<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-11512
______________________
SATCON TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
______________________
State of Incorporation: DELAWARE I.R.S. Employer ID. No. 04-2857552
161 FIRST STREET
CAMBRIDGE, MA 02142-1221
(Address of principal executive offices)
(617) 661-0540
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value, 12,296,601 shares
outstanding as of January 31, 2000.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)......................... 1
Consolidated Statements of Operations (Unaudited)............... 2
Consolidated Statements of Cash Flows (Unaudited)............... 3
Notes to Interim Consolidated Financial Statements (Unaudited).. 4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................... 9
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK..................................................... 13
PART II: OTHER INFORMATION
Items No. 1 through 6............................................. 14
Signature......................................................... 15
</TABLE>
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ ------------------
1999 1999
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 3,173,619 $ 2,533,072
Accounts receivable, net of allowance of $469,119 at
December 31, 1999 and $386,686 at September 30, 1999............ 3,885,049 2,799,143
Unbilled contract costs, net of allowance of $746,121 at
December 31, 1999 and September 30, 1999........................ 1,058,150 1,462,201
Inventory ........................................................ 8,187,440 3,697,972
Prepaid expenses and other current assets......................... 502,250 349,070
------------ ------------
Total current assets............................................ 16,806,508 10,841,458
Property and equipment, net....................................... 4,542,414 3,260,632
Intangibles, net ................................................. 9,793,710 3,194,609
Other long-term assets............................................ 184,557 103,675
------------ ------------
Total assets..................................................... $ 31,327,189 $ 17,400,374
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 1,358,848 $ 1,563,605
Accrued payroll and payroll related expenses........................ 833,999 479,888
Deferred revenue.................................................... 107,725 113,179
Other accrued expenses.............................................. 1,080,130 620,874
Accrued loss in investment in Beacon Power Corporation.............. -- 202,829
Current portion of long-term debt................................... 16,535 16,226
------------ ------------
Total current liabilities......................................... 3,397,237 2,996,601
Long-term liabilities:
Long-term debt...................................................... 29,619 33,871
Other long-term liabilities......................................... 29,735 29,735
------------ ------------
Total long-term liabilities....................................... 59,354 63,606
Commitments and contingencies......................................... -- --
Redeemable convertible preferred stock ............................... 5,050,056 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 outstanding at December 31, 1999 and
September 30, 1999............................................... -- --
Common stock, $.01 par value, 20,000,000 shares authorized;
11,396,570 and 9,617,009 shares issued at December 31, 1999
and September 30, 1999, respectively............................ 113,966 96,170
Additional paid-in capital......................................... 52,915,521 37,074,161
Shares held in escrow, at market; 42,860 shares at
December 31, 1999 and September 30, 1999......................... (357,615) (428,600)
Amounts receivable from exercise of stock options.................. (1,816,667) (1,816,667)
Accumulated deficit................................................ (27,772,487) (25,229,305)
Accumulated other comprehensive loss............................... (12,472) --
Treasury stock, at cost; 44,500 shares at December 31, 1999 and
September 30, 1999............................................... (249,704) (249,704)
------------ ------------
Total stockholders' equity....................................... 22,820,542 9,446,055
------------ ------------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity................................. $ 31,327,189 $ 17,400,378
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Revenue............................................................. $ 4,556,407 $ 3,725,099
----------- -----------
Cost of revenue..................................................... 4,095,483 2,851,735
Selling, general and administrative expenses........................ 2,032,536 989,580
Research and development expenses................................... 628,890 100,883
Goodwill amortization............................................... 242,608 77,758
----------- -----------
Total operating expenses............................................ 6,999,517 4,019,956
----------- -----------
Operating loss...................................................... (2,443,110) (294,857)
Loss from investment in Beacon Power Corporation.................... (130,504) (1,064,010)
Interest income..................................................... 34,123 20,267
Interest expense.................................................... (3,691) --
----------- -----------
Net loss............................................................ $(2,543,182) $(1,338,600)
=========== ===========
Accretion of redeemable convertible preferred stock discount........ (155,944) --
----------- -----------
Net loss attributable to common stockholders........................ $(2,699,126) $(1,338,600)
=========== ===========
Net loss per share, basic and diluted............................... $(0.25) $(0.15)
=========== ===========
Weighted average number of common shares, basic and diluted......... 10,793,030 8,980,249
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
December 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $(2,543,182) $(1,338,600)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................................... 435,746 218,347
Allowance for doubtful accounts.................................. 82,433 86,207
Loss from investment in Beacon Power Corporation................. 130,504 1,064,010
Non-cash compensation expense related to issuance
of common stock options to non-employees....................... -- 56,362
Non-cash compensation expense related to common
stock held in escrow........................................... 29,801 --
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable............................................ 1,022,084 (292,291)
Prepaid expenses and other assets.............................. 107,957 145,102
Unbilled contract costs........................................ 404,051 (451,922)
Inventory...................................................... (381,366) (617,656)
Other assets................................................... (81,780) 545,488
Accounts payable............................................... (846,444) 151,753
Accrued expenses and payroll................................... (18,361) 19,435
Other liabilities.............................................. (18,954) 174,186
----------- -----------
Total adjustments................................................. 865,671 1,099,021
----------- -----------
Net cash used in operating activities............................... (1,677,511) (239,579)
----------- -----------
Cash flows from investing activities:
Sales and maturities of marketable securities...................... -- 12,428
Patent and intangible expenditures................................. (22,625) (30,360)
Capital expenditures............................................... (130,515) (258,101)
Cash paid for acquisition, net of cash acquired.................... (24,054) --
Investment in Beacon Power Corporation............................. (333,333) (30,000)
----------- -----------
Net cash used in investing activities............................... (510,527) (306,033)
----------- -----------
Cash flows from financing activities:
Borrowing under line of credit..................................... -- 5,000
Repayment of borrowings............................................ (3,943) --
Proceeds from issuance of common stock............................. 2,490,000 --
Proceeds from exercise of stock options............................ 355,000 --
Purchase of treasury stock......................................... -- (55,235)
----------- -----------
Net cash provided/(used) by financing activities.................... 2,841,057 (50,235)
----------- -----------
Effect of exchange rates on cash and cash equivalents............... (12,472) --
----------- -----------
Net increase/(decrease) in cash and cash equivalents................ 640,547 (595,847)
Cash and cash equivalents at beginning of period.................... 2,533,072 1,201,610
----------- -----------
Cash and cash equivalents at end of period.......................... $ 3,173,619 $ 605,763
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A. Basis of Presentation
- -----------------------------
The accompanying unaudited consolidated financial statements include the
accounts of SatCon Technology Corporation and its majority-owned subsidiaries
(collectively, the "Company") as of December 31, 1999 and have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial reporting and with the instructions to Form 10-Q and Rule 10-
01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. All intercompany accounts and transactions have been
eliminated. These consolidated financial statements, which in the opinion of
management reflect all adjustments (including normal recurring adjustments)
necessary for a fair presentation, should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1999. Operating results for the
three-month period ended December 31, 1999 are not necessarily indicative of the
results that may be expected for any future interim period or for the entire
fiscal year.
Note B. Significant Events
- --------------------------
INVESTMENT IN BEACON POWER CORPORATION
On January 7, 2000, the Company purchased from Beacon Power Corporation
("Beacon") a convertible promissory note with a principal amount of $200,000 due
and payable on the earlier of (i) the maturity date, February 12, 2000 (the
"Maturity Date"), or (ii) upon the occurrence of an event of default by Beacon.
The note bears interest at 12 1/2% per annum; provided, that if the note is not
repaid in full on or prior to the Maturity Date, the interest rate increases to
15% per annum (the "January 7, 2000 Note"). Interest on the January 7, 2000 Note
is due and payable on the Maturity Date. At December 31, 1999, the Company has
recognized its share of Beacon's losses up to the amount of its actual
investment in Beacon. At December 31, 1999, the Company did not accrue losses of
$200,000 relating to its share of Beacon's losses incurred through December 31,
1999, which the Company was required to fund pursuant to the terms of the
January 7, 2000 Note, as those amounts, including interest, have been repaid as
of February 14, 2000.
INVESTMENT FROM MECHANICAL TECHNOLOGY INCORPORATED
On October 21, 1999, the Company received a $7,070,000 investment from
Mechanical Technology Incorporated ("MTI"). In consideration for MTI's
investment, MTI received 1,030,000 shares of the Company's common stock, $.01
par value per share (the "Common Stock"), at a discounted price of approximately
$6.80 per share, and warrants to purchase an additional 100,000 shares of the
Company's Common Stock at an exercise price of $8.80 per share. 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. The Company has recorded the fair market
value of this warrant, as determined by the Black-Scholes option pricing model,
of approximately $231,000 and approximately $80,000 of legal, accounting,
consultation and filing fees as transaction costs. MTI made the remaining
investment on January 31, 2000 of $4,500,000 and received 659,200 shares of the
Company's Common Stock and a warrant to purchase 64,000 shares of the Company's
Common Stock. The Company will record the fair market value of this warrant, as
determined by the Black-Scholes option pricing model, of approximately
$1,268,000 as a transaction cost. In addition, the Company received a warrant to
purchase 36,000 shares of MTI's common stock on October 21, 1999 and a warrant
to purchase 64,000 shares of MTI's common stock on January 31, 2000.
4
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
ACQUISITIONS
On October 21, 1999, 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 valued at $9.8438 per share or $7,579,726. In
addition, the Company has incurred approximately $160,000 of legal, accounting,
consultation and filing fees as a cost of this transaction. The purchase price
of the acquisition has been allocated as follows:
<TABLE>
<S> <C>
Cash and cash equivalents ....................................... $ 45,946
Accounts receivable .............................................. 2,190,423
Inventory ........................................................ 2,902,102
Prepaid expenses and other assets................................. 260,239
Property and equipment............................................ 250,000
Intangibles ...................................................... 3,540,423
Accounts payable.................................................. 641,687
Accrued payroll and payroll related expenses...................... 334,129
Deferred revenue.................................................. 13,500
Other accrued expenses............................................ 390.091
</TABLE>
The following unaudited pro forma financial information combines the Company
and Ling Electronics' results of operations as if the acquisition had taken
place on October 1, 1998. 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 THREE MONTHS ENDED
---------------------------------
DECEMBER 31,
---------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Revenue............................................ $ 4,695,996 $ 5,662,099
Operating loss..................................... $(2,761,604) $ (542,301)
Net loss........................................... $(2,860,355) $(1,579,044)
Net loss attributable to common stockholders....... $(3,016,299) $(1,579,044)
Net loss per share, basic and diluted.............. $ (0.30) $ (0.18)
</TABLE>
On November 16, 1999, the Company purchased certain intellectual property,
equipment and other assets from Northrop Grumman 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 to
which the Company agreed to a five-year sublease for approximately 14,863 square
feet of rentable space in the Baltimore, Maryland 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 assets and agreements, NGC received 578,761 shares of the Company's
Common Stock valued at $8.3438 per share or $4,829,066. In addition, the Company
issued to NGC a warrant to purchase an additional 100,000 shares of the
Company's Common Stock at an exercise price of $9.725 per share. The Company has
recorded the fair market value of this warrant, as determined by the Black-
Scholes option pricing model, of approximately $631,000 and approximately
$119,000 of legal, accounting, consultation and filing fees as a cost of this
transaction. On February 4, 2000, the Company issued to NGC an additional
warrant to purchase 100,000 shares of the Company's Common Stock at an exercise
price of $9.725 per share. This warrant is exercisable upon the occurrence of
certain defined events. The purchase price of the asset purchase has been
allocated as follows:
<TABLE>
<S> <C>
Inventory..................................................... 1,206,000
Property and equipment........................................ 1,091,643
Intangibles................................................... 3,281,423
</TABLE>
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.
5
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note C. Loss per Share
- ----------------------
The following is the reconciliation of the numerators and denominators of the
basic and diluted per share computations of loss:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DECEMBER 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Net loss attributable to common shareholders................................... $(2,699,126) $(1,338,600)
BASIC:
Common shares outstanding, beginning of period................................. 9,529,649 8,990,249
Weighted average common shares issued during the period........................ 1,263,381 --
Weighted average shares repurchased during the period.......................... -- (10,000)
----------- -----------
Weighted average shares outstanding--basic..................................... 10,793,030 8,980,249
=========== ===========
Net loss per share, basic...................................................... $ (0.25) $ (0.15)
=========== ===========
DILUTED:
Weighted average shares outstanding--basic..................................... 10,793,030 8,980,249
Weighted average common stock equivalents (a).................................. -- --
----------- -----------
Weighted average shares outstanding--diluted................................... 10,793,030 8,980,249
=========== ===========
Net loss per share, diluted.................................................... $ (0.25) $ (0.15)
=========== ===========
</TABLE>
(a) not included if antidilutive
As of December 31, 1999 and 1998, 2,719,394 and 922,616 options and warrants,
respectively, were excluded from the weighted average common shares outstanding
as their effect would be antidilutive.
Note D. Inventory
- -----------------
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------- --------------
<S> <C> <C>
Raw material................................................... $3,294,832 $1,139,064
Work-in-process................................................ 3,092,421 2,199,199
Finished goods................................................. 1,800,187 359,709
------------- -------------
$8,187,440 $3,697,972
============= =============
</TABLE>
6
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note E. Comprehensive Income
- ----------------------------
The Company's total comprehensive income is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DECEMBER 31,
1999 1998
------------------- ------------------
<S> <C> <C>
Net loss.......................................................... $(2,543,182) $(1,338,600)
=========== ===========
Other comprehensive loss, net of tax:
Unrealized losses on securities.............................. $ -- $ (5,666)
Foreign currency translation adjustment...................... $ (12,472) $ --
=========== ===========
Other comprehensive loss.......................................... $ (12,472) $ (5,666)
=========== ===========
Comprehensive loss................................................ $(2,555,654) $(1,344,266)
=========== ===========
</TABLE>
Note F. 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 four reportable segments:
contract engineering, power electronic products, motion-control products and
test system products.
The Company 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. Ling Electronics designs, manufactures and markets test system
products.
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, 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.
7
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
The following is a summary of the Company's operations by operating segment:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
DECEMBER 31,
------------
1999 1998
------------------ ------------------
<S> <C> <C>
Revenue........................................................................... $ 1,394,902 $ 1,730,572
----------- -----------
Loss from operations, net of goodwill amortization................................ $(1,132,470) $ (232,507)
=========== ===========
Power electronic products:
Revenue........................................................................... $ 1,808,008 $ 1,218,382
----------- -----------
Loss from operations, net of goodwill amortization................................ $ (377,783) $ (112,395)
=========== ===========
Motion-control products:
Revenue........................................................................... $ 553,631 $ 776,145
----------- -----------
(Loss)/income from operations, net of goodwill amortization....................... $ (488,101) $ 127,803
=========== ===========
Test system products:
Revenue........................................................................... $ 799,866 $ --
----------- -----------
Loss from operations, net of goodwill amortization................................ $ (202,148) $ --
=========== ===========
</TABLE>
The following is a summary of the Company's long-lived assets by operating
segment:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- -----------------
1999 1999
----------------- -----------------
<S> <C> <C>
Contract engineering:
Long-lived assets........... $6,101,163 $1,717,228
---------- ----------
Power electronic products:
Long-lived assets........... $3,875,105 $3,978,027
---------- ----------
Motion-control products:
Long-lived assets........... $ 836,084 $ 863,661
---------- ----------
Test system products:
Long-lived assets........... $3,708,329 $ --
---------- ----------
</TABLE>
The Company operates and markets its services and products on a worldwide
basis with its principal markets as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
DECEMBER 31,
------------
1999 1998
----------------- -----------------
<S> <C> <C>
Geographic:
United States..................................................................... $4,259,643 $3,725,099
Europe............................................................................ 161,665 --
Rest of world..................................................................... 135,099 --
---------- ----------
Total revenue................................................................ $4,556,407 $3,725,099
========== ==========
</TABLE>
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects", and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ materially from
those indicated by such forward-looking statements. These factors include,
without limitation, those set forth under the caption "Factors Affecting Future
Results" below and those set forth under the caption "Risk Factors" of the
Company's Registration Statement on Form S-3, as amended (File No. 333-94859),
filed with the Securities and Exchange Commission on February 8, 2000, which are
expressly incorporated by reference herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
revenue for certain items in the Company's Statement of Operations for each
period:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
----------------------------------------
1999 1998
----------------------------------------
<S> <C> <C>
Revenue................................................................ 100.0% 100.0%
Cost of revenue........................................................ 89.9 76.6
Selling, general and administrative expenses........................... 44.6 26.6
Research and development expenses...................................... 13.8 2.7
Goodwill amortization.................................................. 5.3 2.1
Total operating expenses (excluding cost of revenue)................... 63.7 31.4
Operating loss......................................................... (53.6) (7.9)
Loss from investment in Beacon Power Corporation....................... (2.9) (28.6)
Other income/(loss).................................................... (0.1) -
Interest income........................................................ 0.7 0.5
Interest expense....................................................... (0.0) (0.0)
Net loss............................................................... (55.8%) (35.9%)
.
</TABLE>
Three Months Ended December 31, 1999 ("Q1 2000") Compared to the Three Months
- -----------------------------------------------------------------------------
Ended December 31, 1998 ("Q1 1999")
- -----------------------------------
Revenue. The Company's revenue increased approximately $831,000 or 22.3%, from
Q1 1999 to Q1 2000. This increase is primarily due to additional revenue from
Ling Electronics, Inc. and Ling Electronics, Ltd. (collectively, "Ling
Electronics") of approximately $800,000. During Q1 2000, the Company acquired
Ling Electronics, which designs, manufactures and markets test system products.
The increase in revenue is also due to increase in revenue of manufactured
products at Film Microelectronics, Inc., which designs and manufactures power
electronics products, of approximately $590,000. The Company's
telecommunications, high-speed data and power management products are
experiencing growing demand. These increases were partially offset by decreases
in revenue at the Technology Center, which markets and provides contract
engineering services, of approximately $336,000 and at the MagMotor Division,
which specializes in the engineering and manufacturing of motion-control
products, of approximately $223,000. The decrease in revenue at the Technology
Center was primarily the result of a decrease in contract revenue as the
Company's efforts are being focused on developing smaller and more efficient
power converter products for the fuel cell and micro turbine products. At the
MagMotor Division, the decrease was the result of no revenue
9
<PAGE>
from the Company's Integrated Suspension and Motor systems for semiconductor
manufacturing equipment. During December 1998, the Company delivered the initial
order.
Cost of revenue. Cost of revenue increased approximately $1,243,000 or 43.6%,
from Q1 1999 to Q1 2000. The increase is primarily due to the additional cost of
revenue from Ling Electronics of approximately $523,000. The increase in cost of
revenue is also due to an increase in cost of revenue of manufactured products
at Film Microelectronics, Inc. and the MagMotor Division of approximately
$673,000 and $281,000, respectively. These increases were primarily the result
of costs incurred for facilities and staffing. These increases were partially
offset by decreases in cost of revenue at the Technology Center of approximately
$234,000
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $1,043,000 or 105.4% from Q1
1999 to Q1 2000. The increase is primarily due to the additional selling,
general and administrative expenses from Ling Electronics of approximately
$484,000. In addition, the Company had incurred costs for facilities and
staffing to better position itself to meet future manufacturing demands for the
Company's DC to AC Power Converters for on-site power generation.
Research and development expenses. Research and development expenses increased
approximately $528,000 or 523.4% from Q1 1999 to Q1 2000. The increase is
attributable to the Technology Center's continued development of smaller and
more efficient power converter products for the fuel cell and micro turbine
products at the Technology Center.
Goodwill amortization. Goodwill amortization increased approximately $165,000
or 212.0% from Q1 1999 to Q1 2000. This was primarily the result of amortization
of goodwill recorded in connection with the acquisitions of Inductive Components
Inc. and Lighthouse Software, Inc. in January 1999, Ling Electronics in October
1999 and certain intellectual property, equipment and other assets from Northrop
Grumman Corporation in November 1999.
Loss from Investment in Beacon Power Corporation. Loss from investment in
Beacon Power Corporation decreased approximately $934,000 or 87.7% from Q1 1999
to Q1 2000. At December 31, 1999, the Company has recognized its share of
Beacon's losses up to the amount of its actual investment.
Interest income. Interest income increased approximately $14,000 or 68.4% from
Q1 1999 to Q1 2000. The increase is the result of an increase in cash and cash
equivalents being maintained in interest bearing accounts
Interest expense. Interest expense increased approximately $1,000 from Q1 1999
to Q1 2000. The increase is the result of interest expense associated with
capital leases entered into during fiscal year 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company's cash and cash equivalents were
approximately $3,174,000, an increase of approximately $641,000 from September
30, 1999. Cash used in operating activities during Q1 2000 was approximately
$1,678,000 as compared to cash used in operating activities of approximately
$240,000 during Q1 1999. This was primarily the result of a net loss of
approximately $2,743,000 during Q1 2000 offset by a decrease in accounts
receivable.
Cash used in investing activities during Q1 2000 was approximately $511,000.
This relates primarily to the purchase of a promissory note with a principal
amount of $333,333 and a warrant to purchase a number of shares of Beacon Class
E Preferred Stock pursuant to the terms of a note and warrant purchase
agreement.
Cash provided by financing activities during Q1 2000 was approximately
$2,841,000. During October 1999, the Company received an investment from
Mechanical Technology Incorporated ("MTI") of $7,070,000 in the
10
<PAGE>
Company. In consideration for MTI's investment, MTI received 1,030,000 shares of
the Company's common stock, $.01 par value per share (the "Common Stock"), at a
discounted price of approximately $6.80 per share, 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
and a warrant for 36,000 shares of the Company's Common Stock. MTI made the
remaining investment of $4,500,000 on January 31, 2000 and received 659,200
shares of the Company's Common Stock and a warrant for 64,000 shares.
During 1999, the Company granted options to purchase 755,000 shares of its
Common Stock to consultants at prices ranging from $5.75 to $10.00 per share. As
of December 31, 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 December 31, 1999, the Company received approximately
$1,333,000 of cash and the remaining amount due from the consultants is
classified within stockholders' equity as amounts receivable from exercise of
stock options. As of February 14, 2000, the consultants exercised options to
purchase 450,000, 50,000, 50,000 and 100,000 shares at exercise prices of $7.00,
$5.75, $6.75 and $10.00 per share, respectively. As of February 14, 2000, the
Company received all of the remaining amounts due from these consultants.
The Company has 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% (10% as
of December 31, 1999). Available borrowings are based on a formula of eligible
accounts receivable and inventory. At December 31, 1999, there were no amounts
outstanding under the line of credit.
The Company anticipates that existing cash resources, cash flow from
operations, proceeds from exercise of stock options, the availability of the
demand discretionary line of credit and the outside funding by MTI will be
sufficient to fund its operations at least through December 31, 2000. The
Company's ability to generate cash from operations depends upon, among other
things, revenue growth, its credit and payment terms with vendors, the
collection of accounts receivable, and the availability of its demand
discretionary line of credit. For additional cash resources, the Company is
seeking to capitalize on the current market interest in the energy and power
sectors by raising money through an underwritten public offering of its common
stock. To date, the Company has engaged in preliminary discussions with several
underwriters and has received preliminary interest from the underwriters. There
can be no assurance that the Company will be able to consummate an underwritten
public offering of its common shares, in a manner, of a size and/or on terms
that are acceptable to it, or at all. Attempting to consummate an underwritten
public offering by the Company, whether or not successful, will be expensive and
will require significant demands from the Company's management.
The Company currently has in effect a stock repurchase program which
authorizes it to repurchase up to 5% of its outstanding Common Stock. Under the
repurchase program, the Company is authorized to purchase shares of its Common
Stock on the open market from time to time, depending on market conditions. As
of September 30, 1999, 44,500 shares had been purchased by the Company under the
repurchase program. There were no shares repurchased during Q1 2000.
EFFECTS OF INFLATION
The Company believes that inflation and changing prices over the past three
years have not had a significant impact on the Company's net sales and revenues
or on income from continuing operations.
FACTORS AFFECTING FUTURE RESULTS
The Company's 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 Quarterly Report on Form 10-Q
and presented elsewhere by management from time to time. These factors include
business 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. The Company's
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 the Company can
successfully obtain such funds. In addition, the Company's future growth
opportunities are dependent on the introduction of new products that must
penetrate aerospace, transportation, industrial, utility, telecommunications,
silicon wafer manufacturing, factory
11
<PAGE>
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 Company; or that the Company 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
the Company's stock price frequently experiences significant volatility. These
factors also include, without limitation, those set forth under the caption
"Risk Factors" of the Company's Registration Statement on Form S-3, as amended
(File No. 333-94859), filed with the Securities and Exchange Commission on
February 8, 2000, which are expressly incorporated by reference herein.
On October 23, 1998, the Company granted the purchasers of Beacon class D
preferred stock the right to cause the Company, under the circumstances
described below, to purchase all of Beacon's shares issued to those purchasers
and, upon exercise of this "put right," the Company must pay $4,750,000 (plus
interest accruing at 12 1/2% per annum from October 23, 1998) in its 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, 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 its 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. 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.
EFFECTS OF YEAR 2000
The Company has assessed its software systems and internal operations. The
Company believes that it has resolved all potential Year 2000 issues and
problems and, to the best of its knowledge, its systems are Year 2000 compliant.
However, if the Company's systems do not operate properly with respect to date
calculations involving the Year 2000 and subsequent dates, the Company could
incur unanticipated expenses to remedy any problems, which could seriously harm
its business. The Company may also experience reduced sales of its products as
current or potential customers reduce their budgets due to increased
expenditures on their own Year 2000 compliance efforts.
Additionally, the Company relies on information technology supplied by third
parties and its 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 the Company or any of these third parties could materially adversely affect
the Company's business. Prior versions of the Company's products may contain
technology from third parties that is not Year 2000 compliant.
Given the pervasive nature of the Year 2000 problem, the Company cannot
guarantee that disruptions in other industries and market segments will not
adversely affect its business. Moreover, the Company's costs related to Year
2000 compliance, which thus far have not been material, could ultimately be
significant. In the event that the Company experiences unforeseen disruptions as
a result of the Year 2000 problem, the Company's business could be seriously
affected.
12
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings:
On November 6, 1999, APACE, Inc. ("APACE") commenced an action against the
Company in the Supreme Court of the State of New York claiming that the Company
had been awarded a "Prime Contract" by the Department of Energy and that the
Company had failed or refused to negotiate a subcontract with APACE. APACE is
seeking $1,000,000 in damages. The Company denies the allegations, has moved to
stay the action and has filed for arbitration with the American Arbitration
Association in Boston, Massachusetts. The American Arbitration Association has
decided that the arbitration will go forward in Boston and not New York. In the
meantime, APACE has requested that the court permit the action to go forward and
for the arbitration to be stayed. At this time, the arbitration is still going
forward in Boston, and an arbitrator has been selected. It is anticipated that a
preliminary hearing will be scheduled shortly.
Item 2. Changes in Securities and Use of Proceeds:
RECENT SALES OF UNREGISTERED SECURITIES
On October 21, 1999, in connection with its acquisition of Ling Electronics,
Inc. and Ling Electronics, Ltd., the Company issued 770,000 shares of its Common
Stock to MTI, 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, the Company issued
370,800 shares of its Common Stock to Mechanical Technology Incorporated. In
addition, the Company issued to MTI a warrant to purchase 36,000 shares of its
Common Stock at an exercise price of $8.80 per share. This warrant expires on
October 21, 2003. On January 31, 2000, in connection with a second closing of
this investment, the Company issued 659,200 shares of its Common Stock and a
warrant to purchase 64,000 shares of its Common Stock at an exercise price of
$8.80 per share. This warrant expires on January 31, 2004. Both the common stock
and the 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 November 16, 1999, the Company issued 578,761 shares of its Common Stock to
NGC in exchange for certain intellectual property, equipment and other assets
which were used by NGC in connection with its power electronics products
business. In addition, the Company issued to NGC a warrant to purchase 100,000
shares of its Common Stock at an exercise price of $9.725 per share. In
connection with this transaction, on February 4, 2000, the Company issued to NGC
an additional warrant to purchase 100,000 shares of its Common Stock at an
exercise price of $9.725 per share. These warrants expire on December 31, 2006.
Both the Common Stock and the 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.
Item 3. Defaults upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable.
Item 5. Other Information:
Not applicable.
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits
10.41 Promissory Note, dated October 6, 1999, made in favor of the Registrant
by Michael C. Turmelle in the amount of $10,000, together with Promissory
Note, dated December 6, 1999, made in favor of the Registrant by Michael
C. Turmelle in the amount of $75,000.
10.42 Senior Secured Convertible Promissory Note, dated January 7, 2000, made
in favor of the Registrant by Beacon Power Corporation in the amount of
$200,000.
10.43 Stock Purchase Warrant issued on February 4, 2000 by the Registrant to
Northrop Grumman Corporation.
27 Financial Data Schedule
99 Risk Factors
(b) Reports on Form 8-K
On November 5, 1999, the Registrant filed a Current Report on Form 8-K, dated
October 21, 1999, in connection with its 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, the Registrant filed a Current Report on Form 8-K, dated
November 16, 1999, in connection with its purchase of certain intellectual
property, equipment and other assets from Northrop Grumman Corporation.
On January 4, 2000, the Registrant filed a Current Report on Form 8-K/A, dated
October 21, 1999, in connection with its acquisition of Ling Electronics, Inc.
and Ling Electronics, Ltd. from Mechanical Technology Incorporated.
14
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
SATCON TECHNOLOGY CORPORATION
Date: February 14, 2000 By: /s/ Sean Moran
---------------------
Sean Moran, Chief Financial
Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
Exhibit 10.41
PROMISSORY NOTE
---------------
October 6, 1999
$10,000.00 Cambridge, Massachusetts
FOR VALUE RECEIVED, Michael C. Turmelle (the "Maker"), promises to pay to SatCon
Technology Corporation (the "Corporation"), or order, at the offices of the
Corporation, located at 161 First Street, Cambridge, Massachusetts 02142, or at
such other place as the holder of this Note may designate, the principal sum of
TEN THOUSAND DOLLARS ($10,000) together with interest on the unpaid principal
balance of this Note from time to time outstanding at the rate of 5.74% per year
until paid in full. Principal and interest shall be due and payable in full on
December 15, 2000.
Interest on this Note shall be computed on the basis of a year of 365 days for
the actual number of days elapsed. All payments by the Maker under this Note
shall be in immediately available funds.
This Note shall become immediately due and payable without notice or demand upon
the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment or performance of this or any other liability
or obligation of the Maker to the holder, including the payment when
due of any principal, premium or interest under this Note;
(2) the liquidation, termination of existence, dissolution, insolvency or
business failure of the Maker, or the appointment of a receiver or
custodian for the Maker or any part of its property if such
appointment is not terminated or dismissed within thirty (30) days;
(3) the institution against the Maker or any indorser or guarantor of this
Note of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally, which proceeding is not dismissed within thirty (30) days
of filing;
(4) the institution by the Maker or any indorser or guarantor of this Note
of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally or the making by the Maker or any indorser or guarantor of
this Note of a composition or an assignment or trust mortgage for the
benefit of creditors; or
(5) determination by the holder that it is insecure with respect to the
payment of any obligation of the Maker to the holder.
<PAGE>
Upon the occurrence of an Event of Default, the holder shall have then, or at
any time thereafter, all of the rights and remedies afforded by the Uniform
Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after the date
on which such amount first became overdue at an annual rate which is two (2)
percentage points above the rate per year specified in the first paragraph of
this Note. Such interest on overdue amounts under this Note shall be payable on
demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
In no event shall any interest charged, collected or reserved under this Note
exceed the maximum rate then permitted by applicable law and if any such payment
is paid by the Maker, then such excess sum shall be credited by the holder as a
payment of principal.
All payments by the Maker under this Note shall be made without set-off or
counterclaim and be free and clear and without any deduction or withholding for
any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount paid may
be applied to principal, premium or interest in such order and manner as shall
be determined by the holder in its discretion.
No reference in this Note to any guaranty or other document shall impair the
obligation of the Maker, which is absolute and unconditional, to pay all amounts
under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including reasonable
attorneys' fees, incurred by the holder in enforcing the obligations of the
Maker under this Note.
No delay or omission on the part of the holder in exercising any right under
this Note shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Maker and every indorser or guarantor of this Note regardless of the time, order
or place of signing waives presentment, demand, protest and notices of every
kind and assents to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of collateral, and to
the addition or release of any other party or person primarily or secondarily
liable.
This Note may be prepaid in whole or in part at any time or from time to time.
Any such prepayment shall be without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
2
<PAGE>
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note is executed as an instrument under
seal.
/s/ Michael C. Turmelle
-------------------------
Michael C. Turmelle
3
<PAGE>
PROMISSORY NOTE
---------------
December 6, 1999
$75,000.00 Cambridge, Massachusetts
FOR VALUE RECEIVED, Michael C. Turmelle (the "Maker"), promises to pay to SatCon
Technology Corporation (the "Corporation"), or order, at the offices of the
Corporation, located at 161 First Street, Cambridge, Massachusetts 02142, or at
such other place as the holder of this Note may designate, the principal sum of
SEVENTY-FIVE THOUSAND DOLLARS ($75,000) together with interest on the unpaid
principal balance of this Note from time to time outstanding at the rate of
5.74% per year until paid in full. Principal and interest shall be due and
payable in full on December 15, 2000.
Interest on this Note shall be computed on the basis of a year of 365 days for
the actual number of days elapsed. All payments by the Maker under this Note
shall be in immediately available funds.
This Note shall become immediately due and payable without notice or demand upon
the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment or performance of this or any other liability
or obligation of the Maker to the holder, including the payment when
due of any principal, premium or interest under this Note;
(2) the liquidation, termination of existence, dissolution, insolvency or
business failure of the Maker, or the appointment of a receiver or
custodian for the Maker or any part of its property if such
appointment is not terminated or dismissed within thirty (30) days;
(3) the institution against the Maker or any indorser or guarantor of this
Note of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally, which proceeding is not dismissed within thirty (30) days
of filing;
(4) the institution by the Maker or any indorser or guarantor of this Note
of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally or the making by the Maker or any indorser or guarantor of
this Note of a composition or an assignment or trust mortgage for the
benefit of creditors; or
(5) determination by the holder that it is insecure with respect to the
payment of any obligation of the Maker to the holder.
<PAGE>
Upon the occurrence of an Event of Default, the holder shall have then, or at
any time thereafter, all of the rights and remedies afforded by the Uniform
Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after the date
on which such amount first became overdue at an annual rate which is two (2)
percentage points above the rate per year specified in the first paragraph of
this Note. Such interest on overdue amounts under this Note shall be payable on
demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
In no event shall any interest charged, collected or reserved under this Note
exceed the maximum rate then permitted by applicable law and if any such payment
is paid by the Maker, then such excess sum shall be credited by the holder as a
payment of principal.
All payments by the Maker under this Note shall be made without set-off or
counterclaim and be free and clear and without any deduction or withholding for
any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount paid may
be applied to principal, premium or interest in such order and manner as shall
be determined by the holder in its discretion.
No reference in this Note to any guaranty or other document shall impair the
obligation of the Maker, which is absolute and unconditional, to pay all amounts
under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including reasonable
attorneys' fees, incurred by the holder in enforcing the obligations of the
Maker under this Note.
No delay or omission on the part of the holder in exercising any right under
this Note shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Maker and every indorser or guarantor of this Note regardless of the time, order
or place of signing waives presentment, demand, protest and notices of every
kind and assents to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of collateral, and to
the addition or release of any other party or person primarily or secondarily
liable.
This Note may be prepaid in whole or in part at any time or from time to time.
Any such prepayment shall be without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
2
<PAGE>
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note is executed as an instrument under
seal.
/s/ Michael C. Turmelle
-------------------------
Michael C. Turmelle
3
<PAGE>
Exhibit 10.42
-------------
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR
COMPLIANCE IS NOT REQUIRED.
THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES
REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS
OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
$200,000 January 7, 2000
WOBURN, MA
FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the
"Company"), promises to pay to the order of SatCon Technology Corporation, or
its registered assigns (the "Holder"), the principal sum of TWO HUNDRED THOUSAND
DOLLARS ($200,000) or such lesser amount as shall then equal the outstanding
principal amount hereof, together with interest computed in the following
fashion:
Interest accruing from the date of issuance of this Note on the unpaid
principal balance hereof at a rate equal to twelve and one-half percent (12
1/2%) per annum, computed on the basis of the actual number of days elapsed and
a year of 365 days; provided that if the Funding Date does not occur within four
(4) months from the date hereof, such interest rate shall increase effective as
of the close of business on such day to occur four (4) months from the date
hereof to fifteen percent (15%) per annum. Interest on the unpaid principal
balance hereof may be paid in cash, or, if a Funding Date occurs and the Note is
converted, in the form of Class E Preferred Stock at the price per share at
which the Class E Preferred Stock is issued on the Funding Date.
All unpaid principal, together with any accrued but unpaid interest and other
amounts payable hereunder, shall be due and payable on the earlier of (i) the
date of conversion (or, absent a conversion, demand by the holder) as referenced
below in Section 6 (the "Maturity Date") or (ii) upon or after the occurrence of
an Event of Default (as defined below), when such amounts are declared due and
payable by the Holder or made automatically due and payable.
This Note is issued pursuant to the Note and Warrant Purchase Agreement (the
"Purchase Agreement") dated as of January 7, 2000 by and among the Company,
Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology
Fund, L.L.C. and SatCon Technology Corporation.
The following is a statement of the rights of the Holder and the conditions to
which this Note is subject, and to which the Holder hereof, by the acceptance of
this Note, agrees:
1. Definitions. As used in this Note, the following capitalized
-- ------------
terms have the following meanings:
(a) "Business Day" means any day other than a Saturday, Sunday or
other day on which the national or state banks located in the State of
Massachusetts or the State of New York are authorized to be closed.
<PAGE>
(b) "Funding Date" shall refer to date on which the purchase of at
least $5 million of the Company's Class E Preferred Stock occurs.
(c) "Obligations" means the principal, interest and other amounts
payable under this Note.
(d) "Transaction Documents" shall mean this Note, the Purchase
Agreement, and any other promissory note issued pursuant to the Purchase
Agreement.
2. Events of Default. The occurrence of any of the following
-----------------
shall constitute an "Event of Default" under this Note:
(a) Failure to Pay. The Company shall fail to pay (i) when due
any principal payment on this Note or (ii) any interest or other payment
required under the terms of this Note or any other Transaction Document within
five Business Days of its due date; or
(b) Breaches of Other Covenants. The Company shall materially fail to
observe or to perform any other covenant, obligation, condition or agreement
contained in this Note or the other Transaction Documents, other than those
specified in Section 2(a) hereof, and such failure shall continue for 10 days
after written notice thereof to the Company; or
(c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(i) apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property, (ii) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its or any of its
creditors, (iv) be dissolved or liquidated in full or in part, (v) become
insolvent (as such term may be defined or interpreted under any applicable
statute), (vi) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other proceeding
commenced against it or (vii) take any action for the purpose of effecting any
of the foregoing; or
(d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
------------------------------------------------
the appointment of a receiver, trustee, liquidator or custodian of the Company
or of all or a substantial part of the property thereof, or an involuntary case
or other proceedings seeking liquidation, reorganization or other relief with
respect to the Company or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order for
relief entered, or such case or proceeding shall not be dismissed or discharged
within 45 days of commencement; or
(e) Cross-Default. The Company or any of its subsidiaries shall
-------------
default under any bond, debenture, note or other evidence of indebtedness for
money borrowed (excluding any capital lease), under any guarantee or under any
mortgage, or indenture pursuant to which there shall be issued or by which there
shall be secured or evidenced any indebtedness for money borrowed by the Company
or any of its subsidiaries, whether such indebtedness now exists or shall
hereafter be created, which default shall have resulted in indebtedness of at
least $10,000 being due and payable prior to the date on which it would
otherwise become due and payable and shall not have been issued by the Company
or waived by the lender; or
(f) Undischarged Judgment. One or more judgments for the payment of
---------------------
money in an amount in excess of $10,000 in the aggregate shall be rendered
against the Company or any of its subsidiaries (or any combination thereof) and
shall remain undischarged for a period of ten consecutive days during which
execution shall not be effectively stayed, or any action is legally taken by a
judgment creditor to levy upon any such judgment.
3. Rights of Holder Upon Default. Upon the occurrence or existence of
-----------------------------
any Event of Default (other than an Event of Default referred to in Sections
2(c) and 2(d) hereof) and at any time thereafter during the continuance of such
Event of Default, the Holder may declare all outstanding Obligations payable by
the Company hereunder to be immediately due and payable without presentment,
demand, protest or any other notice of any
-2-
<PAGE>
kind, all of which are hereby expressly waived, anything contained herein or in
the other Transaction Documents to the contrary notwithstanding. Upon the
occurrence or existence of any Event of Default described in Sections 2(c) and
2(d) hereof, immediately and without notice, all outstanding Obligations payable
by the Company hereunder shall automatically become immediately due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the other
Transaction Documents to the contrary notwithstanding. In addition to the
foregoing remedies, upon the occurrence or existence of any Event of Default,
the Holder may exercise any other right, power or remedy granted to it by the
Transaction Documents or otherwise permitted to it by law, either by suit in
equity or by action at law, or both.
4. Collateral. To secure the Company's payment and performance of the
----------
Obligations and to secure the Company's prompt, full and faithful performance
and observance of all of the provisions under this Note and the other
Transaction Documents, the Company hereby grants the Holder a security interest,
ranking pari passu with to the Senior Secured Convertible Promissory Notes
issued by the Company pursuant to the Note and Warrant Purchase Agreement dated
August 2, 1999, as amended by and among the Company and certain investors in the
Company and the other Notes being issued pursuant to the Purchase Agreement, and
senior to all other security interests except for any now or hereafter existing
commercial bank or institutional lender financings and equipment leases, in all
of the Company's right, title and interest in and to the following, whether now
owned or hereafter acquired or existing and wherever located:
(a) All inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
(b) All accounts, contract rights, chattel paper, instruments, deposit
accounts, general intangibles and other obligations of any kind, and all rights
now or hereafter existing in and to all mortgages, security agreements, leases
or other contracts securing or otherwise relating to any of the same;
(c) All intellectual property and trade secrets, including, without
limitation,
(i) all patents, patent applications and patentable inventions and (i)
the inventions and improvements described and claimed therein; (ii) any
continuation, division, renewal, extension, substitute or reissue thereof or any
legal equivalent in a foreign country for the full term thereof or the terms for
which the same may be granted; (iii) all rights to income, royalties, profits,
awards, damages and other rights relating to said patents, applications and
inventions, including the right to sue for past, present and future infringement
and (iv) any other rights and benefits relating to said patents, applications
and inventions including any rights as a licensor or licensee of said patents,
applications and inventions (the "Patents");
(ii) all trademarks, trademark registrations, trademark applications,
service marks, service mark registrations and service mark applications, trade
names, fictitious business name, tradestyles, and the goodwill underlying those
trademarks and service marks and (i) any similar marks or amendments,
modifications and renewals thereof and the goodwill represented by those and any
legal equivalent in a foreign country for the full term or terms for which the
same may be granted; (ii) all rights to income, royalties, profits, damages and
other rights relating to said trademarks and service marks including the right
to sue for past, present or future infringement and (iii) any other rights and
benefits relating to said trademarks and service marks including any rights as a
licensor or licensee of said trademark and service mark (the "Trademarks");
(iii) all copyrights, copyright registrations and copyright
applications, including without limitation those copyrights for computer
programs, computer databases, flow diagrams, maskworks, maskwork applications,
source codes and object codes, computer software, technical knowledge and
processes, trade secrets, know-how, customer lists, franchises, systems,
inventions, designs, blueprints, formal or informal licensing arrangements, and
all property embodying or incorporating such copyrights and (i) any similar
rights or amendments, modifications and renewals thereof and any legal
equivalent in a foreign country for the full term or terms for which the same
may be granted; (ii) all rights to income, past, present and future infringement
and (iii) any other rights and benefits relating to said copyrights (the
"Copyrights");
-3-
<PAGE>
(d) all substitutions and replacements for, and all rights to exploit,
all of the foregoing;
(e) all books and records pertaining to any of the foregoing; and
(f) all proceeds of all of the foregoing and, to the extent not
otherwise included, all payments under insurance or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing.
All of the above assets are hereinafter collectively referred to as
"Collateral."
The Company covenants and agrees with Holder that: (x) the security interest
granted under this Note is in addition to any other security interest from time
to time held by the Holder; (y) the Holder may realize upon all or part of any
Collateral in any order it desires and any realization by any means upon any
Collateral will not bar realization upon any other Collateral; and (z) the
security interest hereby created is a continuing security interest and will
cover and secure the payment of all Obligations both present and future of the
Company to Holder pursuant to this Note and the other Transaction Documents.
The Company further covenants and agrees to take all actions requested by the
Holder to establish or perfect the security interest granted under this Note.
5. Prepayment. This Note may be prepaid as a whole or in part at any time
----------
prior to the Maturity Date upon at least ten Business Days prior written notice
to the Holder, provided that nothing in this Section 5 shall limit the Holder's
conversion rights set forth in Section 6 herein during such notice period. Any
such prepayment shall be applied first to the payment of expenses due under this
Note, second to interest accrued on this Note and third, if the amount of
prepayment exceeds the amount of all such expenses and accrued interest, to the
payment of principal of this Note.
6. Conversion.
----------
(a) If there is a Funding Date by February 2, 2000, the Holder shall have
the choice of (a) declaring in writing that such Note has become a demand
obligation, and thereafter may make demand for payment of the Note at any time
thereafter or (b) convert the Note into shares of Class E Preferred Stock on
such date at a price equal to the price at which the Class E Preferred Stock is
issued on the Funding Date. In the event that the Holder does not so notify the
Company as provided above, the Holder shall be issued a Warrant as provided for
in the Purchase Agreement.
(b) If the Funding Date has not occurred on or before February 2, 2000,
then (a) all outstanding principal and accrued interest under this Note will
convert to the Company's common or preferred stock at a price and on terms to be
negotiated at that time between the Holder and the Company, or (b) if no
agreement can be reached between the Holder and the Company within 60 days
following February 2, 2000, at the Holder's option, exercisable by the Holder at
any time after expiration of the 60 day period, the Holder may declare in
writing that such Note has become a demand obligation, and thereafter may make
demand for payment of the Note at any time thereafter. Any such demand shall be
in writing, and require payment by the Company no earlier than 10 days after
such demand.
7. Successors and Assigns. Subject to the restrictions on transfer
----------------------
described in Sections 9 and 10 hereof, the rights and obligations of the Company
and the Holder of this Note shall be binding upon and benefit the successors,
assigns, heirs, administrators and transferees of the parties.
8. Waiver and Amendment. Any provision of this Note may be amended, waived
--------------------
or modified only as to the Holder of this Note upon the written consent of the
Company and the Holder.
9. Transfer of this Note or Securities Issuable on Conversion Hereof. This
-----------------------------------------------------------------
Note may not be transferred in violation of any restrictive legend set forth
hereon. Each new Note issued upon transfer of this Note shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities Act.
The Company may issue stop transfer instructions to its transfer agent in
-4-
<PAGE>
connection with such restrictions. Subject to the foregoing, transfers of this
Note shall be registered upon registration books maintained for such purpose by
or on behalf of the Company. Prior to presentation of this Note for
registration of transfer, the Company shall treat the registered holder hereof
as the owner and holder of this Note for the purpose of receiving all payments
of principal and interest hereon and for all other purposes whatsoever, whether
or not this Note shall be overdue and the Company shall not be affected by
notice to the contrary.
10. Assignment by the Company. Neither this Note nor any of the rights,
-------------------------
interests or obligations hereunder may be assigned, by operation of law or
otherwise, as a whole or in part, by the Company, without the prior written
consent of the Holder.
11. Treatment of Note. To the extent permitted by generally accepted
-----------------
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.
12. Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier, personal delivery or facsimile
transmission at the respective addresses or facsimile number of the parties as
set forth in the Purchase Agreement or on the register maintained by the
Company. Any party hereto may by notice so given change its address or
facsimile number for future notice hereunder. Notice shall conclusively be
deemed to have been given when received.
13. Expenses; Waivers. If action is instituted to collect this Note, the
-----------------
Company promises to pay all costs and expenses, including, without limitation,
reasonable attorneys' fees and costs, incurred in connection with such action.
The Company hereby waives notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor and all other notices or demands
relative to this instrument.
14. Governing Law. This Note and all actions arising out of or in connection
-------------
with this Note shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts, without regard to conflict of laws provisions
of the Commonwealth of Massachusetts or of any other state. In the event of any
dispute among or between any of the parties to this Note arising out of the
terms of this Note, the parties hereby consent to the exclusive jurisdiction of
the federal and state courts located in the Commonwealth of Massachusetts for
resolution of such dispute, and agree not to contest such exclusive jurisdiction
or seek to transfer any action relating to such dispute to any other
jurisdiction.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
date first written above.
BEACON POWER CORPORATION
By: /s/ William E. Stanton
----------------------
Name: William E. Stanton
------------------
Title: President & CEO
---------------
-5-
<PAGE>
Exhibit 10.43
-------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FOR INVESTMENT ONLY
AND NOT FOR RESALE. THEY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS FIRST REGISTERED UNDER SUCH
LAWS, OR UNLESS SATCON TECHNOLOGY CORPORATION (THE "COMPANY"), AS THE ISSUER,
HAS RECEIVED AN OPINION OF COUNSEL (WHICH COUNSEL MAY BE AN EMPLOYEE OF THE
HOLDER OF THIS CERTIFICATE OR SUCH HOLDER'S AFFILIATE) TO THE EFFECT THAT SUCH
TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS, INCLUDING THE TERMS AND CONDITIONS RELATING TO REGISTRATION RIGHTS,
SET FORTH IN A CERTAIN AGREEMENT DATED AS OF NOVEMBER 16, 1999 BY AND AMONG THE
COMPANY AND NORTHROP GRUMMAN CORPORATION, AS FROM TIME TO TIME AMENDED, MODIFIED
OR SUPPLEMENTED, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.
NO. W-2 NUMBER OF SHARES: 100,000
Date: February 4, 2000
WARRANT CERTIFICATE
-------------------
SATCON TECHNOLOLGY CORPORATION
This Warrant Certificate certifies that NORTHROP GRUMMAN CORPORATION (together
with any subsequent holder of this Warrant, the "Holder") is the holder of a
Warrant (the "Warrant") to purchase 100,000 shares (the "Shares") of the common
stock, par value $0.01 per share ("Common Stock"), of SATCON TECHNOLOGY
CORPORATION (the "Company"), at a purchase price of $9.725 per Share ("Purchase
Price"). The Warrant may be exercised as provided in Section 1 below. The
number of shares that may be purchased upon exercise of the Warrant set forth
above, and the Purchase Price per share set forth above, are the number and
Purchase Price as of the date hereof and are subject to adjustment as set forth
below.
The Warrant is subject to the following terms, conditions and provisions:
SECTION 1. EXERCISE OF WARRANT; PURCHASE PRICE; TERM.
-----------------------------------------
(a) EXERCISE OF WARRANT. Upon the completion of negotiations and
execution of the resulting agreement between Northrop Grumman Corporation and
Daimler-Chrysler with respect to engineering services to be provided to Daimler-
Chrysler as specified in and limited by reference to Chrysler in Exhibit A
to the Asset Purchase
<PAGE>
Agreement, dated as of November 16, 1999, by and between the Company and
Northrop Grumman Corporation, and the transfer of title for Daimler-Chrysler
acquired tooling and test equipment to the Company by May 16, 2001, the Holder
may exercise the Warrant in whole or in part (but, if in part, only as to a
whole number of Shares) at any time and from time to time during the period (the
"Exercise Period") ending on December 31, 2006, upon surrender of this Warrant
Certificate, with the Form of Election attached thereto duly executed, to the
Company at its office, together with payment of the Purchase Price for all or a
portion of the Shares. The Purchase Price shall be payable in cash or by
certified or official bank check or other immediately available funds payable to
the order of the Company.
(b) ISSUANCE OF COMMON STOCK. Following the receipt of this Warrant
------------------------
Certificate, with the Form of Election to purchase duly executed, accompanied by
payment of the Purchase Price for the Shares to be purchased and an amount equal
to any applicable transfer tax in cash, or by certified or official bank check
or other immediately available funds payable to the order of the Company, the
Company shall thereupon promptly cause certificates for the number of whole
shares of Common Stock to be purchased to be delivered to the Holder.
(c) UNEXERCISED WARRANTS. In case the Holder shall exercise the Warrant
--------------------
for an amount less than all Shares evidenced thereby, a new Warrant Certificate
evidencing a Warrant to purchase the remaining unexercised Shares shall be
issued by the Company to the Holder.
SECTION 2. TRANSFER OF WARRANT CERTIFICATES; LOSS, THEFT, DESTRUCTION OR
-------------------------------------------------------------
MUTILATION OF WARRANT CERTIFICATES.
----------------------------------
(a) TRANSFER OF WARRANT. The Warrant and the Shares issued upon exercise
-------------------
hereof may not be transferred or assigned without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this subsection, title to the Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery; provided, however, that the Warrant may only be
transferred in whole and may not be transferred in part.
(b) LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT CERTIFICATES.
--------------------------------------------------------------
In the event of the loss, theft or destruction of a Warrant Certificate, then,
upon receipt by the Company of (i) evidence reasonably satisfactory to the
Company of such loss, theft, or destruction, (ii) an undertaking of indemnity or
security in a form and by a party reasonably satisfactory to the Company, and
(iii) reimbursement to the Company of all reasonable expenses incidental
thereto, the Company will make and deliver a new Warrant Certificate of like
tenor to the registered owner in lieu of the Warrant Certificate so lost,
stolen, or destroyed; provided, if the registered owner of such Warrant
Certificate is the Holder, or any insurance company, bank, pension fund or other
institutional investor, the Holder's or such institutional investor's own
agreement of indemnity shall
2
<PAGE>
be deemed to be satisfactory for purposes of the preceding clause (ii). Upon
surrender and cancellation of a Warrant Certificate if mutilated, the Company
will make and deliver a new Warrant Certificate of like tenor to the registered
owner in lieu of the Warrant Certificate so mutilated.
SECTION 3. LEGENDS.
-------
Each Warrant Certificate issued evidencing all or any portion of the Warrant
shall, and any Shares issued pursuant to exercise of the Warrant shall, unless
the respective Warrant or Shares shall be covered by an effective registration
statement as provided in the Securities Act, bear an endorsement reading
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FOR
INVESTMENT ONLY AND NOT FOR RESALE. THEY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS FIRST REGISTERED UNDER SUCH LAWS, OR UNLESS SATCON
TECHNOLOGY CORPORATION (THE "COMPANY"), AS THE ISSUER, HAS RECEIVED AN
OPINION OF COUNSEL (WHICH COUNSEL MAY BE AN EMPLOYEE OF THE HOLDER OF
THIS CERTIFICATE OR SUCH HOLDER'S AFFILIATE) TO THE EFFECT THAT SUCH
TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS, INCLUDING THE TERMS AND CONDITIONS RELATING TO
REGISTRATION RIGHTS, SET FORTH IN A REGISTRATION RIGHTS AGREEMENT
DATED AS OF NOVEMBER 16, 1999 BY AND AMONG THE COMPANY AND NORTHROP
GRUMMAN CORPORATION, AS FROM TIME TO TIME AMENDED, MODIFIED OR
SUPPLEMENTED, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY."
SECTION 4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
---------------------------------------------------------
The number of shares of Common Stock purchasable upon the exercise of the
Warrant and the payment of the Purchase Price shall be subject to adjustment of
as follows:
(a) DIVIDENDS, SUBDIVISION, COMBINATIONS AND RECLASSIFICATIONS. In case
the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue by reclassification of its shares of Common Stock other
securities of the Company (including, without limitation, any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), upon exercise of the Warrant at any time
subsequent to any such event the Holder shall be
3
<PAGE>
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company that it would have owned or have been entitled to
receive after the happening of any of the events described above, had the
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this
subsection shall become effective on the effective date of such event.
(b) REORGANIZATION OR MERGER, ETC. If after the issuance of the Warrant,
any capital reorganization of the Company, or any reclassification of its Common
Stock, or any consolidation of the Company with or merger of the Company with or
into any other person or any sale, lease or other transfer of all or
substantially all of the assets of the Company to any other person, shall be
effected in such a way that a holder of Common Stock shall be entitled to
receive stock, other securities or assets (whether such stock, other securities
or assets are issued or distributed by the Company or another person) with
respect to or in exchange for Common Stock of the Company, then, upon exercise
of the Warrant the Holder shall have the right to receive the kind and amount of
stock, other securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer by a
holder of the number of shares of Common Stock that such Holder would have been
entitled to receive upon exercise of the Warrant had the Warrant been exercised
immediately before such reorganization, reclassification, consolidation, merger
or sale, lease or other transfer.
(c) DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock purchasable under the Warrant shall be required unless such
adjustment would require an increase or decrease of at least two percent (2%) in
the number of such shares purchasable upon the exercise of the Warrant;
provided, that any adjustments that by reason of this subsection are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment; and provided further, upon exercise of the Warrant, the
Company shall make all necessary adjustments not theretofore made up to and
including the date upon which the Warrant is exercised.
SECTION 5. NO ENTITLEMENT TO VOTE OR RECEIVE DIVIDENDS.
-------------------------------------------
Without limitation of any of the rights of the Holder under the
Shareholders Agreement described in Section 6 below, the Holder shall not be
entitled to vote or receive dividends or be deemed for any purpose the holder of
common Stock or of any other securities of the Company that may at any time be
issued upon the exercise of the Warrant but have not yet been so issued, nor
shall anything contained herein be construed to confer upon the Holder, as such,
any of the rights of a stockholder of the Company or any right to vote upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue of
stock, reclassification of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights, or otherwise, until the Warrant shall have
been exercised as provided herein.
4
<PAGE>
SECTION 6. REGISTRATION RIGHTS AGREEMENT.
-----------------------------
The Warrant is entitled to the benefits of and subject to all of the terms,
conditions and provisions of that certain Registration Rights Agreement dated as
of November 16, 1999 by and among the Company and Northrop Grumman Corporation,
as from time to time amended, modified or supplemented, and the Holder hereof
agrees to perform and observe and be subject to all of such terms, conditions
and provisions with respect to the Warrant and any Shares issued pursuant
hereto.
WITNESS the signature of the proper officer of the Company, dated the date
first above written.
By: /s/ David B. Eisenhaure
-----------------------
Name: David B. Eisenhaure
-------------------
Title: President
---------
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 3,173,619
<SECURITIES> 0
<RECEIVABLES> 3,885,049
<ALLOWANCES> 469,119
<INVENTORY> 8,187,440
<CURRENT-ASSETS> 16,806,508
<PP&E> 4,542,414<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,327,189
<CURRENT-LIABILITIES> 3,597,237
<BONDS> 0
0
0
<COMMON> 113,966
<OTHER-SE> 22,706,576
<TOTAL-LIABILITY-AND-EQUITY> 31,327,189
<SALES> 0
<TOTAL-REVENUES> 4,556,407
<CGS> 0
<TOTAL-COSTS> 4,095,483
<OTHER-EXPENSES> 2,904,034
<LOSS-PROVISION> 130,504
<INTEREST-EXPENSE> 3,691
<INCOME-PRETAX> (2,543,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,543,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,543,182)
<EPS-BASIC> (0.25)<F2>
<EPS-DILUTED> (0.25)<F2>
<FN>
<F1>PP&E is shown net of accumulated depreciation as reported within the Form 10-Q
on the Balance Sheet
<F2>In accordance with SFAS No. 128, "Earnings per share-Basic" is reported as the
value for the (EPS-PRIMARY) tag and "Earnings per share-Diluted" is reported as
the value for the (EPS-DILUTED) tag
</FN>
</TABLE>
<PAGE>
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.
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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. In order to achieve
profitability, we must successfully achieve all or some combination of the
following:
. 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 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 vibratron 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
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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.
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 2008 and 2017. 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.
OUR PRODUCTS, SYSTEMS AND SALES MAY BE SUBJECT TO YEAR 2000 PROBLEMS
We have assessed our software systems and internal operations. We believe we
have resolved all potential Year 2000 issues or 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.
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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 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.
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
the 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 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 December 31, 1999, our officers and directors, and their affiliates,
beneficially own approximately 44.7% of our outstanding common stock, and
approximately 25.6% 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
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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.
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.
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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, 8,000
shares of which are represented by Series A Convertible Redeemable Preferred
Stock which are issued and outstanding. 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. Other than the series A preferred stock, no
preferred stock is currently outstanding, and we have no present plans to issue
any additional preferred stock. However, the issuance of any additional
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. See "Description
of Capital Stock -- Preferred Stock."
WE ARE REQUIRED TO REDEEM OUR PREFERRED STOCK IN CERTAIN CIRCUMSTANCES
If it has not been converted to common stock prior to that time, we are
required to redeem the series A preferred stock in August 2006 at a price equal
to its liquidation preference. If the average market price of the common stock
(after adjustments for stock splits, reclassifications and similar transactions)
is $5.00 or less, for the sixty trading days prior to August 25, 2003, we are
required to redeem the series A preferred stock in August 2003 at a price equal
to its liquidation value. The redemption price may be paid, at our option, in
cash and/or shares of common stock. The series A preferred stock is initially
convertible into common stock at a conversion price of $7.80 per share. The
conversion price and the number of shares of our common stock issuable upon
conversion are subject to adjustment in certain circumstances, including
issuances, subject to certain exceptions, of common stock below the initial
conversion price.
WE COULD ISSUE ADDITIONAL COMMON STOCK, WHICH MIGHT DILUTE THE VALUE OF OUR
COMMON STOCK
We have authorized 20,000,000 shares of common stock, of which 11,396,570
shares are issued and outstanding as of December 31, 1999. 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. See "Description of Capital Stock -- 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.
We have also reserved 1,230,770 shares of common stock for issuance upon
conversion of the outstanding series A preferred stock. 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'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
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, the conversion of preferred stock 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
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common stock and prove to be a hindrance to our future financing. Our series A
preferred stock and 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 the outstanding preferred stock and 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 issued and outstanding as of December 31, 1999,
5,560,945 shares of common stock currently outstanding are freely tradable
securities. Other securities, such as the common stock issuable upon conversion
of the series A preferred stock or upon exercise of our warrants, are not
considered outstanding, but upon conversion or 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 conversion or exercise are entitled to such registration
rights. Many of the other currently 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 (such as Duquesne Enterprises) 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, such as the series A preferred stock, 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.
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 or preferred stock will depend
upon, among other things, future earnings, our operating and financial
condition, our capital requirements and general business conditions. See
"Description of Capital Stock -- Dividend Policy."
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