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EXHIBIT 99
RISK FACTORS
WE CANNOT ASSURE MARKET ACCEPTANCE OR COMMERCIAL VIABILITY OF OUR
PRODUCTS
We intend to continue to expand development of our technologies for use
in commercial business applications. However, we cannot assure that our planned
commercial products will realize market acceptance, that they will meet the
technical demands of potential customers or that they will offer cost-effective
advantages over our competitors' products. Our commercial marketing efforts to
date involve development contracts with several customers, identification of
specific market segments for active motion control and power and energy
management systems and the continuation of marketing efforts of recently
acquired businesses. We cannot know if our commercial marketing efforts will be
successful in the future. Furthermore, we cannot assure that our technologies,
in their current form, will be suitable for specific commercial applications or
that further design modifications, beyond anticipated changes to accommodate
different markets, will not be necessary.
WE MAY NOT BE ABLE TO DEVELOP OR SELL OUR PRODUCTS UNDER DEVELOPMENT
We have a number of potential products under development. We face many
technological challenges that we must successfully address to complete any of
our development efforts. Our product development involves a high degree of risk
and may require significant capital resources to develop. Returns to our
investors are dependent upon successful development and commercialization of
these products. For example, the successful development of a terrestrial
flywheel energy storage system for an uninterruptible power supply by Beacon
Power Corporation, an affiliate of SatCon, involves significant technological
challenges. It has and will continue to require significant investment in
research and development before SatCon and Beacon can determine whether the
development of Beacon's technology was successful and whether the resulting
products will be commercially viable and accepted by the marketplace. Many
proposed products based on our technologies will require significant additional
expenditures for research and development. We cannot assure that any of the
products we are developing, or those that we develop in the future, will be
technologically feasible or accepted by the marketplace. Also, we cannot assure
that any of our product development will be completed in any particular
time-frame.
WE HAVE SEVERAL GOVERNMENT CONTRACTS, AND THE LOSS OF THESE CONTRACTS
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Although we have been developing applications of our technology for
both commercial and government markets, a large percentage of our revenue is
from Department of Defense and NASA contracts, subcontracts and grants. The
majority of these contracts were awarded through the Small Business Innovation
Research Program. Although we believe that the majority of our revenues 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 revenues may be subject to funding approval
from Congress, which involves political, budgetary and other considerations over
which we have no control. To date, we have not been adversely affected by
reductions in defense spending. We believe that government funding for areas of
our research and development activities will continue without reduction.
However, we cannot assure 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.
We anticipate seeking significant contracts with commercial customers.
We cannot assure that we will succeed in receiving additional commercial
contracts or that such contracts, if awarded, will not be canceled. As with the
government contracts, the cancellation of any of these contracts could have a
material adverse effect on us.
WE LACK SIGNIFICANT REVENUES AND HAVE RECENT AND ANTICIPATED NEGATIVE
CASH FLOW AND OPERATING LOSSES
We have achieved limited profitability in each of our fiscal years
ended September 30, 1994, 1993, 1992 and 1991, and we recorded a loss for the
fiscal years ended September 30, 1999, 1998, 1997, 1996 and 1995 and for the
nine months ended June 30, 2000. In order to achieve profitability, we must
successfully achieve all or some combination of the following:
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- develop new products for our existing markets,
- sell these products to existing and new customers,
- increase gross margins through higher volumes and manufacturing
efficiencies,
- control our operating expenses, and
- develop and manage our distribution capability.
If our revenue does not increase significantly or the increase in our expenses
is greater than expected, we may not achieve or sustain profitability or
generate positive cash flow in the future. We cannot assure that we will
accomplish these objectives or be profitable in the future.
OUR ACQUISITION STRATEGY INVOLVES SEVERAL RISKS
A component of our business strategy is to seek the acquisition of
businesses, products, assets and technologies that complement or augment our
existing businesses, products, assets and technologies. For example, in January
1997, we acquired K&D MagMotor Corp., a manufacturer of custom electric motors
targeting the factory automation, medical, semi-conductor and packaging markets.
In April 1997, we acquired substantially all of the assets of Film
Microelectronics, Inc., a manufacturer and producer of custom integrated
circuits for the communications, industrial, military and aerospace markets. In
January 1999, we acquired Inductive Components, Inc. (a value-added supplier of
systems in the machine tool and semiconductor industry) and Lighthouse Software,
Inc. (which designs and develops software for the industrial machine tool
industry). In April 1999, we also acquired HyComp, Inc., a manufacturer of
high-performance, high-quality, multi-chip modules. In October 1999, we acquired
Ling Electronics, Inc. and Ling Electronics, Ltd., manufacturers of power
products, including vibration test systems, power converters and controllers,
amplifiers and digital control systems. In November 1999, we acquired certain
intellectual property, equipment and other assets from Northrop Grumman
Corporation, which we have incorporated into our power electronics products
business.
Acquisitions are difficult to identify and complete for a number of
reasons, including competition among prospective buyers and the need for
regulatory approvals, including antitrust approvals. We cannot assure that we
will be able to successfully identify acquisition candidates or complete future
acquisitions or that we will be able to successfully integrate any of the
acquired businesses into our operations.
In order to finance acquisitions, we may have to raise additional funds
through public or private financing. Any equity or debt financing, if available
at all, may be on terms which are not favorable to us and, in the case of equity
financing, may result in significant dilution to our stockholders. We cannot
assure that we will be able to operate acquired businesses profitably or
otherwise implement our growth strategy successfully. The successful combination
of companies in a rapidly changing high technology industry such as ours may be
more difficult to accomplish than in other industries. Our ability to integrate
any newly acquired entities will require us to continue to improve our
operational, financial and management information systems, and to motivate and
effectively manage our employees. If our management is unable to manage growth
effectively, the quality of our products, our ability to identify, hire and
retain key personnel and our results of operations could be materially and
adversely affected.
IF WE EXPERIENCED A PERIOD OF SIGNIFICANT GROWTH OR EXPANSION, IT WOULD
PLACE A STRAIN ON OUR RESOURCES
Rapid growth of our business, of which there can be no assurance, may
strain our management, operational and technical resources. If we are successful
in obtaining rapid market penetration of our products, we will be required to
deliver large volumes of quality products or components to our customers and
licensees on a timely basis and at reasonable costs to us. We have limited
experience in delivering large volumes of our products and have limited capacity
to meet wide-scale production requirements. We cannot assure that our efforts to
expand our manufacturing and quality assurance activities will be successful or
that we will be able to satisfy large-scale commercial production on a timely
and cost-effective basis. Our success will also depend, in part, upon our
ability to modify our technology and products to meet end-user requirements.
Also, we will be required to continue to improve our operational, management and
financial systems and controls to meet anticipated growth. Failure to manage
growth would have a material adverse effect on our business.
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BECAUSE OUR EXPENSES ARE LARGELY FIXED, AN UNEXPECTED REVENUE SHORTFALL
MAY ADVERSELY AFFECT OUR BUSINESS
Our expense levels are based primarily on our estimates of future
revenues and are largely fixed. A large portion of our expense relates to
headcount that cannot be easily reduced without adversely affecting our
business. We may be unable to adjust spending rapidly enough to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues in relation to our planned expenditures would reduce, and possibly
eliminate, any operating income and could materially adversely affect our
business, operating results and financial condition.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT
OUR PATENTS AND PROPRIETARY TECHNOLOGY
We currently own United States patents which expire between 2007 and
2018. We also have 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 SBIR contracts. Our patent and trade
secret rights are of material importance to us and to our future prospects. No
assurance can be given 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 property rights 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 patents, 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 all of
our employees are required to sign, assigning to us all patent rights and
technical or other information developed by the employees during their
employment with us. Our employees have also agreed not to disclose any trade
secrets or confidential information without our prior written consent.
Notwithstanding these confidentiality agreements, there can be no assurances
that other companies will not acquire information which we consider to be
proprietary.
THERE IS INTENSE COMPETITION IN OUR INDUSTRY
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
quantity 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 also be no assurance
that current and future competitors will not develop new or enhanced
technologies perceived to be superior to those sold or developed by us. There
can be no assurance that we will be successful in such a competitive
environment.
COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE
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 experienced 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. Our success
depends to a significant extent upon a number of key
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employees, including members of senior management. The loss of the services of
one or more of these key employees could have a material adverse effect on
SatCon.
OUR BUSINESS IS DEPENDENT ON OUR FOUNDER AND CHIEF EXECUTIVE OFFICER
We are particularly dependent upon the services of David B. Eisenhaure,
our President, Chief Executive Officer, Chairman of the Board and founder. The
loss of Mr. Eisenhaure's services would have a material adverse effect on our
business and results of operations, including our ability to attract employees
and secure and complete additional work.
OUR BUSINESS COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS
Our business exposes us to potential product liability claims which are
inherent in the manufacturing, marketing and sale of electro-mechanical
products, and as such, we may face substantial liability for damages resulting
from the faulty design or manufacture of products or improper use of products by
end-users. We currently maintain a low level of product liability insurance, and
there can be no assurance that this insurance will provide sufficient coverage
in the event of a claim. Also, we cannot predict whether we will be able to
maintain such coverage on acceptable terms, if at all, or that a product
liability claim would not materially adversely affect our business or financial
condition.
OUR BUSINESS IS UNDER THE SIGNIFICANT CONTROL OF OUR DIRECTORS AND
OFFICERS
As of June 30, 2000, our officers and directors, and their affiliates,
beneficially own approximately 39.6% of our outstanding common stock, and
approximately 19.2% of the outstanding common stock is held by Mr. Eisenhaure,
our President, Chief Executive Officer and Chairman of the Board of Directors.
As a practical matter, Mr. Eisenhaure may have the ability to elect our
directors and to determine the outcome of corporate actions requiring
stockholder approval, irrespective of how our other stockholders may vote. This
concentration of ownership may have the effect of delaying or preventing a
change in control of SatCon.
OUR SHARE PRICE COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS, AND YOU
COULD HAVE DIFFICULTY TRADING YOUR SHARES
The markets for equity securities in general, and for those of high
technology companies in particular, have been volatile and the market price of
our common stock, which is traded on the Nasdaq National Market under the symbol
SATC, may be subject to significant fluctuations. This could be in response to
operating results, announcements of technological innovations or new products by
us or our competitors, patent or proprietary rights developments and market
conditions for high technology stocks in general. In addition, the stock market
in recent years has experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
individual companies. These market fluctuations, as well as general economic
conditions, may adversely affect the market price of the common stock. The
trading prices of the stocks of many high technology companies are at or near
their historical highs and reflect price/earnings ratios substantially above
historical norms. There can be no assurance that the trading price of our common
stock will remain at or near its current level.
WE COULD EXPERIENCE FLUCTUATIONS IN OUR QUARTERLY PERFORMANCE
Our quarterly operating results may vary significantly depending on a
number of factors, including:
- the number of contracts, subcontracts and orders we are able to
obtain,
- the amount of revenues generated from such contracts, subcontracts
and orders,
- the level of research and development expenses incurred by us and
our subsidiaries which go unreimbursed,
- the size, timing and shipment of orders from our subsidiaries, and
- general economic conditions.
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Because our operating expenses are based on anticipated revenue levels, our
sales cycle for development work is relatively long and a high percentage of our
expenses are fixed for the short term, a small variation in the timing of
recognition of revenue can cause significant variations in operating results
from quarter to quarter.
GENERAL ECONOMIC CONDITIONS MAY AFFECT INVESTORS' EXPECTATIONS
REGARDING OUR FINANCIAL PERFORMANCE AND ADVERSELY AFFECT OUR STOCK PRICE
Certain industries in which we sell products, such as the semiconductor
industry, are highly cyclical. In the future, our results may be subject to
substantial period-to-period fluctuations as a consequence of the industry
patterns of our customers, general or regional economic conditions and other
factors. These factors may also have a material adverse effect on our business,
operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS OBSOLETE
Our markets are characterized by rapid technological change, frequent
new product introductions and enhancements, uncertain product life cycles,
changes in customer requirements and evolving industry standards. The
introduction of new products embodying new technologies and the emergence of
shifting customer demands or changing industry standards could render our
existing products obsolete and unmarketable which would have a material adverse
effect on our business, operating results and financial condition. Our future
success will depend upon our ability to continue to develop and introduce a
variety of new products and product enhancements to address the increasingly
sophisticated needs of our customers. This will require us to continue to make
substantial product development investments. We may experience delays in
releasing new products and product enhancements in the future. Material delays
in introducing new products or product enhancements may cause customers to
forego purchases of our products and purchase those of our competitors.
WE MAY ISSUE PREFERRED STOCK WHICH COULD AFFECT THE RIGHTS AND VALUE OF
OUR COMMON STOCK
We are authorized to issue up to 1,000,000 shares of preferred stock.
The preferred stock may be issued in one or more series, the terms of which may
be determined at the time of issuance by our 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.
However, the issuance of any preferred stock could affect the rights of the
holders of common stock, thereby reducing the value of our common stock. In
particular, specific rights granted to future holders of preferred stock could
be used to restrict our ability to obtain financing for future operations or to
merge with or sell our assets to a third party, thereby preserving control of
SatCon by our present equity holders and preventing you from realizing a premium
on your shares. Thus, the issuance of preferred stock could adversely affect
your voting power.
WE COULD ISSUE ADDITIONAL COMMON STOCK, WHICH MIGHT DILUTE THE VALUE OF
OUR COMMON STOCK
We have authorized 25,000,000 shares of common stock, of which
13,706,550 shares are issued and outstanding as of June 30, 2000. Our board of
directors has the authority, without action or vote of the stockholders, to
issue all or part of the authorized but unissued shares. This issuance would
dilute your percentage ownership interest and might dilute the book value of our
common stock.
COMMON STOCK INVESTORS MAY BE DILUTED BY THE EXERCISE OF OPTIONS AND
WARRANTS, CONVERSION OF PREFERRED STOCK OR EXERCISE OF PUT RIGHTS WITH RESPECT
TO BEACON POWER CORPORATION
We have reserved 3,050,000 shares of common stock for issuance under
our stock incentive plans. As of December 31, 1999, options to purchase an
aggregate of 1,688,394 shares of common stock are outstanding under our stock
incentive plans. Warrants and non-qualified stock options granted outside of our
stock incentive plans to purchase 1,031,000 shares of common stock are
outstanding.
On October 23, 1998, we granted the purchasers of Beacon Power
Corporation's Class D Preferred Stock the right to cause us, under the
circumstances described below, to purchase all of Beacon Power'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
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average fair market 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, fourth and fifth anniversary of the closing date of that
transaction, upon certain events of bankruptcy of Beacon and upon the occurrence
of certain going private transactions involving us.
The exercise of options and warrants or the exercise of the put right,
and subsequent sale of the underlying common stock in the public market, could
adversely affect the market price of our common stock and prove to be a
hindrance to our future financing. Our outstanding warrants include
anti-dilution provisions, including, in some cases, adjustments to the
applicable conversion price or exercise price in the event we issue common stock
at a price less than the conversion price or exercise price then in effect. This
would increase the dilutive impact of future equity offerings at prices less
than the conversion price or exercise price of certain of the warrants.
SALES OF COMMON STOCK PURSUANT TO RULE 144 MAY HAVE A DEPRESSIVE EFFECT
ON THE MARKET PRICE OF THE COMMON STOCK
Of the 11,396,570 shares of common stock issued and outstanding as
of December 31, 1999, 5,560,945 shares of common stock were freely tradable
securities as of that date. Other securities, such as the common stock
issuable upon exercise of our warrants, are not considered outstanding, but
upon exercise will be entitled to be sold pursuant to an effective
registration statement and thereafter will be freely tradeable. Holders of
3,676,202 shares of common stock or common stock issuable upon such exercise
are entitled to such registration rights. Many of the other outstanding
shares of common stock are "restricted securities" as that term is defined
under Rule 144 of the Securities Act. Ordinarily, under Rule 144, a person
holding restricted securities for a period of one year may, every three
months, sell in ordinary brokerage transactions or in transactions directly
with a market maker an amount equal to the greater of one percent of a
company's then outstanding common stock or the average weekly trading volume
during the four calendar weeks prior to that sale. Sales of common stock
pursuant to Rule 144 may have a depressive effect on the market price of our
common stock. Rule 144 also permits sales by a person who is not an affiliate
of SatCon and who has satisfied a two-year holding period without volume
limitations.
WE MAY NEED ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS.
If we are unable to increase our revenues and achieve positive cash
flow, we will need to raise additional funds. We may also need additional
financing if we:
- need additional cash to fund research and development costs of
products currently under development,
- decide to expand faster than currently planned,
- develop new or enhanced services or products ahead of schedule,
- need to respond to competitive pressures, or
- decide to acquire complementary products, businesses or
technologies.
If we raise additional funds through the sale of equity or convertible
debt securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of the common stock outstanding. We may have
to issue securities that may have rights, preferences and privileges senior to
our common stock. We cannot assure you that we will be able to raise additional
funds on terms acceptable to us, if at all. If future financing is not available
or is not available on acceptable terms, we may not be able to fund our future
needs which would have a material adverse effect on our business, results of
operations and financial condition. We currently anticipate that the net
proceeds from the series A preferred stock offering and the investment by
Mechanical Technology Incorporated, together with available funds, will be
sufficient to meet our anticipated needs for the reasonably foreseeable future.
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PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE
LAW COULD DETER TAKEOVER ATTEMPTS
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control of SatCon that you as a
stockholder may consider favorable. These provisions include:
- authorizing the issuance of "blank check" preferred stock that
could be issued by our board of directors to increase the number
of outstanding shares and thwart a takeover attempt,
- a classified board of directors with staggered, three-year terms,
which may lengthen the time required to gain control of our board
of directors,
- prohibiting cumulative voting in the election of directors, which
would otherwise allow less than a majority of stockholders to
elect director candidates, and
- limitations on who may call special meetings of stockholders.
In addition, Section 203 of the Delaware General Corporation Law and
provisions in some of our stock incentive plans may discourage, delay or prevent
a change in control of our company. In addition, as noted above, our officers
and directors, and their affiliates, beneficially own a significant percentage
of our outstanding common stock.
WE HAVE NOT PAID DIVIDENDS SINCE OUR INCEPTION
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 will depend upon, among other
things, future earnings, our operating and financial condition, our capital
requirements and general business conditions.
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