Accounts payable and accrued expenses

Accounts payable and accrued expenses at March 31, 1999 and 1998 consisted
of the following:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accounts payable................................... $2,921,028 $1,935,528
Accrued executive bonus............................ 274,009 98,808
Accrued expenses................................... 562,020 979,626
Accrued vacation................................... 414,891 319,500
---------- ----------
$4,171,948 $3,333,462
========== ==========
</TABLE>

F-12
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Long-term Debt

Long-term debt at March 31, 1998 consisted of the following:

<TABLE>
<CAPTION>
1998
----------
<S> <C>
Subordinated notes, interest payable semiannually at 7%,
due April 1999............................................... $3,141,793
Note payable to ABB Power T & D Company Inc., interest payable
monthly at 7.5%, with principal due April 1998............... 29,609
----------
3,171,402
Less amount due within one year............................... 29,609
----------
$3,141,793
==========
</TABLE>

The Company's subordinated notes were retired following the completion of
the public offering during April 1998 (See Note 9).

8. Income Taxes

The reconciliation between the statutory federal income tax rate and the
Company's effective income tax rate is shown below.

<TABLE>
<CAPTION>
March 31
------------------
1999 1998 1997
---- ---- ----
<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......................... (4)% (1)% (1)%
Valuation allowance................................... 43 % 40 % 40 %
--- --- ---
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
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward............... $32,815,000 $28,298,000
Research and development and other credits.... 2,597,000 2,349,000
Depreciation and other........................ 995, 000 911,000
Valuation allowance........................... (36,407,000) (31,558,000)
----------- -----------
Net............................................. -- --
=========== ===========
</TABLE>

At March 31, 1999 the Company had available for federal income tax purposes
net operating loss carryforwards of approximately $84,601,000, which expire in
years 2005 through 2018. This includes approximately $16,284,000 of SI
acquired net operating losses which begin to expire in 2003 and their
utilization by the Company will be subject to annual limitations. Research and
development and other credit carryforwards amounting to approximately
$2,597,000 are available to offset federal and state income taxes and expire
in years 2005 through 2018. 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.

F-13
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. Stockholders' Equity

In April 1997, the Company entered into a strategic alliance agreement with
an affiliate of EDF under which that affiliate purchased one million shares of
the Company's common stock at $10 per share.

The Offering

On April 22, 1998 the Company completed a public offering of 3,504,121
shares of its common stock and received net proceeds (before deducting
offering expenses) of $46,114,000, of which approximately $3,142,000 was used
to retire the Company's subordinated notes.

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" as of March 31, 1997. 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,
--------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Net loss (in thousands).......... As reported... $(15,326) $(12,378) $(13,377)
Pro forma..... $(17,960) $(13,725) $(14,095)
Loss per share................... As reported.. $ (1.01) $ (1.06) $ (1.27)
Pro forma.... $ (1.19) $ (1.18) $ (1.34)
</TABLE>

The pro forma amounts include the effects of all activity under the
Company's stock-based compensation plans since April 1, 1996. 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 5.3%, 5.6% and 6.4% in fiscal
1999, fiscal 1998 and fiscal 1997, respectively; expected stock price
volatility of 60% for fiscal 1999, 50% for fiscal 1998 and 45% for fiscal
1997; no dividends; and a weighted average life of the options of 5 years. The
weighted average fair value of options granted during fiscal 1999, fiscal 1998
and fiscal 1997 was $7.36 per share, $5.74 per share and $5.02 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 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

F-14
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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, 1999.

<TABLE>
<CAPTION>
Outstanding Exercisable
- --------------------- ---------------------------------------------
Range of Number Weighted Average Number
Exercise Outstanding Remaining Weighted Average Exercisable Weighted Average
Price at 3/31/99 Contractual Life Exercise Price at 3/31/99 Exercise Price
- -------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.76 -
4.65 2,619 1.3 $ 1.38 2,619 $1.38
4.65 -
9.30 399,391 4.4 8.01 316,591 7.84
9.30 -
13.94 2,051,770 8.0 11.42 576,940 11.23
13.94 -
18.58 396,516 5.0 16.84 352,567 16.95
18.58 -
22.67 385,230 5.1 21.25 314,340 21.22
--------- ---------
$ 0.76 -
22.67 3,235,526 1,563,057
========= =========
</TABLE>

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,
1996..................... 1,992,755 $14.21 652,885
Granted................. 766,650 10.43
Exercised............... (74,880) 1.11
Canceled................ (138,860) 17.49
Outstanding at March 31,
1997..................... 2,545,665 $13.28 896,895
Granted................. 576,450 10.56
Exercised............... (166,794) 1.81
Canceled................ (330,831) 17.93
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
---------
Available for grant at
March 31, 1999........... 1,664,789
=========
</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 and $17,000 for the fiscal years ended March 31, 1999 and 1998,
respectively.

F-15
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Commitments

The Company rents its headquarters in Westborough, Massachusetts, under an
operating lease, which expires in May 2003. The Company also rents operating
facilities near Madison, Wisconsin, under two leases which expire on December
31, 2003. The Company has an option to extend these leases for additional
five-year periods. Under all leases the Company pays for real estate taxes,
certain insurance coverage and operating expenses.

In October 1992, the Company entered into a five-year collaborative
technology development agreement with Superlink Joint Venture ("Superlink").
In October 1997, the Company extended the technology development agreement
with Superlink for an additional six-year period through September 2003, with
payments totaling $220,000 due the first year and payments of $300,000 due
each year for the next five years. The Company has the right to terminate this
agreement under certain conditions.

Rent expense under the leases mentioned above and research and development
expenses related to the technology agreement with Superlink Joint Venture were
as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Rent expense................................ $1,154,000 $531,546 $520,850
---------- -------- --------
Research and development expenses........... $ 220,000 $260,593 $135,480
---------- -------- --------
</TABLE>

Minimum future lease and license fee commitments at March 31, 1999 were as
follows:

<TABLE>
<CAPTION>
Total
---------
<S> <C>
For the years ended March 31
2000....................................... 1,285,874
2001....................................... 1,285,874
2002....................................... 1,285,874
2003....................................... 1,285,874
2004....................................... 420,436
</TABLE>

11. Research and Development Agreements

In fiscal 1998, the Company entered into four-year research and development
contracts with Asea Brown Boveri (ABB) and EDF, an affiliate of whom is a
stockholder of the Company, to develop HTS wire for power transformers. The
agreements, both of which expire on March 31, 2001 (subject to earlier
termination by either party), obligate ABB and EDF to each pay an aggregate of
$5 million to the Company. Through March 31, 1999, ABB had paid the Company
$3,300,000 and EDF had paid the Company $3,400,000. In March 1996, the Company
extended its development contract with Pirelli, a stockholder of the Company,
to jointly develop high temperature superconducting cable wires. The Company
recorded revenues under these contracts as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Inco..................................... -- -- $ 825,000
Pirelli.................................. $2,000,000 $2,500,000 2,500,000
ABB...................................... 1,025,000 1,275,000 1,000,000
EDF...................................... 1,600,000 1,800,000 --
---------- ---------- ----------
$4,625,000 $5,575,000 $4,325,000
========== ========== ==========
</TABLE>

F-16
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Future funding commitments under these contracts are $4,050,000 over the
next three years, $1,700,000 from ABB, $1,600,000 from EDF, and $750,000 from
Pirelli. At March 31, 1999, $375,000 due under the development contract with
Pirelli was included in Accounts Receivable.

In March 1996, the Company entered into a new strategic alliance with the
Electric Power Research Institute (EPRI) to develop and commercialize a
possible next-generation HTS wire. In March 1996, under the first phase of the
agreement, the Company granted a warrant for 100,000 shares of common stock to
EPRI, which becomes 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 warrant to purchase 110,000 shares of common stock of
the Company, which become exercisable over the next five years. The Company
will receive exclusive license rights to intellectual property from EPRI. This
agreement is subject to early termination if certain conditions are not met.
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 $243,000, $166,000 and
$80,000 for the fiscal years ended March 31, 1999, 1998 and 1997,
respectively.

12. 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 $4,325,000 and $1,953,000, respectively, for fiscal 1999, of
$3,139,000 and $1,771,000, respectively, for fiscal 1998 and $3,197,000 and
$1,706,000, respectively, for fiscal 1997. At March 31, 1999, total funding
received to date under these agreements was $10,583,000. Future funding
expected to be received under existing agreements is approximately $2,718,000
over the next three years subject to continued future funding allocations.

13. Related Party Transactions

In fiscal 1995 the Company made a series of loans to an officer of the
Company in the aggregate amount of $671,000 including accrued interest. The
Compensation Committee of the Board of Directors forgave $206,700 and $104,800
in fiscal years 1997 and 1996, respectively, of principal and accrued interest
of the loans. In addition, the officer repaid $100,000 of principal in
November 1996. The Company has recorded compensation expense of $349,400 in
fiscal 1998 as a result of the forgiveness of the remaining principal and
interest on the loan by the Compensation Committee on May 14, 1998.

14. Employee Benefit Plans

The Company has implemented two deferred compensation plans 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. The Company recorded expense of $80,575 and a corresponding charge to
additional paid-in capital related to this program. No contributions were made
in fiscal 1998 or 1997. The Company does not have post-retirement or post-
employment benefit plans.

15. Write down of inventory and equipment

A provision was recorded for certain work-in-process inventory of $445,000
for the year ended March 31, 1997. This provision was recorded due to the
inventory not meeting required performance specifications. This provision was
included in costs of revenue for the year ended March 31, 1997.

F-17
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

16. Comprehensive Loss

The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income", which requires that an entity include in
total comprehensive income certain amounts which were previously recorded
directly to stockholders' equity.

The Company's comprehensive loss was as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Loss...................... $(15,326,176) $(12,378,188) $(13,377,173)
Other comprehensive income
(loss)....................... 10,484 153,461 (96,185)
------------ ------------ ------------
Total comprehensive loss.... $(15,315,692) $(12,224,727) $(13,473,358)
============ ============ ============
</TABLE>

Other comprehensive income (loss) represents changes in foreign currency
translation and unrealized gains and losses on investments.

17. Business Segment Information

The Company adopted Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), as of March 31, 1999. Prior year information was restated in conformity
with this accounting standard. The Company has two reportable business
segments as defined by FAS 131--the 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, motors, transformers, generators and fault current
limiters for large-scale applications.

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 of power electronic subsystems and engineering
services for the power quality and reliability marketplace

The operating segment results for the HTS and SMES business segments are as
follows:

<TABLE>
<CAPTION>
Revenues 1999 1998 1997
-------- ------------ ------------ ------------
<S> <C> <C> <C>
HTS............................ $ 9,747,580 $ 11,566,207 $ 7,174,487
SMES........................... 1,509,722 3,562,605 3,376,070
------------ ------------ ------------
Total........................ $ 11,257,302 $ 15,128,812 $ 10,550,557
============ ============ ============
<CAPTION>
Operating Income (loss) 1999 1998 1997
----------------------- ------------ ------------ ------------
<S> <C> <C> <C>
HTS............................ $(12,004,738) $(10,085,217) $(10,860,218)
SMES........................... (5,246,240) (2,669,887) (1,934,466)
------------ ------------ ------------
Total........................ $(17,250,978) $(12,755,104) $(12,794,684)
============ ============ ============
</TABLE>

F-18
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The segment assets for the HTS and SMES business segments are as follows:

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
HTS.............................................. $42,288,549 $15,729,294
SMES............................................. 5,841,754 3,821,921
----------- -----------
Total.......................................... $48,130,303 $19,551,215
=========== ===========
</TABLE>

The accounting policies of the business segments are the same as those
described in Note 2.

18. 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 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 an exposure draft to defer 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).
The Company's management believes the impact on its financial statements of
adopting Statement 133 will be immaterial.

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1
establishes criteria for determining which costs of developing or obtaining
internal-use computer software should be charged to expense and which should
be capitalized. The SOP is effective for fiscal years beginning after December
15, 1998, and establishes criteria for capitalizing certain internal use
software costs. The Company's management believes the impact on its financial
statements of adopting SOP 98-1 will be immaterial.

F-19
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The following Notes are unique to the Interim Consolidated Financial
Statements for the unaudited periods including the Balance Sheet as of
December 31, 1999, the Consolidated Statements of Operations for the Nine
Months Ended December 31, 1999 and 1998, and the Consolidated Statements of
Cash Flows for the Nine Months Ended December 31, 1999 and 1998.

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 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 users of electrical
power. For large-scale applications, the Company's development efforts are
focused on high temperature superconducting ("HTS") power transmission cables,
motors, transformers, generators and fault current limiters. In the area of
industrial power quality and transmission network power reliability, the
Company is focused on marketing and selling commercial low temperature
superconducting magnetic energy storage ("SMES") devices and on development
and commercialization of new SMES products. The Company operates in two
business segments.

The Company derives a substantial portion of its revenue from research and
development contracts. A significant portion of this contract revenue relates
to development contracts with Pirelli and EDF who (through affiliated
companies) are stockholders of the Company.

Included in costs of revenue are research and development expenses related
to externally funded development contracts of approximately $6,460,000 and
$5,165,000 for the nine months ended December 31, 1999 and 1998, respectively.
Selling, general and administrative expenses included as costs of revenue were
approximately $3,297,000 and $2,067,000 for the nine months ended December 31,
1999 and 1998, respectively.

2. Basis of Presentation

The accompanying consolidated financial statements are unaudited and have
been prepared in accordance with generally accepted accounting principles.
Certain information and footnote disclosure normally included in the Company's
annual consolidated financial statements have been condensed or omitted. The
interim consolidated financial statements, in the opinion of management,
reflect all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the results for the interim periods ended December
31, 1999 and 1998 and the financial position at December 31, 1999.

The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year. It
is suggested that these interim consolidated financial statements be read in
conjunction with the audited consolidated financial statements for the year
ended March 31, 1999 which are contained in the Company's Annual Report on
Form 10-K for the year ended March 31, 1999.

Certain prior year amounts have been reclassified to be consistent with
current year presentation.

3. Net Loss Per Common Share

The Company adopted SFAS No. 128, "Earnings Per Share" effective December
28, 1997. SFAS No. 128 requires presentation of basic 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

F-20
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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. For the
nine months ended December 31, 1999 and 1998, common equivalent shares of
3,391,891 and 203,849 were not included for the calculation of diluted EPS as
they were considered antidilutive.

4. Cost-Sharing Agreements

The Company received funding under government cost-sharing agreements with
the Department of Energy of approximately $1,446,000 and $1,293,000 for the
nine months ended December 31, 1999 and 1998, respectively. This funding was
used to directly offset research and development and selling, general and
administrative expenses.

5. Comprehensive Loss

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which requires that an entity include in total comprehensive income certain
amounts which were previously recorded directly to stockholders' equity.

The Company's comprehensive loss was as follows:

<TABLE>
<CAPTION>
Nine Months Ended
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net loss..................................... $(12,666,740) $(11,458,840)
Other comprehensive income................... (83,812) 39,895
------------ ------------
Total comprehensive loss................... $(12,750,552) $(11,418,945)
============ ============
</TABLE>

Other comprehensive income represents changes in foreign currency translation
and unrealized gains and losses on investments.

6. Business Segment Information

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"), as of March 31, 1999. Prior
year information was restated in conformity with this accounting standard. The
Company has two reportable business segments as defined by FAS 131--the HTS
business segment and the SMES business segment.

The HTS business segment develops and commercializes HTS wire, wire
products and systems. The focus of this segment's development efforts is on
HTS wire for power transmission cables, motors, transformers, generators and
fault current limiters for large-scale applications.

F-21
<PAGE>

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The operating segment results for the HTS and SMES business segments were as
follows:

<TABLE>
<CAPTION>
Nine Months Ended December
31
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Revenues
--------
HTS....................................... $ 9,249,385 $ 7,673,613
SMES...................................... 585,844 100,148
------------- -------------
Total................................... $ 9,835,229 $ 7,773,761
============= =============

Operating Income (loss)
-----------------------
HTS....................................... $ (8,512,629) $ (9,061,180)
SMES...................................... (5,031,246) (3,928,141)
------------- -------------
Total................................... $ (13,543,875) $ (12,989,321)
============= =============
</TABLE>

The segment assets for the HTS and SMES business segments were as follows:

<TABLE>
<CAPTION>
December
31, 1999 March 31, 1999
----------- --------------
<S> <C> <C>
HTS............................................ $29,987,073 $42,288,549
SMES........................................... 10,577,013 5,841,754
----------- -----------
Total........................................ $40,564,086 $48,130,303
=========== ===========
</TABLE>

The accounting policies of the business segments are the same as those
described in Note 2.

F-22
<PAGE>

[Graphics appearing on inside back cover:

Three pictures of traditional copper wire alongside HTS
wire, with the caption, "Today, three strands of our HTS
wire carry the same current as eight strands did in 1995
and as much current as a conventional copper wire 100
times larger."

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

3,000,000 Shares

American Superconductor LOGO Appears Here

----------------

Prospectus

, 2000

----------------

Banc of America Securities LLC

CIBC World Markets

Robertson Stephens

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 55,332
NASD Filing Fee.................................................. 21,459
Nasdaq National Market Fee....................................... 17,500
Blue Sky Fees and Expenses*...................................... 10,000
Accounting Fees and Expenses*.................................... 50,000
Legal Fees*...................................................... 125,000
Printing and Mailing Expenses*................................... 130,000
Miscellaneous*................................................... 40,709
--------
Total.......................................................... 450,000
</TABLE>
- --------
* Estimated

Item 15. Indemnification of Directors and Officers.

Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if
such person had no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to any matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.

Article V of the Registrant's By-laws provides that a director or officer
of the Registrant (a) shall be indemnified by the Registrant against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against expenses (including attorneys' fees)
incurred in connection with the defense or settlement of any action or suit by
or in the right of the Registrant by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Registrant, except that no indemnification shall be made with respect to any
such matter as to which such director or officer shall have been adjudged to
be liable to the Registrant, unless and only to the extent that a court
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
Notwithstanding the foregoing, to the extent that a director or officer has
been successful, on the merits or otherwise, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Registrant upon receipt of an
undertaking by the director or officer to repay such amount if the Registrant
ultimately determines that he is not entitled to indemnification.

Indemnification shall be made by the Registrant upon a determination that
the applicable standard of conduct required for indemnification has been met
and that indemnification of a director or officer is proper. Such
determination shall be made (a) by the Board of Directors by a majority vote
of a quorum consisting of

II-1
<PAGE>

directors who were not parties to the action, or (b) if such a quorum is not
obtainable, or if a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (c) by the stockholders of
the Registrant.

Article V of the Registrant's By-laws further provides that the
indemnification provided therein is not exclusive, and provides that to the
extent the Delaware General Corporation Law is amended or supplemented,
Article V shall be amended automatically and construed so as to permit
indemnification and advancement of expenses to the fullest extent permitted by
such law.

Article EIGHTH of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be personally liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, that a director shall remain liable (i) for any
breach of such director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intention misconduct or a knowing violation of law, (iii) for participation in
a Board of Directors' action authorizing an unlawful dividend or unlawful
stock purchase or redemption under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which such director derived
an improper personal benefit.

The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for the indemnification by the Underwriter of directors and
certain officers of the Registrant against certain liabilities.

The Registrant has a directors and officers liability insurance policy
covering certain liabilities that may be incurred by its directors and
officers.

Certain of the Registrant's directors are indemnified against certain
liabilities that may incur in their capacities as directors by the investment
funds with which they are affiliated.

Item 16. Exhibits.

<TABLE>
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
Restated Certificate of Incorporation of American Superconductor,
**4.1 -- as amended to date
*4.2 -- By-laws of American Superconductor, as amended to date
5.1 -- Opinion of Hale and Dorr LLP
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Smith & Gesteland, LLP
23.3 -- Consent of Hale and Dorr LLP (included in Exhibit 5.1)
**24.1 -- Power of Attorney
</TABLE>
- --------
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-43647).

**Previously filed.

Item 17. Undertakings.

(1) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section'13(a) or section'15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registrant Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred

II-2
<PAGE>

or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

(3) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.

(4) The undersigned Registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act of 1933, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused Amendment No. 2 to
this Registration Statement to be signed on its behalf by the undersigned,
hereunto duly authorized, in the City of Westborough, Commonwealth of
Massachusetts, on the 29th day of February 2000.

AMERICAN SUPERCONDUCTOR CORPORATION

By:
/s/ Gregory J. Yurek
--------------------------------------
Gregory J. Yurek
Chairman of the Board,
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, Amendment No. 2
to this Registration Statement has been signed by the following persons in the
capacities indicated as of the 29th day of February, 2000.

<TABLE>
<CAPTION>
Signature Title
- --------- -----

<S> <C>
/s/ Gregory J. Yurek Chairman of the Board, President and
______________________________________ Chief Executive Officer (principal
Gregory J. Yurek executive officer)

/s/ Stanley D. Piekos Vice President, Corporate
______________________________________ Development, Chief Financial
Stanley D. Piekos Officer, Treasurer and Secretary
(principal financial officer)

/s/ Thomas M. Rosa Chief Accounting Officer, Corporate
______________________________________ Controller and Assistant Secretary
Thomas M. Rosa (principal accounting officer)

* Director
______________________________________
Albert J. Baciocco, Jr.

* Director
______________________________________
Frank Borman

* Director
______________________________________
Peter O. Crisp

* Director
______________________________________
Richard Drouin

* Director
______________________________________
Gerard Menjon

* Director
______________________________________
Andrew G.C. Sage, II

* Director
______________________________________
</TABLE> John B. Vander Sande

*By: /s/ Stanley D. Piekos
------------------------------
Stanley D. Piekos Attorney-in-Fact

II-4
<PAGE>

EXHIBIT INDEX

** Previously filed.

<PAGE>

3,000,000 Shares

American Superconductor Corporation

Common Stock

Underwriting Agreement

dated _________________, 2000
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
----
<S> <C>
Section 1. Representations and Warranties of the Company......... 3
Section 2. Purchase, Sale and Delivery of the Common Shares...... 12
Section 3. Additional Covenants of the Company................... 15
Section 4. Payment of Expenses................................... 18
Section 5. Conditions of the Obligations of the Underwriters..... 19
Section 6. Reimbursement of Underwriters' Expenses............... 22
Section 7. Effectiveness of this Agreement....................... 22
Section 8. Indemnification....................................... 23
Section 9. Contribution.......................................... 26
Section 10. Default of One or More of the Several Underwriters.... 28
Section 11. Termination of this Agreement......................... 29
Section 12. Representations and Indemnities to Survive Delivery... 30
Section 13. Notices............................................... 30
Section 14. Successors............................................ 30
Section 15. Partial Unenforceability.............................. 31
Section 16. Governing Law Provisions.............................. 31
Section 17. General Provisions.................................... 32

</TABLE>
<PAGE>

UNDERWRITING AGREEMENT

__________, 2000

BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS CORP.
FLEETBOSTON ROBERTSON STEPHENS INC.
As Representatives of the several Underwriters
c/o BANC OF AMERICA SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111

Ladies and Gentlemen:

INTRODUCTORY. American Superconductor Corporation, a Delaware corporation
(the "COMPANY"), proposes to issue and sell to the several underwriters named in
Schedule A (the "UNDERWRITERS") an aggregate of 3,000,000 shares (the "FIRM
COMMON SHARES") of its Common Stock, par value $.01 per share (the "COMMON
STOCK"). In addition, the Company has granted to the Underwriters an option to
purchase up to an additional 450,000 shares (the "OPTIONAL COMMON SHARES") of
Common Stock, as provided in Section 2. The Firm Common Shares and, if and to
the extent such option is exercised, the Optional Common Shares are collectively
called the "COMMON SHARES". Banc of America Securities LLC, CIBC World Markets
and FleetBoston Robertson Stephens Inc. have agreed to act as representatives of
the several Underwriters (in such capacity, the "REPRESENTATIVES") in connection
with the offering and sale of the Common Shares.

The Company has prepared and filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement on Form S-3 (File No.
333-95261), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "SECURITIES ACT"), including all documents incorporated or
deemed to be incorporated by reference therein and any information deemed to be
a part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
<PAGE>

under the Securities Act or the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder (collectively the "EXCHANGE ACT"), is
called the "REGISTRATION STATEMENT". Any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act is called the "RULE
462(B) REGISTRATION STATEMENT", and from and after the date and time of filing
of the Rule 462(b) Registration Statement the term "REGISTRATION STATEMENT"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Common Shares, is
called the "PROSPECTUS". All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus, or any amendments or supplements to any of the foregoing, shall
include any copy thereof filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR"). All references in this
Agreement to financial statements and schedules and other information which is
"contained," "included" or "stated" in the Registration Statement or the
Prospectus (and all other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
is or is deemed to be incorporated by reference in the Registration Statement or
the Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement or the Prospectus shall
be deemed to mean and include the filing of any document under the Exchange Act
which is or is deemed to be incorporated by reference in the Registration
Statement or the Prospectus, as the case may be.

The Company hereby confirms its agreement with the Underwriters as follows:

Section 1. Representations and Warranties of the Company. The Company
hereby represents, warrants and covenants to each Underwriter as follows:

(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.

2
<PAGE>

Each preliminary prospectus and the Prospectus when filed complied in all
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.

(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.

(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.

(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to

3
<PAGE>

indemnification and contribution hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.

(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Common Shares will not be subject to
any preemptive or similar rights.

(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for (i) the rights of E.D.F.
Capital Investissement, S.A., a wholly owned subsidiary of Electricite de
France, which have been duly waived, and (ii) "demand" registration rights of
the Electric Power Research Institute with respect to shares of Common Stock
issuable upon the exercise of warrants held by it (which warrants have not yet
been exercised).

(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is given
in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company and its subsidiaries, considered as
one entity (any such change is called a "MATERIAL ADVERSE CHANGE"); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.

(h) Independent Accountants. PricewaterhouseCoopers LLP and Smith &
Gesteland, LLP, who have expressed their respective opinions with respect to the
financial statements (which term as used in this Agreement includes the related
notes thereto) and supporting schedules filed with the Commission as a

4
<PAGE>

part of the Registration Statement and included in the Prospectus, are
independent public or certified public accountants as required by the Securities
Act and the Exchange Act.

(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. Such financial statements and supporting
schedules have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved, except
as may be expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus under
the captions "Prospectus Summary--Summary Consolidated Financial Data",
"Selected Consolidated Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.

(j) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and, in the case of the Company, to enter into and perform its
obligations under this Agreement. Each of the Company and each subsidiary is
duly qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except for such jurisdictions where the failure to so qualify or to be
in good standing would not, individually or in the aggregate, result in a
Material Adverse Change. All of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and non-
assessable and is owned by the Company, directly or through subsidiaries, free
and clear of any security interest, mortgage, pledge, lien, encumbrance or
claim. The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than Superconductivity Inc., ASC
Holding Corp., ASC Securities Corp., SI Leasing, Inc. and American
Superconductor Europe GmbH.

5
<PAGE>

(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus. All
of the issued and outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and non-assessable and have been issued in
compliance with federal and state securities laws. None of the outstanding
shares of Common Stock were issued in violation of any preemptive rights, rights
of first refusal or other similar rights to subscribe for or purchase securities
of the Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company or any of its subsidiaries other than those
accurately described in the Prospectus. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted thereunder, set forth in the Prospectus accurately and
fairly presents in all material respects the information required to be shown
with respect to such plans, arrangements, options and rights.

(l) Stock Exchange Listing. The Common Stock (including the Common
Shares) is registered pursuant to Section 12(g) of the Exchange Act and is
listed (subject to notice of issuance in the case of the Common Shares) on the
Nasdaq National Market, and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or delisting the Common Stock from the Nasdaq National
Market, nor has the Company received any notification that the Commission or the
National Association of Securities Dealers, Inc. (the "NASD") is contemplating
terminating such registration or listing.

(m) Non-Contravention of Existing Instruments; No Further Authorizations
or Approvals Required. Neither the Company nor any of its subsidiaries is in
violation of its charter or by-laws or is in default (or, with the giving of
notice or lapse of time, would be in default) ("DEFAULT") under any indenture,
mortgage, loan or credit agreement, note, contract, franchise, lease or other
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries is subject (each, an "EXISTING
INSTRUMENT"), except for such Defaults as would not, individually or in the
aggregate, result in a Material Adverse Change. The Company's execution,
delivery and performance of this Agreement and consummation of the

6
<PAGE>

transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary, (ii) will not conflict with or constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been obtained or
made by the Company and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the NASD.

(n) No Material Actions or Proceedings. Except as otherwise disclosed
in the Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened (i)
against or affecting the Company or any of its subsidiaries, (ii) which have as
the subject thereof any officer or director of, or property owned or leased by,
the Company or any of its subsidiaries or (iii) relating to environmental or
discrimination matters, where in any such case (A) there is a reasonable
possibility that such action, suit or proceeding might be determined adversely
to the Company or such subsidiary and (B) any such action, suit or proceeding,
if so determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the employees of
the Company or any of its subsidiaries, or with the employees of any principal
supplier of the Company, exists or, to the best of the Company's knowledge, is
threatened or imminent.

(o) Intellectual Property Rights. The description in the Prospectus of
the Company's and its subsidiaries' trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "INTELLECTUAL PROPERTY RIGHTS") whether owned by the Company or
such subsidiary or obtained by the Company or such subsidiary, fairly presents
in all material respects the information required to be disclosed with respect
to such rights. Except as otherwise disclosed in the Prospectus, the Company
and its subsidiaries own or possess sufficient Intellectual Property Rights
reasonably necessary to conduct their businesses as now conducted. Neither the
Company

7
<PAGE>

nor any of its subsidiaries has received any notice of infringement or conflict
with asserted Intellectual Property Rights of others, which infringement or
conflict, if the subject of an unfavorable decision, would result in a Material
Adverse Change.

(p) All Necessary Permits, etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.

(q) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(i) above (or elsewhere in the
Prospectus), in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment and
personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary.

(r) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes required to have been paid by any of them and,
if due and payable, any related or similar assessment, fine or penalty levied
against any of them. The Company has made charges, accruals and reserves, in
amounts it reasonably believes to be adequate, in the applicable financial
statements referred to in Section 1(i) above in respect of all federal, state
and foreign income and franchise taxes for all periods as to which the tax
liability of the Company or any of its consolidated subsidiaries has not been
finally determined.

(s) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "INVESTMENT COMPANY ACT"). The Company is not,

8
<PAGE>

and after receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.

(t) Insurance. Except as otherwise disclosed in the Prospectus, each of
the Company and its subsidiaries are insured by recognized, financially sound
and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for their businesses including, but not limited to, policies covering
real and personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and earthquakes. The
Company has no reason to believe that it or any subsidiary will not be able (i)
to renew its existing insurance coverage as and when such policies expire or
(ii) to obtain comparable coverage from similar institutions as may be necessary
or appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.

(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Common
Shares.

(v) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.

(w) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.

(x) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in

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<PAGE>

accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(y) Compliance with Environmental Laws. Except as would not, individually
or in the aggregate, result in a Material Adverse Change (i) neither the Company
nor any of its subsidiaries is in violation of any federal, state, local or
foreign law or regulation relating to pollution or protection of human health or
the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum products
(collectively, "MATERIALS OF ENVIRONMENTAL CONCERN"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"ENVIRONMENTAL LAWS"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations required for
the operation of the business of the Company or its subsidiaries under
applicable Environmental Laws, or noncompliance with the terms and conditions
thereof, nor has the Company or any of its subsidiaries received any written
communication, whether from a governmental authority, citizens group, employee
or otherwise, that alleges that the Company or any of its subsidiaries is in
violation of any Environmental Law; (ii) there is no claim, action or cause of
action filed with a court or governmental authority, no investigation with
respect to which the Company has received written notice, and no written notice
by any person or entity alleging potential liability for investigatory costs,
cleanup costs, governmental responses costs, natural resources damages, property
damages, personal injuries, attorneys' fees or penalties arising out of, based
on or resulting from the presence, or release into the environment, of any
Material of Environmental Concern at any location owned, leased or operated by
the Company or any of its subsidiaries, now or in the past (collectively,
"ENVIRONMENTAL CLAIMS"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person or
entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law; and (iii) to the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence or
disposal of any Material of Environmental Concern, that reasonably could result
in a violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or any of its subsidiaries or against
any person or entity

10
<PAGE>

whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law.

(z) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means,
with respect to the Company or a subsidiary, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "CODE") of which the Company or such subsidiary
is a member. No "reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates, if such "employee
benefit plan" were terminated, would have any "amount of unfunded benefit
liabilities" (as defined under ERISA). Neither the Company, its subsidiaries
nor any of their ERISA Affiliates has incurred or reasonably expects to incur
any material liability under (i) Title IV of ERISA with respect to termination
of, or withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971,
4975 or 4980B of the Code. Each "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates
that is intended to be qualified under Section 401(a) of the Code is so
qualified and nothing has occurred, whether by action or failure to act, which
would cause the loss of such qualification.

(aa) Year 2000. The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations of the
Company or any of its subsidiaries will be affected by the Year 2000 Problem
(that is, any significant risk that computer hardware or software applications
used by the Company and its subsidiaries will not, in the case of dates or time
periods occurring after December 31, 1999, function at least as effectively as
in the case of dates or time periods occurring prior to January 1, 2000); as a
result of such review, (i) the Company has no reason to believe, and does not
believe, that (A) there are any issues related to the Company's preparedness to
address the Year 2000 Problem that are of a character required to be described
or referred to in the Registration Statement or Prospectus which have not been
accurately described in the Registration Statement or Prospectus; (B) the Year
2000 Problem will have a material adverse effect on the condition, financial or
otherwise, or on the earnings,

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<PAGE>

business or operations of the Company and its subsidiaries, taken as a whole, or
result in any material loss or interference with the business or operations of
the Company and its subsidiaries, taken as a whole; and (C) the suppliers and
vendors of the Company and such subsidiaries are not addressing the Year 2000
Problem in a timely manner; except to the extent that a failure to address the
Year 2000 Problem by any supplier or vendor would not have a material adverse
effect on the condition, financial or otherwise, or on the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.

(bb) Exchange Act Compliance. The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time they were or hereafter
are filed with the Commission, complied or will comply, as the case may be, in
all material respects with the requirements of the Exchange Act, and, when read
together with the other information in the Prospectus, at the time the
Registration Statement and any amendments thereto become effective and at the
First Closing Date and the Second Closing Date, as the case may be, will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

Any certificate signed by an officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.

Section 2. Purchase, Sale and Delivery of the Common Shares.

(a) The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $[___] per share.

(b) The First Closing Date. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor shall be
made at the offices of Banc of America Securities LLC, 600 Montgomery Street,
San Francisco, California (or such other place as may be agreed to by the
Company and the Representatives) at 6:00 a.m. San Francisco time on

12
<PAGE>

___________, 2000, or such other time and date not later than 10:30 a.m. San
Francisco time, on _____________, 2000 as the Representatives shall designate by
notice to the Company (the time and date of such closing are called the "FIRST
CLOSING DATE"). The Company hereby acknowledges that circumstances under which
the Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination by
the Company or the Representatives to recirculate to the public copies of an
amended or supplemented Prospectus or a delay as contemplated by the provisions
of Section 10.

(c) The Optional Common Shares; the Second Closing Date. In addition,
on the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 450,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "FIRST CLOSING DATE" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "SECOND CLOSING DATE" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, (a) each Underwriter agrees, severally and not
jointly, to purchase the number of Optional Common Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Optional Common Shares to
be purchased as the number of Firm Common Shares set forth on Schedule A
opposite the name of such Underwriter bears to the total number of Firm Common
Shares and (b) the Company agrees to sell the number of Optional Common Shares
as set forth in the paragraph "INTRODUCTORY" of this Agreement. The
Representatives may cancel the option at

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<PAGE>

any time prior to its expiration by giving written notice of such cancellation
to the Company.

(d) Public Offering of the Common Shares. The Representatives hereby
advise the Company that the Underwriters intend to offer for sale to the public,
as described in the Prospectus, their respective portions of the Common Shares
as soon after this Agreement has been executed and the Registration Statement
has been declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.

(e) Payment for the Common Shares. Payment for the Common Shares shall
be made at the First Closing Date (and, if applicable, at the Second Closing
Date) by wire transfer of immediately available funds to the order of the
Company.

It is understood that the Representatives have been authorized, for their
own accounts and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
Banc of America Securities LLC, individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.

(f) Delivery of the Common Shares. The Company shall deliver, or cause
to be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form
and registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be)

14
<PAGE>

at a location in New York City as the Representatives may designate. Time shall
be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.

(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
p.m. on the second business day following the date the Common Shares are first
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered, copies of the Prospectus in such quantities and at
such places as the Representatives shall request.

Section 3. Additional Covenants of the Company. The Company further
covenants and agrees with each Underwriter as follows:

(a) Representatives' Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "PROSPECTUS DELIVERY
PERIOD"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus (including any amendment or supplement through
incorporation by reference of any report filed under the Exchange Act), the
Company shall furnish to the Representatives for review a copy of each such
proposed amendment or supplement, and the Company shall not file any such
proposed amendment or supplement to which the Representatives reasonably object.

(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information from,
the Commission, (ii) of the time and date of any filing of any post-effective
amendment to the Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date that any
post-effective amendment to the Registration Statement becomes effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any of
such purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order at the
earliest possible moment. Additionally, the

15
<PAGE>

Company agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its reasonable
efforts to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.

(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall occur
or condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with law,
the Company agrees to promptly prepare (subject to Section 3(a) hereof), file
with the Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.

(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any amendments
and supplements thereto (including any documents incorporated or deemed
incorporated by reference therein) as the Representatives may request.

(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
state securities or blue sky laws or Canadian provincial Securities laws of
those jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and exemptions in
effect so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.

16
<PAGE>

(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.

(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.

(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending March 31, 2001 that satisfies the provisions of Section 11(a) of the
Securities Act.

(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.

(j) Agreement Not To Offer or Sell Additional Securities. During the
period of 90 days following the date of the Prospectus, the Company will not,
without the prior written consent of Banc of America Securities LLC (which
consent may be withheld at its sole discretion), directly or indirectly, sell,
offer, contract or grant any option to sell, pledge, transfer or establish an
open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of or transfer, or announce the offering of,
or file any registration statement under the Securities Act in respect of, any
shares of Common Stock, option or warrants to acquire shares of the Common Stock
or securities exchangeable or exercisable for or convertible into shares of
Common Stock (other than as contemplated by this Agreement with respect to the
Common Shares); provided, however, that the Company may issue shares of its
Common Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other stock
plan or arrangement described in the Prospectus.

(k) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives at 600
Montgomery Street, San Francisco, CA 94111, Attention: Revell Horsey: (i) as
soon as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, stockholders' equity and
cash flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as practicable
after the filing thereof,

17
<PAGE>

copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q, Current Report on Form 8-K or other report filed by the Company with
the Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed generally
to holders of its capital stock.

(l) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.

Banc of America Securities LLC, on behalf of the several Underwriters, may,
in its sole discretion, waive in writing the performance by the Company of any
one or more of the foregoing covenants or extend the time for their performance.

Section 4. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the state securities or blue sky laws or the provincial
securities laws of Canada, and, if requested by the Representatives, preparing
and printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with including the Common
Shares on the Nasdaq National Market, (ix) the costs and expenses of the Company

18
<PAGE>

relating to investor presentations on any "road show" undertaken in connection
with the marketing of the offering of the Common Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics by the Company, fees and expenses of any consultants engaged by the
Company in connection with the road show presentations, travel and lodging
expenses of officers of the Company and any such consultants, and a portion of
the cost of any aircraft chartered in connection with the road show, which
portion shall be the Company's proportionate share of such cost based on the
relative usage of such aircraft by employees of the Company and employees of the
Representatives, and (x) all other fees, costs and expenses referred to in Item
14 of Part II of the Registration Statement. Except as provided in this Section
4, Section 6, Section 8 and Section 9 hereof, the Underwriters shall pay their
own expenses, including the fees and disbursements of their counsel.

Section 5. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:

(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from PricewaterhouseCoopers LLP, independent
public or certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered according
to Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain financial
information contained in, or incorporated by reference in, the Registration
Statement and the Prospectus (and the Representatives shall have received an
additional three conformed copies of such accountants' letter for each of the
several Underwriters).

(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:

19
<PAGE>

(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act)
in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment
to the Registration Statement containing the information required by such
Rule 430A, and such post-effective amendment shall have become effective;
or, if the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Representatives' consent thereto, the Company shall have
filed a Term Sheet with the Commission in the manner and within the time
period required by such Rule 424(b);

(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by
the Commission; and

(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.

(c) No Material Adverse Change or Ratings Agency Change. For the period
from and after the date of this Agreement and prior to the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing Date:

(i) in the judgment of the Representatives there shall not have
occurred any Material Adverse Change; and

(ii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company by
any "nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.

(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Hale and Dorr LLP, counsel for the Company, dated as of
such Closing Date, the form of which is attached as Exhibit A (and the
Representatives shall have received an additional three conformed copies of such
counsel's legal opinion for each of the several Underwriters).

20
<PAGE>

(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Davis Polk & Wardwell, counsel for the Underwriters,
dated as of such Closing Date, the form of which is attached as Exhibit B (and
the Representatives shall have received an additional three conformed copies of
such counsel's legal opinion for each of the several Underwriters).

(f) Officers' Certificateii. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed on behalf of the Company by the Chairman of the Board,
Chief Executive Officer or President of the Company and the Chief Financial
Officer or Chief Accounting Officer of the Company, dated as of such Closing
Date, to the effect set forth in subsections (b)(ii) and (c)(ii) of this Section
5, and further to the effect that:

(i) for the period from and after the date of this Agreement and
prior to such Closing Date, there has not occurred any Material Adverse
Change;

(ii) the representations, warranties and covenants of the Company
set forth in Section 1 of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date;
and

(iii) the Company has complied with all the agreements hereunder
and satisfied all the conditions on its part to be performed or satisfied
hereunder at or prior to such Closing Date.

(g) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Representatives shall have received from
PricewaterhouseCoopers LLP, independent public or certified public accountants
for the Company, a letter dated such date, in form and substance satisfactory to
the Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional three conformed copies of such accountants' letters for
each of the several Underwriters).

21
<PAGE>

(h) Lock-Up Agreement from Certain Securityholders of the Company. On the
date hereof, the Company shall have furnished to the Representatives an
agreement in the form of Exhibit C hereto from each executive officer and
director of the Company, and EDF Capital Investissement, S.A., and such
agreement shall be in full force and effect on each of the First Closing Date
and the Second Closing Date.

(i) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information and documents as they may
reasonably require for the purposes of enabling them to pass upon the issuance
and sale of the Common Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.

If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.

Section 6. Reimbursement of Underwriters' Expenses'. If this Agreement is
terminated by the Representatives pursuant to Section 5 or clauses (i), (v) or
(vi) of Section 11, or by the Company pursuant to Section 7, or if the sale to
the Underwriters of the Common Shares on the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the Common
Shares, including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.

Section 7. Effectiveness of this Agreement. This Agreement shall not
become effective until the later of (i) the execution of this Agreement by the
parties hereto and (ii) notification by the Commission to the Company and the
Representatives of the effectiveness of the Registration Statement under the
Securities Act.

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<PAGE>

Prior to such effectiveness, this Agreement may be terminated by the
Company or the Representatives by notice to each of the other parties hereto,
and any such termination shall be without liability on the part of (A) the
Company to any Underwriter, except that the Company shall be obligated to
reimburse the expenses of the Representatives and the Underwriters to the extent
provided in Sections 4 and 6 hereof, (B) of any Underwriter to the Company or
(C) of any party hereto to any other party except that the provisions of Section
8 and Section 9 shall at all times be effective and shall survive such
termination.

Section 8. Indemnification.

(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) upon any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in any manner
to, the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment

23
<PAGE>

that such loss, claim, damage, liability or action resulted directly from any
such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its bad faith or willful misconduct; and to reimburse each
Underwriter and each such controlling person for any and all expenses (including
the fees and disbursements of one counsel chosen by Banc of America Securities
LLC) as such expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the foregoing indemnity and reimbursement
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Representatives expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity and reimbursement agreement shall not inure
to the benefit of any Underwriter from whom the person asserting any loss,
claim, damage, liability or expense purchased Common Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely delivered
to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities that the
Company may otherwise have.

(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the

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<PAGE>

Prospectus (or any amendment or supplement thereto), or arises out of or is
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any preliminary prospectus, the Prospectus (or
any amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use therein, or arises out of or is based in whole or in part upon any
failure of such Underwriter to perform its obligations hereunder or under law;
and to reimburse the Company, or any such director, officer or controlling
person for any legal and other expense reasonably incurred by the Company, or
any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. The Company hereby acknowledges that the
only information that the Underwriters have furnished to the Company expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) are the statements set forth
in the second, and the seventh through twelfth paragraphs of the section in the
Prospectus with the caption "Underwriting"; and the Underwriters confirm that
such statements are correct. The indemnity agreement set forth in this Section
8(b) shall be in addition to any liabilities that each Underwriter may otherwise
have.

(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in

25
<PAGE>

conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (Banc of America Securities LLC in the case of Section 8(b)
and Section 9), representing the indemnified parties who are parties to such
action) or (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.

(d) Settlements. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
15 days' advance written notice of the terms of the proposed settlement, and
(iii) such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement (unless the
indemnified party is not entitled to such reimbursement under the terms of
Section 8(a) or 8(b), as the case may be, and Section 8(c)). No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or

26
<PAGE>

could have been sought hereunder by such indemnified party, unless such
settlement, compromise or consent includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding.

Section 9. Contribution. If the indemnification provided for in Section 8
is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, from the offering of the Common Shares pursuant
to this Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and the Underwriters, on the other hand,
in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact or any
such inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or

27
<PAGE>

expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.

Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.

Section 10. Default of One or More of the Several Underwriters. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting

28
<PAGE>

Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 8 and Section 9
shall at all times be effective and shall survive such termination. In any such
case either the Representatives or the Company shall have the right to postpone
the First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.

As used in this Agreement, the term "UNDERWRITER" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

Section 11. Termination of this Agreement. Prior to the First Closing
Date this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq National Market; (ii) trading in securities generally on either the
Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (iii) a general
banking moratorium shall have been declared by any of federal, New York ,
Delaware or California authorities; (iv) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (v) in the judgment of the Representatives there shall have occurred
any Material Adverse Change; or (vi) the Company shall have sustained a loss by
strike, fire,

29
<PAGE>

flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 11 shall be
without liability on the part of (A) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters to the extent provided in Sections 4 and 6 hereof, (B) any
Underwriter to the Company, or (C) of any party hereto to any other party except
that the provisions of Section 8 and Section 9 shall at all times be effective
and shall survive such termination.

Section 12. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.

Section 13. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:

If to the Representatives:

Banc of America Securities LLC
Equity Capital Markets
600 Montgomery Street
San Francisco, CA 94111
Facsimile: (415) 913-5558
Attention: Revell Horsey

with a copy to:

Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 913-5553
Attention: Jeffrey R. Lapic, Esq.

30
<PAGE>

If to the Company:

American Superconductor Corporation
Two Technology Drive
Westborough, Massachusetts 01581
Facsimile: (508) 870-1871
Attention: Gregory J. Yurek

Any party hereto may change the address for receipt of communications by giving
written notice to the others.

Section 14. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, where
applicable, and no other person will have any right or obligation hereunder.
The term "SUCCESSORS" shall not include any purchaser of the Common Shares as
such from any of the Underwriters merely by reason of such purchase.

Section 15. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.

Section 16. Governing Law Provisions. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.

Section 17. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of

31
<PAGE>

Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.

Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.

If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.

[The remainder of this page has intentionally been left blank.]

32
<PAGE>

Very truly yours,

AMERICAN SUPERCONDUCTOR CORPORATION

By: __________________________
Name:
Title:
<PAGE>

The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.

BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS CORP.
FLEETBOSTON ROBERTSON STEPHENS INC.

Acting as Representatives of the
several Underwriters named in
the attached Schedule A.

BY BANC OF AMERICA SECURITIES LLC

By: ____________________________________________________
Name:
Title:
<PAGE>

SCHEDULE A

<TABLE>
<CAPTION>
NUMBER OF
FIRM COMMON SHARES
UNDERWRITERS TO BE PURCHASED
<S> <C>
Banc of America Securities LLC........ [___]
CIBC World Markets Corp............... [___]
FleetBoston Robertson Stephens Inc.... [___]

Total.............................. 3,000,000
</TABLE>

A-1
<PAGE>

EXHIBIT A

Opinion of counsel for the Company to be delivered pursuant to Section 5(d)
of the Underwriting Agreement:

References to the Prospectus in this Exhibit A include any supplements
thereto at the First Closing Date or the Second Closing Date, as the case may
be.

(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.

(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.

(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction listed on
Schedule I to such opinion, which, to such counsel's knowledge, constitute
the only jurisdictions in which the Company owns or leases real property.

(iv) Each domestic subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction listed on Schedule I to such opinion, which, to such counsel's
knowledge, constitute the only jurisdictions in which such subsidiary owns
or leases real property.

(v) All of the issued and outstanding capital stock of each
domestic subsidiary of the Company has been duly authorized and validly
issued, is fully paid and non-assessable and is owned of record (and, to
such counsel's knowledge, beneficially) by the Company, directly or through
subsidiaries, free and clear of any perfected security interests or, to
such counsel's knowledge, any other security interests, claims, liens or
encumbrances.

(vi) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conforms in all material respects

A-2
<PAGE>

to the descriptions thereof set forth or incorporated by reference in the
Prospectus. All of the outstanding shares of Common Stock have been duly
authorized and validly issued, and are fully paid and non-assessable. The
form of certificate used to evidence the Common Stock is in due and proper
form and complies with all applicable requirements of the charter and by-
laws of the Company and the General Corporation Law of the State of
Delaware. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.

(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase the Common Shares arising (A) by operation of the
charter or by-laws of the Company or the General Corporation Law of the
State of Delaware or (B) to the best knowledge of such counsel, otherwise.

(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.

(ix) The Common Shares to be purchased by the Underwriters from
the Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and non-assessable.

(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, (i) no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if any,
has been issued under the Securities Act, and (ii) no proceedings for such
purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act has
been made in the manner and within the time period required by such Rule
424(b).

(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus including any document incorporated
by reference therein, and each amendment or supplement to the Registration
Statement and the Prospectus including any document

A-3
<PAGE>

incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included or incorporated by reference therein, as to which no opinion need
be rendered) comply as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act.

(xii) The Common Shares have been approved for listing on the
Nasdaq National Market.

(xiii) The descriptions in the Registration Statement and
Prospectus of matters of law, statutes, legal and governmental proceedings
and contracts and other documents (including, without limitation, such
descriptions in the Prospectus under the caption "Business - Patents,
Licenses and Trade Secrets") have been reviewed by such counsel and fairly
present and summarize, in all material respects, the matters referred to
therein.

(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, and no statutes or
regulations that are required, by the Securities Act or the rules and
regulations issued thereunder, to be described in the Registration
Statement, other than those disclosed therein.

(xv) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto.

(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and the Company's consummation of the
transactions contemplated thereby and by the Prospectus, except as required
under the Securities Act, applicable state securities or blue sky laws and
from the NASD.

(xvii) The execution and delivery of the Underwriting Agreement by
the Company and the performance by the Company of its obligations
thereunder (other than performance by the Company of its obligations

A-4
<PAGE>

under the indemnification and contribution section of the Underwriting
Agreement, as to which no opinion need be rendered) (A) have been duly
authorized by all necessary corporate action on the part of the Company;
(B) will not result in any violation of the provisions of the charter or
by-laws of the Company or any subsidiary; (C) to the best knowledge of
such counsel, will not constitute a breach of, or Default under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to
any material Existing Instrument filed as an exhibit to a document filed by
the Company under the Exchange Act or otherwise described in, or
incorporated by reference into, the Registration Statement; or (D) to the
best knowledge of such counsel, will not result in any violation of any law
or administrative regulation (other than state securities laws) applicable
to the Company or any subsidiary, or any court order or decree specifically
naming the Company or any subsidiary.

(xviii) The Company is not, and after receipt of payment for the
Common Shares will not be, an "investment company" within the meaning of
Investment Company Act.

(xix) To the best knowledge of such counsel, there are no persons
with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included
in the offering contemplated by the Underwriting Agreement, except for (A)
the rights of E.D.F. Capital Investissement, S.A., a wholly owned
subsidiary of Electricite de France, which have been duly waived, or (B)
"demand" registration rights of the Electric Power Research Institute with
respect to shares of Common Stock issuable upon the exercise of warrants
held by it (which warrants have not yet been exercised).

(xx) Each document filed pursuant to the Exchange Act (other than
the financial statements and supporting schedules included therein, as to
which no opinion need be rendered) and incorporated or deemed to be
incorporated by reference in the Prospectus complied when so filed as to
form in all material respects with the requirements of the Exchange Act.

In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such

A-5
<PAGE>

counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), or any
supplements or amendments thereto, on the basis of the foregoing, no facts have
come to their attention which have caused them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included or incorporated by reference in the Registration
Statement or the Prospectus or any amendments or supplements thereto).

In rendering such opinion, such counsel may rely (1) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Representatives) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying upon
such opinion of other counsel, and (2) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and public
officials.

A-6
<PAGE>

EXHIBIT B

Opinion of counsel for the Underwriters to be delivered pursuant to Section
5(e) of the Underwriting Agreement:

References to the Prospectus in this Exhibit B include any supplements
thereto at the First Closing Date or the Second Closing Date, as the case may
be.

(i) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company.

(ii) The Common Shares have been duly authorized for issuance and
sale pursuant to the Underwriting Agreement and, when issued and delivered
in accordance with the terms of the Underwriting Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Common
Shares is not subject to any preemptive or, to such counsel's knowledge,
other similar rights.

(iii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus (other than documents incorporated
by reference therein), and each amendment or supplement to the Registration
Statement and the Prospectus (other than documents incorporated by
reference therein), as of their respective effective or issue dates (other
than the financial statements and supporting schedules included or
incorporated by reference therein or in exhibits to or excluded from the
Registration Statement, as to which no opinion need be rendered) comply as
to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act.

(iv) Such counsel have considered the statements relating to legal
matters, documents or proceedings included in the Prospectus under the
caption "Underwriting". In the opinion of such counsel, such statements
fairly summarize in all material respects such matters, documents or
proceedings.

With respect to paragraph (iii) above, such counsel shall state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification, except as specified. In addition, such counsel shall
state that they have participated in the preparation of the Registration
Statement and the Prospectus and any amendments or supplements thereto (other

B-1
<PAGE>

than the documents incorporated by reference) and upon review and discussion of
the contents thereof, but without independent check or verification, except as
specified, and, although such counsel are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
specified above), or any supplements or amendments thereto, on the basis of the
foregoing, they have no reason to believe that either the Registration Statement
or any amendments thereto, at the time the Registration Statement or such
amendments became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as of its
date or at the First Closing Date or the Second Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief as to the financial
statements or schedules or other financial or statistical data derived
therefrom, included or incorporated by reference in, or any other documents
incorporated by reference in, the Registration Statement or the Prospectus or
any amendments or supplements thereto).

B-2
<PAGE>

EXHIBIT C

LOCK UP AGREEMENT

Banc of America Securities LLC
CIBC World Markets Corp.
FleetBoston Robertson Stephens Inc.
as Representatives of the Several Underwriters
c/o Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111

RE: AMERICAN SUPERCONDUCTOR CORPORATION (THE "COMPANY")

Ladies & Gentlemen:

The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("COMMON STOCK") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "OFFERING") for which you will act as the
representatives (the "REPRESENTATIVES") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters
are relying on the representations and agreements of the undersigned contained
in this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.

In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Banc of America
Securities LLC (which consent may be withheld in its sole discretion), directly
or indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale) pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Securities
Exchange Act of 1934, as amended, or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule

C-1
<PAGE>

13d-3 under Securities Exchange Act of 1934, as amended) by the undersigned, or
publicly announce the undersigned's intention to do any of the foregoing, for a
period commencing on the date hereof and continuing to a date 90 days after the
first date any of the Common Stock to be sold in the Offering is released by you
for sale to the public. The foregoing sentence shall not apply to a bona fide
gift to any person or entity who agrees in writing to be bound by the provisions
of this Agreement. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions. In addition, the undersigned agrees
that, without the prior written consent of Banc of America Securities LLC on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 90 days after the first date any of the Common Stock to
be sold in the Offering is released by you for sale to the public, make any
demand for or exercise any right with respect to, the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.

This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.

Dated: ______________________________________________

- ------------------------------------------------------
Printed Name of Holder

By: ___________________________________________________

- --------------------------------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)

C-2

<PAGE>
EXHIBIT 5.1

HALE AND DORR LLP
COUNSELLORS AT LAW

www.haledorr.com
60 State Street * Boston, Massachusetts 02109
617-526-6000 FAX 617-526-5000

February 29, 2000

American Superconductor Corporation
Two Technology Drive
Westborough, Massachusetts 01581

Re: Registration Statement on Form S-3 (File No 333-95261)
------------------------------------------------------

Ladies and Gentlemen:

This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (File No. 333-95261) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of 3,450,000 shares of Common Stock, $.01 par value per share (the "Shares"), of
American Superconductor Corporation, a Delaware corporation (the "Company"), of
which 450,000 Shares are issuable upon exercise of an over-allotment option
granted by the Company.

The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and Banc of America Securities LLC, CIBC World Markets Corp. and
FleetBoston Robertson Stephens Inc., as representatives of the several
underwriters named in the Underwriting Agreement, the form of which has been
filed as Exhibit 1.1 to the Registration Statement.

We are acting as counsel for the Company in connection with the issue and
sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Underwriting Agreement, minutes of meetings of the stockholders
and the Board of Directors of the Company as provided to us by the Company,
stock record books of the Company as provided to us by the Company, the Restated
Certificate of Incorporation and the By-Laws of the Company, each as restated
and/or amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.

In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
<PAGE>

We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities or "blue
sky" laws.

We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the General
Corporation Law of the State of Delaware and the federal laws of the United
States of America. To the extent that any other laws govern the matters as to
which we are opinion herein, we have assumed that such laws are identical to the
laws of the Commonwealth of Massachusetts, and we are expressing no opinion
herein as to whether such assumption is reasonable or correct.

Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable.

It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.

Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.

We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.

Very truly yours,

/s/ Hale and Dorr LLP

HALE AND DORR LLP

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Amendment No. 2 to the Registration
Statement on Form S-3 of our report dated May 11, 1999 relating to the
consolidated financial statements of American Superconductor Corporation as of
March 31, 1999 and 1998, and for the years ended March 31, 1999, 1998 and
1997, which appears in and is incorporated by reference in such Registration
Statement. We also consent to the references to us under the captions
"Experts" and "Selected Consolidated Financial Data" in such Registration
Statement.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Boston, Massachusetts

February 29, 2000

<PAGE>

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in the Amendment No. 2 to the Registration
Statement on Form S-3 and related prospectus of American Superconductor
Corporation of our report dated February 7, 1997, on our audit of the financial
statements of Superconductivity, Inc., as of December 31, 1996, and for the
year then ended, which report is included in the Company's Annual Report on
Form 10-K for the year ended March 31, 1999, filed by American Superconductor
Corporation with the Securities and Exchange Commission. We also consent to the
reference to our firm under the caption "Experts."

/s/ Smith & Gesteland, LLP
SMITH & GESTELAND, LLP
Madison, Wisconsin

February 29, 2000