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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 1-11512
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SATCON TECHNOLOGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 04-2857552
<S> <C>
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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161 FIRST STREET, CAMBRIDGE,
MASSACHUSETTS 02142
<S> <C>
(Address of Principal Executive Offices) (Zip Code)
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(617) 661-0540
(Registrant's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
Title of Class
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COMMON STOCK, $.01 PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Registrant's Common Stock, $.01 par value
per share, held by non-affiliates of the Registrant was $61,487,116, based on
the last reported sale price of the Registrant's Common Stock on the Nasdaq
National Market as of the close of business on December 15, 1999 ($8.125).
There were 11,376,570 shares of Common Stock outstanding as of December 15,
1999.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy
Statement for its 2000 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K
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PART I
ITEM 1. BUSINESS
GENERAL
We were organized as a Massachusetts corporation in February 1985 and
reincorporated in Delaware in 1992. We design, develop and manufacture
intelligent, electro-mechanical products for aerospace, transportation,
industrial and utility applications. We also design, develop and manufacture
power and energy management products for telecommunications, silicon wafer
manufacturing, factory automation, aircraft and automotive applications. Our
electro-mechanical products are being developed for a wide variety of U.S.
government and commercial markets. For the government, our electro-mechanical
systems provide for applications ranging from satellite attitude control to
high speed drives for shipboard systems. In the transportation segment, we are
developing electric and hybrid electric drive components, auxiliary power units
and advanced steering, alternator and starter/generator systems. We are working
with major equipment producers to develop process equipment drives, high speed
and precision machine tools, manipulators and machinery isolation equipment.
Our electro-mechanical systems may offer advantages to the utility industry in
power generation, energy storage and power quality. In the consumer market, we
are developing variable speed motors for refrigeration equipment and other
long-life, high-efficiency machinery.
STRATEGY
It is our strategy to continue to expand development of our technologies for
use in commercial business applications and to seek the acquisition of
businesses, products, assets and technologies that complement or augment our
existing businesses, products, assets and technologies.
DEVELOPMENTS DURING 1999
During 1999, our technology center made a concentrated effort toward building
the power inverter for a fuel cell on-site power generation system. Using new
technology, developed with government funding over the last seven years, we are
developing new, smaller, high-efficiency, low-cost power inverters. Our power
inverters are combined with fuel cell power generation systems, micro-turbines,
or solar power generation systems for generating on-site power. Work also
continued on the Department of Energy's contract with us to manufacture power
electronics for use in hybrid-electric automobiles. With fuel cells and
microturbines becoming more affordable, their use as alternative fuel drive
trains is gaining interest from several perspectives. Our technology center
also received funded research and development contracts for a modular drive for
the U.S. Navy, miniature navigation systems, biological contamination detection
systems, and a remote surveillance and targeting vehicle for DARPA.
In January 1999, we acquired Lighthouse Software, Inc., which designs and
develops software for the industrial machine tool industry.
Over the past year, Magmotor, a manufacturer of custom electric motors
targeting the factory automation, medical, semiconductor and packaging markets,
introduced a new line of brushless DC servomotors for the machine tool
industry. Within its first year with this product line, Magmotor was able to
expand its customer base with the addition of orders from several machine tool
manufacturers. These customers purchased servomotor for inclusion in such
machines as Computer Numerical Control (CNC) machining centers, CNC lathes and
milling machines and for small part precision turning. Magmotor also completed
several delivery orders for its integrated suspension and motor (ISAM) product
to Applied Materials. By having the encoder, brake, gearbox, tachometer and
connectors that are required for each customer's unique application coupled
with the appropriate motor, Magmotor can now provide its customers with an
entire drive assembly. They have recently added brush and brushless motor
amplifiers to their product line and are building small motors for a major
automotive manufacturer to be used in fuel cell cars.
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In January 1999, we acquired Inductive Components, Inc., a value-added
supplier selling systems in the machine tool and semi-conductor industry.
During 1999, FMI, a manufacturer and producer of custom integrated circuits
for the communications, industrial, military and aerospace markets, introduced
several new products. The first was a package of uplink electronics for
satellite telecommunications systems such as mobile telephone repeater
stations. The second set of products were a series of power resistors
manufactured with aluminum nitride, FMI's solution to eliminating
environmentally hazardous beryllium oxide, the substrate commonly used in this
past for these products. These resistors are used in several telecommunications
products, including cellular telephones. FMI was also chosen to design the thin
film circuits for new satellite television/internet system for residential and
business use. The system is being manufactured and sold through a major
electronics manufacturer that also markets a satellite television service. FMI
also developed a new process for manufacturing radio frequency identification
cards.
In April 1999, we acquired Hycomp, Inc., a manufacturer of high performance,
high quality multi-chip modules.
During 1999, Beacon, an affiliate of SatCon, successfully completed the first
phase field testing of its flywheel uninterruptible power supply systems for
telephone and cable television applications. The systems have successfully
operated for over 1,800 continuous hours. In both applications, Beacon's
flywheels have maintained the power during loss of utility power with no
degredation of service.
COMMERCIALIZATION
We intend to continue directing our commercialization efforts in the
following product areas:
Power Electronics
We have developed proprietary high-voltage hybrid modules based on advanced
power semiconductor technology at a fraction of the weight of conventional
packages. The high-density topology and innovative cooling schemes utilized
allow for higher throughput in smaller, lighter weight packages. These
electronics support our high-speed drive and flywheel product developments as
well as our power inverters for fuel cell, microturbine and other alternative
fuel on-site power generation systems..
We have also developed a new hermetic amplifier product line that is
manufactured without the use of hazardous beryllium oxide. In addition to the
amplifiers, we are developing a new motor controller line based on the SAT-32
DSP motor control technology that is currently used in the Integrated
Suspension and Motor product for semiconductor manufacturing.
Motors and High Speed Drives
We design and build high performance motors and drives that capitalize on
advances in materials and semiconductor technology to achieve high power
density. Through the use of high performance materials and design of the
magnetic circuits, we have demonstrated electric motor prototypes that are
lightweight and have provided efficiencies in excess of 97 percent. Our motor
designs are being evaluated for a wide variety of applications including
electric vehicles, shipboard motors and general industrial applications.
Magnetic Bearings and Suspension Systems
Improvements in magnetic materials and electronic control systems have led
the way to advances in electromagnetic bearings and suspension systems. We have
participated in the development of such systems for spacecraft and ground-based
systems. Our magnetic bearing systems feature electromagnetic and permanent
magnet actuators and advanced digital control systems. These systems have been
developed for both commercial and military applications.
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By injecting electromagnetic forces along a selected bearing axis in concert
with shaft rotation, the magnetic bearings can balance a dynamic machine,
resulting in smooth and quiet operation. Similar principles guide the
application of electromagnetic suspension systems. These automated systems
provide a significant reduction of structure borne vibration transmittal,
providing low vibration machinery operation, low detection or vibration
isolation. In addition, these systems provide lubrication-free support for
rotating, reciprocating, and stationary systems. Also, through active
electronic control, these systems provide quiet, smooth and non-contaminating
machinery operation and isolation.
We are also developing a high-temperature magnetic bearing for gas turbine
engines.
Flywheel Energy Storage Systems
By integrating energy storing flywheels made of high strength materials with
high power, permanent magnet motor/generators, we have developed electro-
mechanical storage systems that we believe have the potential to offer
practical solutions for mobile and stationary applications. Beacon's flywheel
systems are anticipated to provide extremely high power output and energy
storage in compact packages. They may be a long-lasting, lightweight, and an
environmentally friendly alternative to conventional batteries. These systems
can be used to provide backup for critical industrial processes and machines,
as power supplies for satellites and as energy recovery systems for electric
and hybrid-electric vehicle drive trains.
Beacon is completing the commercialization of the 20C1000 cable/telecom
flywheel system. Beacon's focus is limited to providing flywheel energy storage
products for stationary terrestrial applications. Beacon's 20C1000
cable/telecom flywheel system is being developed to offer an alternative to
lead acid batteries as an un-interruptible power supply for the
telecommunications industry, including cable television and telephone service
providers, which are required to maintain service during power outages.
Electro-Optic and Sensor Inspection Systems
We are developing a commercial real-time optical biosensor having
extraordinary sensitivity for biological and chemical detection. The effort is
focused initially on the detection of microbial pathogens of interest to the
food industry. These pathogens include E. Coli 0157:H7 and Salmonella found in
meat and poultry, vegetables, fruit, juices and milk. The detection technique
is based on a novel technique using ultra-high resolution interferometry
measurements and, if successful, will result in the first commercial sensor
capable of the detection of small numbers of microbes without the need for
initial biological amplification.
MARKETS
Our objective is to capitalize on our technological developments from our
internal and contract research and development projects to become a leading
supplier of a new generation of intelligent, electro-mechanical and electro-
optic products for aerospace, transportation, industrial, utility and food
processing applications. These products, enabled by a revolution in the size,
weight and efficiency of machines, are designed to provide competitive
advantages in performance.
COMPETITION
A variety of companies compete in each of the areas in which we are
developing and selling products. To date, we have faced only limited
competition in providing research services, prototype development and custom
and limited quality manufacturing. We expect competition to intensify greatly
as commercial applications increase for our products under development. Some of
our competitors are well established and have substantial managerial,
technical, financial, marketing and product development resources competitive
with, and, in some instances, greater than ours. Additional companies, both
large and small, are entering the markets in which we compete. There can be no
assurance that we will be successful in such a competitive environment.
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PATENTS AND PROPRIETARY INFORMATION
We currently own 23 U.S. patents which expire between 2007 and 2017. We also
have 8 patent applications pending with the U.S. patent and trademark office.
As a qualifying small business, we have retained commercial ownership rights to
proprietary technology developed under various U.S. government contracts and
grants, including small business innovation research contracts. Our patent and
trade secret rights are of material importance to us and future prospects. No
assurance can be given to as to the issuance of additional patents or, if so
issued, as to their scope. Patents granted may not provide meaningful
protection from competitors. Even if a competitor's products were to infringe
patents owned by us, it would be costly for us to pursue our rights in an
enforcement action and would divert funds and resources which otherwise could
be used in our operations. Furthermore, there can be no assurance that we would
be successful in enforcing intellectual property rights or that we may not
infringe patent or intellectual of third parties. However, to date, we have not
been required to defend our patents or proprietary information against claims
by third parties.
Since we intend to enforce our patent, trademarks and copyrights and protect
our trade secrets, we may be involved from time to time in litigation to
determine the enforceability, scope and validity of these rights. This
litigation could result in substantial costs to us and divert efforts by our
management and technical personnel.
In addition to our patent rights, we also rely on treatment of our technology
as trade secrets and upon confidentiality agreements, which our employees are
required to sign, assigning to us all patent rights and technical or other
information developed by employees during their employment with us. Our
employees have also agreed not to disclose any trade secret or confidential
information without our prior written consent. Notwithstanding these
confidentiality agreements, there can be no assurance that other companies will
not acquire information that we consider proprietary.
RESEARCH AND DEVELOPMENT
Approximately $6,355,000 or 41% of our revenue during the year ended
September 30, 1999 was attributable to research and development activities
funded by commercial customers and U.S. government agency sponsors. Under the
agreements funded by the U.S. Government, the government retains a royalty-free
license to use the technology developed for government purposes and we retain
exclusive rights to the technology for commercial and industrial applications.
The rights to technology developed under contracts funded by commercial
customers are negotiated on a case by case basis.
We expended approximately $726,000, $346,000 and $2,489,000 on internally-
funded research and development during our years ended September 30, 1999, 1998
and 1997, respectively. During the year ended September 30, 1999, our most
concentrated effort was directed toward building the power inverter for a fuel
cell on-site power generation system. We continued our development efforts in
the electro-optics and sensor inspection systems. In addition, we successfully
tested a new version of our "Powersmart" alternator electronics package for
Delco Remy International. Beacon's 20C1000 cable/telecom flywheel system and
the introduction of our ISAM product accounted for the majority of the 1998 and
1997 internally-funded costs.
GOVERNMENT REGULATION
We have entered into contracts, subcontracts and grants with the U.S.
government and its agencies which require compliance with applicable U.S.
government regulations, including regulations with respect to bidding on
proposals and billing practices. In the event that the U.S. government or its
agencies conclude that we have not adhered to federal regulations, any
contracts to which we are a party could be canceled. We could be prohibited
from bidding on future contracts which could materially adversely affect our
business. All payments for work performed on contracts with agencies of the
U.S. government are subject to adjustment upon audit by the U.S. government
defense contract audit agency, the general accounting office and other
agencies. We could also be required to disgorge any payments received from U.S.
government agencies if we are found to have violated federal regulations.
The commercialization of our technologies for use in various industries may
also be affected by federal and state legislative and regulatory changes
affecting such industries.
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MANUFACTURING AND SUPPLIERS
If we are successful in obtaining market penetration of our products, we will
be required to deliver large volumes of quality products or components to our
customers on a timely basis at reasonable costs. When necessary, we intend to
seek to supplement our manufacturing capabilities by establishing relationships
with manufacturing organizations to deliver large volumes of our products until
such time as we can develop our own manufacturing expertise and capacity. No
assurance can be given that we will be able to successfully establish
relationships with third party manufacturing organizations or, if such
relationships are established, that they will be successful.
The principal materials and supplies in our products are available from
several commercial sources, and we do not depend on any single source for a
significant portion of our materials or supplies.
BACKLOG
Our backlog consists primarily of research and development contracts and
orders for multi-chip modules, hybrid and motor products. At September 30,
1999, the backlog was approximately $7,300,000 for work to be performed and
products to be shipped during the year ending September 30, 2000 and beyond.
Many of our contracts and sales orders may be canceled at any time with limited
or no penalty. In addition, contract awards may be subject to funding approval
from the U.S. government and commercial entities, which involves political,
budgetary and other considerations over which we have no control. Our backlog
at September 30, 1998 was approximately $10,000,000.
SIGNIFICANT CUSTOMERS
Although we have been developing applications of our technology for both
commercial and government markets, a large percentage of our revenue is from
the U.S. department of defense, department of energy and NASA contracts,
subcontracts and grants. The majority of these contracts, subcontacts and
grants were awarded through the small business innovation research program.
Although we believe that the majority of our revenue in the future will result
from commercial applications of our technologies, a significant portion of our
business in the next few years will likely continue to involve research and
development for the U.S government and its agencies. Consequently, a portion of
future revenue may be subject to funding approval from Congress, which involves
political, budgetary, and other considerations which we have no control. To
date, we have not been adversely affected by reductions in defense spending. We
believe that government funding for the areas of our research and development
activities will continue without reduction. However, we cannot assure you that
this funding will not be reduced in the future. Any reduction could materially
adversely affect our business. In addition, many of our U.S. government
contracts may be canceled at any time by the U.S. government with limited or no
penalty.
EMPLOYEES
At September 30, 1999, we employed a total of 177 people: 171 on a regular
full-time basis, 4 on a regular part-time basis and 2 student interns. In
addition, at September 30, 1999, Beacon employed a total of 27 people; 26 on a
regular full-time basis and 1 on a regular part-time basis. Some of our
employees are affiliated with large universities located in the greater Boston
area. Approximately 59 persons are employed in engineering, 81 in
manufacturing, 28 in administration and 9 in sales and marketing. None of these
employees are represented by a union. We believe that our relations with our
employees are satisfactory.
Our success will depend, in large part, upon our ability to attract, motivate
and retain highly qualified scientists and engineers, as well as highly skilled
and experiences management and technical personnel. Competition for these
personnel is intense, and there can be no assurance that we will be successful
in attracting, motivating or retaining key personnel.
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ITEM 2. PROPERTIES
We lease 45,820 square feet of office and laboratory space at 161 First
Street, Cambridge, Massachusetts under a primary lease expiring on October 31,
2003, an additional 8,719 square feet of office and laboratory space located at
6245 East Broadway Boulevard, Suite 350, Tucson, Arizona under a primary lease
expiring on March 31, 2001 and an additional 1,561 square feet of laboratory
space located at 984 Southford Road, Middlebury, Connecticut under a primary
lease expiring on February 28, 2000. We also leases approximately 14,757 square
feet of manufacturing space at 530 Turnpike Street, North Andover,
Massachusetts under a primary lease expiring on July 31, 2002, approximately
17,000 square feet of manufacturing space at 121 Higgins Street, Worcester,
Massachusetts under a primary lease expiring on March 31, 2003 and
approximately 15,300 square feet of manufacturing space at 165 Cedar Hill
Street, Marlborough, Massachusetts under a primary lease expiring on October
31, 2005 .
Effective November 5, 1997, we entered into an agreement to sub-lease 8,930
square feet at 161 First Street to a third party, and effective July 15, 1998,
we entered into an agreement to sub-lease an additional 3,952 square feet at
161 First Street to the same third party.
Effective February 8, 1999, we entered into an agreement to sub-lease
approximately 2,889 square feet at 6245 East Broadway Boulevard, Suite 350,
Tucson, Arizona to a third party. Effective July 29, 1999, we entered into an
agreement to sub-lease the remaining 5,830 square feet at the Tucson, Arizona
location to another third party.
We believe our facilities are adequate for our current needs and that
adequate facilities for expansion, if required, are available.
ITEM 3. LEGAL PROCEEDINGS
On October 15, 1997, we received a letter from the Department of the Air
Force stating that it may terminate for default a contract between the Air
Force and us for development of a satellite component, unless perceived
performance problems were cured. In the event of an actual default, we could be
liable for extra costs incurred by the United States government in developing
the component. We have had several discussions with the Air Force in order to
resolve the issue. We informed the Air Force contracting officer of our belief
that a termination for default is not warranted.
On December 15, 1997, the Air Force issued a "Show Cause Notice" to us
requiring us to demonstrate to the Air Force why the contract should not be
terminated "for cause." On December 31, 1997, we responded to the Air Force's
"Show Cause Notice, explaining our view that we should not be terminated for
cause.
As a related matter to the Air Force contract issue, on December 15, 1997, we
received a subpoena from the United States Attorney for the District of
Arizona. The subpoena sought documents relating to USAF Program/Contract No.
F290601-96-C-145. On January 30, 1998 and February 4, 1998, we produced the
documents responsive to the subpoena. In addition, we have made several of our
current and former employees available to interview with officials from the Air
Force and the United States Attorney's office. We are currently awaiting the
United States Attorney's decision whether to proceed with any further
investigation.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the year covered by this report through the solicitation of proxies
or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq national market under the trading
symbol SATC. As of December 15, 1999 there were approximately 189 stockholders
of record.
For the periods reported below, the following table sets forth the range of
high and low bid quotations for the common stock as reported by Nasdaq. Such
quotations represent inter-dealer quotations without adjustment for retail
markups, markdowns, or commissions and may not represent actual transactions.
As of December 15, 1999 the closing price for our common stock, as reported by
Nasdaq, was $8.125.
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FISCAL YEAR FISCAL YEAR
1999 1998
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BID BID
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HIGH LOW HIGH LOW
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First Quarter............................... $ 7.500 $5.063 $14.375 $ 8.750
Second Quarter.............................. 5.688 4.750 14.250 10.875
Third Quarter............................... 9.875 4.563 12.625 8.000
Fourth Quarter.............................. 10.125 7.563 9.188 5.000
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DIVIDEND POLICY
We have not paid dividends to our stockholders since our inception and do not
anticipate paying cash dividends in the foreseeable future. We intend to
reinvest earnings, if any, in the development and expansion of our business.
Declaration of dividends on our common stock or preferred stock will depend
upon, among other things, future earnings, our operating and financial
condition, our capital requirements and general business conditions.
RECENT SALES OF UNREGISTERED SECURITIES
On November 11, 1998, we issued to certain individuals, who formerly held
warrants issued by us in connection with the our initial public offering in
November 1992, warrants to purchase up to 67,125 shares of our common stock at
an exercise price of $11.43 per share. These warrants expired on November 11,
1999 unexercised and were issued in reliance upon the exemptions from
registration under Section 4(2) of the Securities Act or Regulation D
promulgated thereunder, relative to sales by an issuer not involving any public
offering.
On January 4, 1999, we issued 100,000 shares of our common stock to two
individuals in connection with the purchase by K&D MagMotor Corp., a wholly
owned subsidiary of us, of certain assets and the assumption of certain
liabilities of Inductive Components, Inc. and Lighthouse Software, Inc. These
shares were issued in reliance upon the exemptions from registration under
Section 4(2) of the Securities Act or Regulation D promulgated thereunder,
relative to sales by an issuer not involving any public offering.
On March 9, 1999, we issued 42,860 shares of our common stock to an escrow
agent in connection with a consulting agreement entered into by us and Mr.
Albert R. Snider pursuant to which Mr. Snider will perform such consulting,
advisory and related services as we may reasonably request from time to time
between October 1, 1999 and October 1, 2002. These shares were issued in
reliance upon the exemptions from registration under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, relative to sales by an
issuer not involving any public offering.
On April 7, 1999, we issued non-qualified stock options to Continental
Capital & Equity Corporation to purchase in consideration of Continental
Capital's consulting services rendered to us 50,000 shares of the our common
stock at $5.75 per share and 50,000 shares of our common stock at an exercise
price of $6.75 per
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share. As of December 20, 1999, Continental Capital has received 50,000 shares
of our common stock at an exercise price of $5.75 per share and 10,000 shares
of our common stock at an exercise price of $6.75 per share upon exercise of
these options. The remaining options expire on April 7, 2000 and were issued in
reliance upon the exemptions from registration under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, relative to sales by an
issuer not involving any public offering.
On August 25, 1999, we issued 8,000 shares of our series A redeemable
convertible preferred stock, $0.01 par value per share, to Brown Simpson
Strategic Growth Funds for an aggregate price of $8 million. The series A
redeemable convertible preferred stock is initially convertible into 1,025,641
shares of our common stock at an initial conversion price of $7.80 per share.
Under certain circumstances, we have the option to cause the series A preferred
stock to convert into shares of common stock or otherwise be redeemed. At the
end of seven years, we must redeem any remaining shares of the series A
redeemable convertible preferred stock for cash or, at our option, common stock
with a then fair market value equal to the original purchase price of the
series A redeemable convertible preferred stock. The obligation at seven years
to redeem any remaining shares of the series A redeemable convertible preferred
stock accelerates to August 25, 2003 in the event the average bid price of our
common stock for the 60 "trading day" period immediately preceding the fourth
anniversary is $5.00 per share or less. In connection with the transaction, we
also issued to Brown Simpson warrants to purchase up to 675,000 additional
shares of common stock at an exercise price of $8.54 per share. These warrants
expire on August 25, 2003. The series A preferred stock and these warrants were
issued in reliance upon the exemptions from registration under Section 4(2) of
the Securities Act or Regulation D promulgated thereunder, relative to sales by
an issuer not involving any public offering.
On August 25, 1999, in connection with the Brown Simpson financing, we issued
to H.C. Wainwright & Co., Inc., Matthew Balk and Scott Weisman warrants to
purchase up to 18,000, 61,200 and 40,800 shares, respectively, of our common
stock at an exercise price of $7.80 per share. These warrants have a call
option value of $12.81 per share. These warrants expire on August 25, 2003 and
were issued in reliance upon the exemptions from registration under Section
4(2) of the Securities Act or Regulation D promulgated thereunder, relative to
sales by an issuer not involving any public offering.
On October 21, 1999, in connection with our acquisition of Ling Electronics,
Inc. and Ling Electronics, Ltd., we issued 770,000 shares of our common stock
to Mechanical Technology Incorporated, the parent entity of the two acquired
entities. The common stock was issued in reliance upon the exemptions from
registration under Section 4(2) of the Securities Act or Regulation D
promulgated thereunder, relative to sales by an issuer not involving a public
offering.
On October 21, 1999, in connection with an investment, we issued 370,800
shares of our common stock to Mechanical Technology, Inc. In addition, we
issued to Mechanical Technology Incorporated a warrant to purchase 36,000
shares of our common stock at an exercise price of $8.80 per share. This
warrant expires on October 21, 2003. In connection with this transaction, we
also received a warrant to purchase 36,000 shares of the common stock of
Mechanical Technology Incorporated at an exercise price of $37.66 per share and
$2,570,000 in cash. This warrant expires on October 21, 2003. Both the common
stock and the warrant were issued in reliance upon the exemptions from
registration under Section 4(2) of the Securities Act or Regulation D
promulgated thereunder, relative to sales by an issuer not involving any public
offering.
On November 16, 1999, we issued 578,761 shares of our common stock to
Northrop Grumman Corporation in exchange for certain intellectual property,
equipment and other assets which were used by Northop Grumman Corporation in
connection with its power electronics products business. In addition, we issued
to Northrop Grumman Corporation a warrant to purchase up to 100,000 shares of
our common stock at an exercise price of $9.725 per share. This warrant expires
on December 31, 2006. Both the common stock and the warrant were issued in
reliance upon the exemptions from registration under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, relative to sales by an
issuer not involving any public offering.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the year ended
September 30, 1999 has been derived from our financial statements which have
been audited by Arthur Andersen LLP, independent public accountants. The
selected consolidated financial data set forth below for the year ended
September 30, 1998, 1997, 1996 and 1995 has been derived from our financial
statements which have been audited by PricewaterhouseCoopers LLP, independent
accountants. This information should be read in conjunction with the
consolidated financial statements and notes thereto set forth elsewhere in this
Annual Report on Form 10-K.
STATEMENT OF OPERATIONS DATA:
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FOR THE YEARS ENDED SEPTEMBER 30,
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1999 1998 1997 1996 1995
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 15,477,881 $ 15,485,923 $ 12,466,335 $ 9,384,588 $ 11,475,427
------------ ------------ ------------ ----------- ------------
Cost of revenue......... 15,339,218 10,991,202 10,071,150 6,394,830 9,493,963
Selling, general and ad-
ministrative expenses.. 8,818,706 4,787,070 6,197,951 5,569,285 2,511,999
Research and development
expenses............... 726,187 346,161 2,489,207 893,628 1,937,241
Goodwill amortization... 371,087 290,957 120,467 -- --
------------ ------------ ------------ ----------- ------------
Total operating ex-
penses............... 25,255,198 16,415,390 18,878,775 12,857,743 13,943,203
------------ ------------ ------------ ----------- ------------
Operating loss.......... (9,777,317) (929,467) (6,412,440) (3,473,155) (2,467,776)
Loss from investment in
Beacon Power Corpora-
tion................... (2,357,679) (3,541,817) -- -- --
Other losses............ (150,464) -- -- -- --
Interest income......... 42,287 179,861 283,131 465,640 452,368
Interest expenses....... (115,692) (10,206) (13,933) (1,800) (1,334)
------------ ------------ ------------ ----------- ------------
Net loss before income
taxes.................. (12,358,865) (4,301,629) (6,143,242) (3,009,315) (2,016,742)
Provision/(benefit) for
income taxes........... -- 3,872 -- (144,479) (806,697)
------------ ------------ ------------ ----------- ------------
Net loss................ $(12,358,865) $ (4,305,501) $ (6,143,242) $(2,864,836) $ (1,210,045)
------------ ------------ ------------ ----------- ------------
Accretion of redeemable
preferred stock dis-
count.................. (50,904) -- -- -- --
------------ ------------ ------------ ----------- ------------
Net loss attributable to
common stockholders.... $(12,409,769) $ (4,305,501) $ (6,143,242) $(2,864,836) $ (1,210,045)
============ ============ ============ =========== ============
Net loss per share,
basic and diluted...... $ (1.35) $ (.48) $ (.77) $ (.39) $ (.17)
============ ============ ============ =========== ============
Weighted average number
of common shares, basic
and diluted............ 9,176,041 8,956,671 7,959,309 7,285,756 7,079,855
============ ============ ============ =========== ============
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total assets............ $17,400,374 $18,166,590 $20,709,438 $17,277,517 $19,792,966
Total long term obliga-
tions, net of current
portion................ $ 63,606 $ 239,209 $ 322,897 -- --
Total liabilities....... $ 3,060,207 $ 2,752,583 $ 2,630,301 $ 1,178,349 $ 1,040,251
Working capital......... $ 7,844,857 $ 8,501,927 $10,595,294 $11,011,170 $15,615,645
Stockholders' equity.... $ 9,446,055 $15,414,007 $18,079,137 $16,099,168 $18,752,715
Dividends per share..... -- -- -- -- --
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We were organized as a Massachusetts corporation in February 1985 and
reincorporated in Delaware in 1992. We design, develop and manufacture
intelligent, electro-mechanical products for aerospace, transportation,
industrial and utility applications. We also design, develop and manufacture
power and energy management products for telecommunications, silicon wafer
manufacturing, factory automation, aircraft and automotive applications. Our
electro-mechanical products are being developed for a wide variety of U.S.
government and commercial markets. For the government, our electro-mechanical
systems provide for applications ranging from satellite attitude control to
high speed drives for shipboard systems. In the transportation segment, we are
developing electric and hybrid electric drive components, auxiliary power units
and advanced steering, alternator and starter/generator systems. We are working
with major equipment producers to develop process equipment drives, high speed
and precision machine tools, manipulators and machinery isolation equipment.
Our electro-mechanical systems may offer advantages to the utility industry in
power generation, energy storage and power quality. In the consumer market, we
are developing variable speed motors for refrigeration equipment and other
long-life, high-efficiency machinery.
It is our strategy to continue to expand development of our technologies for
use in commercial business applications and to seek the acquisition of
businesses, products, assets and technologies that complement or augment our
existing businesses, products, assets and technologies.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains or incorporates forward-looking
statements within the meaning of section 27A of the Securities Act of 1933 and
section 21E of the Securities Act of 1934. You can identify these forward-
looking statement by our use of the words "believes," "anticipates," "plans,"
"expects," "may," "will," "intends," "estimates," and similar expressions,
whether in the negative or in the affirmative. Although we believe that these
forward-looking statements reasonably reflect our plans, intentions and
expectations. Our actual results could differ materially from the plans,
intentions and expectations disclosed in the forward-looking statements we
make. We have included important factors in the cautionary statements below
(particularly under the heading "Factors Affecting Future Results") that we
believe could cause our actual results to differ materially from the forward-
looking statements that we make. We do not intend to update information
contained in any forward-looking statement we make.
RESULTS OF OPERATIONS
During 1999, we initiated several actions to advance the development and
market introduction of new products, to establish a product manufacturing base
capable of supplying key components of our products, and to improve our future
profitability. The effects of these actions on our financial performance during
1999 are discussed below.
11
<PAGE>
The following table sets forth, for the periods indicated, the percentage of
revenue for certain items in our Statement of Operations for each period:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
SEPTEMBER 30,
-------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenue.................................................... 100.0% 100.0% 100.0%
Cost of revenue............................................ 99.1 71.0 80.8
Selling, general and administrative expenses............... 57.0 30.9 49.7
Research and development expenses.......................... 4.7 2.2 20.0
Goodwill amortization...................................... 2.4 1.9 1.0
Total operating expenses (excluding cost of revenue)....... 64.1 35.0 70.7
Operating loss............................................. (63.2) (6.0) (51.5)
Loss from investment in Beacon Power Corporation........... (15.2) (22.9) --
Other losses............................................... (1.0) -- --
Interest income............................................ 0.3 1.2 2.3
Interest expense........................................... (0.7) (0.1) (0.1)
Net loss before income taxes............................... (79.8) (27.8) (49.3)
Provision for income taxes................................. -- -- --
Net loss................................................... (79.8) (27.8) (49.3)
</TABLE>
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1998
Revenue. Revenue decreased by approximately $8,000 or 0.1% from 1998 to 1999.
The decrease is due to a decrease in revenue on research and development
contracts of approximately $1,610,000 offset by an increase of revenue from the
sale of manufactured products of approximately $1,602,000.
Cost of revenue. Cost of revenue increased approximately $4,348,000 or 39.6%
from 1998 to 1999. The increase is due to the increase of cost of revenue from
the sale of manufactured products of approximately $4,037,000 and an increase
in cost on research and development contracts of approximately $311,000. The
Company determined that approximately $870,000 of additional reserves were
required for potentially obsolete and excess inventory at September 30, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $4,032,000 or 84.2% from 1998
to 1999. The increase is primarily due to compensation expense related to the
issuance of stock options and warrants to non-employees with a fair value, as
determined by using the Black-Scholes option pricing model, of approximately
$2,209,000. We also recorded additional reserves for unbilled contract costs
and accounts receivable of approximately $689,000 and $345,000, respectively.
Research and development expenses. Research and development expenses
increased approximately $380,000 or 109.8% from 1998 to 1999. The increase is
primarily the result of our effort toward building the power inverter for a
fuel cell on-site power generation system. We also continued our development
efforts in the electro-optics and sensor inspection systems. In addition, we
successfully tested a new and improved version of its "Powersmart" alternator
electronics package for Delco Remy International.
Goodwill amortization. Goodwill amortization increased approximately $80,000
or 27.5% from 1998 to 1999. This was primarily the result of the acquisition of
Inductive Components, Inc. and Lighthouse Software, Inc. in January 1999.
Loss from Investment in Beacon Power Corporation. Loss from investment in
Beacon Power Corporation decreased approximately $1,184,000 or 33.4% from 1998
to 1999. Effective October 23, 1998, our share of Beacon's losses was reduced
from 100% to 50%. Effective April 1, 1999, our share of Beacon's losses was
reduced from 50% to 33%.
12
<PAGE>
At September 30, 1999, we have accrued losses of approximately $203,000
relating to our share of Beacon losses incurred through September 30, 1999,
which we are required to fund pursuant to the terms of a note and warrant
purchase agreement. In future periods, we will continue to record our share of
Beacon's losses up to the amount of our actual and committed investment. It is
anticipated that substantially all of our remaining and committed investment of
approximately $131,000 in Beacon will be recorded as a loss during the quarter
ending December 31, 1999.
Other losses. Other losses of approximately $150,000 during 1999 was
primarily the result of the sale of marketable securities.
Interest income. Interest income decreased approximately $138,000 or 76.5%
from 1998 to 1999. The decrease is primarily the result of a decrease of
interest income associated with marketable securities.
Interest expense. Interest expense increased approximately $105,000 or
1033.6% from 1998 to 1999. The increase is primarily the result of interest
expense associated with advances on the discretionary demand line of credit.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1997
Revenue. Revenue increased by approximately $3,020,000 or 24.2% from 1997 to
1998. The increase is due to the increase of revenue from the sale of
manufactured products offset by a decrease in revenue on research and
development contracts. During 1997, we acquired K&D MagMotor Corporation
("MagMotor") and Film Microelectronics, Inc. ("FMI") as wholly-owned
subsidiaries which provided for additional revenue of approximately $476,000
and $3,316,000, respectively, for the year ended September 30, 1998. These
increases in revenue were partially offset by a decrease in revenue of
approximately $232,000 related to research and development contracts.
Cost of revenue. Cost of revenue increased approximately $920,000 or 9.1%
from 1997 to 1998. The increase is primarily due to the addition of cost of
revenue associated with MagMotor and FMI of approximately $656,000 and
$2,135,000, respectively. These increases in cost of revenue were offset by a
decrease in cost of revenue on research and development contracts of
approximately $961,000.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased approximately $1,411,000 or 22.8% from 1997
to 1998. The decrease is the result of consolidating the Tucson Space Division
into the Technology Center, the recapitalization of Beacon and the continued
management of selling, general and administrative costs. During 1997, we
established a reserve of approximately $498,000 for expenses, primarily lease
cancellation costs relating to consolidating the Tucson Space Division into the
Technology Center. At September 30, 1998, we had a reserve of $100,000,
primarily relating to the lease cancellation costs. During 1997, we formed
Beacon, a wholly-owned subsidiary, to continue the work of its Energy Systems
Division. During a recapitalization of Beacon in December 1997, we converted a
significant portion of our ownership of Beacon to convertible preferred stock.
We retained approximately 19.9% of Beacon's outstanding voting stock. Although
we owned less than 20% of the outstanding voting stock of Beacon, based on
other factors, there was a presumption that we had the ability to exercise
significant influence, and the equity method was required for the fair
presentation subsequent to this recapitalization. Our share of losses from
Beacon is shown as a single amount in the statement of operations, "Loss from
Investment in Beacon Power Corporation." These decreases were partially offset
by increases of approximately $225,000 and $813,000 of expenses related to
MagMotor and FMI, respectively.
Research and development expenses. Internally funded research and development
expenses decreased approximately $2,143,000 or 86.1% from 1997 to 1998. During
1997, we recognized certain capitalized product development costs, in the
amount of approximately $2,593,000, rather than amortizing these costs over
future years' revenue based on the uncertainty of future revenue. These costs
related primarily to Beacon's 20C1000 Cable/Telecom Flywheel system development
efforts and the ISAM product. This decrease was partially offset by an increase
in cost due to the continued development of the flywheel energy storage system
incurred by Beacon for the period from October 1, 1997 to December 24, 1997.
13
<PAGE>
Goodwill amortization. Goodwill amortization increased approximately $170,000
or 141.5% from 1997 to 1998. The increase is the result of a full year of
goodwill amortization related to goodwill in connection with the acquisitions
of MagMotor and FMI completed in 1997.
Loss from Investment in Beacon Power Corporation. On May 20, 1997, we formed
our subsidiary, Beacon, through a strategic partnership with Duquesne
Enterprises, a subsidiary of DQE, Inc., to manufacture and distribute our
flywheel energy storage systems. Duquesne Enterprises made an initial
investment in us totaling $5,000,000 to fund flywheel product development.
Beacon assumed the activities of our Energy Systems Division which was formed
in October 1995 to focus on the product development and marketing of flywheel
inertial battery systems for such markets as utilities, cable television and
telecommunications, where uninterruptible power supplies (UPS) are critical to
maintaining services. In December 1997, Beacon obtained equity financing from
private investors and we converted a significant portion of our ownership of
Beacon to convertible preferred stock. We retained approximately 19.9% of
Beacon's outstanding voting stock. On October 23, 1998, Beacon completed a
$4,750,000 private placement of equity securities with Perseus Capital L.L.C.,
Duquesne Enterprises and Micro Generation Technology Fund, L.L.C. Beacon will
utilize the proceeds from the private placement toward the completion of the
commercialization of the 20C1000 Cable/Telecom Flywheel System. Beacon's focus
is limited to providing flywheel energy storage products for stationary
terrestrial applications.
Although we owned less than 20% of the outstanding voting stock of Beacon,
based on other factors, there was a presumption that we had the ability to
exercise significant influence, and the equity method of accounting for this
investment was required for the fair presentation subsequent to this
recapitalization. This method of accounting required us to show our share of
losses from Beacon as a single amount in the statement of operations, "Loss
from Investment in Beacon Power Corporation."
Interest income. Interest income decreased approximately $103,000 or 36.5%
from 1997 to 1998. The decrease is primarily the result of a decrease of
interest income associated with marketable securities.
Interest expense. Interest expense decreased approximately $4,000 or 26.7%
from 1997 to 1998. The decrease is primarily the result of a reduction of
outstanding debt during the year ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, our cash and cash equivalents were approximately
$2,533,000, an increase of approximately $1,331,000 from September 30, 1998.
Cash used in operating activities during 1999 was approximately $5,631,000 as
compared to cash used in operating activities of approximately $2,383,000
during 1998. This was primarily the result of an increase in operating expenses
and inventory related to the introduction of new standard products.
Cash used in investing activities, for the year ended September 30, 1999, was
approximately $1,435,000. This relates primarily to the cash paid for the
acquisition of the assets of Inductive Components, Inc., Lighthouse Software,
Inc. and certain assets of HyComp of approximately $996,000, patent
expenditures of approximately $102,000 and capital expenditures of
approximately $220,000.
In addition, we purchased from Beacon two notes each with a principal amount
of $333,333.33 ("Bridge Notes") plus accrued interest due and payable on the
earlier of (i) the date of conversion as defined, or (ii) upon the occurrence
of an event of default. The notes bears interest at 12 1/2% per annum; provided
that if a certain event does not occur within six months such interest rate
shall increase effective February 2, 2000 to 15% per annum pursuant to the
terms of a note and warrant purchase agreement. Interest on the Bridge Note is
payable on the Maturity Date.
Pursuant to the terms of the note and warrant purchase agreement, we
purchased an additional note with a principal amount of $333,333.33 and a
warrant to purchase a number of shares of Beacon Class E Preferred Stock on
October 19, 1999.
This cash used by investing activities was partially offset by the proceeds
from the sale and maturity of marketable securities of approximately $580,000.
14
<PAGE>
Cash provided by financing activities as of September 30, 1999, was
approximately $8,397,000. During August 1999, we completed an $8 million
private placement of 8,000 shares of our series A redeemable convertible
preferred stock, $0.01 par value per share, with Brown Simpson Strategic Growth
Funds. The series A redeemable convertible preferred stock is initially
convertible into 1,025,641 shares of our common stock, $0.01 par value per
share, at an initial conversion price of $7.80 per share. The series A
redeemable convertible preferred stock is also subject to certain dilution
protection for a period of three years. Under certain circumstances, we have
the option to cause the series A preferred stock to convert into shares of
common stock or otherwise be redeemed. At the end of seven years, we must
redeem any remaining shares of the series A redeemable convertible preferred
stock for cash or, at our option, common stock with a then fair market value
equal to the original purchase price of the series A redeemable convertible
preferred stock. The obligation at seven years to redeem any remaining shares
of the series A redeemable convertible preferred stock accelerates to the
fourth anniversary of the closing in the event the average bid price of our
common stock for the 60 "trading day" period immediately preceding the fourth
anniversary is $5.00 per share or less. In the event of certain change in
control events regarding us or our common stock is delisted, Brown Simpson has
the right to cause the series A preferred stock to be redeemed. In connection
with the transaction, Brown Simpson also received warrants to purchase up to
675,000 additional shares of common stock at $8.54 per share. The Brown Simpson
Warrants expire on August 25, 2003. H.C. Wainwright & Co., Inc. served as
placement agent for the transaction and received a commission of $560,000 and
warrants to purchase 120,000 shares of our common stock at $7.80 per share.
These warrants expire on August 25, 2003. H.C. Wainwright will also receive a
future fee in the amount of 4% of any monies received by us upon the exercise
of the Brown Simpson Warrants.
During 1999, we granted options to purchase 755,000 shares of our common
stock to consultants at prices ranging from $5.75 to $10.00 per share. As of
December 20, 1999, the consultants exercised options to purchase 450,000,
50,000 and 10,000 shares at exercise prices of $7.00, $5.75 and $6.75 per
share, respectively. As of September 30, 1999, we received approximately
$1,333,000 of cash and the remaining amount due from the shareholder is
classified within stockholders' equity as amounts receivable from exercise of
stock options.
We have a $3,000,000 demand discretionary line of credit with a bank. The
line of credit bears interest at the bank's prime rate plus 1 1/2% (9 3/4% as
of September 30, 1999). Available borrowings are based on a formula of eligible
accounts receivable and inventory. During 1999, we borrowed approximately
$2,657,000 against the line of credit. At September 30, 1999, there were no
amounts outstanding under the line of credit.
We anticipate that existing cash resources, cash flow from operations,
proceeds from exercise of stock options, the availability of our demand
discretionary line of credit and the outside funding by Mechanical Technology
Incorporated will be sufficient to fund our operations at least through
September 30, 2000. Our ability to generate cash from operations depends upon,
among other things, revenue growth, our credit and payment terms with vendors,
the collection of accounts receivable, and the availability of our demand
discretionary line of credit. If such sources of cash prove insufficient or it
is otherwise unable to obtain necessary third party funding through the
issuance of debt or equity securities or otherwise, we will be required to make
changes in its operations, sell assets or otherwise seek protection from its
creditors. Any of these actions will likely have a material adverse effect on
our business.
We have currently in effect a stock repurchase program which authorizes us to
repurchase up to 5% of our outstanding common stock. Under the repurchase
program, we are authorized to purchase shares of our common stock on the open
market from time to time, depending on market conditions. To date, 44,500
shares have been purchased by us under the repurchase program.
FACTORS AFFECTING FUTURE RESULTS
Our future results remain difficult to predict and may be affected by a
number of factors which could cause actual results to differ materially from
forward-looking statements contained in this Annual Report on Form 10-K and
presented elsewhere by management from time to time. These factors include
business
15
<PAGE>
conditions within the aerospace, transportation, industrial, utility,
telecommunications, silicon wafer manufacturing, factory automation, aircraft
and automotive industries and the world economies as a whole, and competitive
pressures that may impact research and development spending. Our revenue growth
is dependent on technology developments and contract research and development
for both the government and commercial sectors and no assurance can be given
that such investments will continue or that we can successfully obtain such
funds. In addition, our future growth opportunities are dependent on the
introduction of new products that must penetrate aerospace, transportation,
industrial, utility, telecommunications, silicon wafer manufacturing, factory
automation, aircraft and automotive market segments. No assurance can be given
that new products can be developed, or if developed, will be successful; that
competitors will not force prices to an unacceptably low level or take market
share from the us; or that we can achieve or maintain profits in these markets.
Because of these and other factors, past financial performances should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that our
stock price frequently experiences significant volatility.
On October 23, 1998, we granted the purchasers of Beacon class D preferred
stock the right to cause us, under circumstances described below, to purchase
all of the Beacon's shares issued to those purchasers and, upon exercise of
this "put right," we must pay $4,750,000 in our common stock, valued at the
average fair value for the fifteen trading days before and after notice of
exercise of the put right. The put right is exercisable within sixty days of
the second, third, forth and fifth anniversary of the closing date of the
transaction, upon certain events of bankruptcy of Beacon and upon the
occurrence of certain going private transactions involving us. If the put right
were to be exercised, we would most likely recognize a loss equal to the value
of our common stock issued upon exercise of the put right.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 (SFAS No. 137), "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133," which defers the effective date of Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities" to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a new
model for accounting for derivatives and hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure these instruments at fair value. We
will adopt SFAS No. 133 beginning in the first quarter of the fiscal year
ending September 30, 2001.
Adoption of SFAS No. 133 is not expected to have a material impact to our
consolidated financial position, results of operations or cash flows.
EFFECTS OF INFLATION
We believe that inflation and changing prices over the past three years have
not had a significant impact on our net revenue or on income from continuing
operations.
EFFECTS OF YEAR 2000
We have assessed our software systems and internal operations. We believe
that we have resolved all potential Year 2000 issues and problems and, to the
best of our knowledge, our systems are Year 2000 compliant. However, if our
systems do not operate properly with respect to date calculations involving the
Year 2000 and subsequent dates, we could incur unanticipated expenses to remedy
any problems, which could seriously harm our business. We may also experience
reduced sales of our products as current or potential customers reduce their
budgets due to increased expenditures on their own Year 2000 compliance
efforts.
Additionally, we rely on information technology supplied by third parties and
our other business partners, including third-party distributors and
consultants, who are also heavily dependent on information technology systems
and on their own and third-party vendor systems. Year 2000 problems experienced
by us or any of
16
<PAGE>
these third parties could materially adversely affect our business. Prior
versions of our products may contain technology from third parties that is not
Year 2000 compliant.
Given the pervasive nature of the Year 2000 problem, we cannot guarantee that
disruptions in other industries and market segments will not adversely affect
our business. Moreover, our costs related to Year 2000 compliance, which thus
far have not been material, could ultimately be significant. In the event that
we experience unforeseen disruptions as a result of the Year 2000 problem, our
business could be seriously affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We maintain an investment portfolio consisting of debt securities of various
issuers, types and maturities. These securities are classified as available for
sale, and consequently are recorded on the balance sheet at market value, with
the unrealized gain or loss recorded through the equity section. These
instruments are not leveraged, and are not held for purposes of trading.
The following table summarizes derivative financial instruments included in
marketable securities held by us at September 30, 1998, which are sensitive to
changes in interest rates:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
----------------------------
TOTAL TOTAL
FACE FAIR
DESCRIPTION 1999 2000 2001 2002 2003 THEREAFTER VALUE VALUE
- ----------- ---- ---- ---- ---- ---- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floater.................. $350,000 $350,000 $325,500
Average Interest Rate.. 5.7% 5.7% 5.7% 5.7% 5.7% 5.7%
CMO...................... $ 70,614 $ 70,614 $ 73,492
Average Interest Rate.. 5.4% 5.4% 5.4% 5.4% 5.4% 5.4%
Structured Notes......... $250,000 $250,000 $258,439
Average Interest Rate.. 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
</TABLE>
17
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. 19
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1999 and 1998........... 21
Consolidated Statements of Operations for the Years Ended September 30,
1999, 1998, and
1997................................................................... 22
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended September 30, 1999, 1998, and 1997............................... 23
Consolidated Statements of Cash Flows for the Years Ended September 30,
1999, 1998, and 1997................................................... 24
Notes to Consolidated Financial Statements.............................. 25
Schedule II; Valuation and Qualifying Accounts for the Years Ended Sep-
tember 30, 1999, 1998, and 1997........................................ 47
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SatCon Technology Corporation:
We have audited the accompanying consolidated balance sheet of SatCon
Technology Corporation and its subsidiaries (a Delaware corporation) as of
September 30, 1999 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year then ended. 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 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 SatCon Technology Corporation
and its subsidiaries as of September 30, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
December 27, 1999
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of SatCon Technology Corporation:
In our opinion, the consolidated balance sheet as of September 30, 1998 and
the related consolidated statements of operations, of changes in stockholders'
equity and of cash flows for each of the two years in the period ended
September 30, 1998 present fairly, in all material respects, the financial
position, results of operations and cash flows of SatCon Technology Corporation
and its subsidiaries at September 30, 1998 and for each of the two years in the
period ended September 30, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule for the years ended September 30, 1998 and 1997 presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. We have
not audited the consolidated financial statements of SatCon Technology
Corporation for any period subsequent to September 30, 1998.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 17, 1998
20
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,533,072 $ 1,201,610
Marketable securities............................. -- 657,431
Accounts receivable, net of allowance of $386,686
and $51,836 at September 30, 1999
and 1998, respectively........................... 2,799,143 3,347,405
Unbilled contract costs and fees, net of allow-
ance of $746,121 and $57,611 at September 30,
1999
and 1998, respectively........................... 1,462,201 1,196,318
Inventory......................................... 3,697,972 3,678,067
Prepaid expenses and other current assets......... 346,653 338,017
Amounts due from related party.................... 2,417 596,453
------------ ------------
Total current assets............................ 10,841,458 11,015,301
Property and equipment, net........................ 3,260,632 2,677,786
Intangibles, net................................... 3,194,609 2,967,988
Investment in Beacon Power Corporation............. -- 1,458,183
Other long-term assets............................. 103,675 47,332
------------ ------------
Total assets.................................. $ 17,400,374 $ 18,166,590
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 1,563,605 $ 1,447,897
Accrued payroll and payroll related expenses...... 479,888 352,701
Deferred revenue.................................. 113,179 197,930
Accrued losses from investment in Beacon Power
Corporation...................................... 202,829 --
Other accrued expenses............................ 620,874 368,252
Current portion of long-term debt................. 16,226 146,594
------------ ------------
Total current liabilities....................... 2,996,601 2,513,374
Long-term liabilities:
Long-term debt, net of current portion............ 33,871 221,462
Other long-term liabilities....................... 29,735 17,747
------------ ------------
Total long-term liabilities..................... 63,606 239,209
Commitments and contingencies (Note I)
Redeemable convertible preferred stock............. 4,894,112 --
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000 shares
authorized; 8,000 shares series A redeemable
convertible preferred stock issued and outstand-
ing at September 30, 1999 and none issued and
outstanding at September 30, 1998................ -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 9,617,009 and
9,018,549 shares issued at September 30, 1999
and 1998, respectively........................... 96,170 90,185
Additional paid-in capital........................ 37,074,161 28,377,718
Common stock held in escrow, at market value;
42,860 and 0 shares at September 30, 1999
and 1998, respectively........................... (428,600) --
Amounts receivable from exercise of stock op-
tions............................................ (1,816,667) --
Accumulated deficit............................... (25,229,305) (12,870,440)
Net unrealized losses on marketable securities,
net of tax effect................................ -- (10,380)
Treasury stock, at cost; 44,500 and 28,300 shares
at September 30, 1999 and 1998, respectively..... (249,704) (173,076)
------------ ------------
Total stockholders' equity...................... 9,446,055 15,414,007
------------ ------------
Total liabilities, redeemable convertible pre-
ferred stock and stockholders' equity........ $ 17,400,374 $ 18,166,590
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Revenue................................ $ 15,477,881 $15,485,923 $12,466,335
------------ ----------- -----------
Cost of revenue........................ 15,339,218 10,991,202 10,071,150
Selling, general and administrative ex-
penses................................ 8,818,706 4,787,070 6,197,951
Research and development expenses...... 726,187 346,161 2,489,207
Goodwill amortization.................. 371,087 290,957 120,467
------------ ----------- -----------
Total operating expenses............... 25,255,198 16,415,390 18,878,775
------------ ----------- -----------
Operating loss......................... (9,777,317) (929,467) (6,412,440)
Loss from investment in Beacon Power
Corporation........................... (2,357,679) (3,541,817) --
Other losses........................... (150,464) -- --
Interest income........................ 42,287 179,861 283,131
Interest expense....................... (115,692) (10,206) (13,933)
------------ ----------- -----------
Net loss before income taxes........... (12,358,865) (4,301,629) (6,143,242)
Provision for income taxes............. -- 3,872 --
------------ ----------- -----------
Net loss............................... (12,358,865) (4,305,501) (6,143,242)
------------ ----------- -----------
Accretion of redeemable convertible
preferred stock discount.............. (50,904) -- --
------------ ----------- -----------
Net loss attributable to common stock-
holders............................... $(12,409,769) $(4,305,501) $(6,143,242)
============ =========== ===========
Net loss per share, basic and diluted.. $ (1.35) $ (.48) $ (.77)
============ =========== ===========
Weighted average number of common
shares, basic and diluted............. 9,176,041 8,956,671 7,959,309
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
AMOUNTS
COMMON RECEIVABLE NET
SHARES COMMON FROM UNREALIZED
ADDITIONAL HELD STOCK EXERCISE OF LOSS ON
COMMON COMMON PAID-IN IN HELD IN STOCK ACCUMULATED MARKETABLE TREASURY TREASURY
SHARES STOCK CAPITAL ESCROW ESCROW OPTIONS DEFICIT SECURITIES SHARES STOCK
--------- ------- ----------- ------ --------- ----------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30,
1996........... 7,359,074 $73,591 $18,487,209 -- -- -- $ (2,421,697) $(39,935) -- --
Net loss........ -- -- -- -- -- -- (6,143,242) -- -- --
Exercise of
stock options.. 161,934 1,619 408,390 -- -- -- -- -- -- --
Change in net
unrealized
losses on
marketable
securities..... -- -- -- -- -- -- -- 19,720 -- --
Stock issued in
acquisition.... 450,000 4,500 2,871,750 -- -- -- -- -- -- --
Securities
purchase
agreement...... 798,138 7,981 4,809,251 -- -- -- -- -- -- --
--------- ------- ----------- ------ --------- ----------- ------------ -------- ------ ---------
Balance,
September 30,
1997........... 8,769,146 $87,691 $26,576,600 -- -- -- $ (8,564,939) $(20,215) -- --
Net loss........ -- -- -- -- -- -- (4,305,501) -- -- --
Exercise of
stock options.. 100,266 1,003 580,736 -- -- -- -- -- -- --
Exercise of
warrants....... 149,137 1,491 1,220,382 -- -- -- -- -- -- --
Treasury stock
purchased...... -- -- -- -- -- -- -- -- 28,300 $(173,076)
Change in net
unrealized
losses on
marketable
securities..... -- -- -- -- -- -- -- 9,835 -- --
--------- ------- ----------- ------ --------- ----------- ------------ -------- ------ ---------
Balance,
September 30,
1998........... 9,018,549 $90,185 $28,377,718 -- -- -- $(12,870,440) $(10,380) 28,300 $(173,076)
Net loss........ -- -- -- -- -- -- (12,358,865) -- -- --
Exercise of
stock options.. 455,600 4,556 3,173,445 -- -- (1,816,667) -- -- -- --
Treasury stock
purchased...... -- -- -- -- -- -- -- -- 16,200 (76,628)
Common stock
issued in
acquisitions... 100,000 1,000 567,800 -- -- -- -- -- -- --
Common stock
issued in
connection with
settlement
agreement which
is held in
escrow......... 42,860 429 189,762 42,860 (190,191) -- -- -- -- --
Compensation
expense related
to stock
options and
warrants issued
to non-
employees...... -- -- 2,208,639 -- -- -- -- -- -- --
Valuation
adjustment
for common
stock held in
escrow......... -- -- 238,409 -- (238,409) -- -- -- -- --
Warrants issued
in connection
with the sale
of redeemable
preferred
stock.......... -- -- 2,369,292 -- -- -- -- -- -- --
Change in net
unrealized
losses on
marketable
securities..... -- -- -- -- -- -- -- 10,380 -- --
Accretion of
redeemable
convertible
preferred stock
discount....... -- -- (50,904) -- -- -- -- -- -- --
--------- ------- ----------- ------ --------- ----------- ------------ -------- ------ ---------
Balance,
September 30,
1999........... 9,617,009 $96,170 $37,074,161 42,860 $(428,600) $(1,816,667) $(25,229,305) -- 44,500 $(249,704)
========= ======= =========== ====== ========= =========== ============ ======== ====== =========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance,
September 30,
1996........... $16,099,168
Net loss........ (6,143,242)
Exercise of
stock options.. 410,009
Change in net
unrealized
losses on
marketable
securities..... 19,720
Stock issued in
acquisition.... 2,876,250
Securities
purchase
agreement...... 4,817,232
-------------
Balance,
September 30,
1997........... $18,079,137
Net loss........ (4,305,501)
Exercise of
stock options.. 581,739
Exercise of
warrants....... 1,221,873
Treasury stock
purchased...... (173,076)
Change in net
unrealized
losses on
marketable
securities..... 9,835
-------------
Balance,
September 30,
1998........... $15,414,007
Net loss........ (12,358,865)
Exercise of
stock options.. 1,361,334
Treasury stock
purchased...... (76,628)
Common stock
issued in
acquisitions... 568,800
Common stock
issued in
connection with
settlement
agreement which
is held in
escrow......... --
Compensation
expense related
to stock
options and
warrants issued
to non-
employees...... 2,208,639
Valuation
adjustment
for common
stock held in
escrow......... --
Warrants issued
in connection
with the sale
of redeemable
preferred
stock.......... 2,369,292
Change in net
unrealized
losses on
marketable
securities..... 10,380
Accretion of
redeemable
convertible
preferred stock
discount....... (50,904)
-------------
Balance,
September 30,
1999........... $ 9,446,055
=============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(12,358,865) $(4,305,501) $(6,143,242)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 1,013,037 676,240 969,010
Allowance for unbilled contract
costs and fees.................. 688,510 (19,065) 697,968
Allowance for doubtful accounts.. 334,850 (94,424) 28,324
Allowance for inventory.......... 870,021 (549,765) 758,541
Loss from investment in Beacon
Power Corporation............... 2,357,679 3,541,817 --
Loss on sale of marketable secu-
rities.......................... 87,535 -- --
Write-off impaired assets........ 255,544 50,104 2,593,558
Compensation expense related to
issuance of stock options and
warrants to non-employees....... 2,208,639 -- --
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable............ 89,858 (318,859) 535,797
Prepaid expenses and other as-
sets.......................... 31,455 (11,860) 62,174
Unbilled contract costs and
fees.......................... (954,393) 532,573 (749,462)
Inventory...................... (601,120) (1,567,607) (1,161,843)
Other assets................... 517,402 (607,245) 212,339
Accounts payable............... 72 597,689 (385,868)
Accrued costs for consolidation
of facilities................. -- (398,000) 498,000
Accrued expenses and payroll... (98,163) 83,714 (1,396,970)
Other liabilities.............. (72,763) 6,802 --
------------ ----------- -----------
Total adjustments.................. 6,728,163 1,922,114 2,661,568
------------ ----------- -----------
Net cash used in operating activities.. (5,630,702) (2,383,387) (3,481,674)
------------ ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities... -- -- (600,000)
Sales and maturities of marketable
securities.......................... 580,144 1,340,609 2,079,064
Patent and intangible expenditures... (102,227) (522,483) (150,534)
Deferred financing fees.............. -- -- 56,313
Capital expenditures................. (220,416) (1,021,478) (2,496,726)
Acquisitions, net of cash acquired... (995,876) -- (112,986)
Investment in Beacon Power Corpora-
tion................................ (696,667) (2,058,066) --
------------ ----------- -----------
Net cash used in investing activities.. (1,435,042) (2,261,418) (1,224,869)
------------ ----------- -----------
Cash flows from financing activities:
Repayment of borrowings.............. (100,000) (40,625) (35,119)
Borrowings under line of credit...... 2,657,234 -- --
Repayment of borrowings under line of
credit.............................. (2,657,234) -- --
Proceeds from exercise of stock op-
tions............................... 1,361,334 581,739 410,009
Proceeds from exercise of warrants... -- 1,221,873 --
Proceeds from issuance of common
stock............................... -- -- 4,817,232
Proceeds from issuance of redeemable
convertible preferred stock......... 7,212,500 -- --
Purchase of treasury stock........... (76,628) (173,076) --
------------ ----------- -----------
Net cash provided by financing activi-
ties.................................. 8,397,206 1,589,911 5,192,122
------------ ----------- -----------
Net increase/(decrease) in cash and
cash equivalents...................... 1,331,462 (3,054,894) 485,579
Cash and cash equivalents at beginning
of year............................... 1,201,610 4,256,504 3,770,925
------------ ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 2,533,072 $ 1,201,610 $ 4,256,504
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
SatCon Technology Corporation (the "Company" or "SatCon") was organized as a
Massachusetts corporation in February 1985 and reincorporated in Delaware in
1992. SatCon designs, develops and manufactures intelligent, electro-mechanical
products for aerospace, transportation, industrial and utility applications.
SatCon also designs, develops and manufactures power and energy management
products for telecommunications, silicon wafer manufacturing, factory
automation, aircraft and automotive applications. The Company's electro-
mechanical products are being developed for a wide variety of U.S. government
and commercial markets. For the government, the electro-mechanical systems
provide for applications ranging from satellite attitude control to high-speed
drives for shipboard systems. In the transportation segment, SatCon is
developing electric and hybrid electric drive components, auxiliary power units
and advanced steering, alternator and starter/generator systems. The Company is
working with major equipment producers to develop process equipment drives,
high speed and precision machine tools, manipulators and machinery isolation
equipment. The Company's electro-mechanical systems may offer advantages to the
utility industry in power generation, energy storage and power quality. In the
consumer market, SatCon is developing variable speed motors for refrigeration
equipment and other long-life, high-efficiency machinery.
Basis of Consolidation
The consolidated financial statements include the accounts of SatCon and its
majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Revenue Recognition
The Company performs research under cost-type, fixed-price, and time-and-
material contracts and sells product prototypes. On fixed-price contracts,
revenue is recognized on the percentage-of-completion method based on the
proportion of costs incurred to total estimated costs for each contract.
Revenue recognized in excess of amounts billed are classified in current assets
as unbilled contract costs. Certain contracts contain provisions for
performance incentives. Such incentives are included in revenue when
realization is assured. If a current contract estimate indicates a loss, a
provision is made for the total anticipated loss. All payments to the Company
for work performed on contracts with agencies of the U.S. government are
subject to audit and adjustment by the Defense Contract Audit Agency.
Adjustments are recognized in the period made. Revenue on time and material
contracts is recognized as services are provided.
The Company also designs and manufactures standard products such as multi-
chip modules and hybrids, custom electric motors, and integrated suspension and
motor systems. Revenue from product sales is recognized upon shipment. The
Company provides for warranty reserves at the time product is shipped.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and highly liquid
investments with a maturity of three months or less when acquired. Cash
equivalents are stated at cost, which approximates market value.
Marketable Securities
The Company accounts for marketable securities in accordance with the
Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
25
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and reevaluates such determination at
each balance sheet date. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for sale.
Securities available for sale are carried at fair value, based on quoted
market prices, with the unrealized gains and losses, net of tax effect,
reported in a separate component of stockholders' equity, except for unrealized
losses determined to be permanent in nature. Such unrealized losses are
included in the determination of net income in the period in which management
determines the decline to be permanent. The Company is not actively involved in
the purchase and sale of investments classified as trading. At September 30,
1999 and 1998, the Company had no investments that qualified as trading or held
to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity
or, in the case of mortgage-backed securities, over the estimated life of the
security. Such amortization and interest are included in interest income.
Realized gains and losses are included in other income or expense. The cost of
securities sold is based on the specific identification method.
Inventory
Inventories are stated at the lower of cost or market and costs are
determined based on the first-in, first-out method of accounting and include
material, labor and manufacturing overhead costs.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the asset's estimated useful life.
The estimated useful lives of property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED LIVES
---------------
<S> <C>
Computer equipment and software................ 3-5 years
Electronic laboratory and shop equipment....... 5 years
Mechanical laboratory and shop equipment....... 10 years
Sales and demonstration equipment.............. 3-10 years
Furniture and fixtures......................... 7-10 years
Leasehold improvements......................... Lesser of the life of the
lease or the useful life of
the improvement
</TABLE>
When assets are retired or otherwise disposed of, the cost and related
depreciation and amortization are eliminated from the accounts and any
resulting gain or loss is reflected in other income.
Long-Lived Assets
The Company periodically evaluates the potential impairment of its long-
lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. At the occurrence of a
certain event or change in circumstances or at each balance sheet date, the
Company evaluates the potential impairment of an asset based on future
undiscounted cash flows. In the event that impairment exists, the Company will
measure the amount of such impairment based on the present value of estimated
future cash flows using a discount rate commensurate with the risks involved.
Factors that management
26
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
considers in performing this assessment include current operating results,
trends and prospects and, in addition, demand, competition and other economic
factors. At September 30, 1999 and 1998, the Company determined that there had
been no impairment of its long-lived assets, except as in Note E.
Intangibles, which consist primarily of patents and trademarks, goodwill and
a non-compete agreement, are amortized on a straight-line basis over periods
ranging from 5 to 15 years. At September 30, 1999 and 1998, accumulated
amortization of intangibles amounted to $831,922 and $442,237, respectively.
Deferred Revenue
Deferred revenue consists of payments received from customers in advance of
services performed or product shipped.
Treasury Stock
The Company is authorized to repurchase up to 5% of the Company's outstanding
shares of common stock through July 2000. Under the repurchase program, the
Company plans to purchase shares of the Company's outstanding common stock on
the open market from time-to-time, depending on market conditions.
Use of Estimates
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period
reported. Actual results could differ from these estimates.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which is the asset and liability method for
accounting and reporting for income taxes. Under SFAS No. 109, deferred tax
assets and deferred tax liabilities are recognized based on temporary
differences between the basis of assets and liabilities using statutory rates.
In addition, SFAS No. 109 requires a valuation allowance against net deferred
tax assets if, based upon the available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized.
Stock-based Compensation
The Company recognizes stock-based compensation in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires that
companies recognize compensation expense for grants of stock, stock options,
and other equity instruments based on fair value, or, for grants to employees,
provide pro forma disclosure of net income and earnings per share in the notes
to the financial statements using the fair value method.
27
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net Loss per Basic and Diluted Common Share
The Company reports net loss per basic and diluted common share in accordance
with SFAS No. 128, "Earnings Per Share," which establishes standards for
computing and presenting earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company.
Concentration of Credit Risk
Financial instruments that subject the Company to concentrations of credit
risk consist principally of cash equivalents, investments in marketable
securities, trade accounts receivable, unbilled contract costs and amounts
receivable from exercise of stock options.
The Company's trade accounts receivable and unbilled contract costs and fees
are primarily from sales to U.S. government agencies and several commercial
customers. The Company does not require collateral and has not historically
experienced significant credit losses related to receivables or unbilled
contract costs and fees from individual customers or groups of customers in any
particular industry or geographic area.
The Company deposits its cash and invests in short-term investments and
marketable securities primarily through two regional commercial banks and an
investment company. Credit exposure to any one entity is limited by company
policy.
Research and Development Costs
The Company expenses research and development costs as incurred.
Comprehensive Loss
Comprehensive loss includes net loss, as well as other changes in
stockholders' equity, except stockholders' investments and distributions.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, unbilled contract costs and fees, accounts payable, debt
instruments and amounts receivable from exercise of stock options. The book
value of such financial instruments approximate their respective fair values
due to their short-term maturities.
Reclassifications
Certain prior year balances have been reclassified to conform to current year
presentations.
Effect of Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities- Deferral of the
Effective Date of FASB Statement No. 133,"
28
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
which defers the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure these instruments at fair value. The Company
will adopt SFAS No. 133 beginning in the first quarter of the fiscal year
ending September 30, 2001.
Adoption of SFAS No. 133 is not expected to have a material impact to the
Company's consolidated financial position, results of operations or cash flows.
B. MARKETABLE SECURITIES
At September 30, 1998, marketable securities have been categorized as
available for sale, and as a result, are stated at fair value.
As of September 30, 1998, marketable securities consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE GROSS GROSS
COST FAIR UNREALIZED UNREALIZED
SECURITY CATEGORY BASIS VALUE GAINS LOSSES
----------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Corporate debt securities........ $597,197 $583,939 $ 8,149 $(21,407)
Mortgage-backed securities....... 70,614 73,492 2,878 --
-------- -------- ------- --------
$667,811 $657,431 $11,027 $(21,407)
======== ======== ======= ========
</TABLE>
The change in net unrealized losses during 1999, 1998 and 1997 were $10,380,
$23,312, and $32,866, respectively, and are included in the balance sheet in a
separate component of stockholders' equity, net of tax effect.
Proceeds from sales and maturities of marketable securities during 1999, 1998
and 1997 were $580,144, $1,340,609, and $2,079,064, respectively. Gross
realized losses from the sale of securities classified as available for sale
during 1999, 1998 and 1997 were $87,535, $0, and $0, respectively.
C. UNBILLED CONTRACT COSTS AND FEES
Unbilled contract costs and fees represent revenue recognized in excess of
amounts billed due to contractual provisions. These amounts included retained
fee and unliquidated costs totaling $282,746 and $363,087 at September 30, 1999
and 1998, respectively.
D. INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Raw material......................................... $1,139,064 $1,783,803
Work-in-process...................................... 2,199,199 1,788,241
Finished goods....................................... 359,709 106,023
---------- ----------
$3,697,972 $3,678,067
========== ==========
</TABLE>
29
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
E. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Machinery and equipment.............................. $4,505,287 $3,391,758
Sales and demonstration equipment.................... -- 19,052
Furniture and fixtures............................... 280,769 265,173
Computer software.................................... 621,583 556,876
Leasehold improvements............................... 648,734 626,216
---------- ----------
6,056,373 4,859,075
Less accumulated depreciation and amortization....... 2,795,741 2,181,289
---------- ----------
$3,260,632 $2,677,786
========== ==========
</TABLE>
Depreciation expense for the years ended September 30, 1999, 1998, and 1997
was $633,964, $540,213, and $736,924, respectively.
As of September 30, 1999, there was $19,903 and $29,910 of capital leases
that were included in machinery and equipment and computer software,
respectively. As of September 30, 1998, there was no equipment under capital
lease.
During 1999 and 1997, the Company determined that certain of its machinery
and equipment totaling $105,544 and $2,593,558, respectively, was impaired
based on a change in the needs of its customers and such assets were written-
off during 1999 and 1997, respectively.
F. INVESTMENT IN BEACON POWER CORPORATION
On May 28, 1997, SatCon Technology Corporation entered into a Securities
Purchase Agreement (the "Agreement"), dated as of May 28, 1997, by and among
the Company, Beacon Power Corporation ("Beacon"), a new wholly-owned subsidiary
of the Company, and Duquesne Enterprises ("Duquesne"). Pursuant to the terms of
the Agreement, Duquesne purchased from the Company and the Company issued, sold
and delivered to Duquesne 798,138 shares (the "Shares") of the Company's Common
Stock. The aggregate consideration received by the Company was $5,000,000. In
exchange for certain fixed assets and a capital contribution, the Company
received all of the capital stock of Beacon, consisting of 3,000,000 shares of
Beacon's Common Stock and 1,000,000 shares of Beacon's preferred stock, par
value $.01 per share. Duquesne also entered into agreements pursuant to which
it will act as exclusive distributor of Beacon's products, subject to certain
exceptions, in seven Mid-Atlantic States and the District of Columbia. The
consolidated financial statements for the year ended September 30, 1997
included the accounts of Beacon and all wholly-owned subsidiaries.
During a recapitalization of Beacon on December 24, 1997, Beacon obtained
equity financing from private investors and the Company converted a significant
portion of its ownership of Beacon to convertible preferred stock. The Company
retained approximately 19.9% of Beacon's outstanding voting stock. Although the
Company owned less than 20% of the outstanding voting stock of Beacon, based on
other factors, there was a presumption that the Company had the ability to
exercise significant influence, and the equity method of accounting for this
investment was required for the fair presentation subsequent to this
recapitalization. The consolidated financial statements include the recognition
of 100% of Beacon's losses for the period
30
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 24, 1997 to September 30, 1998. The impact on the consolidated
financial statements at December 24, 1997 was as follows:
<TABLE>
<S> <C>
Accounts receivable.......................................... $ (31,437)
Inventory.................................................... (16,788)
Prepaid expenses and other assets............................ (70,478)
Property and equipment, net.................................. (2,859,572)
Intangibles, net............................................. (90,957)
Accrued payroll and payroll related expenses................. 32,298
Deferred revenue............................................. 95,000
Cash......................................................... (2,058,066)
-----------
Investment in Beacon Power Corporation....................... $ 5,000,000
===========
</TABLE>
At September 30, 1998, the Company had amounts of $596,453 due from Beacon.
These amounts arose from transactions after December 24, 1997, whereby the
Company advanced money and made payments for certain expenses incurred by
Beacon. Such amounts were subsequently repaid in connection with the
October 23, 1998 financing.
On October 23, 1998, the Company entered into a Securities Purchase
Agreement, by and among Beacon, Perseus Capital, L.L.C. ("Perseus"), Duquesne,
Micro Generation Technology Fund, L.L.C ("Micro", and together with Perseus and
Duquesne, the "Purchasers") and the Company. Pursuant to the terms of the
Agreement, (i) the Purchasers purchased from Beacon and Beacon issued, sold and
delivered to the Purchasers 1,900,000 shares (the "Shares") of Beacon's Class D
Preferred Stock, $.01 par value per share; (ii) the Purchasers have the right
to receive certain warrants to purchase shares of Beacon's common stock, $.01
par value per share ("Beacon's Common Stock"); (iii) the Company granted the
Purchasers the right (the "Put Right") to cause the Company, in circumstances
described below, to purchase all of the Shares and all of Beacon's Common Stock
issuable upon conversion of the Shares; and (iv) upon exercise of the Put Right
pursuant to the terms of the Agreement, the Company must pay the consideration
contemplated by the Agreement in shares of the Company's common stock, $.01 par
value per share, valued at the average fair value for the 15 trading days
before and after notice of exercise of the Put Right. The aggregate
consideration received by Beacon was $4,750,000. The Put Right is exercisable
within 60 days of the second, third, fourth and fifth anniversary of the
closing date of the transaction, upon certain events of bankruptcy of Beacon
and upon the occurrence of certain going private transactions involving the
Company. If the Put Right were to be exercised, the Company would most likely
recognize a loss equal to the value of the Company's shares issued upon
exercise of the Put Right. The Company retained approximately 0.1% of Beacon's
outstanding voting stock. Although the Company owned less than 20% of the
outstanding voting stock of Beacon, based on other factors, there was a
presumption that the Company had the ability to exercise significant influence,
and the equity method was required for the fair presentation subsequent to this
transaction.
On June 22, 1999, the Company purchased from Beacon a note (the "June 22,
1999 Note ") with a principal amount of $125,000 due and payable on the earlier
of (i) September 22, 1999 ("Maturity Date") or (ii) upon the occurrence of an
event of default, as defined therein. The note bears interest at 12 % per
annum; provided that, if the note is not repaid in full on or prior to Maturity
Date, the interest rate would increase to 15% per annum. The June 22, 1999 Note
was issued pursuant to the terms of a Note Purchase Agreement, dated as of June
22, 1999, by and among Beacon, the Purchasers named therein, and the Company
(the "Note Purchase Agreement"). Interest on the June 22, 1999 Note is payable
on the Maturity Date.
31
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On July 6, 1999, the Company purchased from Beacon an additional note (the
"July 6, 1999 Note") with a principal amount of $125,000 due and payable on the
earlier of (i) Maturity Date or (ii) upon the occurrence of an event of
default. The note bears interest at 12 % per annum; provided, that if the note
is not repaid in full on or prior to Maturity Date, the interest rate would
increase to 15% per annum (the "July 6, 1999 Note" and together with the June
22, 1999 Note, the "Notes"). The July 6, 1999 Note was also issued pursuant to
the terms of the Note Purchase Agreement. Interest on the July 6, 1999 Note is
payable on the Maturity Date.
In August 1999, the Company exchanged in full the Notes and $83,333.33 for a
note with a principal amount of $333,333.33 ("Bridge Note") plus accrued
interest due and payable on the earlier of (i) the date of conversion of the
note as described below or (ii) upon the occurrence of an event of default. The
Bridge Note bears interest at 12 % per annum; provided that if the Funding Date
(as defined below) does not occur within six months, such interest rate shall
increase effective February 2, 2000 to 15% per annum. The Bridge Note was
issued pursuant to the terms of a Note and Warrant Purchase Agreement, dated as
of August 2, 1999, by and among Beacon, the Purchasers named therein, and the
Company (the "Note and Warrant Purchase Agreement"). Interest on the Bridge
Note is payable on the Maturity Date.
Pursuant to the terms of the Note and Warrant Purchase, the Company purchased
two (2) additional notes each with a principal amount of $333,333.33 on
September 16, 1999 and October 19, 1999. The Bridge Note and the additional
notes each with a principal amount of $333,333.33 are collectively referred to
as the "Bridge Securities."
In the event that Beacon obtains a funding commitment for at least $5 million
of external funds within four months of the issuance of the first Bridge
Security and closes a funding pursuant to such commitment within six months of
the first issuance of the first Bridge Security (the date of such funding, the
"Funding Date"), all outstanding principal and interest on the Bridge
Securities will convert into equity of Beacon at a price and on terms that are
equivalent to the securities issued by Beacon pursuant to the funding
commitment. If Beacon does not obtain a qualified financing commitment within
the four-month period referred to above, or close such funding within the six-
month period referred to above, the Bridge Securities will convert into
securities of Beacon pursuant to terms to be agreed to with Beacon, or if no
terms are agreed to, the Company has the right to demand payment of all
principal and interest on the Bridge Securities.
Warrants to purchase shares of Beacon Securities were issued in connection
with each issuance of the Bridge Securities. The warrants are for the purchase
of the type of securities to be issued upon conversion of the Bridge Securities
or if such securities are not converted, Beacon Common Stock. The number of
shares of Beacon securities that will be subject to the warrants will be
determined by dividing (i) 25% of the principal amount of the Bridge Securities
issued by (ii) the price per share of the Bridge Securities, or, if the Bridge
Securities are not converted, $2.50.
The consolidated financial statements include under the equity method of
accounting for investments the recognition of 100% of Beacon's losses for the
period October 1, 1998 to October 22, 1998, 50% of Beacon's losses for the
period October 23, 1998 to March 31, 1999 and 33% of Beacon's losses subsequent
to March 31, 1999.
At September 30, 1999, the Company has accrued losses of $202,829 relating to
its share of Beacon losses, which it is required to fund pursuant to the terms
of the Note and Warrant Purchase Agreement. In future periods, the Company will
continue to record its share of Beacon's losses up to the amount of its actual
and committed investment.
32
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
G. LINE OF CREDIT
In December 1998, as modified, the Company obtained a $3,000,000 demand
discretionary line of credit with a bank. The line of credit bears interest at
the bank's prime rate plus 1 1/2 % (9 3/4 % as of September 30, 1999).
Available borrowings are based on a formula of eligible accounts receivable and
inventory. There were no amounts outstanding under the line of credit at
September 30, 1999. During 1999, the maximum amount outstanding on the line of
credit was $2,657,234. The Company has pledged all assets of the Company as
collateral against this line of credit.
H. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Note payable due in 52 weekly payments. The total
note of $443,804 commenced on April 16, 1997........ $ -- $368,056
Capital lease obligations............................ 50,097 --
Less: Current Portion................................ (16,226) (146,594)
-------- --------
$ 33,871 $221,462
======== ========
</TABLE>
At September 30, 1999, maturities of these obligations are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000............................................................. $ 16,226
2001............................................................. 17,494
2002............................................................. 10,778
2003............................................................. 5,599
--------
50,097
Less: Current Portion............................................ (16,226)
--------
$ 33,871
========
</TABLE>
On March 1, 1999, the Company reached a definitive settlement arrangement
with Albert R. Snider (the "Settlement Agreement"), the holder of the note
payable which commenced on April 16, 1997, regarding the suit filed against Mr.
Snider for breach of certain representations made by him, including statements
of inventory balances in the Asset Purchase Agreement, dated as of April 3,
1997, between FMI and Mr. Snider relating to the purchase of the business of
FMI and a counterclaim filed by Mr. Snider seeking, among other things,
payments allegedly due from the Company under a promissory note.
Pursuant to the terms of the Settlement Agreement, the Company made a
$100,000 cash payment to Mr. Snider on March 9, 1999 and the parties executed
mutual general releases dismissing any and all claims between them. In
addition, the Settlement Agreement provides a right of first refusal in favor
of the Company with respect to certain shares of the Company's Common Stock,
beneficially owned by Mr. Snider. Concurrently with the execution of the
Settlement Agreement, the Company and Mr. Snider entered into a consulting
agreement pursuant to which Mr. Snider will perform certain consulting,
advisory and related services as the Company may reasonably request from time
to time between October 1, 1999 and October 1, 2002. In exchange for these
services, the Company issued 42,860 shares of its Common Stock to an escrow
agent who will release such shares to Mr. Snider or his nominees on January 2,
2001. The Company has recorded these shares held in escrow at market value and
as a reduction to stockholders' equity as of September 30, 1999. The Company
will continue to mark-to-market these securities until such shares are released
from escrow.
33
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company will amortize the market value of the common stock held in escrow
as consulting, advisory and related services expense as services are provided
between the period October 1, 1999 and October 1, 2002.
I. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its facilities under various operating leases that expire
through 2003. The Company has also entered into a master leasing agreement to
lease various items of equipment not to exceed $600,000. At September 30, 1999,
the availability under this facility has expired.
Future minimum annual rentals under the lease agreements at September 30,
1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000............................................................ $1,471,382
2001............................................................ 1,520,400
2002............................................................ 1,446,996
2003............................................................ 1,215,498
2004............................................................ 280,850
Thereafter...................................................... 218,829
----------
Total (not reduced by minimum sublease rentals of
$1,265,847)................................................ $6,153,955
==========
</TABLE>
Total rental expense including operating expenses and real estate taxes for
operating leases amounted to $1,683,749, $1,235,867, and $1,245,238 for the
years ended September 30, 1999, 1998 and 1997, respectively.
Certain of the facility leases contain escalation clauses, effective October
1, 1998, rental expense has been recognized on a straight-line basis over the
remaining lease term. At September 30, 1999, deferred rent expense amounted to
$110,390.
In the fourth quarter of 1997, the Company decided to consolidate its
operating facility in Tucson, AZ with its facility in Cambridge, MA. As a
result, the Company accrued approximately $498,000, primarily related to the
buyout of the facility lease. At September 30, 1999 and 1998, the Company had a
reserve of $100,000, primarily related to the lease cancellation costs.
J. EMPLOYEE BENEFIT PLAN
The Company offers a 401(k) Employee Benefit Plan (the "Plan"). Under the
Plan, any regular employee, as defined by the Plan, who has completed six
months of service and has attained the age of 21 years is eligible to
participate. Under the terms of the Plan, an employee may defer up to 15% of
his or her compensation through contributions to the Plan. During 1999, the
Company extended the Plan to its wholly-owned subsidiaries. The Company made
matching contributions to the Plan of $218,729, $86,883 and $133,018 during
1999, 1998 and 1997, respectively.
34
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
K. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current payable:
Federal......................... -- -- --
State........................... -- $ 3,872 --
----------- ----------- -----------
-- 3,872 --
----------- ----------- -----------
Deferred tax expense/(benefit):
Federal......................... $(3,888,031) $(1,349,519) $(1,823,584)
State........................... (1,167,905) (404,950) (680,530)
Change in valuation allowance... 5,055,936 1,754,469 2,504,114
----------- ----------- -----------
-- -- --
----------- ----------- -----------
-- $ 3,872 --
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of September 30, 1999
and 1998, the components of the net deferred tax assets/(liabilities) are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Federal net operating
loss................... $ 5,048,719 $3,563,810
State net operating
loss, net of federal
benefit................ 404,540 574,613
Unrealized losses on
marketable securities.. -- 4,116
Credits................. 499,585 455,982
Depreciation............ 336,038 15,318
Loss on investment in
Beacon Power Corpora-
tion................... 2,363,850 1,404,347
Other................... 1,562,820 189,152
Valuation allowance..... (10,215,552) (6,207,338)
----------- ----------
Net deferred income tax-
es..................... -- --
=========== ==========
</TABLE>
The Company has placed a full valuation allowance against its net deferred
tax assets since the Company believes it is "more likely than not" that it will
not be able to utilize its deferred tax asset.
A decrease in net deferred tax assets and a decrease in the valuation
allowance in the amount of approximately $541,000 each has been made to account
for the recapitalization of Beacon Power Corporation during the year ended
September 30, 1998.
The provision for income taxes differs from the federal statutory rate due to
the following:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED SEPTEMBER
30,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Tax at statutory rate............................. (34.0)% (34.0)% (34.0)%
State taxes--net of federal benefit............... (6.2) (6.2) (7.3)
Other............................................. (0.7) (0.5) .6
Change in valuation allowance..................... 40.9 40.8 40.7
----- ----- -----
Effective tax rate................................ -- % 0.1% -- %
===== ===== =====
</TABLE>
35
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At September 30, 1999, the Company had net operating loss carry-forwards of
approximately $15,026,000 and $6,452,000 for federal and state income tax
purposes, respectively. The federal net operating losses expire beginning
September 30, 2008 through 2019. The state net operating losses will expire
beginning September 30, 2000 through 2004. The use of these losses may be
limited due to ownership change limitations under Section 382 of the Code.
L. STOCKHOLDERS' EQUITY
Stock Options
Under the Company's 1992, 1994, 1996 and 1998 Stock Option Plans, both
qualified and non-qualified stock options may be granted to certain officers,
employees, directors and consultants to purchase up to 1,550,000 shares of the
Company's common stock. At September 30, 1999, all of the 1,550,000 stock
options available for grant under the Company's 1992, 1994, 1996 and 1998 Stock
Option Plan have been granted.
During 1999, the Company adopted its 1999 Stock Option Plan that provides for
the grant to employees, officers, directors and consultants for qualified and
non-qualified stock options to purchase up to 1,500,000 shares of the Company's
common stock. At September 30, 1999, 816,898 of the 1,500,000 stock options
available for grant under the Company's 1999 Stock Option Plan have been
granted.
The 1992, 1994, 1996, 1998, and 1999 Stock Option Plans (collectively the
"Plans") are subject to the following provisions:
The aggregate fair market value (determined as of the date the option is
granted) of the common stock that any employee may purchase in any calendar
year pursuant to the exercise of qualified options may not exceed $100,000. No
person who owns, directly or indirectly, at the time of the granting of a
qualified option to him or her, more than 10% of the total combined voting
power of all classes of stock of the Company shall be eligible to receive any
qualified options under the Plans unless the option price is at least 110% of
the fair market value of the common stock subject to the option, determined on
the date of grant. Non-qualified options are not subject to this limitation.
Qualified options are issued only to employees of the Company, while non-
qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of the Company. Options granted under the Plans
may not be granted with an exercise price less than 100% of fair value of the
Company's common stock, as determined by the Board of Directors on the grant
date.
Options under the Plans must be granted within 10 years from the effective
date of the Plan. Qualified options granted under the Plans cannot be exercised
more than 10 years from the date of grant, except that qualified options issued
to 10% or greater stockholders are limited to five-year terms. All options
granted under the Plans provide for the payment of the Company's exercise price
in cash, or by delivery to the Company of shares of common stock already owned
by the optionee having fair market value equal to the exercise price of the
options being exercised, or by a combination of such methods of payment.
The Plans contain antidilutive provisions authorizing appropriate adjustments
in certain circumstances. Shares of common stock subject to options that expire
without being exercised or that are canceled as a result of the cessation of
employment are available for further grants.
36
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's stock option plans as of September
30, 1999, 1998 and 1997 and changes for the years then ended are presented
below.
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 820,910 $ 9.58 700,427 $ 8.44 713,392 $ 7.08
Granted............... 1,404,000 7.09 319,000 11.20 144,000 8.97
Exercised............. (455,600) 6.98 (100,266) 5.80 (144,466) 2.25
Canceled.............. (118,083) 8.84 (98,251) 10.55 (12,499) 10.71
--------- ------ -------- ------ -------- ------
Outstanding at end of
year 1,651,227 $ 8.24 820,910 $ 9.58 700,427 $ 8.44
========= ====== ======== ====== ======== ======
Options exercisable at
year-end............... 640,560 $ 9.18 413,403 $ 8.48 503,660 $ 8.14
========= ====== ======== ====== ======== ======
</TABLE>
The following table summarizes information about stock options outstanding as
of September 30, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.00--$7.81 576,328 7.8 $5.75 159,328 $5.86
$8.75--$10.50 773,399 8.4 8.84 345,732 9.72
$11.00--$13.38 301,500 7.9 10.69 135,500 11.69
--------- --- ----- ------- -----
1,651,227 8.1 $8.24 640,560 $9.18
========= === ===== ======= =====
</TABLE>
An additional 683,102 shares were available under the 1999 Stock Option Plan
for future grants at September 30, 1999.
During 1999, the Company granted fully vested options to purchase 755,000
shares of the Company's common stock to consultants at prices ranging from
$5.75 to $10.00 per share. The Company has recorded the fair value of the
options, as determined by the Black-Scholes option pricing model, of
$2,152,277, to selling, general and administrative expenses during the year
ended September 30, 1999. As of September 30, 1999, options to purchase 450,000
shares at $7.00 per share have been exercised. As of September 30, 1999, the
Company received $1,333,333 of cash and the remaining amount due from the
shareholders is classified within stockholders' equity as amounts receivable
from exercise of stock options.
Warrants
On June 5, 1998, the Company issued to certain individuals, in settlement of
a claim asserted against the Company, Common Stock Purchase Warrants to
purchase up to 68,795 shares of common stock, as amended, at an exercise price
of $11.43 per share. These warrants expired on November 11, 1999 unexercised.
On November 11, 1998, the Company issued common stock warrants to purchase up
to 67,125 shares of the Company's Common Stock at an exercise price of $11.43
per share. The Company has recorded the fair value of these warrants as
determined by the Black-Scholes option pricing model, of $56,362, to selling,
general and administrative expenses during the year ended September 30, 1999.
These warrants expired on November 11, 1999 unexercised.
37
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 25, 1999, in connection with the $8 million private placement of
8,000 shares of the Company's Series A Convertible Preferred Stock, $0.01 par
value per share with Brown Simpson Strategic Growth Funds (See Note M), the
Company issued common stock warrants to purchase up to 120,000 and 675,000
shares of common stock at an exercise price of $7.80 and $8.54, respectively.
These warrants expire on August 25, 2003. At September 30, 1999, none of these
warrants have been exercised.
Stock-Based Compensation
Had compensation cost for the Company's stock-based compensation been
determined based on fair value at the grant dates as calculated in accordance
with SFAS No. 123, the Company's net loss and loss per share for the years
ended September 30, 1999, 1998 and 1997 would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
NET LOSS LOSS NET LOSS LOSS NET LOSS LOSS
ATTRIBUTABLE PER ATTRIBUTABLE PER ATTRIBUTABLE PER
TO COMMON COMMON TO COMMON COMMON TO COMMON COMMON
STOCKHOLDERS SHARE STOCKHOLDERS SHARE STOCKHOLDERS SHARE
------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
As reported...... $(12,409,769) $(1.35) $(4,305,501) $(.48) ($6,143,242) $(.77)
Pro forma........ $(13,614,221) $(1.48) $(4,881,491) $(.55) ($6,215,049) $(.78)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996 and additional awards in future years are anticipated.
The fair value of each stock option is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions: an expected life of seven years, expected volatility of
80.0%, no dividends, and risk-free interest rate of 6.08% for September 30,
1999; an expected life of seven years, expected volatility of 57.9%, no
dividends, and risk-free interest rate of 5.76% for September 30, 1998; and an
expected life of seven years, expected volatility of 57.9%, no dividends, and
risk-free interest rate of 6.125% for September 30, 1997. The weighted average
price of the fair value of options granted for years ended September 30, 1999,
1998 and 1997 are $5.21, $7.14 and $5.80, respectively.
M. PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred Stock,
$.01 par value. The Preferred Stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting
rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions
On August 25, 1999, the Company completed an $8 million private placement of
8,000 shares of its Series A Redeemable Convertible Preferred Stock, $0.01 par
value per share (the "Series A Preferred Stock"), with Brown Simpson Strategic
Growth Funds ("Brown Simpson"). The Series A Preferred Stock is initially
convertible into 1,025,641 shares of the Company's common stock, $0.01 par
value per share (the "Common Stock"), at an initial conversion price of $7.80
per share. The Series A Preferred Stock is also subject to certain dilution
protection for a period of three years. Under certain circumstances, the
Company has the option to cause the Series A Preferred Stock to convert into
shares of Common Stock or otherwise be redeemed. At the end of seven years, the
Company must redeem any remaining shares of the Series A Preferred Stock for
cash or, at the Company's option, Common Stock with a then fair market value
equal to the original purchase price of the Series A Preferred Stock. The
obligation at seven years to redeem any remaining shares of the Series A
Preferred Stock accelerates to the fourth anniversary of the closing in the
event that the average bid
38
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
price of the Company's Common Stock for the 60 "trading day" period immediately
preceeding the fourth anniversary is $5 per share or less. In the event of
certain changes in control events regarding the Company or if the Common Stock
is delisted, Brown Simpson has the right to cause the Series A Preferred Stock
to be redeemed.
In connection with the transaction, Brown Simpson also received warrants to
purchase up to 675,000 additional shares of Common Stock at $8.54 per share
(the "Brown Simpson Warrants"). The Brown Simpson Warrants expire on August 25,
2003. The Company has allocated $1,818,558 of the proceeds, net of $1,338,234
transaction costs, based on the fair value of these warrants, as determined by
the Black-Scholes option pricing model.
H.C. Wainwright & Co., Inc. ("H.C. Wainwright") served as placement agent for
the transaction and received a commission of $560,000 and warrants to purchase
120,000 shares of the Company's Common Stock at $7.80 per share. These warrants
expire on August 25, 2003. H.C. Wainwright will also receive a future fee in
the amount of 4% of any monies received by the Company upon the exercise of the
Brown Simpson Warrants. The Company has recorded the fair value of these
warrants, as determined by the Black-Scholes option pricing model, of $550,734
as a transaction cost of this offering.
The Company has valued the redeemable convertible preferred stock at issuance
to be $4,843,208 based on the relative fair market values of the financial
instruments issued in connection with this placement. The Company will accrete
the carrying value of the redeemable convertible preferred stock to its
redeemable value of $8,000,000 at August 25, 2003, in the event that the
average bid price for the 60 trading days prior is $5.00 or less, using the
effective interest method. As of September 30, 1999, the Company has accreted
$50,904 and recorded this as a charge against additional paid-in capital.
N. SIGNIFICANT CUSTOMERS
Significant customers, defined as net revenues from those customers that
account for 10% or more of total net revenue in a fiscal year, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL NET
REVENUES
FOR THE YEARS
ENDED
SEPTEMBER 30,
----------------
CUSTOMER 1999 1998 1997
-------- ---- ---- ----
<S> <C> <C> <C>
U.S. government:
U.S. Department of Defense............................... 20.6% 22.2% 44.6%
==== ==== ====
</TABLE>
O. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-Cash Investing and Financing Activities
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Accretion of redeemable convertible preferred stock
discount.............................................. $50,904 $ -- $ --
======= ===== =====
Acquisition of equipment under capital leases.......... $49,813 $ -- $ --
======= ===== =====
</TABLE>
39
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest and Income Taxes Paid
Cash paid for interest and income taxes were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Interest............................................ $115,692 $10,206 $13,933
======== ======= =======
Income taxes........................................ -- $ 5,772 $ 5,800
======== ======= =======
</TABLE>
P. ACQUISITIONS
K&D MagMotor Corporation
On January 23, 1997, the Company acquired substantially all of the assets and
assumed certain of the liabilities of K&D MagMotor Corporation ("MagMotor")
pursuant to the terms of an Asset Purchase Agreement, dated as of January 2,
1997, by and among the Company, MagMotor and MagMotor's principal stockholder
(the "Stockholder") (the "Asset Purchase Agreement"). The aggregate
consideration paid by the Company for the acquired assets of MagMotor was
approximately $210,000 in cash and 30,000 shares of the Company's common stock,
par value $.01 per share valued at $6.625 per share or $198,750. MagMotor's
assets, including machinery and equipment and inventory, were recorded at their
estimated market value of $250,000 and $160,000, respectively.
MagMotor is a manufacturer of custom electric motors targeting the factory
automation, medical, semi-conductor and packaging markets. The Company
continues to use the assets in the same manner in which they were used by
MagMotor immediately prior to the acquisition. The Company has included in its
consolidated results of operations the acquisition of MagMotor under the
purchase method of accounting.
The pro forma financial information has not been presented as the acquisition
of Magmotor is not material.
Film Microelectronics, Inc.
On April 16, 1997, the Company acquired substantially all of the assets of
Film Microelectronics, Inc. ("FMI"), pursuant to the Asset Purchase Agreement,
dated as of April 3, 1997, by and among the Company, FMI and FMI's principal
stockholder. In addition, the Company assumed trade payables aggregating
approximately $900,000 and the assumption of indebtedness of approximately $1
million. The aggregate consideration paid by the Company for the acquired
assets of FMI was 420,000 shares of the Company's common stock, par value $.01
per share (the "Common Stock"), valued at $6.375 per share or $2,677,500.
FMI is a manufacturer of production and custom integrated circuits for the
communications, industrial, military and aerospace markets. The Company
continues to use the assets in the same manner in which they were used by FMI
immediately prior to the acquisition. FMI's assets have been recorded at their
estimated market values with the excess purchase price assigned to goodwill,
which is being amortized over 15 years.
The Company has included in its consolidated results of operations the
acquisition of FMI under the purchase method of accounting. The following
unaudited pro forma financial information combines SatCon and FMI's results of
operations as if the acquisition had taken place on October 1, 1996. The pro
forma results are
40
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
not necessarily indicative of what the results of operations actually would
have been if the transaction had occurred on the applicable dates indicated and
are not intended to be indicative of future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
SEPTEMBER
30, 1997
------------
<S> <C>
Net revenue................................................. $14,974,765
Net operating loss.......................................... $(7,024,383)
Net loss.................................................... $(6,544,837)
Net loss per share.......................................... $ (.82)
</TABLE>
Inductive Components, Inc. and Lighthouse Software, Inc.
On January 4, 1999, the Company's MagMotor subsidiary acquired substantially
all of the assets and assumed certain liabilities of Inductive Components, Inc.
and Lighthouse Software, Inc., pursuant to the terms of an Asset Purchase
Agreement, dated January 4, 1999, among MagMotor, the Company, Inductive
Components, Inc, Lighthouse Software, Inc. and Thomas Glynn, the sole
stockholder of Inductive and the majority stockholder of Lighthouse. The
aggregate consideration paid by the Company for the acquired assets of
Inductive Components, Inc. and Lighthouse Software, Inc. was 100,000 shares of
the Company's common stock, valued at $5.6875 per share or $568,750. In
addition, the Company assumed indebtedness of approximately $246,000. The
Company has included in its consolidated results of operations the acquisition
of Inductive and Lighthouse under the purchase method of accounting. The
purchase price has been allocated as follows:
<TABLE>
<S> <C>
Inventory...................................................... $ 50,000
Property and equipment......................................... 100,597
Intangibles.................................................... 275,000
Goodwill....................................................... 389,079
---------
$ 814,676
=========
</TABLE>
The pro forma financial information has not been presented, as the
acquisitions of Inductive Components, Inc. and Lighthouse Software, Inc. are
not material.
HyComp, Inc.
On April 12, 1999, the Company executed an agreement to purchase
substantially all of the assets and assume certain liabilities of HyComp, Inc.
("HyComp"). This agreement was dated March 31, 1999 and was by and between
HyComp and HyComp Acquisition Corp., a wholly-owned subsidiary of the Company.
The aggregate consideration paid by the Company for the acquired assets of
HyComp consisted of (i) $750,000 in cash; (ii) the assumption of certain
liabilities and obligations of HyComp in the amount of approximately $422,000;
(iii) transaction costs of $95,000; and (iv) a 5% royalty to HyComp on certain
sales through April 12, 2000. At September 30, 1999, the Company has recorded
$50,000 of accrued royalties. The Company has included in its consolidated
results of operations the acquisition of HyComp under the purchase method of
accounting. The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Accounts receivable.......................................... $ 38,556
Inventory.................................................... 318,359
Deposits..................................................... 19,800
Property and equipment....................................... 940,500
-----------
$ 1,317,215
===========
</TABLE>
41
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The pro forma financial information has not been presented as the acquisition
of HyComp is not material.
Net cash paid for the acquisitions of K&D MagMotor Corporation, Film
Microelectronics, Inc., Inductive Components Inc., Lighthouse Software, Inc.
and HyComp, Inc. was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------
1999 1998 1997
---------- ------- ----------
<S> <C> <C> <C>
Fair value of assets..................... $1,742,812 -- $4,723,408
Cost in excess of net assets of companies
acquired, net........................... 389,079 -- 987,678
Liabilities assumed, including transac-
tion costs.............................. (567,215) -- (2,624,836)
Stock issued............................. (568,800) -- (2,876,250)
---------- ------- ----------
Cash paid................................ $ 995,876 -- $ 210,000
Less: Cash acquired...................... -- -- (97,014)
---------- ------- ----------
Net cash paid for the acquisitions....... $ 995,876 -- $ 112,986
========== ======= ==========
</TABLE>
Q. EARNINGS PER SHARE
The following is the reconciliation of the numerators and denominators of the
basic and diluted per share computations of net loss:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Net loss attributable to common share-
holders............................... $(12,409,769) $(4,305,501) $(6,143,242)
BASIC:
Common shares outstanding, beginning of
year.................................. 8,990,249 8,769,146 7,359,074
Weighted average common shares issued
during the year....................... 200,017 190,163 600,235
Weighted average shares repurchased
during the year....................... (14,225) (2,638) --
------------ ----------- -----------
Weighted average shares outstanding--
basic................................. 9,176,041 8,956,671 7,959,309
============ =========== ===========
Net loss per share, basic.............. $ (1.35) $ (.48) $ (.77)
============ =========== ===========
DILUTED:
Weighted average shares outstanding--
basic................................. 9,176,041 8,956,671 7,959,309
Weighted average common stock equiva-
lents (a)............................. -- -- --
------------ ----------- -----------
Weighted average shares outstanding--
diluted............................... 9,176,041 8,956,671 7,959,309
============ =========== ===========
Net loss per share, diluted............ $ (1.35) $ (.48) $ (.77)
============ =========== ===========
</TABLE>
- --------
(a) At September 30, 1999, 1998 and 1997, 2,582,147, 884,758 and 1,000,427
options and warrants, respectively, were excluded from the weighted
average common shares outstanding as their effect would be antidilutive.
42
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
R. COMPREHENSIVE LOSS
The Company's total comprehensive loss is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Net loss.............................. $(12,358,865) $(4,305,501) $(6,143,242)
============ =========== ===========
Other comprehensive income/(loss), net
of tax:
Unrealized gains/(losses) on securi-
ties................................. $ 10,380 $ 9,835 $ 19,720
------------ ----------- -----------
Other comprehensive income/(loss)..... $ 10,380 $ 9,835 $ 19,720
------------ ----------- -----------
Comprehensive loss.................... $(12,348,485) $(4,295,666) $(6,123,522)
============ =========== ===========
</TABLE>
S. SEGMENT DISCLOSURES
As of October 1, 1998, the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products and services, geographical areas and
major customers. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and assess their performance.
The Company's organizational structure is based on strategic business units
that offer various products to the principal markets in which the Company's
products are sold. These business units equate to three reportable segments:
contract engineering, power electronic products and motion-control products.
SatCon Technolgy Corporation markets and provides contract engineering
services. Film Microelectronics, Inc designs and manufactures power electronics
products. The Magmotor Division specializes in the engineering and
manufacturing of motion-control products. The Company's principal operations
and markets are located in North America.
The accounting policies of each of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on revenue and profit and loss from operations
before income taxes, interest income, interest expense, other income and losses
and loss from investment in Beacon Power Corporation, excluding the effects of
amortization of intangible assets associated with acquisitions. Common costs
not directly attributable to a particular segment are allocated among segments
based on management's estimates.
43
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of the Company's operations by operating segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------------
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Contract engineering:
Revenue................................ $ 6,355,383 $7,965,735 $ 8,738,293
----------- ---------- -----------
Loss from operations, net of amortiza-
tion.................................. $(6,577,012) $ (833,015) $(6,522,850)
=========== ========== ===========
Power electronic products:
Revenue................................ $ 6,306,085 $5,909,765 $ 2,594,023
----------- ---------- -----------
(Loss)/income from operations, net of
amortization.......................... $(2,073,946) $ 504,528 $ 137,268
=========== ========== ===========
Motion-control products:
Revenue................................ $ 2,816,413 $1,610,423 $ 1,134,019
----------- ---------- -----------
(Loss)/income from operations, net of
amortization.......................... $ (755,272) $ (310,023) $ 93,609
=========== ========== ===========
</TABLE>
The following is a summary of the Company's long-lived assets, excluding the
investment in Beacon Power Corporation, by operating segment:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Contract engineering:
Long-lived assets...................................... $1,717,228 $1,842,517
---------- ----------
Power electronic products:
Long-lived assets...................................... $3,978,027 $3,416,341
---------- ----------
Motion-control products:
Long-lived assets...................................... $ 863,661 $ 434,248
---------- ----------
</TABLE>
T. SUBSEQUENT EVENTS
On October 21, 1999, the Company received an investment from Mechanical
Technology, Inc. ("MTI") of $7,000,000 in the Company. In consideration for
MTI's investment, MTI will receive 1,030,000 shares of the Company's common
stock at a discounted price of approximately $6.80 per share, $.01 par value
per share (the "Common Stock"), and warrants to purchase an additional 100,000
shares of the Company's Common Stock. MTI funded $2,570,000 of its investment
in the Company on October 21, 1999 and received 370,800 shares of the Company's
Common Stock and a warrant to purchase 36,000 shares of the Company's Common
Stock, and it will make the remaining investment by the end of January 2000. In
addition, the Company has received a warrant to purchase 36,000 shares of MTI's
Common Stock and will receive the remaining warrant to purchase 64,000 shares
of MTI's Common Stock by the end of January 2000.
Additionally, the Company acquired Ling Electronics, Inc. and Ling
Electronics, Ltd. (collectively, "Ling Electronics") from MTI. In consideration
for the acquisition of Ling Electronics, MTI received $70,000 and 770,000
shares of the Company's common stock, $.01 par value per share (the "Common
Stock") valued at $9.8438 per share or $7,579,726.
44
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following unaudited pro forma financial information combines SatCon and
Ling's results of operations as if the acquisition had taken place on October
1, 1997. The pro forma results are not necessarily indicative of what the
results of operations actually would have been if the transaction had occurred
on the applicable dates indicated and are not intended to be indicative of
future results of operations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Net revenue...................................... $ 23,849,881 $27,719,923
Operating loss................................... $(11,252,135) $(1,488,285)
Net loss......................................... $(13,833,683) $(5,116,575)
Net loss attributable to common stockholders..... $(13,884,587) $(5,116,575)
Net loss per share, basic and diluted............ $ (1.51) $ (0.57)
</TABLE>
On November 16, 1999, the Company purchased certain intellectual property,
equipment and other assets from Northrop Gruman Corporation ("NGC"). These
assets were used by NGC in connection with its power electronics products
business. The Company also entered into (i) a sublease with NGC pursuant it
entered into a five-year sublease for approximately 14,863 square feet of
rentable space in the Baltimore area and (ii) a three-year Transition Services
Agreement providing the Company access to certain test facilities and personnel
of NGC on a fee basis. In consideration for these foregoing acquisition and
agreements, NGC received 578,761 shares of the Company's common stock, $.01 par
value per share (the "Common Stock"), and warrants to purchase an additional
200,000 shares of the Company's Common Stock.
The pro forma financial information has not been presented, as the Company
views this transaction as the purchase of assets rather than as a business
combination.
45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTARY SCHEDULE
To the Board of Directors of SatCon Technology Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated statements of SatCon Technology Corporation and its
subsidiaries and have issued our report thereon dated December 27, 1999. Our
audit was made for the purpose of forming an opinion on those consolidated
financial statements taken as a whole. The schedule listed in the financial
statement schedule index is the responsibility of the Company's management and
is presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. This schedule has been subjected to auditing procedures applied in
the audit of the basic consolidated financial statements and, in our opinion,
fairly states, in all material respects, the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
Arthur Andersen LLP
Boston, Massachusetts
December 27, 1999
46
<PAGE>
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended September 30, 1997:
Allowance for doubtful ac-
counts........................ $ 130,900 $ 30,750 $ (2,407) $ 159,243
Allowance for unbilled contract
costs......................... $ 432,500 $ 909,100 $ ( 211,132) $ 1,130,468
Deferred tax valuation allow-
ance.......................... $1,661,329 $1,840,639 -- $ 3,501,968
Allowance for obsolete invento-
ry............................ -- $ 758,541 -- $ 758,541
Reserve for product warranty
expense....................... -- $ 16,511 -- $ 16,511
Accrued costs for consolidation
of facilities................. -- $ 498,000 -- $ 498,000
Year Ended September 30, 1998:
Allowance for doubtful ac-
counts........................ $ 159,243 $ 29,014 $ (136,421) $ 51,836
Allowance for unbilled contract
costs......................... $1,130,468 -- $(1,072,857) $ 57,611
Deferred tax valuation allow-
ance.......................... $3,501,968 $2,705,370 -- $ 6,207,338
Allowance for obsolete invento-
ry............................ $ 758,541 -- $ (549,765) $ 208,776
Reserve for product warranty
expense....................... $ 16,511 -- $ (16,511) --
Accrued costs for consolidation
of facilities................. $ 498,000 -- $ (398,000) $ 100,000
Year Ended September 30, 1999:
Allowance for doubtful ac-
counts........................ $ 51,836 $ 345,433 $ (10,583) $ 386,686
Allowance for unbilled contract
costs......................... $ 57,611 $ 688,510 -- $ 746,121
Deferred tax valuation allow-
ance.......................... $6,207,338 $4,008,214 -- $10,215,552
Allowance for obsolete invento-
ry............................ $ 208,776 $ 870,021 -- $ 1,078,797
Reserve for product warranty
expense....................... -- $ 36,000 -- $ 36,000
Accrued costs for consolidation
of facilities................. $ 100,000 -- -- $ 100,000
</TABLE>
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 12, 1999, we dismissed PricewaterhouseCoopers LLP from its position as
our independent public accountants. The decision to change accountants was
recommended by our Audit Committee and approved by our Board of Directors. None
of the reports of PricewaterhouseCoopers LLP on our financial statements for
the years ended September 30, 1998 and 1997 contained an adverse opinion or
disclaimer of opinion, or was qualified or modified at to uncertainty, audit
scope or accounting principles. During the years ended September 30, 1998 and
1997, and any subsequent interim period immediately preceding the date of
dismissal of PricewaterhouseCoopers LLP, we had no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused PricewaterhouseCoopers LLP to make reference to such
matter of disagreement(s) in connection with its report on our financial
statements. None of the reportable events listed in Item 304 (a) (1) (v) of
Regulation S-K under the Securities Act of 1934, as amended, occurred with
respect to the years ended September 30, 1998 and 1997 or the subsequent
interim period preceding the dismissal of PricewaterhouseCoopers LLP.
On May 25, 1999, we engaged Arthur Andersen LLP as our independent public
accountants. The decision to engage Arthur Andersen LLP was recommended by our
Audit Committee and approved by our Board of Directors. During our two most
recent fiscal years, and any subsequent interim period prior to engaging Arthur
Andersen LLP, (i) neither we nor anyone on our behalf consulted Arthur Andersen
LLP regarding the application of accounting principles to a specific completed
or proposed transaction or the type of audit opinion that might be rendered on
our financial statements; and (ii) no written report or oral advice concerning
the same was provided to us that Arthur Andersen LLP concluded was an important
factor considered by us in reaching a decision as to any accounting, auditing
or financial reporting issue.
48
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors required under this item is
incorporated herein by reference to the information set forth under the section
entitled "Election of Directors" in the Company's Proxy Statement for the 2000
Annual Meeting of Stockholders to be held March 15, 2000 (the "2000 Proxy
Statement"). Information relating to certain filings of Forms 3, 4, and 5 of
the Company is contained in the 2000 Proxy Statement under the caption "Section
16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated by reference to the
section entitled "Compensation of Executive Officers" in the 2000 Proxy
Statement.
The sections entitled "Compensation Committee Report on Executive
Compensation" and "Comparative Stock Performance Graph" in the 2000 Proxy
Statement are not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" in the 2000
Proxy Statement.
49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1999 and 1998
Consolidated Statements of Operations for the Years Ended September 30,
1999 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended September 30, 1999 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended September 30,
1999 1998 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule II; Valuation and Qualifying Accounts for the Years Ended
September 30, 1999 1998 and 1997
All other financial statement schedules not listed have been omitted
because they are either not required, not applicable, or the
information has been included elsewhere in the consolidated financial
statements or notes thereto.
3. Exhibits:
The Exhibits listed in the Exhibit Index immediately preceding such
exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K:
On August 26, 1999, we filed a Current Report on Form 8-K, dated August
25, 1999, in connection with our completion of an $8 million private
placement of 8,000 shares of our Series A Convertible Preferred Stock,
$0.01 par value per share, with Brown Simpson Strategic Growth Funds.
On November 5, 1999, we filed a Current Report on Form 8-K, dated
October 21, 1999, in connection with our acquisition of Ling
Electronics, Inc. and Ling Electronics, Ltd. from Mechanical Technology
Incorporated and an investment by Mechanical Technology Incorporated of
approximately $7,000,000.
On November 24, 1999, we filed a Current Report on Form 8-K, dated
November 16, 1999, in connection with our purchase of certain
intellectual property, equipment and other assets from Northrop Grumman
Corporation.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, Commonwealth of Massachusetts on December 28, 1999.
SatCon Technology Corporation
/s/ David B. Eisenhaure
By: _________________________________
David B. Eisenhaure
President, Chief Executive
Officer and
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ David B. President, Chief Executive Officer and December 28, 1999
Eisenhaure Chairman of the Board of Directors
____________________ (Principal Executive Officer)
David B. Eisenhaure
/s/ Michael C. Vice President, Chief Financial Officer, December 28, 1999
Turmelle Treasurer and Director (Principal
____________________ Financial and Accounting Officer)
Michael C. Turmelle
/s/ James L. Vice President, General Manager and December 28, 1999
Kirtley, Jr. Director
____________________
James L. Kirtley,
Jr.
Director
____________________
Marshall J. Arm-
strong
Director
____________________
Alan P. Goldberg
/s/ John P. Director December 28, 1999
O'Sullivan
____________________
John P. O'Sullivan
/s/ Anthony J. Director December 28, 1999
Villiotti
____________________
Anthony J. Villiotti
</TABLE>
51
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1(1) --Amended and Restated Asset Purchase Agreement among SatCon Film
Microelectronics, Inc., Film Microelectronics Inc., and Albert R.
Snider, dated as of April 3, 1997.
2.2(2) --Stock Purchase Agreement, dated as of October 21, 1999, by and
among the Registrant, Mechanical Technology Incorporated, Ling
Electronics, Inc. and Ling Electronics, Ltd.
2.3(3) --Asset Purchase Agreement, dated as of November 16, 1999, by and
between the Registrant and Northrop Grumman Corporation.
3.1(4) --Certificate of Incorporation of the Registrant.
3.2(4) --Bylaws of the Registrant.
3.3(5) --Certificate of Amendment of Certificate of Incorporation of the
Registrant, as filed with the Secretary of State of the State of
Delaware on May 12, 1997.
3.4(5) --Bylaws Amendment of the Registrant.
3.5(6) --Certificate of Amendment of Certificate of Incorporation of the
Registrant, as filed with the Secretary of State of the State of
Delaware on March 17, 1999.
3.6(6) --Certificate of Designation of Series and Statement of Variations
of Relative Rights, Preferences and Limitations of Preferred
Stock, dated as of August 25, 1999, relating to the Series A
Preferred Stock.
4.1(4) --Specimen Certificate of Common Stock, $.01 par value.
10.1(4)(*) --Employment Agreement, dated July 1, 1992, between the Registrant
and David B. Eisenhaure.
10.2(4)(*) --Employment Agreement, dated July 1, 1992, between the Registrant
and Michael C. Turmelle.
10.3(4)(*) --1992 Stock Option Plan.
10.4(7)(*) --1994 Stock Option Plan.
10.5(8)(*) --1996 Stock Option Plan.
10.6(9)(*) --1998 Stock Incentive Plan.
10.7(*) --1999 Stock Incentive Plan.
10.8(4) --Lease, dated October 21, 1993, between the Registrant and
Gunwyn/First Street Limited Partnership.
10.9(5) --Manufacturing Agreement between Applied Materials, Inc. and its
wholly-owned subsidiaries and the Registrant, dated as of
February 20, 1997.
10.10(10) --Securities Purchase Agreement, dated as of May 28, 1997, by and
among the Registrant, Beacon Power Corporation and Duquesne
Enterprises.
10.11(11) --Securities Purchase Agreement, dated as of October 23, 1998, by
and among Beacon Power Corporation, Perseus Capital, L.L.C.,
Duquesne Enterprises, Micro Generation Technology Fund, L.L.C.
and the Registrant.
10.12(11) --Amended and Restated License Agreement, dated as of October 23,
1998, by and among the Registrant and Beacon Power Corporation.
10.13(11) --Registration Rights Statement, dated as of October 23, 1998, by
and among Beacon Power Corporation, Perseus Capital, L.L.C.,
Duquesne Enterprises, Micro Generation Technology Fund, L.L.C.,
and the Registrant, setting forth certain registration rights
granted by the Registrant.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.14(11) --Registration Rights Statement, dated as of October 23, 1998, by
and among Beacon Power Corporation, Perseus Capital, L.L.C.,
Duquesne Enterprises, Micro Generation Technology Fund, L.L.C.
and the Registrant, setting forth certain registration rights
granted by Beacon Power Corporation.
10.15(12) --Form of Common Stock Purchase Warrant issued to certain
individuals and entities on June 15, 1998.
10.16(12) --Form of Common Stock Purchase Warrant issued to certain
individuals and entities on November 11, 1998.
10.17(12) --Lease, dated February 27, 1996, by and between the Registrant
and Diamond Management, Inc.
10.18(12) --Lease, dated March 5, 1998, by and between the Registrant and
Harold W. Slovin.
10.19(12) --Discretionary Demand Line of Credit Letter Agreement, dated as
of December 16, 1998, between the Registrant, SatCon Film
Microelectronics, Inc., K&D MagMotor Corp. and BankBoston, N.A.,
together with Promissory Note, dated as of December 16, 1998,
made in favor of BankBoston, N.A. by the Registrant, SatCon Film
Microelectronics, Inc. and K&D MagMotor Corp. and Security
Agreement, dated as of December 16, 1998, between the Registrant
and BankBoston N.A.
10.20 --Modification, dated April 9, 1999, to Discretionary Demand Line
of Credit Letter Agreement, dated as of December 16, 1998,
between the Registrant, SatCon Film Microelectronics, Inc., K&D
MagMotor Corp. and BankBoston N.A. together with modification,
dated May 7, 1999, to Discretionary Demand Line of Credit Letter
Agreement, dated as of December 16, 1998, between the
Registrant, SatCon Film Microelectronics, Inc., K&D MagMotor
Corp. , HyComp Acquisition Corp. and BankBoston, N.A.
10.21(12) --North America Distributor Agreement, dated June 4, 1998, by and
between SatCon Film Microelectronics, Inc., a division of the
Registrant, and Falcon Electronics, Inc.
10.22(13) --Asset Purchase Agreement, dated as of January 4, 1999, among K&D
MagMotor Corp., the Registrant, Inductive Components, Inc.,
Lighthouse Software, Inc. and Thomas Glynn.
10.23(14) --Asset Purchase Agreement dated as of March 31, 1999 by and
between HyComp, Inc. and HyComp Acquisition Corp., a wholly-
owned subsidiary of the Registrant.
10.24(14) --Note Purchase Agreement dated as of June 22, 1999 by and among
Beacon Power Corporation, Perseus Capital, L.L.C., Duquesne
Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and
the Registrant.
10.25(14) --Note and Warrant Purchase Agreement dated as of August 2, 1999
by and among Beacon Power Corporation, Perseus Capital, L.L.C.,
Duquesne Enterprises, Inc., Micro Generation Technology Fund,
L.L.C. and the Registrant.
10.26(15) --License and Technical Assistant Agreement dated as of June 7,
1999 by and between Delco Remy America, Inc. and the Registrant.
10.27(6) --Securities Purchase Agreement, dated as of August 25, 1999,
among the Registrant and the purchasers listed on Schedule I
thereto.
10.28(6) --Registration Rights Agreement, dated as of August 25, 1999,
among the Registrant and the investors named on the signature
pages thereof.
10.29(6) --Form of Warrants issued on August 25, 1999 in connection with
the sale of the Series A Preferred Stock.
10.30(2) --Securities Purchase Agreement, dated as of October 21, 1999,
between the Registrant and Mechanical Technology Incorporated.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.31(2) --SatCon Registration Rights Agreement, dated as of October 21,
1999, between the Registrant and Mechanical Technology
Incorporated.
10.32(2) --MTI Registration Rights Agreement, dated as of October 21, 1999,
between Mechanical Technology Incorporated and the Registrant.
10.33(2) --Form of Stock Purchase Warrant issued on October 21, 1999 by the
Registrant to Mechanical Technology Incorporated.
10.34(2) --Form of Stock Purchase Warrant issued on October 21, 1999 by
Mechanical Technology Incorporated to the Registrant.
10.35(3) --Sublease, dated November 16, 1999, between the Registrant and
Northrop Grumman Corporation.
10.36(3) --Transition Services Agreement, dated as of November 16, 1999,
between the Registrant and Northrop Grumman Corporation.
10.37(3) --Memorandum of Understanding, entered into on November 16, 1999,
between the Registrant and Northrop Grumman Corporation.
10.38(3) --Registration Rights Agreement, dated as of November 16, 1999,
between the Registrant and Northrop Grumman Corporation.
10.39(3) --Form of Stock Purchase Warrant issued on November 16, 1999 by
the Registrant to Northrop Grumman Corporation.
10.40(3) --Form of Stock Purchase Warrant to be issued to Northrop Grumman
Corporation upon the satisfaction of certain conditions.
16(16) --Letter Regarding Registrant's Change in Certifying Accountant.
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of PricewaterhouseCoopers LLP.
23.2 --Consent of Arthur Andersen LLP.
27 --Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference to Exhibits to the Registrant's Current Report on
Form 8-K dated April 16, 1997.
(2) Incorporated by reference to Exhibits to the Registrant's Current Report on
Form 8-K dated October 21, 1999
(3) Incorporated by reference to Exhibits to the Registrant's Current Report on
Form 8-K dated November 16, 1999.
(4) Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-49286).
(5) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1997.
(6) Incorporated by reference to Exhibits to the Registrant's Current Report on
Form 8-K dated August 25, 1999.
(7) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1994.
(8) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1996.
(9) Incorporated by reference to Exhibit B to the Registrant's Definitive
Schedule 14A filed January 26, 1999.
(10) Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated May 28, 1997.
54
<PAGE>
(11) Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated October 23, 1998.
(12) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the period ended September 30, 1998.
(13) Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated January 4, 1999.
(14) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1999.
(15) Incorporated by reference to Exhibits to the Registrant's Amendment No. 1
to the Quarterly Report on Form 10-Q for the period ended March 31, 1999.
(16) Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated May 12, 1999.
(*) Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Annual Report on Form 10-K.
55
<PAGE>
Exhibit 10.7
------------
SATCON TECHNOLOGY CORPORATION
1999 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 1999 Stock Incentive Plan (the "Plan") of SatCon
Technology Corporation, a Delaware corporation (the "Company"), is to advance
the interests of the Company's stockholders by enhancing the Company's ability
to attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future subsidiary corporations of as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant."
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered
------------------------------------
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board
<PAGE>
may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 8, Awards may
----------------
be made under the Plan for up to 1,500,000 shares of common stock, $0.01 par
value per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 8, for
---------------------
Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which an Award may be granted to any Participant
under the Plan shall be 100,000 shares per calendar year. The per-Participant
limit described in this Section 4(b) shall be construed and applied consistently
with Section 162(m) of the Code.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
2
<PAGE>
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised by delivery to the
------------------
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
---------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price;
(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in good
faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
3
<PAGE>
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or
(5) by any combination of the above permitted forms of payment.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
----------------------------------------------------------------
(a) Changes in Capitalization. In the event of any stock split, reverse
-------------------------
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares,
4
<PAGE>
spin-off or other similar change in capitalization or event, or any distribution
to holders of Common Stock other than a normal cash dividend, (i) the number and
class of securities available under this Plan, (ii) the per-Participant limit
set forth in Section 4(b), (iii) the number and class of securities and exercise
price per share subject to each outstanding Option, (iv) the repurchase price
per share subject to each outstanding Restricted Stock Award, and (v) the terms
of each other outstanding Award shall be appropriately adjusted by the Company
(or substituted Awards may be made, if applicable) to the extent the Board shall
determine, in good faith, that such an adjustment (or substitution) is necessary
and appropriate. If this Section 8(a) applies and Section 8(c) also applies to
any event, Section 8(c) shall be applicable to such event, and this Section 8(a)
shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
--------------------------
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) Acquisition and Change in Control Events
----------------------------------------
(1) Definitions
-----------
(a) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the Company with or
into another entity as a result of which the Common
Stock is converted into or exchanged for the right to
receive cash, securities or other property; or
(ii) any exchange of shares of the Company for cash,
securities or other property pursuant to a statutory
share exchange transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
5
<PAGE>
"Exchange Act")) (a "Person") of beneficial ownership of
any capital stock of the Company if, after such
acquisition, such Person beneficially owns (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
40% or more of either (x) the then-outstanding shares of
common stock of the Company (the "Outstanding Company
Common Stock") or (y) the combined voting power of the
then-outstanding securities of the Company entitled to
vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided,
--------
however, that for purposes of this subsection (i), the
-------
following acquisitions shall not constitute a Change in
Control Event: (A) any acquisition directly from the
Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable for
common stock or voting securities of the Company, unless
the Person exercising, converting or exchanging such
security acquired such security directly from the Company
or an underwriter or agent of the Company), (B) any
acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (C) any acquisition
by any corporation pursuant to a Business Combination (as
defined below) which complies with clauses (x) and (y) of
subsection (iii) of this definition, or (D) any
acquisition by David B. Eisenhaure (including his heirs)
(each such party is referred to herein as an "Exempt
Person") of any shares of Common Stock; provided that,
after such acquisition, such Exempt Person does not
beneficially own more than 50% of either (i) the
Outstanding Company Common Stock or (ii) the Outstanding
Company Voting Securities; or
(ii) such time as the Continuing Directors (as defined below)
do not constitute a majority of the Board (or, if
applicable, the Board of Directors of a successor
corporation to the Company), where the term "Continuing
Director" means at any date a member of
6
<PAGE>
the Board (x) who was a member of the Board on the date of
the initial adoption of this Plan by the Board or (y) who
was nominated or elected subsequent to such date by at
least a majority of the directors who were Continuing
Directors at the time of such nomination or election or
whose election to the Board was recommended or endorsed by
at least a majority of the directors who were Continuing
Directors at the time of such nomination or election;
provided, however, that there shall be excluded from this
-------- -------
clause (y) any individual whose initial assumption of
office occurred as a result of an actual or threatened
election contest with respect to the election or removal
of directors or other actual or threatened solicitation of
proxies or consents, by or on behalf of a person other
than the Board; or
(iii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share
exchange involving the Company or a sale or other
disposition of all or substantially all of the assets of
the Company (a "Business Combination"), unless,
immediately following such Business Combination, each of
the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common
Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of
the then-outstanding shares of common stock and the
combined voting power of the then-outstanding securities
entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in
such Business Combination (which shall include, without
limitation, a corporation which as a result of such
transaction owns the Company or substantially all of the
Company's assets either directly or through one or more
subsidiaries) (such resulting or acquiring corporation is
referred to herein as the "Acquiring Corporation") in
substantially the same proportions
7
<PAGE>
as their ownership of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination and (y) no
Person (excluding the Acquiring Corporation or any
employee benefit plan (or related trust) maintained or
sponsored by the Company or by the Acquiring Corporation
or any Exempt Person) beneficially owns, directly or
indirectly, 40% or more of the then-outstanding shares of
common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities
of such corporation entitled to vote generally in the
election of directors (except to the extent that such
ownership existed prior to the Business Combination).
(c) "Good Reason" shall mean any significant diminution in the
Participant's title, authority, or responsibilities from and
after such Acquisition Event or Change in Control Event, as the
case may be, or any reduction in the annual cash compensation
payable to the Participant from and after such Acquisition Event
or Change in Control Event, as the case may be, or the
relocation of the place of business at which the Participant is
principally located to a location that is greater than 50 miles
from the current site.
(d) "Cause" shall mean any (i) willful failure by the Participant,
which failure is not cured within 30 days of written notice to
the Participant from the Company, to perform his or her material
responsibilities to the Company or (ii) willful misconduct by
the Participant which affects the business reputation of the
Company. The Participant shall be considered to have been
discharged for "Cause" if the Company determines, within 30 days
after the Participant's resignation, that discharge for Cause
was warranted.
(2) Effect on Options
-----------------
(a) Acquisition Event. Upon the occurrence of an Acquisition Event
-----------------
(regardless of whether such event also constitutes a Change in
Control Event), or the execution by the Company
8
<PAGE>
of any agreement with respect to an Acquisition Event
(regardless of whether such event will result in a Change in
Control Event), the Board shall provide that all outstanding
Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an
affiliate thereof); provided that if such Acquisition Event also
-------- ----
constitutes a Change in Control Event, except to the extent
specifically provided to the contrary in the instrument
evidencing any Option or any other agreement between a
Participant and the Company (A) one-half of the number of shares
subject to the Option which were not already vested shall be
exercisable upon the occurrence of such Acquisition Event and,
subject to (B) below, the remaining one-half of such number of
shares shall continue to become vested in accordance with the
original vesting schedule set forth in such option, with one-
half of the number of shares that would otherwise have first
become vested becoming so vested on each subsequent vesting date
in accordance with the original schedule and (B) such assumed or
substituted options shall become immediately exercisable in full
if, on or prior to the first anniversary of the date of the
consummation of the Acquisition Event, the Participant's
employment with the Company or the acquiring or succeeding
corporation is terminated for Good Reason by the Participant or
is terminated without Cause by the Company or the acquiring or
succeeding corporation. For purposes hereof, an Option shall be
considered to be assumed if, following consummation of the
Acquisition Event, the Option confers the right to purchase, for
each share of Common Stock subject to the Option immediately
prior to the consummation of the Acquisition Event, the
consideration (whether cash, securities or other property)
received as a result of the Acquisition Event by holders of
Common Stock for each share of Common Stock held immediately
prior to the consummation of the Acquisition Event (and if
holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however, that if
the consideration received as a result of the Acquisition Event
is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof),
9
<PAGE>
the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon
the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof)
equivalent in fair market value to the per share consideration
received by holders of outstanding shares of Common Stock as a
result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not agree
to assume, or substitute for, such Options, then the Board shall,
upon written notice to the Participants, provide that all then
unexercised Options will become exercisable in full as of a
specified time prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event,
except to the extent exercised by the Participants before the
consummation of such Acquisition Event; provided, however, that
in the event of an Acquisition Event under the terms of which
holders of Common Stock will receive upon consummation thereof a
cash payment for each share of Common Stock surrendered pursuant
to such Acquisition Event (the "Acquisition Price"), then the
Board may instead provide that all outstanding Options shall
terminate upon consummation of such Acquisition Event and that
each Participant shall receive, in exchange therefor, a cash
payment equal to the amount (if any) by which (A) the Acquisition
Price multiplied by the number of shares of Common Stock subject
to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options.
(b) Change in Control Event that is not an Acquisition Event. Upon
--------------------------------------------------------
the occurrence of a Change in Control Event that does not also
constitute an Acquisition Event, except to the extent
specifically provided to the contrary in the instrument
evidencing any Option or any other agreement between a
Participant and the Company, the vesting schedule of such Option
shall be accelerated in part so that one-half of the number of
shares that would otherwise have first become
10
<PAGE>
vested on any date after the date of the Change in Control Event
shall immediately become exercisable. The remaining one-half of
such number of shares shall continue to become vested in
accordance with the original vesting schedule set forth in such
Option, with one-half of the number of shares that would
otherwise have first become vested becoming so vested on each
subsequent vesting date in accordance with the original schedule;
provided, however, that each such Option shall be immediately
exercisable in full if, on or prior to the first anniversary of
the date of the consummation of the Change in Control Event, the
Participant's employment with the Company or the acquiring or
succeeding corporation is terminated for Good Reason by the
Participant or is terminated without Cause by the Company or the
acquiring or succeeding corporation.
(3) Effect on Restricted Stock Awards
---------------------------------
(a) Acquisition Event that is not a Change in Control Event. Upon
-------------------------------------------------------
the occurrence of an Acquisition Event that is not a Change in
Control Event, the repurchase and other rights of the Company
under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash,
securities or other property which the Common Stock was converted
into or exchanged for pursuant to such Acquisition Event in the
same manner and to the same extent as they applied to the Common
Stock subject to such Restricted Stock Award.
(b) Change in Control Event. Upon the occurrence of a Change in
-----------------------
Control Event (regardless of whether such event also constitutes
an Acquisition Event), except to the extent specifically provided
to the contrary in the instrument evidencing any Restricted Stock
Award or any other agreement between a Participant and the
Company, the vesting schedule of all Restricted Stock Awards
shall be accelerated in part so that one-half of the number of
shares that would otherwise have first become free from
11
<PAGE>
conditions or restrictions on any date after the date of the
Change in Control Event shall immediately become free from
conditions or restrictions. Subject to the following sentence,
the remaining one-half of such number of shares shall continue to
become free from conditions or restrictions in accordance with
the original schedule set forth in such Restricted Stock Award,
with one-half of the number of shares that would otherwise have
first become free from conditions or restrictions becoming free
from conditions or restrictions on each subsequent vesting date
in accordance with the original schedule. In addition, each such
Restricted Stock Award shall immediately become free from all
conditions or restrictions if, on or prior to the first
anniversary of the date of the consummation of the Change in
Control Event, the Participant's employment with the Company or
the acquiring or succeeding corporation is terminated for Good
Reason by the Participant or is terminated without Cause by the
Company or the acquiring or succeeding corporation.
12
<PAGE>
(4) Effect on Other Awards
----------------------
(a) Acquisition Event that is not a Change in Control Event. The
-------------------------------------------------------
Board shall specify the effect of an Acquisition Event that is
not a Change in Control Event on any other Award granted under
the Plan at the time of the grant of such Award.
(b) Change in Control Event. Upon the occurrence of a Change in
-----------------------
Control Event (regardless of whether such event also constitutes
an Acquisition Event), except to the extent specifically provided
to the contrary in the instrument evidencing any Award or any
other agreement between a Participant and the Company, the
vesting schedule of all other Awards shall be accelerated in part
so that one-half of the number of shares that would otherwise
have first become exercisable, realizable, vested or free from
conditions or restrictions on any date after the date of the
Change in Control Event shall immediately become exercisable,
realizable, vested or free from conditions or restrictions.
Subject to the following sentence, the remaining one-half of such
number of shares shall continue to become exercisable,
realizable, vested or free from conditions or restrictions in
accordance with the original schedule set forth in such Award,
with one-half of the number of shares that would otherwise have
first become exercisable, realizable, vested or free from
conditions or restrictions becoming so exercisable, realizable,
vested or free from conditions or restrictions on each subsequent
vesting date in accordance with the original schedule. In
addition, each such Award shall immediately become fully
exercisable, realizable, vested or free from conditions or
restrictions if, on or prior to the first anniversary of the date
of the consummation of the Change in Control Event, the
Participant's employment with the Company or the acquiring or
succeeding corporation is terminated for Good Reason by the
Participant or is terminated without Cause by the Company or the
acquiring or succeeding corporation.
13
<PAGE>
9. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise
-------------------------
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall
be exercisable only by the Participant. References to a Participant, to the
extent relevant in the context, shall include references to authorized
transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument
-------------
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each
----------------
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that
14
<PAGE>
the action, taking into account any related action, would not materially and
adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Options
------------
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of restrictions in full or in part or that any other
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
10. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any
--------------------------------------
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock
15
<PAGE>
acquired upon such Option exercise, notwithstanding the fact that such shares
were not outstanding as of the close of business on the record date for such
stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board, but no Award granted to a
Participant designated by the Board as subject to Section 162(m) of the Code by
the Board shall become exercisable, vested or realizable, as applicable to such
Award, unless and until the Plan has been approved by the Company's stockholders
to the extent stockholder approval is required by Section 162(m) in the manner
required under Section 162(m) (including the vote required under Section
162(m)). No Awards shall be granted under the Plan after the completion of ten
years from the earlier of (i) the date on which the Plan was adopted by the
Board or (ii) the date the Plan was approved by the Company's stockholders, but
Awards previously granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that to the extent required by
Section 162(m) of the Code, no Award granted to a Participant designated as
subject to Section 162(m) by the Board after the date of such amendment shall
become exercisable, realizable or vested, as applicable to such Award (to the
extent that such amendment to the Plan was required to grant such Award to a
particular Participant), unless and until such amendment shall have been
approved by the Company's stockholders as required by Section 162(m) (including
the vote required under Section 162(m)).
(e) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
16
<PAGE>
Exhibit 10.20
-------------
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
As of April 9, 1999
SatCon Technology Corporation
SatCon Film Microelectronics, Inc.
K&D Magmotor Corp.
161 First Street
Cambridge, Massachusetts 02142
Attention: David B. Eisenhaure, President
Dear David:
This letter (this "Letter Agreement") will confirm that BankBoston, N.A. (the
"Bank") holds available for SATCON TECHNOLOGY CORPORATION, SATCON FILM
MICROELECTRONICS, INC., and K&D MAGMOTOR CORP. (collectively, the "Borrowers") a
$3,000,000 demand discretionary line of credit. As you know, this lending
arrangement is a modification of the currently existing $2,000,000 line of
credit. All capitalized terms used but not defined in the text of this Letter
Agreement shall have the meanings specified on Annex 1 attached hereto.
-------
All borrowings under this line (each a "Loan" and collectively, the "Loans")
will be the joint and several obligations of the Borrowers and will be used by
the Borrowers for working capital purposes and capital expenditures. All
outstanding amounts borrowed will be payable on demand.
Upon satisfaction of the Closing Conditions, borrowings will be made available
at the Bank's sole discretion, subject to Borrowing Base Availability, and will
bear interest at the Bank's Alternate Base Rate in effect from time to time plus
----
1.5% per annum, provided that Overadvances (as hereinafter defined) will bear
--------
interest at the Alternate Base Rate in effect from time to time plus 2.5% per
annum. Loans will be available on a same-day basis and prepayment of Loans may
be made without penalty.
In addition, insofar as the Borrowers may request and the Bank may be willing in
its sole discretion to make Loans to the Borrowers at a time when the debit
balance in the Borrowers' loan account with the Bank (the "Loan Account")
exceeds the Borrowing Base Availability or which cause the debit balance in the
Loan Account to exceed the Borrowing Base Availability (any such Loan or Loans
being herein referred to
<PAGE>
individually as an "Overadvance" and collectively as "Overadvances"), the Bank
shall enter such Overadvances, along with all interest, expenses and charges
relating thereto, as debits in the Loan Account. Although it will be within the
sole discretion of the Bank whether it makes Overadvances under this Letter
Agreement, the Borrowers understand that: (i) the aggregate amount of the
Overadvances at any one time outstanding shall not exceed $500,000; (ii) the
debit balance in the Loan Account at any one time outstanding shall not exceed
$3,000,000; and (iii) no demand shall have been made or default shall exist and
be continuing hereunder. Failure of the Borrowers to maintain any of the
foregoing conditions shall be a default hereunder, and shall be deemed to be a
failure to perform an Obligation hereunder. Notwithstanding the foregoing,
however, the Borrowers acknowledge that the Bank at any time may, in its sole
and complete discretion and even if all of the preceding conditions are met,
require the Borrowers to reduce the debit balance in the Loan Account so that
such debit balance no longer exceeds the Borrowing Base Availability.
Notwithstanding anything contained in the preceding paragraph or otherwise,
unless sooner demanded by the Bank in its sole discretion, the Borrowers shall
repay all outstanding Overadvances by August 8, 1999.
Loans will be evidenced by a Demand Promissory Note in the form of Annex 2
attached hereto (the "Note"). Each borrowing and the corresponding information
will be recorded on such Note on the day of borrowing. The Bank's corresponding
records of debit and credit will be additional evidence of Loans made hereunder.
The Borrowers shall also be permitted to request that standby and documentary
letters of credit be issued for their account in lieu of Loans hereunder,
provided that at the time the Borrowers request the issuance of a letter of
- --------
credit and after giving effect to the issuance thereof, the LC Amount (as
hereinafter defined) shall not exceed (i) $250,000 or (ii) an amount which, when
added to the current debit balance in the Loan Account, would not exceed the
Borrowing Base Availability plus any permitted Overadvances at such time, if
----
any. If in our discretion we agree to issue such letters of credit, the
Borrowers shall enter into such agreements and execute such documents as the
Bank customarily requires in like transactions, including without limitation, a
letter of credit application and agreement. Any and all amounts drawn under
letters of credit shall be immediately due and payable by the Borrowers to the
Bank and, in any event, shall bear interest at four percent (4%) above the
Alternate Base Rate then in effect until fully paid. All standby letters of
credit shall bear such fees as are mutually agreed to by the Bank and the
Borrowers, and all standby and documentary letters of credit shall bear such
other fees as are customarily charged by the Bank on such letters of credit.
The anticipated availability of borrowings under this demand discretionary
facility is subject to our usual conditions that we continue to be satisfied
with the affairs of the Borrowers and to any changes in government regulations
or monetary policies. In addition, availability of borrowings will at all times
be subject to Borrowing Base Availability.
-2-
<PAGE>
Each Borrower agrees that it will not, without our prior written consent, create
or suffer to exist any security interest, lien or other encumbrance
("Encumbrances") upon or with respect to any of its properties or assets, except
for Encumbrances in favor of the Bank pursuant to the Security Agreement between
such Borrower and the Bank of even date herewith. Each Borrower also agrees
that it does not have any indebtedness, nor will it incur any indebtedness,
other than the indebtedness reflected hereby and customary trade debt (not for
borrowed money) in the ordinary course of business, so long as such debt is
promptly paid and discharged when due or in conformity with customary trade
terms and practices, without our prior written consent. No Borrower will,
without our prior written consent, declare any dividends or make any
distributions or other payments (other than salary in the ordinary course of
business) to its shareholders.
Each Borrower represents and warrants to us that it is not in default under any
material agreement or instrument to which it is a party or by which it is bound
and that it is in compliance with all laws, statutes, regulations and rules
applicable to it. Further, each Borrower agrees to notify us promptly of the
occurrence (or, if known, the anticipated occurrence) of any of the following
events: (i) any default under this Letter Agreement or the other Loan Documents
or any default, acceleration or demand under any other agreement or instrument
to which it is a party, by which it is bound or of which it is a guarantor, (ii)
any material adverse change in the business, properties, condition (financial or
otherwise) or prospects of any Borrower, or (iii) any failure of any Borrower to
comply with any law, statute, regulation or rule applicable to it or the receipt
of any notice regarding such potential non-compliance.
The Borrowers will furnish to the Bank such financial or other information
regarding their business and operations as we may reasonably request, by prior
written notice, from time to time, including, in any event, annual financial
statements (including a balance sheet and related statements of income and cash
flow) within 90 days after the end of each fiscal year certified by independent
public accountants acceptable to the Bank, quarterly financial statements
(including a balance sheet and related statements of income and cash flow)
within 45 days after the end of each fiscal quarter certified by the chief
financial officer of Satcon on behalf of the Borrowers, monthly financial
statements (including a balance sheet and related statements of income and cash
flow) within 30 days after the end of each fiscal month certified by the chief
financial officer of Satcon on behalf of the Borrowers, and monthly borrowing
base reports (along with detailed accounts receivable aging reports), in form
satisfactory to the Bank, within 7 days after the end of each fiscal month. All
such monthly and quarterly financial statements shall be on a consolidated and
consolidating basis and all such annual financial statements shall be on a
consolidated basis. All such financial statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied.
As a condition to entering into this Letter Agreement and the financing
contemplated hereby, we shall require a perfected first-priority security
interest in all assets of each Borrower, as more fully described in the Security
Agreement referred to above, securing
-3-
<PAGE>
all of the Borrowers' joint and several obligations to the Bank hereunder, under
the Note and under the other Loan Documents (collectively, the "Obligations").
It is agreed that the references to the term "Obligations" contained in each
such Security Agreement shall also be deemed to mean and include all of the
Obligations under or in respect of this Letter Agreement, the Note and the other
Loan Documents, and that the references in each such Security Agreement to the
term "Letter Agreement" shall also be deemed to mean and include this Letter
Agreement.
The Borrowers will pay all reasonable costs, fees and expenses in connection
with the preparation and negotiation of the terms of this Letter Agreement and
other Loan Documents (whether or not the facility closes), and in connection
with the amendment, administration or enforcement hereof or thereof.
The Borrowers shall have the right to terminate this Letter Agreement upon prior
written notice to the Bank. The Bank shall have the right to terminate this
Letter Agreement at any time.
Please sign the form of acceptance on the enclosed counterpart of this Letter
Agreement and the Note attached hereto as Annex 2, and return the same, together
-------
with all of the other Loan Documents and authorizing resolutions, to the
undersigned, and complete all of the other acts necessary to fulfill the Closing
Conditions, on or before April 9, 1999.
-4-
<PAGE>
We are pleased to be of service to you.
Very truly yours,
BANKBOSTON, N.A.
By: /s/ Christopher S. Allen
------------------------
Title: Director
Accepted and Agreed:
SATCON TECHNOLOGY CORPORATION
By: /s/ David B. Eisenhaure
-----------------------
Title: President
SATCON FILM MICROELECTRONICS, INC.
By: /s/ David B. Eisenhaure
-----------------------
Title: President
K&D MAGMOTOR CORP.
By: /s/ David B. Eisenhaure
-----------------------
Title: President
Date: April 9, 1999
-5-
<PAGE>
ANNEX 1
-------
"Alternate Base Rate" shall mean the higher of (i) the annual rate of interest
announced from time to time by the Bank at its head office in Boston,
Massachusetts as its "Base Rate" and (ii) one-half of one percent (1/2%) above
the overnight federal funds effective rate as published by the Board of
Governors of the Federal Reserve System, as in effect from time to time. Any
change in the Base Rate shall result in a corresponding change on the same day
in the rate of interest accruing from and after such day on the unpaid balance
of principal of the Loans, if any, effective on the day of such change in the
Base Rate.
"Borrowing Base Availability" shall mean an amount equal to the lesser of (i)
$3,000,000 less the LC Amount and (ii) the sum of 80% of the Eligible Accounts
----
Receivable of the Borrowers plus 40% of the Eligible Inventory of the Borrowers,
----
provided that the Bank reserves the right, in its sole discretion, to increase
- --------
or decrease the foregoing percentage or to modify the eligibility requirements
at any time.
"Closing Conditions" shall mean each of the following:
(i) the Bank has received each of the Loan the Bank; duly authorized,
Documents, each in form executed and delivered and substance
originals of satisfactory to
(ii) there has not occurred (financial or otherwise), any Borrower; any
material adverse operations, assets, change in the condition income
and/or prospects of
(iii) each Borrower is in compliance with all of the terms of each Loan
Document; and
(iv) there has not been any thereof that, in the policy of any Loans
hereunder. change in any law or Bank's opinion, would governmental
agency or regulation or interpretation make it illegal or authority
for the Bank to against the make the
"Eligible Accounts Receivable" shall mean the aggregate accounts receivable of a
Borrower:
(i) in which the Bank has a valid and perfected first-priority security
interest;
(ii) which are not unpaid more than 90 days from the date the
corresponding service was rendered or performed by such Borrower;
(iii) which arose in the ordinary course of business;
<PAGE>
(iv) which are not progress or advance billings for work not yet performed
(including, without limitation, advance billings for up-front "non-
recurring engineering" and "burn-in charges");
(v) which do not arise from the rendering of services on a contract basis;
and
(vi) which have not been designated by the Bank in its sole discretion as
unacceptable.
"Base Inventory" shall mean inventory (other than work-in-process) as to which a
Borrower has acquired title, the Bank has acquired a valid and perfected first-
priority security interest, and such Borrower has furnished to the Bank
information relating thereto as provided in this Letter Agreement. Inventory
immediately loses the status of Base Inventory if and when a Borrower sells it,
otherwise passes title thereto or consumes it or the Bank releases or transfers
its security interest therein. Anything herein to the contrary notwithstanding,
Base Inventory shall exclude all inventory owned by K&D Magmotor Corp. unless
and until it institutes a tracking system capable of reporting changes in its
inventory on a monthly basis, which system shall be satisfactory to the Bank in
its sole discretion.
"Eligible Inventory" shall mean the net value of Base Inventory, calculated at
the lesser of fair market value or cost determined on the "first in, first out"
basis after taking into account charges and liens (other than those of the Bank)
of all kinds against the Base Inventory, changes in the market value thereof,
and transportation, processing and other handling charges affecting the value
thereof, all as determined by the Bank in its sole discretion, which
determination shall be final and binding upon the Borrowers.
"Loan Documents" shall mean, collectively, (i) this Letter Agreement, (ii) the
Note, (iii) the separate Security Agreements dated as of December 16, 1998
between each Borrower and the Bank, (iv) the separate Solvency Certificates of
each Borrower dated as of December 16, 1998 in favor of the Bank, and (v) the
letters of credit issued pursuant to this Letter Agreement (or its predecessor)
and all documents, instruments and contracts (including applications) delivered
in connection therewith, as any of the foregoing may be amended from time to
time; along with any and all other agreements, certificates or documents
executed and delivered by any Borrower to the Bank in connection with the
foregoing or the transactions contemplated hereby or thereby, whether executed
and delivered on or before the Closing Date or at any time thereafter.
"LC Amount" shall mean, with respect to all letters of credit issued by the Bank
and outstanding at any time, an aggregate amount equal to the sum of (i) the
maximum amount then available to be drawn under such letters of credit (without
regard to whether any conditions to drawing could then be met), plus (ii) the
aggregate amount of any unreimbursed draws under such letters of credit.
<PAGE>
ANNEX 2
-------
SATCON TECHNOLOGY CORPORATION
SATCON FILM MICROELECTRONICS, INC.
K&D MAGMOTOR CORP.
DEMAND PROMISSORY NOTE
------ ---------- ----
$3,000,000 April 9, 1999
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned (collectively, the "Borrowers"),
by this promissory note ("this Note"), absolutely and unconditionally, and
jointly and severally, promise to pay to the order of BANKBOSTON, N.A. (the
"Bank"), at the head office of the Bank in Boston, Massachusetts, ON DEMAND,
THREE MILLION DOLLARS ($3,000,000) or, if less, the aggregate principal amount
of all loans made by the Bank to the Borrowers as shown in the schedule attached
hereto (the "Note Schedule"), together with interest on each loan from the date
such loan is made until the maturity thereof at the applicable rate set forth in
the Note Schedule.
Interest on the principal amount of each loan shall be payable in
arrears ON DEMAND, provided that unless sooner demanded interest on each loan
--------
shall be payable on the first day of each successive calendar month, beginning
on the first of such dates occurring after the date of such loan and when such
loan is due.
Loans shall bear interest at a rate per annum equal to the rate of
interest from time to time in effect under that certain Discretionary Demand
Line Letter of even date herewith among the Borrowers and the Bank (the "Line
Letter").
Upon demand, there shall become absolutely due and payable by the
Borrowers and the Borrowers hereby jointly and severally promise to pay to the
Bank, the balance (if any) of the principal hereof then remaining unpaid, all of
the unpaid interest accrued hereon and all (if any) other amounts payable on or
in respect of this Note or the indebtedness evidenced hereby.
Interest shall be computed on the basis of a 360-day year and paid for
the actual number of days elapsed. All payments hereunder shall be made in
lawful currency of the United States of America in immediately available and
freely transferable funds. All payments hereunder shall be made without set-off
or counterclaim and free and clear of and without any deduction of any kind for
any taxes, levies, fees, deductions, withholdings, restrictions or conditions of
any nature.
-3-
<PAGE>
Overdue payments of principal of any loan (whether after demand or
otherwise), and, to the extent permitted by applicable law, overdue interest,
fees, expenses and other charges, shall bear interest, payable on demand and
compounded daily, at a rate per annum equal to 4% above the Base Rate.
The Borrowers will have the right to prepay the unpaid principal of
each loan in full or in part without penalty or charge, provided that all of the
--------
unpaid interest accrued on the amount so prepaid to the date of such payment
must be paid at the time of any such prepayment. The Borrowers will be entitled
at the Bank's discretion to reborrow all or any part of the principal of any
loan repaid or prepaid prior to demand by the Bank.
To the extent permitted by law and not expressly required under any of
the Loan Documents, the Borrowers hereby irrevocably waive presentment, demand,
notice of dishonor, protest and all other demands and notices in connection with
the delivery, acceptance, performance and enforcement of this Note. The
Borrowers hereby absolutely and irrevocably consent and submit to the
jurisdiction of the Courts of the Commonwealth of Massachusetts and of any
Federal Court located in the said Commonwealth in connection with any actions or
proceedings brought against the Borrowers by the Bank arising out of or relating
to this Note.
EACH BORROWER HEREBY WAIVES TRIAL BY JURY, AND HEREBY WAIVES RIGHTS OF
SETOFF, IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS NOTE, THE LINE LETTER OF EVEN DATE HEREWITH, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO AMONG THE BORROWERS
AND THE BANK. EACH BORROWER CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED
AND FREELY MADE.
The failure of the Bank to exercise all or any of its rights,
remedies, powers or privileges hereunder in any instance shall not constitute a
waiver thereof in that or in any other instance.
All notices, demands or other communications to or upon the Borrowers
pursuant to this Note shall be in writing, either delivered in hand or sent to
the undersigned by first-class mail, postage prepaid, or by telex, telefax,
facsimile transmission or telegraph, addressed to the undersigned, marked
"Attention: David B. Eisenhaure" at the address of the Borrowers set forth
below or at such other address as the Borrowers shall have designated in a
written notice to the Bank.
Should all or any part of the indebtedness represented by this Note be
collected by action at law, or in bankruptcy, insolvency, receivership or other
court proceedings, or should this Note be placed in the hands of attorneys for
collection after default, the Borrowers hereby jointly and severally promise to
pay to the Bank, upon demand by the Bank at any time, in addition to principal,
interest and all (if any) other amounts payable on or in respect of this Note or
the indebtedness evidenced hereby, all court costs and
-4-
<PAGE>
reasonable attorneys' fees and all other reasonable collection charges and
expenses incurred or sustained by the Bank.
This instrument shall have the effect of an instrument executed under
seal and shall be governed by the laws of the Commonwealth of Massachusetts
without regard to its conflicts of law rules.
Each of the Borrowers shall be jointly and severally liable for the
full amount owing under this Note.
-5-
<PAGE>
IN WITNESS WHEREOF, this NOTE has been duly executed by each of the
undersigned on the date first above written in Boston, Massachusetts.
[SEAL]
Attest: SATCON TECHNOLOGY CORPORATION
/s/ Marilyn Fitzgerald By: /s/ David B. Eisenhaure
- ---------------------------- -----------------------
My commission expires Title: President
11-4-2005
Address: 161 First Street
Cambridge, Massachusetts 02142
Attest: SATCON FILM
MICROELECTRONICS, INC.
/s/ Marilyn Fitzgerald By: /s/ David B. Eisenhaure
- ---------------------------- -----------------------
My commission expires Title: President
11-4-2005
Address: 161 First Street
Cambridge, Massachusetts 02142
Attest: K&D MAGMOTOR CORP.
/s/ Marilyn Fitzgerald By: /s/ David B. Eisenhaure
- ---------------------------- -----------------------
My commission expires Title: President
11-4-2005
Address: 161 First Street
Cambridge, Massachusetts 02142
-6-
<PAGE>
NOTE SCHEDULE TO PROMISSORY NOTE
DATED: April 9, 1999
Date and
Principal Amount of
Date of Amount of Interest Payment Notation
Loan Loan Rate Received Made By
---- ---- ---- -------- -------
Base Rate
plus 1.5%*
______________________________________
* Notwithstanding the 1.5% Base Rate spread set forth above, any Loans which
constitute Overadvances under the Line Letter shall bear interest at the
Base Rate plus 2.5%. The Base Rate shall have the meaning set forth in the
Line Letter.
-7-
<PAGE>
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
As of May 7, 1999
SatCon Technology Corporation
SatCon Film Microelectronics, Inc.
K&D Magmotor Corp.
HyComp Acquisition Corp.
161 First Street
Cambridge, Massachusetts 02142
Attention: David B. Eisenhaure, President
Dear David:
This letter (this "Letter Agreement") will confirm that BankBoston, N.A. (the
"Bank") holds available for SATCON TECHNOLOGY CORPORATION, SATCON FILM
MICROELECTRONICS, INC., K&D MAGMOTOR CORP. and HYCOMP ACQUISITION CORP.
(collectively, the "Borrowers") a $3,000,000 demand discretionary line of
credit. As you know, this lending arrangement is a modification of the
currently existing $3,000,000 line of credit in order to reflect the addition of
HyComp Acquisition Corp. as a new Borrower hereunder. All capitalized terms
used but not defined in the text of this Letter Agreement shall have the
meanings specified on Annex 1 attached hereto.
-------
All borrowings under this line (each a "Loan" and collectively, the "Loans")
will be the joint and several obligations of the Borrowers and will be used by
the Borrowers for working capital purposes and capital expenditures. All
outstanding amounts borrowed will be payable on demand.
Upon satisfaction of the Closing Conditions, borrowings will be made available
at the Bank's sole discretion, subject to Borrowing Base Availability, and will
bear interest at the Bank's Alternate Base Rate in effect from time to time plus
----
1.5% per annum, provided that Overadvances (as hereinafter defined) will bear
--------
interest at the Alternate Base Rate in effect from time to time plus 2.5% per
annum. Loans will be available on a same-day basis and prepayment of Loans may
be made without penalty.
In addition, insofar as the Borrowers may request and the Bank may be willing in
its sole discretion to make Loans to the Borrowers at a time when the debit
balance in the
<PAGE>
Borrowers' loan account with the Bank (the "Loan Account") exceeds the Borrowing
Base Availability or which cause the debit balance in the Loan Account to exceed
the Borrowing Base Availability (any such Loan or Loans being herein referred to
individually as an "Overadvance" and collectively as "Overadvances"), the Bank
shall enter such Overadvances, along with all interest, expenses and charges
relating thereto, as debits in the Loan Account. Although it will be within the
sole discretion of the Bank whether it makes Overadvances under this Letter
Agreement, the Borrowers understand that: (i) the aggregate amount of the
Overadvances at any one time outstanding shall not exceed $500,000; (ii) the
debit balance in the Loan Account at any one time outstanding shall not exceed
$3,000,000; and (iii) no demand shall have been made or default shall exist and
be continuing hereunder. Failure of the Borrowers to maintain any of the
foregoing conditions shall be a default hereunder, and shall be deemed to be a
failure to perform an Obligation hereunder. Notwithstanding the foregoing,
however, the Borrowers acknowledge that the Bank at any time may, in its sole
and complete discretion and even if all of the preceding conditions are met,
require the Borrowers to reduce the debit balance in the Loan Account so that
such debit balance no longer exceeds the Borrowing Base Availability.
Notwithstanding anything contained in the preceding paragraph or otherwise,
unless sooner demanded by the Bank in its sole discretion, the Borrowers shall
repay all outstanding Overadvances by August 8, 1999.
Loans will be evidenced by a Demand Promissory Note in the form of Annex 2
-------
attached hereto (the "Note"). Each borrowing and the corresponding information
will be recorded on such Note on the day of borrowing. The Bank's corresponding
records of debit and credit will be additional evidence of Loans made hereunder.
The Borrowers shall also be permitted to request that standby and documentary
letters of credit be issued for their account in lieu of Loans hereunder,
provided that at the time the Borrowers request the issuance of a letter of
- --------
credit and after giving effect to the issuance thereof, the LC Amount (as
hereinafter defined) shall not exceed (i) $250,000 or (ii) an amount which, when
added to the current debit balance in the Loan Account, would not exceed the
Borrowing Base Availability plus any permitted Overadvances at such time, if
----
any. If in our discretion we agree to issue such letters of credit, the
Borrowers shall enter into such agreements and execute such documents as the
Bank customarily requires in like transactions, including without limitation, a
letter of credit application and agreement. Any and all amounts drawn under
letters of credit shall be immediately due and payable by the Borrowers to the
Bank and, in any event, shall bear interest at four percent (4%) above the
Alternate Base Rate then in effect until fully paid. All standby letters of
credit shall bear such fees as are mutually agreed to by the Bank and the
Borrowers, and all standby and documentary letters of credit shall bear such
other fees as are customarily charged by the Bank on such letters of credit.
The anticipated availability of borrowings under this demand discretionary
facility is subject to our usual conditions that we continue to be satisfied
with the affairs of the
-2-
<PAGE>
Borrowers and to any changes in government regulations or monetary policies. In
addition, availability of borrowings will at all times be subject to Borrowing
Base Availability.
Each Borrower agrees that it will not, without our prior written consent, create
or suffer to exist any security interest, lien or other encumbrance
("Encumbrances") upon or with respect to any of its properties or assets, except
for Encumbrances in favor of the Bank pursuant to the Security Agreement between
such Borrower and the Bank of even date herewith. Each Borrower also agrees that
it does not have any indebtedness, nor will it incur any indebtedness, other
than the indebtedness reflected hereby and customary trade debt (not for
borrowed money) in the ordinary course of business, so long as such debt is
promptly paid and discharged when due or in conformity with customary trade
terms and practices, without our prior written consent. No Borrower will,
without our prior written consent, declare any dividends or make any
distributions or other payments (other than salary in the ordinary course of
business) to its shareholders.
Each Borrower represents and warrants to us that it is not in default under any
material agreement or instrument to which it is a party or by which it is bound
and that it is in compliance with all laws, statutes, regulations and rules
applicable to it. Further, each Borrower agrees to notify us promptly of the
occurrence (or, if known, the anticipated occurrence) of any of the following
events: (i) any default under this Letter Agreement or the other Loan Documents
or any default, acceleration or demand under any other agreement or instrument
to which it is a party, by which it is bound or of which it is a guarantor, (ii)
any material adverse change in the business, properties, condition (financial or
otherwise) or prospects of any Borrower, or (iii) any failure of any Borrower to
comply with any law, statute, regulation or rule applicable to it or the receipt
of any notice regarding such potential non-compliance.
The Borrowers will furnish to the Bank such financial or other information
regarding their business and operations as we may reasonably request, by prior
written notice, from time to time, including, in any event, annual financial
statements (including a balance sheet and related statements of income and cash
flow) within 90 days after the end of each fiscal year certified by independent
public accountants acceptable to the Bank, quarterly financial statements
(including a balance sheet and related statements of income and cash flow)
within 45 days after the end of each fiscal quarter certified by the chief
financial officer of Satcon on behalf of the Borrowers, monthly financial
statements (including a balance sheet and related statements of income and cash
flow) within 30 days after the end of each fiscal month certified by the chief
financial officer of Satcon on behalf of the Borrowers, and monthly borrowing
base reports (along with detailed accounts receivable aging reports), in form
satisfactory to the Bank, within 7 days after the end of each fiscal month. All
such monthly and quarterly financial statements shall be on a consolidated and
consolidating basis and all such annual financial statements shall be on a
consolidated basis. All such financial statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied.
-3-
<PAGE>
As a condition to entering into this Letter Agreement and the financing
contemplated hereby, we shall require a perfected first-priority security
interest in all assets of each Borrower, as more fully described in the Security
Agreement referred to above, securing all of the Borrowers' joint and several
obligations to the Bank hereunder, under the Note and under the other Loan
Documents (collectively, the "Obligations"). It is agreed that the references to
the term "Obligations" contained in each such Security Agreement shall also be
deemed to mean and include all of the Obligations under or in respect of this
Letter Agreement, the Note and the other Loan Documents, and that the references
in each such Security Agreement to the term "Letter Agreement" shall also be
deemed to mean and include this Letter Agreement.
The Borrowers will pay all reasonable costs, fees and expenses in connection
with the preparation and negotiation of the terms of this Letter Agreement and
other Loan Documents (whether or not the facility closes), and in connection
with the amendment, administration or enforcement hereof or thereof.
The Borrowers shall have the right to terminate this Letter Agreement upon prior
written notice to the Bank. The Bank shall have the right to terminate this
Letter Agreement at any time.
Please sign the form of acceptance on the enclosed counterpart of this Letter
Agreement and the Note attached hereto as Annex 2, and return the same, together
-------
with all of the other Loan Documents and authorizing resolutions, to the
undersigned, and complete all of the other acts necessary to fulfill the Closing
Conditions, on or before May 7, 1999.
-4-
<PAGE>
We are pleased to be of service to you.
Very truly yours,
BANKBOSTON, N.A.
By: /s/ Christopher S. Allen
-------------------------
Title: Director
Accepted and Agreed:
SATCON TECHNOLOGY CORPORATION
By: /s/ David B. Eisenhaure
----------------------------
Title: President
SATCON FILM MICROELECTRONICS, INC.
By: /s/ David B. Eisenhaure
----------------------------
Title: President
K&D MAGMOTOR CORP.
By: /s/ David B. Eisenhaure
----------------------------
Title: President
HYCOMP ACQUISITION CORP.
By: /s/ David B. Eisenhaure
----------------------------
Title: President
Date: May 7, 1999
-5-
<PAGE>
ANNEX 1
-------
"Alternate Base Rate" shall mean the higher of (i) the annual rate of interest
announced from time to time by the Bank at its head office in Boston,
Massachusetts as its "Base Rate" and (ii) one-half of one percent (1/2%) above
the overnight federal funds effective rate as published by the Board of
Governors of the Federal Reserve System, as in effect from time to time. Any
change in the Base Rate shall result in a corresponding change on the same day
in the rate of interest accruing from and after such day on the unpaid balance
of principal of the Loans, if any, effective on the day of such change in the
Base Rate.
"Borrowing Base Availability" shall mean an amount equal to the lesser of (i)
$3,000,000 less the LC Amount and (ii) the sum of 80% of the Eligible Accounts
----
Receivable of the Borrowers plus 40% of the Eligible Inventory of the Borrowers,
----
provided that the Bank reserves the right, in its sole discretion, to increase
- --------
or decrease the foregoing percentage or to modify the eligibility requirements
at any time.
"Closing Conditions" shall mean each of the following:
(i) the Bank has received duly authorized, executed and delivered
originals of each of the Loan Documents, each in form and substance
satisfactory to the Bank;
(ii) there has not occurred any material adverse change in the condition
(financial or otherwise), operations, assets, income and/or
prospects of any Borrower;
(iii) each Borrower is in compliance with all of the terms of each Loan
Document; and
(iv) there has not been any change in any law or regulation or
interpretation thereof that, in the Bank's opinion, would
make it illegal or against the policy of any governmental agency or
authority for the Bank to make the Loans hereunder.
"Eligible Accounts Receivable" shall mean the aggregate accounts receivable of a
Borrower:
(i) in which the Bank has a valid and perfected first-priority security
interest;
(ii) which are not unpaid more than 90 days from the date the
corresponding service was rendered or performed by such Borrower;
(iii) which arose in the ordinary course of business;
<PAGE>
(iv) which are not progress or advance billings for work not yet
performed (including, without limitation, advance billings for up-
front "non-recurring engineering" and "burn-in charges");
(v) which do not arise from the rendering of services on a contract
basis; and
(vi) which have not been designated by the Bank in its sole discretion
as unacceptable.
"Base Inventory" shall mean inventory (other than work-in-process) as to which a
Borrower has acquired title, the Bank has acquired a valid and perfected first-
priority security interest, and such Borrower has furnished to the Bank
information relating thereto as provided in this Letter Agreement. Inventory
immediately loses the status of Base Inventory if and when a Borrower sells it,
otherwise passes title thereto or consumes it or the Bank releases or transfers
its security interest therein. Anything herein to the contrary notwithstanding,
Base Inventory shall exclude all inventory owned by K&D Magmotor Corp. unless
and until it institutes a tracking system capable of reporting changes in its
inventory on a monthly basis, which system shall be satisfactory to the Bank in
its sole discretion.
"Eligible Inventory" shall mean the net value of Base Inventory, calculated at
the lesser of fair market value or cost determined on the "first in, first out"
basis after taking into account charges and liens (other than those of the Bank)
of all kinds against the Base Inventory, changes in the market value thereof,
and transportation, processing and other handling charges affecting the value
thereof, all as determined by the Bank in its sole discretion, which
determination shall be final and binding upon the Borrowers.
"Loan Documents" shall mean, collectively, (i) this Letter Agreement, (ii) the
Note, (iii) the separate Security Agreements dated as of December 16, 1998
between each Borrower and the Bank, (iv) the separate Solvency Certificates of
each Borrower dated as of December 16, 1998 in favor of the Bank, (v) the
Security Agreement and Solvency Certificate, each of even date, from HyComp
Acquisition Corp. in favor of the Bank, and (vi) the letters of credit issued
pursuant to this Letter Agreement (or its predecessor) and all documents,
instruments and contracts (including applications) delivered in connection
therewith, as any of the foregoing may be amended from time to time; along with
any and all other agreements, certificates or documents executed and delivered
by any Borrower to the Bank in connection with the foregoing or the transactions
contemplated hereby or thereby, whether executed and delivered on or before the
Closing Date or at any time thereafter.
"LC Amount" shall mean, with respect to all letters of credit issued by the Bank
and outstanding at any time, an aggregate amount equal to the sum of (i) the
maximum amount then available to be drawn under such letters of credit (without
regard to whether any conditions to drawing could then be met), plus (ii) the
aggregate amount of any unreimbursed draws under such letters of credit.
<PAGE>
ANNEX 2
-------
SATCON TECHNOLOGY CORPORATION
SATCON FILM MICROELECTRONICS, INC.
K&D MAGMOTOR CORP.
HYCOMP ACQUISITION CORP.
DEMAND PROMISSORY NOTE
------ ---------- ----
$3,000,000 May 7, 1999
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned (collectively, the "Borrowers"), by
this promissory note ("this Note"), absolutely and unconditionally, and jointly
and severally, promise to pay to the order of BANKBOSTON, N.A. (the "Bank"), at
the head office of the Bank in Boston, Massachusetts, ON DEMAND, THREE MILLION
DOLLARS ($3,000,000) or, if less, the aggregate principal amount of all loans
made by the Bank to the Borrowers as shown in the schedule attached hereto (the
"Note Schedule"), together with interest on each loan from the date such loan is
made until the maturity thereof at the applicable rate set forth in the Note
Schedule.
Interest on the principal amount of each loan shall be payable in arrears
ON DEMAND, provided that unless sooner demanded interest on each loan shall be
--------
payable on the first day of each successive calendar month, beginning on the
first of such dates occurring after the date of such loan and when such loan is
due.
Loans shall bear interest at a rate per annum equal to the rate of interest
from time to time in effect under that certain Discretionary Demand Line Letter
of even date herewith among the Borrowers and the Bank (the "Line Letter").
Upon demand, there shall become absolutely due and payable by the Borrowers
and the Borrowers hereby jointly and severally promise to pay to the Bank, the
balance (if any) of the principal hereof then remaining unpaid, all of the
unpaid interest accrued hereon and all (if any) other amounts payable on or in
respect of this Note or the indebtedness evidenced hereby.
Interest shall be computed on the basis of a 360-day year and paid for the
actual number of days elapsed. All payments hereunder shall be made in lawful
currency of the United States of America in immediately available and freely
transferable funds. All payments hereunder shall be made without set-off or
counterclaim and free and clear of and without any deduction of any kind for any
taxes, levies, fees, deductions, withholdings, restrictions or conditions of any
nature.
Overdue payments of principal of any loan (whether after demand or
otherwise), and, to the extent permitted by applicable law, overdue interest,
fees, expenses and other
<PAGE>
charges, shall bear interest, payable on demand and compounded daily, at a rate
per annum equal to 4% above the Base Rate.
The Borrowers will have the right to prepay the unpaid principal of each
loan in full or in part without penalty or charge, provided that all of the
--------
unpaid interest accrued on the amount so prepaid to the date of such payment
must be paid at the time of any such prepayment. The Borrowers will be entitled
at the Bank's discretion to reborrow all or any part of the principal of any
loan repaid or prepaid prior to demand by the Bank.
To the extent permitted by law and not expressly required under any of the
Loan Documents, the Borrowers hereby irrevocably waive presentment, demand,
notice of dishonor, protest and all other demands and notices in connection with
the delivery, acceptance, performance and enforcement of this Note. The
Borrowers hereby absolutely and irrevocably consent and submit to the
jurisdiction of the Courts of the Commonwealth of Massachusetts and of any
Federal Court located in the said Commonwealth in connection with any actions or
proceedings brought against the Borrowers by the Bank arising out of or relating
to this Note.
EACH BORROWER HEREBY WAIVES TRIAL BY JURY, AND HEREBY WAIVES RIGHTS OF
SETOFF, IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS NOTE, THE LINE LETTER OF EVEN DATE HEREWITH, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO AMONG THE BORROWERS
AND THE BANK. EACH BORROWER CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED
AND FREELY MADE.
The failure of the Bank to exercise all or any of its rights, remedies,
powers or privileges hereunder in any instance shall not constitute a waiver
thereof in that or in any other instance.
All notices, demands or other communications to or upon the Borrowers
pursuant to this Note shall be in writing, either delivered in hand or sent to
the undersigned by first-class mail, postage prepaid, or by telex, telefax,
facsimile transmission or telegraph, addressed to the undersigned, marked
"Attention: David B. Eisenhaure" at the address of the Borrowers set forth
below or at such other address as the Borrowers shall have designated in a
written notice to the Bank.
Should all or any part of the indebtedness represented by this Note be
collected by action at law, or in bankruptcy, insolvency, receivership or other
court proceedings, or should this Note be placed in the hands of attorneys for
collection after default, the Borrowers hereby jointly and severally promise to
pay to the Bank, upon demand by the Bank at any time, in addition to principal,
interest and all (if any) other amounts payable on or in respect of this Note or
the indebtedness evidenced hereby, all court costs and reasonable attorneys'
fees and all other reasonable collection charges and expenses incurred or
sustained by the Bank.
<PAGE>
This instrument shall have the effect of an instrument executed under seal
and shall be governed by the laws of the Commonwealth of Massachusetts without
regard to its conflicts of law rules.
Each of the Borrowers shall be jointly and severally liable for the full
amount owing under this Note.
<PAGE>
IN WITNESS WHEREOF, this NOTE has been duly executed by each of the
undersigned on the date first above written in Boston, Massachusetts.
[SEAL]
Attest: SATCON TECHNOLOGY CORPORATION
/s/ Marilyn Fitzgerald By: /s/ David B. Eisenhaure
_______________________ ----------------------------
My commission expires 11-4-2005 Title: President
Address: 161 First Street
Cambridge, Massachusetts 02142
Attest: SATCON FILM
MICROELECTRONICS, INC.
/s/ Marilyn Fitzgerald By: /s/ David B. Eisenhaure
_______________________ ----------------------------
My commission expires 11-4-2005 Title: President
Address: 161 First Street
Cambridge, Massachusetts 02142
Attest: K&D MAGMOTOR CORP.
/s/ Marilyn Fitzgerald By: /s/ David B. Eisenhaure
_______________________ ----------------------------
My commission expires 11-4-2005 Title: President
Address: 161 First Street
Cambridge, Massachusetts 02142
Attest: HYCOMP ACQUISITION CORP.
/s/ Marilyn Fitzgerald By: /s/ David B. Eisenhaure
_______________________ ----------------------------
My commission expires 11-4-2005 Title: President
Address: 161 First Street
Cambridge, Massachusetts 02142
<PAGE>
NOTE SCHEDULE TO PROMISSORY NOTE
DATED: May 7, 1999
Date and
Principal Amount of
Date of Amount of Interest Payment Notation
Loan Loan Rate Received Made By
---- ---- ---- -------- -------
Base Rate
plus 1.5%*
______________________________________
* Notwithstanding the 1.5% Base Rate spread set forth above, any Loans which
constitute Overadvances under the Line Letter shall bear interest at the
Base Rate plus 2.5%. The Base Rate shall have the meaning set forth in the
----
Line Letter.
<PAGE>
Exhibit 21.1
------------
Subsidiaries of the Registrant
------------------------------
Subsidiary State of Incorporation
- ---------- ----------------------
K & D MagMotor Corp. Delaware
SatCon Film Microelectronics, Inc.* Delaware
Beacon Power Corporation Delaware
HyComp Acquisition Corp. Delaware
____________________________
* Doing business as "Film Microelectronics, Inc."
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation of our report dated December 17, 1998 on our
audits of the consolidated financial statements and financial statement schedule
of SatCon Technology Corporation and its subsidiaries as of September 30, 1998
and for each of the two years in the period ended September 30, 1998, which
report is included in this Annual Report on Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (File Nos. 333-75339, 33-
75934, 33-4280 and 333-08047) and Form S-3 (File Nos. 333-87157, 333-05939 and
333-37921).
PricewaterhouseCoopers LLP
December 28, 1999
Boston, Massachusetts
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated December 27, 1999 of our audit of the Consolidated Financial
Statements of SatCon Technology Corporation and its subsidiaries as of September
30, 1999 and for the year then ended, which report is included in this Annual
Report on Form 10-K, into the Company's previously filed Registration Statement
on Form S-8 (File No.'s 333-75934, 33-4280, 333-08047 and 333-75339) and
Form S-3 (File No.'s 333-05939, 333-37921 and 333-87157).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 2,533,072
<SECURITIES> 0
<RECEIVABLES> 2,799,143
<ALLOWANCES> (386,686)
<INVENTORY> 3,697,972
<CURRENT-ASSETS> 10,841,458
<PP&E> 3,260,632<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,400,374
<CURRENT-LIABILITIES> 2,996,601
<BONDS> 0
4,894,112
0
<COMMON> 96,170
<OTHER-SE> 9,349,885
<TOTAL-LIABILITY-AND-EQUITY> 17,400,374
<SALES> 0
<TOTAL-REVENUES> 15,477,881
<CGS> 0
<TOTAL-COSTS> 15,339,218
<OTHER-EXPENSES> 9,915,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,692
<INCOME-PRETAX> (12,358,865)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,358,865)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,358,865)
<EPS-BASIC> (1.35)<F2>
<EPS-DILUTED> (1.35)<F2>
<FN>
<F1>
PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION AS REPORTED WITHIN THE ANNUAL
REPORT ON FORM 10-K ON THE BALANCE SHEET
<F2>IN ACCORDANCE WITH SFAS NO. 128, "EARNINGS PER SHARE - BASIC" IS REPORTED AS
THE VALUE FOR (EPS-PRIMARY) TAG AND "EARNINGS PER SHARE - DILUTED" IS REPORTED
AS THE VALUE FOR (EPS-DILUTED) TAG
</FN>
</TABLE>
