Research And Development Agreement

EXHIBIT 10.24


ASC/IAI


RESEARCH & DEVELOPMENT AGREEMENT


JANUARY 1, 1996


2


CONTENTS
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ARTICLE I: DEFINITIONS.................................................. 3


1.1 "Precursor Material(s)"...................................... 3


1.2 "Mechanical Deformation"..................................... 3


1.3 "Superconducting Materials".................................. 3


ARTICLE II: THE PROGRAM................................................. 3


2.1 Scope........................................................ 3


2.2 Duration..................................................... 4


2.3 Funding...................................................... 4


2.3.1 IAI Funding of Work performed by ASC.................. 4


2.3.2 IAI Funding of Work performed by IAI.................. 5


2.3.3 ASC Funding........................................... 6


2.4 Management of Research....................................... 6


2.5 Program Review Board......................................... 6


2.6 Parties to Make Technology Available......................... 7


2.7 Renewal, Expiration or Termination........................... 7


2.7.1 Early Termination..................................... 8


2.7.2 Conditional Stock Warrants............................ 9


2.8 Records and Reports.......................................... 11


2.9 Precursor Material(s)........................................ 12


2.10 Success of Program........................................... 12


2.11 Rights and Obligations at Close of the Program............... 13


2.12 Inventions................................................... 15


ARTICLE III: JOINT VENTURE.............................................. 17


ARTICLE IV: RIGHTS AND OBLIGATIONS REGARDING JOINT VENTURE............... 22


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4.0 The Joint Venture............................................ 22


4.1 American Superconductor Corporation.......................... 24


4.2 Inco Alloys International, Inc............................... 25


ARTICLE V: CONFIDENTIALITY.............................................. 26


ARTICLE VI: Miscellaneous................................................ 28


6.1 Assignment: Benefit and Binding.............................. 28


6.2 Export Controls.............................................. 28


6.3 Notices...................................................... 29


6.4 Applicable Law; Entire Agreement; Headings................... 29


Exhibits A-D


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RESEARCH AND DEVELOPMENT AGREEMENT
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THIS RESEARCH AND DEVELOPMENT AGREEMENT, which is effective as of January 1, 1996 ("EFFECTIVE DATE"), is made by and between American Superconductor Corporation ("ASC"), a Delaware corporation having a place of business at Two Technology Drive, Westborough, Massachusetts 01581, and Inco Alloys International, Inc. ("IAI"), a Delaware corporation having a place of business at 3200 Riverside Drive, Huntington, West Virginia 25705


W I T N E S S E T H


WHEREAS, ASC has developed and/or acquired, and owns a body of proprietary technology, or rights thereto, relating to superconductors, including but not limited to high temperature oxide superconductors and techniques for causing the oxidation of metals for subsequent use in the form of superconductive wires, rods, ribbons and other product forms ("ASC PROPRIETARY TECHNOLOGY");


WHEREAS, IAI has developed and owns rights to (a) proprietary technology relating to a ************************************* ****************************************************************** **************************************************************** ************************************************************** *************************************************************** ******************************************************************


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************************************************************** ******************************************************** ************************* (hereinafter collectively referred to as the "IAI PROPRIETARY TECHNOLOGY");


WHEREAS, pursuant to a prior agreement (the "OLD AGREEMENT") entered into between them and dated May 25, 1990 (which agreement, as heretofore amended is now superseded hereby), ASC and IAI have, during the period July 1, 1988 through December 31, 1995, conducted a research and development program which demonstrated the feasibility of forming precursor materials using IAI Proprietary Technology and converting them to superconducting materials using ASC's Proprietary Technology, and in which the parties jointly developed technology (the "JD TECHNOLOGY") related to the formation of specific superconducting materials;


WHEREAS, the parties are desirous of entering into a further research and development Program (the "PROGRAM") in which work will be done by both parties with the objectives of further developing processing technologies, providing superconducting materials for evaluation/research purposes and for sale, and generating engineering data that will be useful or necessary in setting up a pilot plant to produce Precursor Material(s) in a joint venture, which the parties contemplate entering into at such time that the demand for the Precursor Material(s) in question reaches a level that makes a joint venture commercially viable;


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NOW, THEREFORE, in consideration of the mutual covenants herein set forth, the parties hereto agree as follows:


ARTICLE I: DEFINITIONS


1.1 "PRECURSOR MATERIAL(S)" shall mean any system of at least one reactive metallic component which has been subjected to IAI's Mechanical Alloying process, both as originally produced by such Mechanical Alloying and as subsequently consolidated and formed into a rod, wire or other such form by Mechanical Deformation. Precursor Material shall not include a system which has been processed to be superconducting. The term "REACTIVE METALLIC COMPONENT" shall not include a non-reactive or noble metal such as gold, silver or platinum.


1.2 "MECHANICAL DEFORMATION" shall mean the deforming, whether by hot, warm or cold working and whether by forging, rolling, extruding or any other process, of a Precursor Material from one product form (such as billet, slab, powder, plate, bar, etc.) into another product form (such as rod, wire, strip, sheet tubing, or other shape), or reducing the size thereof.


1.3 "SUPERCONDUCTING MATERIALS" shall mean any ceramic material(s), which is superconducting, including but not limited to oxides, sulfides, nitrides, carbides and other ceramics, ceramics produced from Precursor Materials, and ceramics produced directly from other metal forming methods and subsequently formed into rod, wire or other such form.


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ARTICLE II: THE PROGRAM


2.1 SCOPE. The Program shall consist of research and development conducted by ASC and IAI, subject to the terms and conditions of this Agreement, into the development and production of Precursor Materials, the development of Mechanical Deformation, and the development and manufacture of Superconducting Materials in the form of wires, bars, rods, sheets, strip, tubing or other shapes, all as more specifically described in the Statement of Work attached hereto as Exhibit A and incorporated herein by reference.


2.2 DURATION. The Program shall remain in effect for a period of three years from 1 January 1996, subject to annual renewals, and unless earlier terminated, all as hereinafter set forth.


2.3 FUNDING.


2.3.1 IAI FUNDING OF WORK PERFORMED BY ASC. IAI will provide funds to support the Program in an aggregate amount of up to $1.1 Million during the first year. The amount of funding, expected to be no more than the first year annually, for the second and third years of the Program, subject to mutually agreed to renewals of the Agreement, will be determined at least sixty (60) days before the end of each year of the Program. Funding for the first year of the Program will be in four equal quarterly payments of $275,000.00 each, payable by no later than February


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15, 1996 and the fifteenth day of each calendar quarter thereafter. Payments for the second and third years of funding will be made quarterly within fifteen (15) days of the start of each calendar quarter. All funds paid by IAI pursuant to this Section shall be expended for no purpose other than the Program. All equipment purchased with such funds shall be the property of ASC, but the Joint Venture will be given any of such equipment it requests. If ASC ceases operations and is liquidated during the term of the Agreement, IAI will become the owner of the equipment. All funding obligations of IAI under this Section shall cease upon early expiration or termination of this Agreement pursuant to Section 2.7 hereof.


2.3.2 IAI FUNDING OF WORK PERFORMED BY IAI.


(a) IAI will provide funds to support the IAI portion of the Program in an aggregate amount of at least *********** during the first year of the Program. The level of funding for the second and third years of the Program subject to mutually agreed Agreement renewals will be determined at least sixty (60) days before the end of the prior calendar year of the Program.


(b) As part of the work to be performed by IAI, IAI will have the option to assign by mutual agreement one or more IAI employee(s) to be located at ASC to directly participate in ASC R&D work covered under the Program. All employee related costs, e.g., salary, benefits, travel, supplies and office rental, for


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2.3.3 ASC FUNDING. ASC will fund the Program in an annual aggregate amount of up to US $1.2 Million. The amount of funding for the second and third years of the Program subject to mutually agreed to renewals of the Agreement will be determined at least sixty (60) days before the end of each year of the Program. All funds paid by ASC pursuant to this Section shall be expended for no purpose other than the Program. All equipment purchased with such funds shall be the property of ASC, but the Joint Venture will be given any of such equipment it requests. If ASC ceases operations and is liquidated during the term of the Agreement, IAI will become the owner of the equipment. All funding obligations of ASC under this Section shall cease upon early termination by IAI or ASC pursuant to Section 2.7 hereof.


2.4 MANAGEMENT OF RESEARCH. ASC shall be responsible for the direct management and supervision of the research conducted in the Program at ASC, and IAI shall be responsible for the direct management of the research in the Program at IAI and Michigan Technical University, subject to the oversight responsibilities of the Review Board referred to below. Both ASC and IAI shall staff the Program with qualified personnel to enable the Program to


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progress in accordance with the goals and criteria set forth in Exhibit A hereto.


2.5 PROGRAM REVIEW BOARD. There is hereby established a Program Review Board (the "REVIEW BOARD"), which shall have the responsibility of overseeing and monitoring the Program. The Review Board shall be comprised of four (4) members, consisting of two (2) representatives appointed by ASC and two (2) representatives appointed by IAI. The Review Board's responsibilities, obligations and powers (including alteration of the scope and direction of the Program as made necessary or desirable by developments in the Program and/or in the field of superconductivity) shall be as specifically set forth on Exhibit B attached hereto and incorporated herein by reference.


2.6 PARTIES TO MAKE TECHNOLOGY AVAILABLE. To the extent that they now or hereafter have the legal right to do so, ASC and IAI hereby agree that, throughout the Program, each will make available to the other such technology (including proprietary technology) relating to Precursor Material(s), Mechanical Deformation, and/or converting Precursor Material(s) to Superconducting Material(s) as may be reasonably necessary to carry out the Program.


2.7 RENEWAL, EXPIRATION OR TERMINATION. The parties will determine the business viability of continuing the Program at the end of each year of the Program and renew the Agreement, effective


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January 1, 1997 and January 1, 1998 respectively, for years two and three of the Agreement. If the Program is not renewed, i.e. the Program is to be terminated, the party deciding not to renew the Agreement will advise the other party in writing sixty (60) days prior to the scheduled renewal date. Funding of the Program will continue during this notice period, at the end of which the Agreement shall expire. Notwithstanding the absence of any such notice of a decision not to renew, the Agreement shall expire, and be deemed to have terminated without default by either party:


a) on December 31, 1996 if the parties fail to agree, on or before
such date, upon either the funding of the Program for calendar year 1997,
or the formation of a joint venture.


b) on December 31, 1997 if the parties fail to agree, on or before
such date, upon either the funding of the Program for calendar year 1998,
or the formation of a joint venture.


c) on December 31, 1998 if the parties fail to agree, on or before
such date, upon a further renewal of the Agreement and the appropriate
funding therefor, or the formation of a joint venture.


2.7.1 EARLY TERMINATION. Either party shall have the right to terminate the Program, in the event of a breach by the other party of a material obligation hereunder, by serving sixty


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(60) days' written notice upon the other party, setting forth the cause and specifying the date of termination. The party in breach shall provide a plan for corrective action to cure the breach within this sixty (60) day period. The non-breaching party shall have thirty (30) days to either approve the plan or reject it. If the parties are unable to agree upon a plan for corrective action within sixty (60) days the agreement shall terminate.


2.7.2 CONDITIONAL STOCK WARRANTS. If the Agreement is terminated after December 31, 1997 or the Joint Venture is not formed at the end of the Agreement period, then ASC will provide the following consideration to IAI:


(a) If either or both of ASC and IAI determine(s) that the Precursor
Material product will not achieve the technical goals set forth
in Exhibit A hereto, or will not be commercially viable,


OR If the Joint Venture discounted Cash Flow ("DCF") analysis shows
a return on investment ("ROI") of less than *** and IAI decides
not to proceed with the program or Joint Venture,


then at the time when it is determined that a joint venture will
not be formed between ASC and IAI for the manufacture of
Precursor Materials, ASC will convey to IAI, ASC warrants (the
"WARRANTS"), as full consideration for the IAI investments
disbursed to ASC pursuant hereto, as follows:


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(i) To compute the number of ASC shares into which the Warrants
to be so issued may be subsequently converted (the "NUMBER OF
WARRANTS"), the IAI quarterly investment made pursuant hereto
after December 31, 1995 will be divided by the greater of
***************************** ********* for ASC stock during that
calendar quarter, or ********************** agreed floor price,
with appropriate adjustment of (x) and (y) for any stock splits.
The Number of Warrants so calculated for each quarterly
investment during the period from January 1, 1996 to the date of
conveyance of the Warrants, will be adjusted for any subsequent
stock splits, and will be added together and distributed to IAI,
without payment of any additional consideration by IAI. (ii) The
Warrants so conveyed to IAI will be exercisable at any time
during the ten (10) year period following the date of such
conveyance. (iii) The price (the "Strike Price") at which the
various Warrants so conveyed will be exercisable will be
specified as the relevant ******************************
******************************************* used to compute the
Number of Warrants for the IAI calendar quarter investment for
which the Warrants in question were issued.


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(iv) At IAI's option, ASC will permit IAI to exercise the
Warrants in the form of a cashless transaction, whereby ASC will
sell the IAI Warrants on IAI's behalf and at no additional cost
to IAI, and will remit to IAI the funds corresponding to the
excess of the ASC stock price at the time of such exercise over
the specified Strike Price of the Warrants.


(b) If IAI determines that the Precursor Material product or Joint
Venture will not be commercially viable, for reasons other than
as identified in Section 2.7.2(a),


OR If IAI decides not to continue investing in the Precursor
Material product for reasons that are not associated with the
technical or commercial viability of the Precursor Material
product, then ASC will convey Warrants to IAI in accordance with
all of the terms set forth in Section 2.7.2 (a), except that the
Number of Warrants shall be one-half (1/2) of the number computed
in the manner set forth in Section 2.7.2(a).


2.8 RECORDS AND REPORTS. ASC and IAI will prepare and maintain full and accurate records and books relating to the progress and status of the Program, all financial matters connected therewith, and all expenditures made or costs incurred in connection therewith. Such records and books shall be made


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available at all reasonable times for inspection and review by the Review Board and/or its designees. At least once each calendar quarter, ASC and IAI will prepare and deliver to the other (with copies to the Review Board) reports setting forth: (a) summaries of the status and progress of the Program; (b) all expenditures made or costs incurred in connection therewith; and (c) projections of expenditures required in connection with the Program for each of the 12 months following the date of such reports.


2.9 PRECURSOR MATERIAL(S). Should one party conclude that a Precursor Material(s) tested under the Program is not commercially viable, or should one party choose for any reason to discontinue development of such Precursor Material(s) under the Program or to exclude such Precursor Material(s) from the products to be exploited by a joint venture formed pursuant hereto, the other party shall have the right to exploit (and have exploited on its behalf) such Precursor Material(s) in the field of superconductivity without accounting to the one party. Should such situation occur, if IAI is the one party it hereby agrees to license its Mechanical Alloying and its Mechanical Deformation technologies to ASC, or on behalf of ASC, under reasonable terms and conditions for use in connection with such Precursor Material(s) and if ASC is the one party it hereby agrees, at IAI's option, to either (a) issue warrants to IAI in accordance with


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Section 2.7.2, or (b) license its Proprietary Technology for converting Precursor Materials to Superconducting Materials to IAI, or on behalf of IAI, under reasonable terms and conditions for use in connection with such Precursor Material(s).


2.10 SUCCESS OF PROGRAM.


(a) By no later than October 1, 1998 (or within sixty (60) days after the end of calendar year 1996 or 1997, in the event that this Agreement is not extended for the subsequent year upon mutually acceptable terms) IAI and ASC shall determine in good faith whether to enter into a joint venture pursuant to the terms of ARTICLE III hereof for the purpose of commercially exploiting the Joint Technology.


(b) If the parties determine not to enter into a joint venture, of if for any reason the parties fail to enter into a Joint Venture not later than October 1, 1998 (or any mutually agreed upon extension pursuant to Section 2.10(c)), then


(i) neither party shall have any further rights or obligations pursuant to Articles III and IV hereof; and


(ii) all other provisions of this Agreement shall remain in full force and effect.


(c) IAI and ASC may mutually agree to extend the Program beyond December 31, 1998 and postpone the decision in regard to a joint venture until more data, information and expertise is assembled, or to complete negotiations directed to


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formation of joint venture.


2.11 RIGHTS AND OBLIGATIONS AT CLOSE OF THE PROGRAM. At such time as the Program comes to any end, whether by expiration or as a result of early termination by IAI or ASC,


(a) Neither party shall have any further obligations to make technology available pursuant to Section 2.6;


(b) with respect to technology that either pary has previously furnished to the other pursuant to Section 2.6, subject to the licensing obligations set forth in paragraphs (e) and (f) below, neither party shall have any license under any patent rights of the other and (ii) either party's rights to use or disclose Confidential Information of the other party shall be governed by the provisions of Section 5.1;


(c) Subject to the provisions of Sections 2.12, 5.1 and 5.3, either party may use any information in its possession that was generated in the course of the Program;


(d) ASC shall retain ownership of all equipment purchased by ASC with funds provided hereunder by IAI, except that if the Joint Venture comes into being this equipment will if so requested become the property of the Joint Venture, and if ASC and the Joint Venture both cease to operate, the equipment will be transferred to IAI.


(e) In the event that the Program is terminated as a result of a decision by one party not to proceed therewith, the


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one party shall be prepared to make available to the other party, upon reasonable terms, a non-exclusive license to such technology, relating to Precursor Materials and previously disclosed pursuant to Sections 2.6 and 2.9, as may be useful to the other party to make Superconducting Material(s). This non-exclusive licensing provision shall apply only to the extent that the terminating party (or, at the option of the other party, a joint venture formed pursuant to Articles III and IV) is unwilling or unable to supply Precursor Materials to the other party under terms and conditions reasonably acceptable to the other party.


(f) In the event that the parties do not proceed with a joint venture within the period(s) provided by Section 2.10, then each party shall be obligated to make available to the other party, upon reasonable terms, a non-exclusive license to such technology, relating to Precursor Material(s) and previously disclosed pursuant to Sections 2.6 and 2.9, as may be useful to the other party to make Superconducting Materials, to the extent that the granting party in question may legally grant such license.


2.12 INVENTIONS. With respect to any inventions, discoveries, manufacturing processes or procedures, trade secrets, or other technical information or know-how (hereinafter collectively, "INVENTIONS") conceived or reduced to practice as a result of or otherwise in the course of the efforts expended by


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ASC and/or IAI during the course of or as a consequence of the Program,


(a) all such Inventions shall be owned jointly by the parties;


(b) ASC shall not use (or license others to use) such Inventions relating to Mechanical Alloying or Mechanical Deformation except to make, use or sell (i) Superconducting Materials, (ii) any other superconductors, including elemental, metallic alloy, intermetallic and organic superconductors, or (iii) any products or systems containing any such Superconducting Materials or other superconductors, or any parts or components of any such products or systems;


(c) IAI shall not use (or license others to use) any such Invention (i) to make, use or sell Superconducting Materials (ii) except as provided as Section 4 ...