<PAGE>
MAXWELL TECHNOLOGIES, INC.
8888 BALBOA AVENUE
SAN DIEGO, CA 92123
--------------------
NOTICE OF THE 1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 22, 1997
--------------------
To the Shareholders of
Maxwell Technologies, Inc.
The 1996 Annual Meeting of Shareholders of Maxwell Technologies, Inc., a
Delaware corporation (the "Company"), will be held on January 22, 1997 at 10:00
A.M., local time, at the La Jolla Marriott, 4240 La Jolla Village Drive, La
Jolla, California, for the following purposes, all as more fully set forth in
the accompanying Proxy Statement:
1. To elect 2 directors of the Company of Class I, to serve until the
annual meeting of shareholders in 1999 and until their successors
shall have been duly elected and qualified.
2. To consider and approve an amendment to the Company's 1995 Stock
Option Plan, increasing the number of shares reserved for options
thereunder by 150,000 shares.
3. To consider and approve an amendment to the Company's Director Stock
Option Plan to remove the provision that options held by directors
whose Board membership terminates will expire 60 days after such
termination.
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on November 26, 1996
as the record date for determining shareholders entitled to notice of and to
vote at the meeting and any adjournment or adjournments thereof.
By Order of the Board of Directors,
Donald M. Roberts
Secretary
Dated: December 4, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. IF YOU DO NOT EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
8888 BALBOA AVENUE
SAN DIEGO, CALIFORNIA 92123
-----------------
PROXY STATEMENT FOR THE 1996 ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD ON JANUARY 22, 1997
-----------------
GENERAL INFORMATION
This Proxy Statement is being mailed on or about December 4, 1996 to the
shareholders of Maxwell Technologies, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies on behalf of the
Board of Directors of the Company to be used at the 1996 Annual Meeting of the
Shareholders of the Company to be held on January 22, 1997 (the "Meeting") and
any adjournment or adjournments thereof. Any proxy given may be revoked at any
time prior to the exercise of the powers conferred by it by filing with the
Secretary of the Company a written notice signed by the shareholder revoking
such proxy or a duly executed proxy bearing a later date. In addition, the
powers conferred by such proxy may be suspended if the person executing the
proxy is present at the meeting and elects to vote in person. All shares
represented by each properly executed and unrevoked proxy received in time for
the Meeting will be voted (unless otherwise indicated thereon) in the manner
specified therein at the Meeting and any adjournment or adjournments thereof.
The Company will pay the expenses of soliciting proxies, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of shares. In addition to the use of the mails,
some of the Company's directors, officers and regular employees, without extra
compensation, may solicit proxies by telegram, telephone and personal interview.
A Summary Annual Report of the Company for the fiscal year ended July 31,
1996 ("fiscal 1996") is being mailed to shareholders concurrently with the
mailing of this Notice of Annual Meeting and Proxy Statement. The Summary
Annual Report contains, among other things, summary financial information
regarding the Company and a discussion of developments in the Company's business
during fiscal 1996. In addition, there is included as an Appendix to this Proxy
Statement complete financial statements of the Company together with the report
of the Company's independent auditors thereon. The Appendix also contains
certain additional financial and related information regarding the Company.
VOTING RIGHTS
The close of business on November 26, 1996 (the "Record Date") has been
fixed by the Board of Directors as the record date for determining shareholders
entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. On the Record Date, there were outstanding 2,960,455
shares of the Company's Common Stock, $.10 par value ("Common Stock"), all of
one class and all of which are entitled to be voted at the Meeting. Holders
of such issued and outstanding shares of Common Stock are entitled to one
vote for each share held by them.
A majority of the outstanding shares will constitute a quorum at the
meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Abstentions are counted in the tabulation of the votes cast on proposals
presented to stockholders, whereas broker non-votes are not counted for purposes
of determining whether a proposal has been approved.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth, as of August 31, 1996, certain information
concerning the beneficial ownership of the Company's equity securities of each
person known by the Company to own beneficially five percent or more of the
Company's Common Stock, the Company's only outstanding class of securities
presently entitled to vote. A person is deemed to be the beneficial owner of
securities, whether or not he has any economic interest therein, if he directly
or indirectly has (or shares with others) voting or investment power with
respect to the securities or has the right to acquire such beneficial ownership
within sixty days.
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS
---------------- ---------------------- --------
The TCW Group, Inc..................... 232,588 8.1%
865 South Figueroa Street
Los Angeles, California 90017
Dimensional Fund Advisors, Inc. (2).... 179,306 6.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
- ---------------
(1) Information with respect to beneficial ownership is based on information
furnished to the Company by each shareholder included in the table or
included in filings with the Securities and Exchange Commission.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 179,306 shares of the
Company's Common Stock as of June 30, 1996, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in a series of the DFA Investment Trust Company, a
Delaware Business Trust, or the DFA Group Trust and the DFA Participating
Group Trust, investment vehicles for qualified employee benefit plans, all
of which Dimensional Fund Advisors, Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares. Dimensional
has sole dispositive power over all of such 179,306 shares and sole voting
power over 128,969 of such shares. Persons who are officers of Dimensional
Fund Advisors Inc. also serve as officers of DFA Investment Dimensions
Group Inc., (the "Fund") and the DFA Investment Trust Company (the
"Trust"), each an open-end management investment company registered under
the Investment Company Act of 1940. In their capacity as officer of the
Fund and the Trust, these persons vote 29,446 additional shares which are
owned by the Fund and 20,891 shares which are owned by the Trust (both
included in Sole Dispositive Power above).
BENEFICIAL OWNERSHIP OF DIRECTORS, NOMINEES FOR DIRECTOR AND EXECUTIVE OFFICERS
The following table sets forth, as of August 31, 1996, certain information
concerning the beneficial ownership of the equity securities of the Company of
(i) each director and nominee for director of the Company, (ii) each person
serving as Chief Executive Officer during fiscal 1996, the other four most
highly compensated executive officers of the Company who earned in excess of
$100,000 during fiscal 1996 and two former executive officers who would have
been among such four executive officers except
2
<PAGE>
that they ceased serving as such prior to the end of fiscal 1996, and (iii) all
directors and executive officers of the Company as a group.
The percentages set forth in the following table as to each person's
ownership of the Company's Common Stock are based on the 2,876,858 shares
outstanding on August 31, 1996, plus any shares which may be acquired upon
exercise of stock options held by such person which are exercisable on or within
sixty days after August 31, 1996. Accordingly, the percentages are based upon
different denominators.
NUMBER OF SHARES
NAME OF OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS
---------------- ---------------------- --------
Lewis J. Colby, Jr.. . . . . . . 15,915(2) *
Adolphe G. Gueymard. . . . . . . 18,667(2)(3) *
Thomas B. Hayward. . . . . . . . 9,824(2) *
Henry F. Owsley. . . . . . . . . 36,461(2) 1.3%
Karl M. Samuelian. . . . . . . . 11,587(2) *
Donn A. Starry . . . . . . . . . 8,667(2) *
John W. Weil . . . . . . . . . . 15,612(2) *
Kenneth F. Potashner . . . . . . 98,980 3.4%
Alan C. Kolb (4) . . . . . . . . 97,248(2) (5) 3.3%
Kedar D. Pyatt (4) . . . . . . . 35,788(2) 1.2%
Sean M. Maloy (4). . . . . . . . 38,644(2) (5) 1.3%
Richard C. Eppel . . . . . . . . 13,735(2) *
Richard E. Smith . . . . . . . . 12,500(2) *
Donald M. Roberts. . . . . . . . 4,220(2) *
Eduardo M. Waisman . . . . . . . 14,700(2) *
All Directors and Executive
Officers as a group
(18 persons) . . . . . . . . 446,752(2) 14.6%
- ---------------
* Less than 1% ownership.
(1) Information with respect to beneficial ownership is based on information
furnished to the Company by each shareholder included in the table. Except
as indicated in the notes to the table, each shareholder included in the
table has sole voting and dispositive power with respect to the shares
shown to be beneficially owned by such shareholder. The table may not
reflect limitations on voting power and investment power arising under
community property and similar laws.
(2) Includes the following numbers of shares acquirable under options which
were exercisable on or within sixty days after August 31, 1996: Alan C.
Kolb, 42,000; Kedar D. Pyatt, 4,680; Sean M. Maloy, 37,350; Richard C.
Eppel, 10,860; Richard E. Smith, 7,500; Donald M. Roberts, 3,000; Eduardo
M. Waisman, 14,700; Messrs. Gueymard, Samuelian, Hayward and Drs. Weil and
Colby, 8,667 each; Henry Owsley, 6,461; Donn Starry, 5,514; and all
directors and executive officers as a group, 182,900.
(3) Does not include 1,157 shares held of record by Mr. Gueymard's wife. Mr.
Gueymard disclaims beneficial ownership of such shares.
3
<PAGE>
(4) Dr. Kolb stepped down as President and Chief Executive Officer in April,
1996 and continues as a member of the Company's Board of Directors. Dr.
Pyatt and Mr. Maloy ceased serving as executive officers and directors
during 1996.
(5) Dr. Kolb and Mr. Maloy also own 2,750 and 500 shares, respectively, of
common stock of the Company's subsidiary, PurePulse Technologies, Inc.,
representing approximately 2.3% and 0.4% of the outstanding shares of that
company.
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes, with
the terms of office of each class ending in successive years. The terms of the
two directors currently serving in Class I expire with this Annual Meeting of
Shareholders. The directors in Class II and Class III will continue in office
until their terms expire at the 1997 and 1998 Annual Meeting of Shareholders,
respectively. Each director elected in Class I at the Meeting will hold office
for a term expiring at the 1999 Annual Meeting of Shareholders and until his
successor is duly elected and qualified.
Holders of Common Stock are entitled to cast one vote for each share held
for each of two nominees for director in Class I. The two nominees receiving
the greatest number of votes will be elected directors of the Company in Class
I. It is intended that the shares represented by the enclosed proxy will be
voted, unless otherwise instructed, for the election of the two nominees named
below. While the Company has no reason to believe that either of the nominees
will be unable to stand for election as a director, it is intended that if such
an event should occur, such shares will be voted for the other nominee and for
such substitute nominee as may be selected by the Board of Directors.
Set forth below is certain information regarding the nominees for director
and the other directors of the Company who will continue in office for terms
extending beyond the Meeting.
NOMINEES FOR ELECTION AS DIRECTORS
PERIOD SERVED AS A DIRECTOR,
POSITIONS AND OTHER RELATIONSHIPS
WITH THE COMPANY, AND BUSINESS
NAME AND AGE EXPERIENCE
------------ ---------------------------------
Kenneth F. Potashner, 39 Mr. Potashner has served Maxwell as
(Class I) Director, Chief Executive Officer and
President since April of 1996. From
1991 through 1994 he was Vice President,
Product Engineering, for Quantum
Corporation. From 1994 to April of
1996, he served as Executive Vice
President, Operations, of Conner
Peripherals.
Henry F. Owsley, 41 Mr. Owsley is a founding partner
(Class I) of Gordian Group, L.P., a financial
advisory and merchant banking firm
formed in 1988. He has served as a
director of the Company since 1991.
4
<PAGE>
PERIOD SERVED AS A DIRECTOR,
POSITIONS AND OTHER RELATIONSHIPS
WITH THE COMPANY, AND BUSINESS
NAME AND AGE EXPERIENCE
------------ ---------------------------------
DIRECTORS CONTINUING IN OFFICE
Lewis J. Colby, Jr., 62 Dr. Colby has been a director of
(Class II) the Company since December, 1983. He
was a Senior Vice President-Technology
of Allied-Signal, Inc. from 1985 until
his retirement on January 1, 1989 and
held the same position with Allied
Corporation from 1981 to 1985.
Donn A. Starry, 71 General Starry, U.S. Army, Retired, has
(Class II) been a director of the Company since
July, 1988, and was named Chairman of
the Board in October, 1995. General
Starry retired from the Army in 1983 and
joined Ford Aerospace Corporation. He
served briefly as Vice President-Mission
Analysis and Technical Affairs and then
for three years as Vice
President/General Manager of the Space
Missions Group. From January 1, 1987
until his retirement from industry in
1990, he served as an Executive Vice
President and Special Assistant to the
Chief Executive Officer of BDM
International. A two term member of the
Defense Science Board, he continues to
consult with industry and government on
tactical, operational and strategic
issues.
Alan C. Kolb, 67 Dr. Kolb has been a director of the
(Class III) Company since 1970. He also served as a
director from July, 1965 to October,
1967. Dr. Kolb served as Chief
Executive Officer of the Company from
1970 to 1996. He was President of the
Company from 1970 until 1980 and again
from 1992 until 1996. From 1980 to 1995
Dr. Kolb served as Chairman of the
Board. Dr. Kolb stepped down from his
positions as President and Chief
Executive Officer in April, 1996, and
continues with the Company as a
consultant.
Karl M. Samuelian, 64 Mr. Samuelian has been a director of
(Class III) the Company since 1967 and served as
Secretary from that time until June
1996. From 1978 to June, 1980, he also
held the office of Chairman of the Board
of the Company. For more than five
years, Mr. Samuelian has been a
shareholder in the law firm of Parker,
Milliken, Clark, O'Hara & Samuelian, A
Professional Corporation, and a partner
in the predecessor law partnership. The
Company retained the firm of Parker,
Milliken, Clark, O'Hara & Samuelian, A
Professional Corporation to provide
legal services during fiscal 1996 and
said firm has been retained in the
current fiscal year.
5
<PAGE>
PERIOD SERVED AS A DIRECTOR,
POSITIONS AND OTHER RELATIONSHIPS
WITH THE COMPANY, AND BUSINESS
NAME AND AGE EXPERIENCE
------------ ---------------------------------
Thomas B. Hayward, 72 Thomas B. Hayward, U.S. Navy (Retired),
(Class III) is President of Thomas B. Hayward
Associates, Inc., an executive
consulting firm. Admiral Hayward served
as the Chief of Naval Operations of the
United States Navy from 1978 until his
retirement from active service with the
Navy in July, 1982. He is a director of
Litton Industries. He was appointed a
director of the Company in October,
1987.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of twelve regular and
special meetings during fiscal 1996. All directors attended at least 75% of the
aggregate of (a) the total number of meetings of the Board of Directors and (b)
the total number of meetings of all committees of the Board on which he served.
The Company has an audit committee, the function of which is to assist the
Board of Directors in fulfilling its responsibilities with respect to corporate
accounting, auditing and reporting practices. In performing such function, the
audit committee maintains a direct line of communication with the Company's
independent auditors. The audit committee held two meetings during fiscal 1996.
Its current members are Messrs. Gueymard, Hayward, Colby, Owsley and Weil.
The Company also has a Compensation Committee which authorizes and reviews
officers' compensation. This committee held one meeting during fiscal 1996, and
its current members are Messrs. Samuelian, Gueymard, Hayward, Weil, Colby,
Starry, and Owsley. The Company has no nominating committee.
COMPENSATION OF DIRECTORS
Each director of the Company (other than Mr. Potashner who receives no
compensation other than that received in his capacity as an officer of the
Company) receives compensation of $2,268 per quarter and $810 per Board and
Committee meeting attended ($405 per Board or Committee telephonic meeting in
which such director participates).
As Chairman of the Board and head of the committee of the Board in charge
of selecting a new President and Chief Executive Officer, General Starry
received a total of $190,000 in consulting fees during fiscal 1996, consisting
of $15,000 per month for the months of October, 1995 through March, 1996, and a
success fee of $100,000. During such six-month period, General Starry received
no other compensation as a director.
DIRECTOR OPTION PLAN. The Company maintains the Maxwell Technologies, Inc.
Director Stock Option Plan (the "Director Option Plan") which authorizes the
granting of options to purchase a maximum of 132,300 shares of the Company's
Common Stock to non-employee directors of the Company and its subsidiaries
through the tenth anniversary of adoption of the Plan in 1989. Persons who are
non-employee incumbent directors (or directors emeritus) of the Company are the
only persons eligible to participate in the Director Option Plan. An amendment
to the Director Option Plan is being submitted for approval by the shareholders
at the Meeting. Please see "Proposal to Amend the Company's Director Stock
Option Plan" for a discussion of such amendment and a summary of the terms of
the Director Option Plan.
6
<PAGE>
DIRECTOR STOCK PURCHASE PLAN. The Company maintains the Maxwell
Technologies, Inc., 1994 Director Stock Purchase Plan (the "Director Purchase
Plan"), under which directors, other than those who are full-time employees of
the Company, have the opportunity to purchase directly from the Company shares
of Common Stock at 100% of the public trading price of the shares. A maximum of
50,000 shares have been authorized for purchases by directors under the plan.
The Director Purchase Plan is administered by the Board of Directors and
authorizes purchases by eligible directors, in accordance with the terms and
conditions of the plan, from and after January 1, 1995, the effective date of
the plan, until the earlier of ten years thereafter or the issuance of all
shares authorized for purchase. All incumbent directors who are not employed by
the Company on a full-time basis are eligible to purchase stock under the plan.
The purchase price of shares purchased under the plan is the closing price
of the stock on the public trading market on the day on which the Company
receives the director's request for purchase. In the event that directors seek
to purchase in the aggregate more shares than are then available for purchase
under the plan, the Company will reduce the number of shares to be purchased by
the directors in proportion to the number originally requested. Shares
purchased under the plan will be issued directly by the Company and will be
without restriction as to trading, except such restrictions as are applicable
generally to directors of public companies under the securities laws. As of the
date of this Proxy Statement, a total of 26,087 shares have been purchased under
the Director Purchase Plan.
PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S
1995 STOCK OPTION PLAN
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the Maxwell Technologies, Inc. 1995 Stock Option Plan (the "1995
Plan") which authorizes an increase of 150,000 shares in the number of shares of
the Company's Common Stock authorized for the granting of options to purchase
shares of the Company's Common Stock to key employees of the Company and its
subsidiaries, including officers and directors who are also employees. This
increase would bring the total number of shares authorized under the 1995 Plan
to 400,000.
The Board of Directors of the Company believes that the Company's ability
to grant stock options to key employees assists the Company in attracting and
retaining key employees by affording them an opportunity to acquire a
proprietary interest in the Company. In particular, the Company has, during
fiscal 1996, undergone a significant change in senior management, including a
new chief executive officer and several new corporate officers and operating
unit presidents. These changes were effected to pursue the Board's goal of
significantly accelerating the commercialization of the Company's technologies.
Options under the 1995 Plan were granted to these new management hires as well
as other key employees of the Company.
As a result of the foregoing, there were no shares remaining for the grant
of options under the 1995 Plan on October 22, 1996, the date on which the Board
of Directors adopted the proposed amendment. The ability to grant options to
key employees and new hires is viewed as critical by the Board to enable it and
management to continue the expansion of the Company's operations into large and
competitive commercial markets.
TERMS AND CONDITIONS OF THE PLAN
The 1995 Plan authorizes the granting during the period commencing on
October 24, 1995, the date of adoption of the 1995 Plan by the Board of
Directors of the Company, and concluding on the tenth anniversary thereof, of
stock options to purchase in the aggregate 250,000 shares of the Company's
Common Stock. As of the date of this Proxy Statement, options to purchase all
250,000 shares have been
7
<PAGE>
granted under the 1995 Plan. The 1995 Plan provides the flexibility for the
grant of options intended to qualify as "incentive stock options" under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") and options
which do not so qualify, referred to as "non-qualified stock options."
The 1995 Plan is administered by the Board of Directors of the Company or,
at the discretion of the Board, by a Stock Option Committee appointed by the
Board (the "Committee"). The Board of Directors of the Company has delegated
the authority to administer the 1995 Plan to the Committee. Subject to the
provisions of the 1995 Plan, the Committee has the authority to determine the
employees to whom and the times at which options are granted, the price and
terms of and the number of shares covered by each option, and with respect to
each option granted under the 1995 Plan, whether it is intended to be an
incentive stock option or a non-qualified stock option.
There are no limitations as to the minimum or maximum number of shares of
Common Stock that may be optioned to any one eligible individual. However, the
number of shares as to which incentive stock options may become exercisable by
any one individual for any calendar year is limited to a dollar value of
$100,000 (measured by the fair market value of the shares on the date of grant).
Any options becoming exercisable in excess of such limit in any calendar year
will be non-qualified stock options.
The purchase price of shares with respect to which an option is granted
under the 1995 Plan and the terms covering payment of such purchase price are
determined by the Committee in its sole discretion, but such price may not be
less than 100% of the fair market value of the shares on the date the option is
granted, as such fair market value is determined in good faith. In the event,
however, that an incentive stock option is granted to an employee who, at the
time the option is granted, owns stock representing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
subsidiary, the purchase price of shares with respect to which such option is
granted must be at least 110% of the fair market value of the shares on the date
of grant.
Options granted under the 1995 Plan are exercisable in such increments and
at such times as the Committee shall specify, provided that no incentive stock
option may be exercised after the expiration of ten years from the date of
grant, or five years from the date of grant with respect to options granted to
an employee who owns more than 10% of the outstanding shares of the Company's
stock. No non-qualified stock option may be exercised more than eleven years
after the date of grant. Shares covered by the unexercised portion of any
terminated or expired option may again be subject of further options under the
1995 Plan.
Upon any exercise of an option granted under the 1995 Plan, the purchase
price of the shares purchased upon such exercise shall be paid in full (i) in
cash, (ii) by delivery to the Company of shares of its Common Stock having a
fair market value equal to the purchase price or (iii) by a combination of cash
and stock. The fair market value of shares of the Company's Common Stock
delivered in full or partial payment of the exercise price of an option will be
determined by the Committee as of the date of exercise in the same manner by
which the fair market value of shares of the Company's Common Stock is
determined on the date of grant of an option.
The Company will receive no consideration upon the grant of any option
under the 1995 Plan. Cash proceeds received by the Company from the sale of
Common Stock pursuant to the exercise of options granted under the 1995 Plan
will constitute general funds of the Company which may be used for general
corporate purposes.
Under the 1995 Plan, if an optionee's employment with the Company is
terminated for any reason, the number of shares purchasable under any option
granted thereunder held by such optionee is limited to the number of shares
which are purchasable by him at the date of such termination. If termination of
employment occurs for any reason other than such optionee's death, the option
will expire unless exercised by him within sixty days after the date of such
termination. If termination of employment
8
<PAGE>
occurs by reason of death, the option will expire unless exercised by the
optionee's successor within one year after the date of death.
Options granted under the 1995 Plan are exercisable only by the optionee
during his lifetime and are not transferable except by will or the laws of
descent and distribution.
In the event of any change in the Common Stock by reason of
recapitalization, reclassification, stock split-up, combination of shares, stock
dividend, or like capital adjustment, the 1995 Plan provides that the Board of
Directors shall make appropriate adjustments in the aggregate number, class and
kind of shares available for option grants under the 1995 Plan or subject to
outstanding options thereunder and also make appropriate adjustments in the per
share exercise price of outstanding options.
In the event of the merger, consolidation or other reorganization of the
Company, or in the event of any dissolution or liquidation of the Company, the
1995 Plan provides that the Board of Directors shall elect either to (i)
appropriately adjust the number, class, kind and exercise price of shares
subject to all outstanding options thereunder and shares which may become
subject to options granted thereafter, or (ii) terminate the 1995 Plan and any
options theretofore granted thereunder, subject to the right of optionees under
the 1995 Plan to exercise, in whole or in part (including the portions of
options which may not otherwise have been exercisable due to any insufficient
passage of time), their options during a period of not less than thirty days
following notification by the Company of the event causing such termination.
The 1995 Plan may be amended, suspended or terminated by the Board of
Directors of the Company at any time, except that no amendment, suspension or
termination may affect, without his consent, any right or obligation of an
optionee under an option theretofore granted to him, and except that no
amendment made without shareholder approval shall (i) increase the maximum
number of shares for which options may be granted (except pursuant to
adjustments of the types described above), (ii) change the provisions relating
to the expiration dates of options, (iii) change the provisions relating to the
establishment of the option price (except pursuant to adjustments of the types
described above), or (iv) change the expiration date of Plan. No options may be
granted under the 1995 Plan after its termination on October 24, 2005.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. No federal income tax consequences result from
the grant of an incentive stock option, and generally the exercise of an
incentive stock option will not result in the recognition of income by an
optionee. If an optionee satisfies certain holding period requirements for
shares acquired upon the exercise of an incentive stock option, the full amount
of his gain upon the sale of such shares (measured by the difference between the
amount of his proceeds of sale less the exercise price) will normally be treated
as long-term capital gain. The Company will not be entitled to any deduction
under such circumstances.
NON-QUALIFIED OPTIONS. No federal income tax consequences result from the
grant of a non-qualified stock option. Generally, an optionee will recognize
ordinary income upon exercise of a non-qualified stock option in an amount equal
to the difference between the fair market value on the date of exercise of the
shares acquired upon exercise of the option and the aggregate exercise price for
such shares. The Company will be entitled to an income tax deduction equal to
the amount of ordinary income recognized by an optionee as a result of the
exercise of a non-qualified stock option.
The preceding discussion under the heading "Federal Income Tax
Consequences" is based on federal tax laws and regulations as in effect on the
date of this Proxy Statement and does not purport to be a complete description
of the federal income tax aspects of the 1995 Plan.
9
<PAGE>
VOTE REQUIRED FOR APPROVAL
Approval of the proposed amendment to the 1995 Plan by the shareholders of
the Company will require the affirmative vote of a majority of the shares of
Common Stock present and represented at the Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN.
PROPOSAL TO AMEND THE COMPANY'S
DIRECTOR STOCK OPTION PLAN
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the Maxwell Technologies, Inc. Director Stock Option Plan (the
"Director Option Plan") which removes the provision requiring a director who is
terminating his membership on the Board of Directors to exercise vested options
previously granted under the Director Option Plan within sixty (60) days of such
termination or the options will expire. After this amendment, former directors
will continue to hold and have the right to exercise vested options for the
balance of the stated term of such options. Options in which a director is not
vested at the time he leaves the Board will be forfeited as currently provided
in the Director Option Plan.
The Board of Directors believes that the Director Option Plan provides an
important incentive to attract qualified individuals to serve as members of the
Board. In particular, the Company has, during fiscal 1996, undergone a
significant change in management and a reorganization of its operating
businesses to accelerate the commercialization of its technologies. Likewise,
the Board is undergoing a review of its own membership with a goal of matching
the skills and experience of the directors to the orientation of the Company
towards large commercial markets for its products and services. Removing the 60
day requirement will facilitate changes in the membership of the Board from time
to time to assure the close coordination of Board skills and experience with the
Company's operations and business strategy.
TERMS AND CONDITIONS OF THE PLAN
The Director Option Plan authorizes the granting during the period
commencing on August 17, 1989, the date of its adoption by the Board of
Directors of the Company, and concluding on the tenth anniversary thereof, of
stock options to purchase an aggregate of 132,300 shares of the Company's Common
Stock. Persons who are incumbent directors (or directors emeritus) of the
Company who are not at the time employees of the Company or any subsidiary of
the Company are the only persons eligible to participate in the Director Option
Plan. As of the date of this Proxy Statement options to purchase a total of
62,310 shares are outstanding under the Director Option Plan, and 66,837 shares
are available for future grant.
The Director Option Plan is administered by the Board of Directors of the
Company which has the authority, subject to the terms of the Director Option
Plan, to prescribe, amend and rescind rules and regulations pertaining to the
Plan and the administration thereof. There are no limitations as to the maximum
or minimum number of shares that may be optioned to any one individual; however,
the Director Option Plan by its terms prescribes an initial grant of options
thereunder to purchase 3,000 shares of Common Stock to each of the Company's
non-employee directors on the date of adoption of the Plan by the Board of
Directors. The Director Option Plan further provides that each non-employee
director will automatically receive annual grants of options to purchase 1,000
shares of the Company's Common Stock on the first business day following the
scheduled organizational meeting of the Board of Directors of the Company (which
is the first meeting of the Board following the Company's Annual Meeting of
Shareholders), provided that any eligible director on the date of any such
annual grant who
10
<PAGE>
was not a member of the Board of Directors on the date of the preceding grant of
options under the Director Option Plan and who was not an employee of the
Company at any time after the date of such preceding grant will receive an
initial grant of options to purchase 3,000 shares of the Company's Common Stock.
The purchase price of shares covered by an option granted under the
Director Option Plan is the fair market value (as defined in the Plan) of the
Company's Common Stock on the date of grant of the option. Generally, fair
market value is defined as the mean between the closing bid and asked quotations
for such stock on the date of grant.
Each option granted under the Director Option Plan becomes exercisable in
full on the first anniversary of the date on which it was granted, provided that
no such option may be exercised after the expiration of ten years from the date
of grant. Shares covered by the unexercised portion of any terminated or
expired option may again be the subject of further options under the Director
Option Plan.
Upon any exercise of an option granted under the Director Option Plan, the
purchase price of the shares purchased upon such exercise shall be paid in full
(i) in cash, (ii) by delivery to the Company of shares of its Common Stock
having a fair market value equal to the purchase price or (iii) by a combination
of cash and stock. The fair market value of shares of the Company's Common
Stock delivered in full or partial payment of exercise price of an option will
be determined by the Board of Directors as of the date of exercise in the same
manner by which the fair market value of shares of the Company's Common Stock is
determined on the date of grant of an option.
The Company receives no consideration upon the grant of any option under
the Director Option Plan. Cash proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of options granted under the Director
Option Plan will constitute general funds of the Company which may be used for
general corporate purposes.
Under the Director Option Plan, if an optionee's service as a director of
the Company is terminated for any reason, the number of shares purchasable under
any options granted thereunder held by such optionee is limited to the number of
shares which are purchasable by him at the date of such termination. If
termination of his services as a director occurs by reason of his death, the
option will expire unless exercised by the optionee's successor within one year
after the date of death.
Options granted under the Director Option Plan are exercisable only by the
optionee during his lifetime and are not transferable except by will or the laws
of descent and distribution.
In the event of any change in the Common Stock by reason of
recapitalization, reclassification, stock splitup, combination of shares, stock
dividend, or like capital adjustment, the Director Option Plan provides that the
Board of Directors shall make appropriate adjustments in the aggregate number,
class and kind of shares available for option grants under the Director Option
Plan or subject to outstanding options thereunder and also make appropriate
adjustments in the per share exercise price of outstanding options.
In the event of the merger, consolidation or other reorganization of the
Company, or in the event of any dissolution or liquidation of the Company, the
Director Option Plan provides that the Board of Directors shall elect either to
(i) appropriately adjust the number, class, kind and exercise price of shares
subject to all outstanding options thereunder and shares which may become
subject to options granted thereafter, or (ii) terminate the Director Option
Plan and any options theretofore granted thereunder, subject to the right of
optionees under the Director Option Plan to exercise, in whole or in part
(including the portion of options which may not otherwise have been exercisable
due to any insufficient passage of time), their options during a period of not
less than thirty days following notification by the Company of the event causing
such termination.
11
<PAGE>
The Director Option Plan may be amended, suspended or terminated by the
Board of Directors of the Company at any time, except that no amendment of the
Plan may, without shareholder approval, change the number of shares subject to
the Plan (except pursuant to adjustments of the types described above), change
the designation of the class of directors eligible to receive options or
materially increase the benefits accruing to participants under the Plan. The
Board of Directors of the Company also has the right to modify, extend or renew
outstanding options granted under the Director Option Plan or to authorize the
grant of new options in substitution therefor, provided that no such action may
affect, without his consent, any right or obligation of an optionee under an
option previously granted to him and except that no such power shall be
exercised in a manner which would adversely affect the qualification of the
Director Option Plan or any other stock related plan of the Company under Rule
16b-3 under the Securities Exchange Act of 1934. No options may be granted
under the Director Option Plan after its termination on August 16, 1999.
FEDERAL TAX CONSEQUENCES
Options granted under the Director Option Plan will not constitute
"incentive stock options" as defined in the Internal Revenue Code of 1986, as
amended, but rather will constitute "nonstatutory" options. No federal income
tax consequences result from the grant of a nonstatutory stock option.
Generally, an optionee will recognize ordinary income upon exercise of a
nonstatutory stock option in an amount equal to the difference between the fair
market value on the date of exercise of the shares acquired upon exercise of the
option and the aggregate exercise price for such shares. The Company will be
entitled to an income tax deduction equal to the amount of ordinary income
recognized by an optionee as a result of the exercise of a nonstatutory stock
option. The preceding discussion under the heading "Federal Income Tax
Consequences" is based on federal tax laws and regulations as in effect on the
date of this Proxy Statement and does not purport to be a complete description
of the federal income tax aspects of the Director Option Plan.
VOTE REQUIRED FOR APPROVAL
Approval of the proposed Amendment to the Director Option Plan by the
shareholders of the Company will require the affirmative vote of a majority of
the shares of Common Stock present and represented at the Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S DIRECTOR STOCK OPTION PLAN.
12
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth as to each person serving as Chief Executive
Officer during fiscal 1996, each of the other four most highly compensated
executive officers of the Company at July 31, 1996 who earned more than $100,000
in the fiscal year then ended, and two former executive officers who would have
been among the four most highly compensated executive officers except that they
ceased serving as such prior to the end of fiscal 1996, information concerning
compensation for services rendered in all capacities to the Company and its
subsidiary, PurePulse Technologies, Inc. ("PurePulse"), during each of the
fiscal years ended July 31, 1996, 1995 and 1994 in which such individuals served
as an executive officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
STOCK OPTION GRANTS
ANNUAL COMPENSATION (1) (NO. OF SHARES)
------------------------------- RESTRICTED ------------------- ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OTHER(2)(3) STOCK AWARD(4) COMPANY PUREPULSE COMPENSATION (5)
- ----------------- ---- ------- ----- ----------- -------------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth F. Potashner (6) 1996 $93,847 $100,000 -0- $645,105 88,980 3,000 $ 44,000
Chief Executive
Officer, President,
Chief Operating
Officer, and Director
Alan C. Kolb (7) 1996 256,506 -0- $55,861 -0- 11,500 404,440
Director and Former 1995 274,806 -0- 49,731 -0- 20,000 1,200 4,500
Chief Executive 1994 292,015 -0- 13,266 -0- -0- 27,393
Officer
Kedar D. Pyatt(7) 1996 171,602 -0- -0- -0- -0- 4,500
Former Sr. Vice 1995 171,602 -0- -0- -0- 5,000 4,182
President 1994 181,746 -0- 5,393 -0- -0- 10,039
Richard E. Smith (6) 1996 167,400 -0- -0- -0- -0- 3,411
Vice President 1995 128,963 -0- -0- -0- 25,000 -0-
Richard C. Eppel (6) 1996 164,000 9,806 -0- -0- 25,000 4,500
Vice President
Sean M. Maloy (7) 1996 159,065 -0- -0- -0- 10,500 45,392
Former Executive 1995 174,602 -0- -0- -0- 20,000 600 4,409
Vice President 1994 183,974 -0- -0- -0- -0- 13,865
Donald M. Roberts 1996 150,010 -0- -0- -0- 5,000 346
General Counsel, 1995 150,010 -0- -0- -0- -0- -0-
and Secretary 1994 46,734 -0- -0- -0- 5,000 -0-
Eduardo M. Waisman 1996 141,400 -0- -0- -0- 5,000 4,242
Vice President 1995 141,400 -0- -0- -0- 15,000 4,242
1994 113,175 -0- -0- -0- -0- 5,554
</TABLE>
- ---------------
(1) Amounts shown include cash compensation earned and received by executive
officers and former executive officers as well as amounts earned but
deferred at the election of those officers under the Company's Savings
Plan.
(2) Represents the amounts paid to Dr. Kolb during fiscal years 1996, 1995 and
1994 and to Dr. Pyatt during fiscal year 1994 to defray income taxes
payable by them in connection with the receipt of certain supplemental
retirement annuities.
(3) Does not include the dollar value of certain perquisites and other personal
benefits, securities or property the recipient received as personal
benefits. Although such amounts cannot be determined precisely, the
Company has concluded that the aggregate amount thereof does not
13
<PAGE>
exceed as to any of the named individuals the lesser of $50,000 and 10% of
the total salary and bonus paid to such individual for fiscal 1996.
(4) Mr. Potashner was awarded 88,980 shares of restricted stock with a fiscal
year-end value, measured in terms of the closing price of the Company's
Common Stock on July 31, 1996, of $1,156,740. The stock vests 25% after
one year, and 1/48 per month thereafter. Mr. Potashner will be considered
the owner of the shares for purposes of voting and receiving dividends.
(5) The amounts shown in this column for fiscal 1996 consist of matching
contributions made by the Company under its Savings Plan, and for Mr.
Potashner and Mr. Maloy, $44,000 and $41,358, respectively, received under
consulting arrangements, and for Dr. Kolb $400,000 pursuant to the
conclusion of his three-year employment contract.
(6) Mr. Smith was appointed an executive officer during fiscal 1995, and Mr.
Potashner and Mr. Eppel during fiscal 1996.
(7) Dr. Kolb was the Chief Executive Officer of the Company through April 26,
1996, and Dr. Pyatt and Mr. Maloy ceased serving as executive officers
during fiscal 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information on grants of stock options pursuant
to the Company's 1995 and 1985 Stock Option Plans and the PurePulse
Technologies, Inc. 1994 Stock Option Plan ("PurePulse Option Plan") to those
individuals named in the foregoing Summary Compensation Table who received such
grants in fiscal 1996. Pursuant to the Securities and Exchange Commission
rules, the table also shows the value of the options granted at the end of the
five- or ten-year option terms if the stock price were to appreciate annually by
5% and 10% respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENTAGE OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED (1) FY 1996 (2) (PER SHARE) DATE 5% 10%
---- ----------- ------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth F. Potashner
Company 88,980 28.54% $7.13 03-27-06 $398,990 $1,011,110
PurePulse 3,000 44.78% $28.00 07-06-06 $52,830 $133,870
Alan C. Kolb 11,500 3.69% $7.25 08-13-00 $23,040 $50,900
Richard C. Eppel 25,000 8.02% $7.50 08-15-00 $51,810 $114,470
Sean M. Maloy 10,500 3.37% $7.25 08-13-00 $21,030 $46,470
Donald M. Roberts 5,000 1.60% $10.00 05-09-01 $13,820 $30,530
Eduardo M. Waisman 5,000 1.60% $7.25 08-13-00 $10,020 $22,130
</TABLE>
- ---------------
(1) Such options were all granted under either the Company's 1995 or 1985 Stock
Option Plan or, with respect to Mr. Potashner, the PurePulse Option Plan.
The purchase price of shares covered by such stock options may not be less
than the fair market value of the underlying common stock at the date of
grant. The term of each such option is five years with the exception of Mr.
Potashner's options, which have ten year terms. The increments in which the
options are exercisable are determined by the committee which administers
the Plans.
14
<PAGE>
(2) Total options include options covering 7,000 shares granted to directors
under the Company's Director Stock Option Plan.
FISCAL YEAR END OPTION VALUES
Shown below is information on each of the eight named executive officers
and former executive officers of the Company with respect to the value of stock
options exercised by them during fiscal 1996, measured in terms of the closing
price of the Company's Common Stock on the date of exercise, and with respect to
the value of unexercised options to purchase the Company's Common Stock held by
them and granted in fiscal 1996 and prior years under the Company's 1995 or 1985
Stock Option Plans, measured in terms of the closing price of the Company's
Common Stock on July 31, 1996, the last day of the Company's fiscal year 1996.
<TABLE>
<CAPTION>
SHARES ACQUIRED NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ON EXERCISE VALUE OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
NAME (NUMBER OF SHARES) REALIZED ($) JULY 31, 1996 (1) JULY 31, 1996 (1)
---- ------------------ ------------ --------------------------- --------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth F. Potashner -0- -0- -0- 88,980 -0- $ 522,313
Alan C. Kolb -0- -0- 53,576 -0- $ 225,984 $ -0-
Kedar D. Pyatt -0- -0- 3,180 3,920 $ 12,097 $ 20,212
Richard E. Smith -0- -0- 7,500 17,500 $ 41,250 $ 96,250
Richard C. Eppel -0- -0- 3,360 25,840 $ 7,694 $ 139,424
Sean M. Maloy 6,289 $7,328 37,350 -0- $ 184,456 $ -0-
Donald M. Roberts -0- -0- 3,000 7,000 $ 16,500 $ 26,000
Eduardo M. Waisman -0- -0- 8,700 16,550 $ 34,368 $ 88,904
</TABLE>
(1) Does not include options held by Mr. Potashner to purchase 3,000 shares
under the PurePulse Option Plan, none of which are currently exercisable, or
options held by Dr. Kolb and Mr. Maloy under the PurePulse Option Plan to
purchase 1,200 shares and 600 shares, respectively, all of which are
currently exercisable. No public market for these shares exists, and
accordingly, no value in excess of exercise price has been attributed to
those options.
- ---------------
The following Shareholder Return Performance Graph and the Report of the
Compensation Committee and Stock Option Committee on Executive Compensation
included in this Proxy Statement shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates
the Performance Graph or the Compensation Committee/Stock Option Committee
Report by reference therein, and shall not be deemed soliciting material or
otherwise deemed filed under either of such Acts.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the five year cumulative total
return to shareholders on the Company's Common Stock with the five year
cumulative total return on the NASDAQ and a peer group of comparable companies
identified therein.
15
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG MAXWELL TECHNOLOGIES, INC., NASDAQ, AND INDUSTRY PEER GROUP
YEAR ENDING JULY 31, 1991-1996
[GRAPH]
<TABLE>
<CAPTION>
CRSP TOTAL RETURNS INDEX FOR: 07/31/91 07/31/92 07/30/93 07/29/94 07/31/95 07/31/96
- ----------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Maxwell Technologies, Inc. 100.0 81.8 106.3 70.8 66.5 111.6
Nasdaq Stock Market (US & Foreign) 100.0 117.1 143.2 147.0 204.1 221.2
Self-Determined Peer Group 100.0 86.2 118.9 126.5 211.3 153.0
</TABLE>
Companies in the Self-Determined Peer Group
CALIFORNIA MICROWAVE INC COHERENT INC
CUBIC CORP ILC TECHNOLOGY INC
KAMAN CORP TITAN CORP
WATKINS JOHNSON CO
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization
on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceeding trading day is used.
D. The index level for all series was set to $100.0 on 07/31/91.
ASSUMES $100 INVESTED 7/31/91 IN MAXWELL TECHNOLOGIES, INC. COMMON STOCK,
NASDAQ, AND INDUSTRY PEER GROUP (DIVIDENDS REINVESTED)
INDUSTRY PEER GROUP INCLUDES: CALIFORNIA MICROWAVE, COHERENT, INC., CUBIC
CORPORATION, ILC TECHNOLOGY, INC., KAMAN CORPORATION CLA, TITAN
CORPORATION, AND WATKINS-JOHNSON
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE ON EXECUTIVE
COMPENSATION
As described in more detail below, the Company's executive compensation
consists of three principal components--base salary and annual incentive
compensation as determined by the Compensation Committee of the Board of
Directors and stock option awards as determined by the Stock Option Committee of
the Board of Directors.
A formal Compensation Committee of the Board of Directors of the Company
was established during fiscal year 1993 and is comprised of all directors other
than Dr. Kolb and Mr. Potashner. The compensation policies of the Company are
designed to set its executive compensation, including salary and short-term and
long-term incentive programs, at a level consistent with amounts paid to
executive officers of companies of similar size and marketplace orientation. In
this regard, from time to time over the last approximately ten years, the
Company has retained the services of a nationally recognized consulting firm
specializing in executive compensation issues to perform market analyses of
competitive compensation practices for selected executive officers. The
compensation policies of the Company are also designed to link executive officer
compensation to the Company's performance in
16
<PAGE>
the short-term and long-term, to reward individual achievement and to attract
and retain qualified executives.
The Company's executive compensation consists of three principal
components:
(1) BASE SALARY. Base salary is intended to be set at a level consistent
with amounts paid to executive officers of companies of comparable size and
business areas and generally reflective of the performance of the Company
and the individual. Salaries for executive officers are reviewed on an
annual basis. No salary increases were instituted for the executive
officers in fiscal 1996. Base salary (and annual incentive bonus
compensation) for the Company's Chief Executive Officer is set forth in Mr.
Potashner's employment agreement discussed below.
(2) ANNUAL INCENTIVE COMPENSATION. In view of the uncertainty regarding
financial targets for fiscal 1996, no bonus plan was established for fiscal
1996. For fiscal 1996 Mr. Potashner received a bonus of $100,000 as
provided for under his employment agreement and Richard Eppel received a
$9,800 bonus under a bonus plan applicable to the I-Bus division. No other
bonuses were awarded in fiscal 1996 to executive officers. For fiscal
1997, the Compensation Committee adopted a bonus plan for executive
officers (other than the Chief Executive Officer) under which all or a
portion of a target bonus (not to exceed 50% of annual salary) will be paid
depending on earnings per share performance compared to a range of targets
for the Company for fiscal 1997.
(3) LONG TERM INCENTIVE COMPENSATION/STOCK OPTIONS. The Company's long-
term incentive program consists of a stock option program pursuant to which
the Chief Executive Officer and other executive officers (as well as other
key employees) are periodically granted stock options at the then fair
market value of the Company's Common Stock. In addition, the Company
adopted a program in early fiscal 1997 for the award of stock options to
such individuals in the Company's operating subsidiaries. These option
programs are designed to reward and retain executive officers over the
long-term and to link the value of the incentive to increases in the value
of the subsidiaries and in the Company's stock price over time, benefiting
shareholders as a whole. Options in Company Common Stock granted to the
executive officers identified in the Summary Compensation Table during
fiscal 1996 are set forth in the table above under the caption "Option
Grants in Last Fiscal Year."
Dated: December 4, 1996.
COMPENSATION COMMITTEE
Lewis J. Colby, Jr.
Adolphe G. Gueymard
Thomas B. Hayward
Henry F. Owsley
Karl M. Samuelian
Donn A. Starry
John W. Weil
STOCK OPTION COMMITTEE
Lewis J. Colby, Jr.
Donn A. Starry
John W. Weil
17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, the Compensation Committee of the Board of Directors
was comprised of directors Colby, Gueymard, Hayward, Starry, Samuelian, Weil and
Owsley. The same directors continue to serve on the Compensation Committee at
the present time.
Mr. Samuelian served as Secretary of the Company until June, 1996, and is a
shareholder in the law firm of Parker, Milliken, Clark, O'Hara & Samuelian, A
Professional Corporation. The Company retained the firm of Parker, Milliken,
Clark, O'Hara & Samuelian, A Professional Corporation, to provide legal services
during fiscal 1996 and said firm has been retained in the current fiscal year.
EMPLOYMENT CONTRACTS , TERMINATION OF EMPLOYMENT AND CHANGE-IN- CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENT. In March, 1996, the Company entered into a Chief
Executive Officer Employment Contract ("Contract") with Kenneth F. Potashner
pursuant to which Mr. Potashner became the President and Chief Executive Officer
of the Company effective April 26, 1996. The Contract is for a term ending July
31, 1998, and requires Mr. Potashner to perform the duties associated with the
office of chief executive of the Company plus such other duties or positions as
the Board of Directors may require. Mr. Potashner is currently also performing
the duties of the Company's chief operating officer. The Contract provides for
a base salary of $400,000 per year, reviewed annually, with an annual bonus
opportunity of up to 100% of base salary (subject to a minimum bonus of $200,000
for fiscal 1997) to be determined by the Board of Directors. Mr. Potashner also
received 88,980 shares of restricted stock under the Contract and options under
the Company's 1995 Stock Option Plan for a like number of shares. Both the
restricted shares and the options are subject to a four-year vesting schedule.
Under the Contract, Mr. Potashner will be immediately vested in the
restricted shares and stock options, shall receive a payment of two-years salary
plus target bonus, and shall continue for one year to receive benefits
comparable to those being received, in the event that a "change in control"
occurs and either his compensation or responsibilities are reduced or the
Company's headquarters are moved more than 30 miles. A "change in control" is
defined as the acquisition by a person or group of a majority of the Company's
stock by direct purchase or through a merger, the liquidation or sale of
substantially all of the assets of the Company or a change in a majority of the
members of the Board of Directors other than through membership changes
determined by the Board itself. If Mr. Potashner is terminated without cause
during the term of the Contract, he will be paid the base salary and target
bonus remaining to be paid for the balance of the stated term of the Contract
(but not less than one full year of such salary and bonus) and the restricted
shares and stock options shall become fully vested. In the event Mr. Potashner
voluntarily resigns or is terminated for cause, he shall be paid only such
salary and accrued vacation pay as is then due to him and no acceleration of
vesting shall occur with respect to the restricted shares or stock options.
CONSULTING AND SEVERANCE ARRANGEMENTS. In connection with the
relinquishment by Dr. Kolb of the offices of President and Chief Executive
Officer of the Company in April, 1996 and the expiration of his employment
agreement with the Company at the end of fiscal 1996, the Company paid him a
lump sum separation payment of $400,000, amended Dr. Kolb's existing stock
options to become fully vested and entered into a consulting agreement with him
on August 1, 1996. Under the consulting agreement, Dr. Kolb has agreed to
consult with the Company for a substantial portion of his time and will be paid
$10,000 per month, with a bonus opportunity of up to 100% of base consideration
at the discretion of the Company's Chief Executive Officer. The consulting
agreement has a three-year term and the scope and consideration are subject to
periodic reviews by the Chief Executive Officer.
During fiscal 1996, Sean Maloy relinquished his position as Executive Vice
President-Operations and Chief Operating Officer and terminated employment with
the Company. In connection
18
<PAGE>
therewith, the Company entered into an agreement with Mr. Maloy under which the
Company is paying Mr. Maloy approximately $13,750 per month, and Mr. Maloy is
providing consulting services to the Company's Chief Executive Officer. This
arrangement is scheduled to expire in October, 1997. The Company also agreed to
amend Mr. Maloy's existing stock options to cause them to be 100% vested and to
remain in effect for their natural terms notwithstanding Mr. Maloy's cessation
of employment.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP, certified public accountants ("E&Y"), were the Company's
auditors in fiscal 1996.
The Company has engaged E&Y as its auditors for the current fiscal year;
provided, however, that if E&Y shall decline to act or otherwise become
incapable of acting, or if its engagement is otherwise terminated by the Board
of Directors (none of which events are currently anticipated), the Board of
Directors will appoint other auditors for the fiscal year.
Representatives of E&Y will be present at the meeting with an opportunity
to make a statement if they desire to do so and such representatives will be
available to respond to appropriate questions from shareholders in attendance.
SHAREHOLDER PROPOSALS
Shareholders may present proposals for inclusion in the proxy statement and
form of proxy to be used in connection with the 1997 Annual Meeting of
Shareholders of the Company, provided such proposals are received by the Company
no later than July 7, 1997 and are otherwise in compliance with applicable laws
and regulations.
OTHER BUSINESS
The Board of Directors does not intend to present any other business at the
meeting and knows of no other matters which will be presented at the meeting.
By Order of the Board of Directors
Donald M. Roberts
Secretary
Dated: December 4, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. IF YOU DO NOT EXPECT TO ATTEND
THE MEETING, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
19
<PAGE>
APPENDIX A
MAXWELL TECHNOLOGIES, INC.
FISCAL YEAR 1996 FINANCIAL INFORMATION
<PAGE>
MAXWELL TECHNOLOGIES, INC.
INDEX TO APPENDIX A
Page
----
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. A-2
Five-Year Selected Financial Data....................................... A-7
Consolidated Balance Sheet at July 31, 1996 and 1995.................... A-8
Consolidated Statement of Income for the Years Ended July 31, 1996,
1995 and 1994......................................................... A-9
Consolidated Statement of Shareholders' Equity for the Three Years
Ended July 31, 1996................................................... A-10
Consolidated Statement of Cash Flows for the Years Ended
July 31, 1996, 1995 and 1994......................................... A-11
Notes to Consolidated Financial Statements.............................. A-12
Report of Ernst & Young LLP, Independent Auditors....................... A-24
A-1
<PAGE>
MAXWELL TECHNOLOGIES INC., AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal year 1996 was a signal year for the Company. Several major events
are highlighted in this opening section of the discussion of results of
operations. First, Dr. Alan C. Kolb, President and Chief Executive Officer of
the Company, turned these duties over to Kenneth F. Potashner in April 1996.
Dr. Kolb, CEO of Maxwell since 1970, became a consultant to the Company
effective August 1st. Mr. Potashner comes to Maxwell from Conner Peripherals,
where he served as Executive Vice President and General Manager of Disk Drive
Operations, a $2.5 billion business in California's Silicon Valley. He brings
to Maxwell a track record of aggressive time-to-market improvements, new product
commercialization and enhanced profitability and growth.
In January, the Company re-positioned its Sierra Capacitor/Filter division
from a largely military and space-based product orientation to a commercial
focus emphasizing the division's new medical products. The medical products are
for filtering unwanted electromagnetic signals which could otherwise interfere
with the operation of implantable defibrillator/pacemakers. The result of this
restructure at Sierra was five profitable months for the division in the last
two quarters of the year - after several years of quarterly losses - and a
record beginning-of-year backlog going into fiscal 1997.
Also in January, the Company adopted Financial Accounting Standards Board
(FASB) Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Statement No. 121 requires that the
carrying amount of certain long-lived assets be written down if an impairment in
value is determined to exist and the assets are not supported by adequate
anticipated future cash flows, as defined by the FASB. The adoption of
Statement No. 121 resulted in a write-down of assets for the Company, as
described below.
In June, Maxwell sold its chemical analytical services business. This
group performed sample analysis, primarily for the U.S. Environmental Protection
Agency and the Department of Energy. The environmental chemistry laboratory,
while profitable in years past, incurred substantial losses in fiscal 1996, and
the operation did not possess a strong synergy or strategic relevance to the
core business areas on which the Company is focusing.
Also in June, the Company announced a plan of reorganization. Under the
leadership of Mr. Potashner, the Company's operations were re-cast into five
distinct business units, effective August 1, 1996. These business units align
Maxwell's capabilities into strategic product and market-focused groups in order
to foster technology synergy, sharpen production and customer service, and
position the Company to more rapidly achieve product-to-market goals. As a
further reflection of its new direction, with an emphasis on commercial
productization rather than funded research, the Company changed its corporate
name from Maxwell Laboratories to Maxwell Technologies shortly after the 1996
fiscal year-end.
These significant actions taken in 1996, as outlined above, resulted in the
Company taking write-offs totaling approximately $14.4 million primarily during
the second and third quarters of the fiscal year. The $14.4 million also
included a reserve for net deferred income tax assets, certain environmental,
contract and inventory reserves, and charges for facilities consolidations.
Management believes that the actions and charges taken have positioned Maxwell
to better pursue its strategic business objectives, and to operate as a leaner,
more tightly focused company.
A-2
<PAGE>
In order to align management's discussion of business segment sales and
cost of sales with the new internal management focus described above, the
Company's segments have been re-defined as follows.
- - Commercial and Industrial PC Products segment, operated through the I-Bus
business unit: Design and manufacture of custom and standard PC solutions
for original equipment manufacturers.
- - Technology Programs and Systems segment, operated through the Federal
Division: Scientific research, computer simulation and analysis, design,
development and integration of major pulsed power systems, and operation
and maintenance of test facilities, primarily for the U.S. Government
Department of Defense.
- - Information Products and Services, operated through the Information Systems
business unit: State-of-the-art software products and services for
management information and integrated justice information systems, as well
as educational products and applications for the Internet and for wide-area
and local-area networks.
- - Power Conversion Products, operated through the Energy Products and
PurePulse Technologies business units: Design, development and manufacture
of component parts and subsystems that condition and/or exploit electrical
energy, primarily in the form of pulsed-power.
Sales for fiscal year 1996 increased to $80.9 million, or 8% over the $75.0
million of fiscal 1995. Sales in fiscal 1994 were $85.5 million, and included
approximately $13.5 million more in sales to the U.S. Government, primarily the
Department of Defense, than in 1995 or 1996.
The following table depicts sales and cost of sales by business segment for
the years ended July 31, 1996, 1995, and 1994. For purposes of this table, the
chemical analytical services business and the Brobeck division, which were sold
and shut-down in fiscal years 1996 and 1994, respectively, are included with
Technology Programs and Systems.
SALES
-----
1996 1995 1994
---- ---- ----
Commercial and Industrial $ 26,131 $ 23,319 $ 18,967
PC Products
Technology Programs & Systems 30,198 31,064 46,625
Information Products & Services 8,134 5,414 3,586
Power Conversion Products 16,448 15,207 16,285
-------- -------- --------
$ 80,911 $ 75,004 $ 85,463
-------- -------- --------
-------- -------- --------
COST OF SALES
-------------
% OF % OF % OF
1996 SALES 1995 SALES 1994 SALES
---- ----- ---- ----- ---- -----
Commercial and Industrial $ 18,498 70.8% $ 15,565 66.7% $ 13,155 69.4%
PC Products
Technology Programs &
Systems 24,539 81.3% 24,832 79.9% 38,300 82.1%
Information Products &
Services 10,295 126.6% 4,773 88.2% 2,860 79.8%
Power Conversion Products 12,561 76.4% 11,277 74.2% 14,240 87.4%
-------- -------- --------
$ 65,893 81.4% $ 56,447 75.3% $ 68,555 80.2%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
A-3
<PAGE>
Commercial and Industrial PC Products sales continue to increase under
I-Bus' strategy of being positioned as the supplier of choice for OEMs in its
target markets. I-Bus' sales and marketing plans focus on large design-in
wins; however, such large programs generally have greater competition and
therefore lower profit margins and this has affected cost of sales as a
percent of sales in 1996. Another factor affecting the cost of sales
percentage in fiscal 1996 as compared to 1995 was an increased write-off of
obsolete materials due to the introduction of new products and phase-out of
older ones. A portion of the decrease in the cost of sales percentage from
1994 to 1995 is due to the impact of sales growth given the fixed nature of
certain of the overhead costs.
The $1 million decrease in Technology Programs and Systems sales in 1996
from 1995 is comprised of a $3 million decrease in the recently sold Chemistry
group's sales, partially offset by increased sales primarily in two program
areas. One program is an on-base operations and maintenance contract in support
of Defense research involving the Company's pulsed-power area of expertise, and
the other is for the analysis, supervision and support of Air Force research in
the area of advanced sensors. As previously mentioned, 1996 and 1995 included
approximately $13.5 million less in Government work than was realized in 1994,
primarily due to cutbacks in Defense spending. While we believe we are at a
level of Defense work which could remain a stable core, the level of future
Defense cutbacks and the impact on the Company is not predictable and,
therefore, previously reported results are not necessarily indicative of those
to be expected in the future. While cost of sales as a percent of sales is
generally consistent from year to year, fiscal 1996 reflects improved recovery
of overhead costs in the Defense business which was offset by losses incurred by
the Chemistry group, and 1994 reflects the carrying costs of the Brobeck
division prior to its shut down.
Information Products and Services sales during fiscal year 1996 consist
primarily of the following: the Business Systems group's sales of its JAMIS
accounting and MIS software package, and three large multi-year contracts, two
for integrated justice information systems in the State of Florida, and one for
the network component of a Child Support Enforcement System in South Carolina.
Business Systems sales have been near the $2 million mark in all three years.
The increase in sales over the three-year period, therefore, reflects the
ramp-up of work in 1994 on two of the large contracts which were won in that
year, with such ramp-up continuing into 1995. In 1996, the award and
commencement of work on the third large contract further increased the level of
sales. The increase in cost of sales as a percent of sales in 1996 is due to
current year charges taken in the second quarter to reflect anticipated
performance on the ultimate completion of the software contracts, and the
write-down of certain capitalized software. A portion of the increase in the
cost of sales percentage over the three year period is due to reduced profit
margins associated with entry into new commercial software markets. All three
of the multi-year contracts mentioned above are scheduled for completion in
fiscal year 1997. The Information Systems unit is pursuing funding for add-ons
and enhancements to these software projects, and has bid on additional large
justice information systems, but the ultimate realization of such new business
and its impact on the Company is not currently predictable.
The 1996 sales increase over 1995 in Energy Products and Subsystems is
primarily attributable to greater sales of disk resistors for enhancing the life
of medical x-ray equipment, shipments in the third and fourth quarters of
Sierra's new medical product, and an increase in funded R&D and prototype system
sales at PurePulse. These increases were partially offset by a decrease in
funded capacitor R&D. The sales decrease in 1995 from 1994 is primarily
attributable to reduced sales of electronic circuit components and disk
resistors. The higher cost of sales as a percent of sales in fiscal 1994 is
primarily due to a $2 million charge on an overseas contract for customized
capacitors which was terminated shortly after July 31, 1994.
Internally funded research and development expenses were $5.08 million in
fiscal 1996, a negligible change from the $5.04 million of the prior year. In
1994 these expenses were $4.79 million, with the lower amount primarily due to
lesser expenditures on commercial software initiatives and PC-based product
development. Such expenditures have been increased in the two more recent
fiscal years
A-4
<PAGE>
in support of the Company's information technology focus area. As a percent of
total Company sales, internal research and development expenditures for fiscal
1996, 1995, and 1994 were 6.3%, 6.7% and 5.6%, respectively.
Selling, administrative and general expenses in fiscal year 1996 were
$15.56 million, or 19.2% of sales. However, approximately $1.5 million of the
nearly $14.5 million in 1996 reserves and write-offs outlined above are included
in these expenses. Excluding those special charges, selling, administrative and
general expenses for the current year are about $14 million, or 17.5% of sales,
compared with $13.64 and $14.07 million, or 18.2% and 16.5% of sales, for fiscal
years 1995 and 1994, respectively. Excluding the 1996 special charges,
administrative expenses are nearly unchanged in the current year as compared to
1995, and in 1995 administrative costs were $1.1 million less than in 1994.
This decrease was primarily the result of cost cutting measures implemented in
the last part of 1994, as well as one-time costs incurred in 1994 associated
with reducing the labor force. Both 1996 and 1995 have seen increases in sales
and marketing expenses, primarily at the I-Bus operation. I-Bus revenues have
grown significantly over this period, and the increase in marketing expenses has
been required to support such growth.
Other-net represents income of $398,000 in 1996, compared to $848,000 in
1995 and $589,000 in 1994. Other-net includes interest income of $128,000,
$358,000 and $164,000 in fiscal 1996, 1995 and 1994, respectively. The greater
interest income in 1995 was primarily attributable to interest earned on various
tax refunds and receivables in that year. Other-net is also lower in 1996 due
to completing the amortization into income of amounts contributed by minority
shareholders upon the organization of PurePulse Technologies over such
shareholders' proportionate share of PurePulse's equity. This amortization
began prior to 1994 and was completed in April 1996. Thus, 1996 other-net
includes $379,000 of such income, compared to $508,000 in each of fiscal years
1995 and 1994.
The Company incurred a loss in the current year, and cannot carry that loss
back to recover taxes paid in prior years. Therefore, no income tax benefit is
provided on the current year loss. In addition, a charge of $1,140,000 was
taken in January 1996 to reserve the net deferred tax assets of the parent
Company, and $156,000 of income tax expense was recorded at PurePulse
Technologies, a 76.5% owned subsidiary which must file a separate income tax
return. Income tax expense was incurred at an effective rate of 3.6% in 1995,
while recoverable income taxes were recorded at an effective rate of 39.0% in
1994. The 3.6% rate in 1995 primarily reflects the tax-free status of the
amortized PurePulse gain, which had a much more significant effect on the tax
rate in 1995 due to the smaller amount of overall pre-tax dollars in that year.
INFLATION AND CHANGES IN PRICES
A substantial portion of the Company's business with agencies of the U.S.
Government consists of cost-reimbursement contracts which permit recovery of
inflation costs. Fixed-price contracts with government and other customers
typically include estimated costs for inflation in the contract price.
Generally, the Company has been able to increase prices to offset its
inflation-related increased costs.
LIQUIDITY AND CAPITAL RESOURCES
Primarily as a result of one-time reserves and accruals and certain
customer advances received prior to year end, current liabilities have increased
to $18.0 million. The balance sheet remains strong, however, with very little
long-term debt, working capital of $7.3 million, and a current ratio of 1.4:1 at
July 31, 1996. In addition, the Company has available a $5 million bank line of
credit, which is secured by the personal property of the Company.
The Company does not currently have plans to fund any significant capital
addition projects in the new fiscal year, and in addition, subsequent to
year-end placed for sale land and a building adjacent to the Company's
headquarters facility in San Diego. Approximately 80% of the property slated
for
A-5
<PAGE>
sale is currently leased to an unrelated party, and the balance is occupied by
the Company. Management believes that funds on hand and those generated by
future operations and available through its bank line of credit will be
sufficient to finance working capital requirements for the foreseeable future.
NOTE ON FORWARD-LOOKING INFORMATION
To the extent that the above discussion goes beyond historical information
and indicates results or developments which the Company plans or expects to
achieve, these forward-looking statements are identified by the use of terms
such as "expected", "anticipates", "plans" and the like. Readers are cautioned
that such future results are uncertain and could be affected by a variety of
factors that could cause actual results to differ from those expected. Readers
are referred to item 1 of the Company's Annual Report on Form 10-K for fiscal
1996 for a discussion of certain of those factors.
A-6
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
---------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
(In thousands except per share amounts & ratios)
<S> <C> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . $ 80,911 $ 75,004 $ 85,463 $ 86,902 $ 90,159
Costs and expenses . . . . . . . . . . . . . 92,172 74,588 88,098 85,149 96,851
--------- -------- -------- -------- --------
Income (loss) before income taxes, minority
interest and loss from cumulative effect
of change in accounting principle. . . . . (11,261) 416 (2,635) 1,753 (6,692)
Provision for income taxes . . . . . . . . . 1,296 15 (1,028) 683 (2,745)
Minority interest in net income of
subsidiary . . . . . . . . . . . . . . . . 50 86 80 48 30
Loss from cumulative effect of change in
accounting principle . . . . . . . . . . . 2,569 -- -- -- --
--------- -------- -------- -------- --------
Net income (loss). . . . . . . . . . . . . . $ (15,176) $ 315 $ (1,687) $ 1,022 $ (3,977)
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Earnings (loss) per share:
Primary. . . . . . . . . . . . . . . . . . $ (5.53) $ .12 $ (.63) $ .38 $ (1.50)
Fully diluted. . . . . . . . . . . . . . . $ (5.53) $ .12 $ (.63) $ .37 $ (1.50)
Before loss from cumulative effect of
change in accounting principle . . . . . $ (4.59)
Cash dividends per share . . . . . . . . . . $ .40
Total assets . . . . . . . . . . . . . . . . $ 40,724 $ 52,370 $ 54,322 $ 55,086 $ 59,925
Working capital. . . . . . . . . . . . . . . $ 7,288 $ 17,855 $ 18,091 $ 20,142 $ 18,410
Working capital ratio. . . . . . . . . . . . 1.40:1 2.37:1 2.31:1 2.49:1 2.02:1
Long-term debt . . . . . . . . . . . . . . . $ 1,018 $ 1,928 $ 2,797 $ 1,515 $ 2,538
Shareholders' equity at year-end . . . . . . $ 20,745 $ 35,364 $ 34,960 $ 36,645 $ 35,456
Shares outstanding at year-end . . . . . . . 2,844 2,689 2,675 2,675 2,656
Book value per share at year-end. . . . . . $ 7.29 $ 13.15 $ 13.07 $ 13.70 $ 13.35
</TABLE>
A-7
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
JULY 31
1996 1995
(In thousands)
<S> <C> <C>
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 1,465 $ 4,053
Accounts receivable:
Trade and other, less allowance for doubtful accounts
of $440 in 1996 and $545 in 1995 . . . . . . . . . . . . 8,656 9,589
Long-term contracts - Note 2. . . . . . . . . . . . . . . . 6,917 6,441
-------- --------
15,573 16,030
Inventories and inventoried costs relating to
long-term contracts - Note 12. . . . . . . . . . . . . . . . 6,808 7,239
Recoverable income taxes . . . . . . . . . . . . . . . . . . . 740 861
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 548 572
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 161 2,090
-------- --------
Total Current Assets. . . . . . . . . . . . . . . . . . . . 25,295 30,845
Property, Plant and Equipment, net of accumulated
depreciation and amortization - Note 12. . . . . . . . . . . . 14,809 20,315
Deposits and Other . . . . . . . . . . . . . . . . . . . . . . . 620 1,210
-------- --------
$ 40,724 $ 52,370
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - Note 12 . . . . . . . . . . . . . . . . . . $ 14,231 $ 9,400
Accrued employee compensation. . . . . . . . . . . . . . . . . 2,866 2,681
Current portion of long-term debt. . . . . . . . . . . . . . . 910 909
-------- --------
Total Current Liabilities . . . . . . . . . . . . . . . . . 18,007 12,990
Long-Term Debt - Note 3. . . . . . . . . . . . . . . . . . . . . 1,018 1,928
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . -- 805
Minority Interest and Additional Amounts Contributed . . . . . . 954 1,283
Commitments & Contingencies - Notes 6 & 10
Shareholders' Equity - Note 4
Common Stock, $.10 par value
Authorized 5,000,000 shares
Issued and outstanding: 1996 - 2,843,563 shares;
1995 - 2,689,185 shares. . . . . . . . . . . . . . . . . 284 269
Additional paid-in capital . . . . . . . . . . . . . . . . . . 20,036 18,889
Deferred compensation. . . . . . . . . . . . . . . . . . . . . (605) --
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 1,030 16,206
-------- --------
20,745 35,364
-------- --------
$ 40,724 $ 52,370
-------- --------
-------- --------
</TABLE>
See accompanying notes.
A-8
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JULY 31
----------------------------------
1996 1995 1994
-------- -------- --------
(In thousands except per share amounts)
Sales. . . . . . . . . . . . . . . . . $ 80,911 $75,004 $ 85,463
Costs and expenses:
Cost of sales. . . . . . . . . . . . 65,893 56,447 68,555
Selling, administrative and general
expenses . . . . . . . . . . . . . 15,564 13,636 14,068
Research and development expenses. . 5,081 5,038 4,794
Restructure and asset impairment
losses - Note 9. . . . . . . . . . 5,703 -- --
Loss on closing of Brobeck division. -- -- 1,018
Interest expense . . . . . . . . . . . 329 315 252
Other-net - Note 12. . . . . . . . . . (398) (848) (589)
--------- -------- --------
92,172 74,588 88,098
--------- -------- --------
Income (loss) before income taxes,
minority interest and loss from
cumulative effect of change in
accounting principle . . . . . . . . (11,261) 416 (2,635)
Provision for income taxes - Note 5. . 1,296 15 (1,028)
Minority interest in net income of
subsidiary . . . . . . . . . . . . . 50 86 80
Loss from cumulative effect of change
in accounting principle - Note 9 . . 2,569 -- --
--------- ------- --------
Net income (loss). . . . . . . . . . $ (15,176) $ 315 $ (1,687)
--------- ------- --------
--------- ------- --------
Earnings (loss) per share:
Primary. . . . . . . . . . . . . . . $ (5.53) $ .12 $ (.63)
--------- ------- --------
--------- ------- --------
Fully Diluted. . . . . . . . . . . . $ (5.53) $ .12 $ (.63)
--------- ------- --------
--------- ------- --------
Before loss from cumulative
effect of change in accounting
principle. . . . . . . . . . . . . $ (4.59)
---------
---------
See accompanying notes.
A-9
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED JULY 31, 1996
---------------------------------------------------
COMMON ADDITIONAL DEFERRED RETAINED
STOCK PAID-IN CAPITAL COMPENSATION EARNINGS
------- --------------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C>
Balance at August 1, 1993. . . . . . . . . . . . . . . . . . . . $ 255 $ 17,443 $ -- $ 18,947
Issuance of 580 shares under stock option plans
including related tax benefit . . . . . . . . . . . . . . . 4
Issuance of 127,185 shares due to 5 percent stock dividend. . 12 1,355 (1,369)
Net loss for the year . . . . . . . . . . . . . . . . . . . . (1,687)
------ -------- ------ --------
Balance at July 31, 1994 . . . . . . . . . . . . . . . . . . . . 267 18,802 -- 15,891
Issuance of 14,212 shares under stock purchase plans. . . . . 2 87
Net income for the year . . . . . . . . . . . . . . . . . . . 315
------ -------- ------ --------
Balance at July 31, 1995 . . . . . . . . . . . . . . . . . . . . 269 18,889 -- 16,206
Issuance of 18,842 shares under stock option plans. . . . . . 2 154
Issuance of 46,556 shares under stock purchase plans. . . . . 4 357
Deferred compensation related to issuance of 88,980 shares. . 9 636 (645)
Amortization of deferred compensation . . . . . . . . . . . . 40
Net loss for the year . . . . . . . . . . . . . . . . . . . . (15,176)
------ -------- ------ --------
Balance at July 31, 1996 . . . . . . . . . . . . . . . . . . . . $ 284 $ 20,036 $ (605) $ 1,030
------ -------- ------ --------
------ -------- ------ --------
</TABLE>
See accompanying notes.
A-10
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
---------------------------------------
1996 1995 1994
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Operating Activities
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $(15,176) $ 315 $(1,687)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 2,128 2,907 3,275
Restructure and asset impairment losses. . . . . . . . . . . . 5,960 -- --
Loss from cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . 2,569 -- --
Provision for losses on accounts receivable . . . . . . . . . 105 45 310
Loss on sales of property and equipment . . . . . . . . . . . 118 122 154
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 1,124 820 (970)
Minority interest in net income of subsidiary . . . . . . . . 50 86 80
Deferred compensation . . . . . . . . . . . . . . . . . . . . 40 -- --
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . 252 (52) 266
Inventories . . . . . . . . . . . . . . . . . . . . . . . . (469) 369 876
Prepaid expenses and other. . . . . . . . . . . . . . . . . 614 150 (225)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . 2,153 (525) 1,152
Accrued employee compensation . . . . . . . . . . . . . . . 185 (255) (812)
Income taxes payable/recoverable. . . . . . . . . . . . . . 121 (797) 914
-------- ------- -------
Net Cash Provided by (Used in)
Operating Activities. . . . . . . . . . . . . . . . . . (226) 3,185 3,333
Investing Activities
Purchases of property, plant and equipment . . . . . . . . . . (1,976) (2,951) (4,662)
Proceeds from sales of property and equipment. . . . . . . . . 6 80 26
-------- ------- -------
Net Cash Used in Investing Activities . . . . . . . . . . (1,970) (2,871) (4,636)
Financing Activities
Proceeds from long-term borrowing. . . . . . . . . . . . . . . -- -- 2,500
Principal payments on long-term debt . . . . . . . . . . . . . (909) (929) (1,271)
Proceeds from issuance of Common Stock . . . . . . . . . . . . 517 89 4
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . -- -- (2)
-------- ------- -------
Net Cash Provided by (Used in) Financing
Activities. . . . . . . . . . . . . . . . . . . . . . . (392) (840) 1,231
-------- ------- -------
Decrease in Cash and Cash Equivalents . . . . . . . . . . (2,588) (526) (72)
Cash and cash equivalents at beginning of year . . . . . . . . 4,053 4,579 4,651
-------- ------- -------
Cash and Cash Equivalents at End of Year. . . . . . . . . $ 1,465 $ 4,053 $ 4,579
-------- ------- -------
-------- ------- -------
</TABLE>
See accompanying notes.
A-11
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND MINORITY INTEREST AMOUNTS
The consolidated financial statements include the accounts of Maxwell
Technologies, Inc., and its majority-owned subsidiary, PurePulse Technologies,
Inc. All significant intercompany transactions and account balances are
eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost (principally average cost
method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided under the straight-line method in amounts sufficient
to amortize the cost of the depreciable assets over their estimated useful
lives. Depreciation and amortization of property, plant and equipment amounted
to $2,507,000 in 1996, $3,415,000 in 1995, and $3,783,000 in 1994.
REVENUE RECOGNITION
Sales include costs as incurred and fees as earned on cost-plus-fee
contracts, as well as costs incurred and estimated profits on long-term
fixed-price contracts. Such estimated profits have been computed by applying the
various percentages of completion of the contracts to the estimated ultimate
profits. Revenues from the sale of manufactured products are recorded when the
products are shipped. Provisions are made on a current basis to fully recognize
any anticipated losses on contracts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain of the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
EARNINGS (LOSS) PER SHARE
The computation of earnings (loss) per share is based on the weighted
average shares of Common Stock outstanding plus the dilutive effects of Common
Stock equivalents arising from stock options. The average number of Common and
Common equivalent shares outstanding was 2,747,000 in 1996, 2,678,000 in 1995,
and 2,675,000 in 1994. Earnings (loss) per share was unchanged on a
fully-diluted basis in all three years.
CASH EQUIVALENTS
The company classifies all highly liquid investments with a maturity of
three months or less when purchased as cash equivalents.
A-12
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Effective August 1, 1996, the company will adopt FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. As allowed under Statement 123, the
company plans to elect to continue accounting for stock option grants in
accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES and related interpretations. If the company so elects, when
stock options are granted with an exercise price equal to the fair market value
of the shares on the date of grant, no compensation expense will be recorded,
and therefore the company does not believe the adoption of Statement 123 will
have a material effect on its financial position or results of operations.
NOTE 2 - ACCOUNTS RECEIVABLE
The following tabulation shows the component elements of accounts
receivable from long-term contracts at July 31, 1996 and 1995.
1996 1995
---- ----
(In thousands)
U.S. Government:
Amounts billed . . . . . . . . . . . . . . $ 2,832 $ 2,331
Amounts unbilled . . . . . . . . . . . . . 427 1,005
Retainage due upon completion of contracts 312 434
Commercial customers:
Amounts billed . . . . . . . . . . . . . . 988 657
Amounts unbilled . . . . . . . . . . . . . 2,358 2,014
-------- -------
$ 6,917 $ 6,441
-------- -------
-------- -------
The balances billed but not paid by customers pursuant to retainage
provisions under long-term contracts will be due upon completion of the
contracts and acceptance by the customers. Substantially all retention balances
and unbilled receivables at July 31, 1996, are expected to become due and
payable within the next year.
NOTE 3 - LONG-TERM DEBT AND CREDIT AGREEMENTS
Long-term debt at July 31 consists of the following:
1996 1995
---- ----
(In thousands)
Variable rate note payable to a bank, due $42,000
monthly plus interest. . . . . . . . . . . . . $ 1,292 $ 1,792
7.75% fixed rate note payable to a bank,
due $100,000 quarterly plus interest . . . . . 400 800
10.0% fixed rate promissory note, due $3,000
monthly. . . . . . . . . . . . . . . . . . . . 236 245
------- -------
1,928 2,837
Less current portion . . . . . . . . . . . . . . 910 909
------- -------
$ 1,018 $ 1,928
------- -------
------- -------
The variable rate note bears interest at the bank's prime rate plus 1/2%,
and at July 31, 1996, this rate was 8.75%. Both bank notes are unsecured, and
contain certain restrictive covenants relating to net-worth, net-worth-ratio and
quarterly operating results. The consideration of future cash dividends, if
any, could be limited by certain of these bank covenants.
A-13
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - LONG-TERM DEBT AND CREDIT AGREEMENTS (CONTINUED)
Maturities of long-term debt for each of the five years ending
July 31, 2001 are: 1997 - $910,000; 1998 - $512,000; 1999 - $305,000; 2000
- - $14,000; and 2001 - $16,000.
Under an annual revolving bank line of credit agreement, the company may
borrow up to $5 million at the bank's prime rate plus 1 1/8%. The line of
credit is secured by the personal property of the company. At July 31, 1996,
there were no outstanding borrowings under this credit arrangement.
NOTE 4 - STOCK PLANS
STOCK OPTION PLANS
In December 1995, the company adopted the 1995 Stock Option Plan under
which 250,000 shares of Common Stock were reserved for future grant. This Plan
and the company's 1989 Stock Option Plan provide for granting either Incentive
Stock Options or Non-Qualified Stock Options to employees and non-employee
members of the company's Board of Directors, respectively. Options are also
outstanding under an expired stock option plan. The options granted under these
plans are to purchase Common Stock at not less than fair market value at the
date of grant. Employee options are generally exercisable in cumulative annual
installments of 30 percent or 20 percent, while options in the Director Option
Plan are exercisable in full one year after date of grant. All options have
terms of five to ten years. In addition to the company's stock-based
compensation plans, certain officers and key employees may also participate in
stock-based compensation plans of the company's majority-owned subsidiary.
The following table summarizes company stock option activity for the three
years ended July 31, 1996.
NUMBER PRICE
OF SHARES PER SHARE
--------- ---------
Outstanding at August 1, 1993. . . . . . . . . . . 408,251 $ 7.70 to $ 13.15
Granted . . . . . . . . . . . . . . . . . . . . 17,600 $ 7.50 to $ 10.24
Exercised . . . . . . . . . . . . . . . . . . . (580) $ 7.70
Expired or forfeited . . . . . . . . . . . . . (39,392) $ 7.70 to $ 12.92
------- -----------------
Outstanding at July 31, 1994 . . . . . . . . . . . 385,879 $ 7.50 to $ 13.15
Granted . . . . . . . . . . . . . . . . . . . . 112,000 $ 7.50 to $ 8.00
Exercised . . . . . . . . . . . . . . . . . . . --
Expired or forfeited. . . . . . . . . . . . . .(139,007) $ 7.70 to $ 12.92
------- -----------------
Outstanding at July 31, 1995 . . . . . . . . . . . 358,872 $ 7.50 to $ 13.15
Granted . . . . . . . . . . . . . . . . . . . . 311,800 $ 7.13 to $ 14.50
Exercised . . . . . . . . . . . . . . . . . . . (18,842) $ 7.50 to $ 10.71
Expired or forfeited . . . . . . . . . . . . . (53,817) $ 7.25 to $ 11.33
------- -----------------
Outstanding at July 31, 1996 . . . . . . . . . . . 598,013 $ 7.13 to $ 14.50
------- -----------------
------- -----------------
The average price of all options outstanding at July 31, 1996, is $9.12 per
share; the outstanding options expire at various dates through March 2006. At
July 31, 1996, options for 258,000 shares of Common Stock are exercisable at
$7.25 to $13.15 per share and 124,000 shares are available for future grant.
A-14
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - STOCK PLANS (CONTINUED)
STOCK PURCHASE PLANS
In December 1994, the company established an Employee Stock Purchase Plan
and a Director Stock Purchase Plan. The employee plan permits substantially all
employees to purchase Common Stock through payroll deductions at 85% of the
lower of the trading price of the Stock at the beginning or at the end of each
six-month offering period. The director plan permits non-employee directors to
purchase Common Stock at 100% of the trading price of the Stock on the date a
request for purchase is received. In fiscal years 1996 and 1995, 46,556 and
14,212 shares were issued under the two plans for an aggregate of $361,000 and
$89,000, respectively. At July 31, 1996, 189,232 shares are reserved for future
purchases.
STOCKHOLDER RIGHTS PLAN
In 1989, the company adopted a Stockholder Rights Plan, and subsequently
distributed one nonvoting Common Stock purchase right (Right) for each
outstanding share of Common Stock. The Rights are not exercisable and will not
trade separately from the Common Stock unless a person or group acquires, or
makes a tender offer for, 20% or more of the company's Common Stock. Initially,
each Right entitles the registered holder to purchase one-half of a share of
company Common Stock at a price of $32.50 per one-half share, subject to certain
anti-dilution adjustments. The Rights expire on June 20, 1999.
If the Rights become exercisable and certain conditions are met, then each
Right not owned by the acquiring person or group will entitle its holder to
receive, upon exercise, company Common Stock having a market value of four times
the exercise price of the Right. These provisions will not apply if a majority
of the Board of Directors determines that the acquisition or other business
combination is in the best interest of the shareholders. In addition, the
company may redeem the Rights at a price of $.01 per Right, subject to certain
restrictions.
DEFERRED COMPENSATION
In 1996, one of the executive officers of the Company was granted shares of
the company's Common Stock subject to certain restrictions. The shares vest
over a four-year period, and had a value at the date of grant of approximately
$645,000. That value, net of accumulated amortization, is shown as deferred
compensation in the stockholder's equity section of the Balance Sheet. The
deferred compensation is being amortized to expense over the four-year vesting
period, and such amortization totaled $40,000 in 1996.
A-15
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES
Income taxes (credit) are as follows for the years ended July 31, 1996,
1995, and 1994:
1996 1995 1994
---- ---- ----
(In thousands)
Federal:
Current. . . . . . . . . . . . . . . $ 128 $ (634) $ 15
Deferred . . . . . . . . . . . . . . 814 604 (935)
------- ------ --------
942 (30) (920)
State:
Current. . . . . . . . . . . . . . . 44 (171) (73)
Deferred . . . . . . . . . . . . . . 310 216 (35)
------- ------ --------
354 45 (108)
------- ------ --------
$ 1,296 $ 15 $ (1,028)
------- ------ --------
------- ------ --------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the company's deferred tax assets and liabilities at July 31 are as follows:
1996 1995 1994
---- ---- ----
(In thousands)
Deferred tax assets:
Environmental and restructure reserves $ 1,606 $ 495 $ 534
Uniform capitalization, contract and
inventory-related reserves . . . . . 1,542 723 1,578
Asset write-downs under FASB Stmt.
No. 121. . . . . . . . . . . . . . . 1,062 -- --
Accrued vacation . . . . . . . . . . . 506 551 619
Other. . . . . . . . . . . . . . . . . 426 239 337
Allowance for doubtful accounts. . . . 259 217 213
NOL carryforwards. . . . . . . . . . . 2,500 300 200
Valuation allowance. . . . . . . . . . (7,015) (300) (200)
------- ------- -------
Total deferred tax assets. . . . . . $ 886 $ 2,225 $ 3,281
------- ------- -------
------- ------- -------
Deferred tax liabilities:
Tax over book depreciation . . . . . . $ 617 $ 802 $ 1,023
Deferred contract income recognition . 108 134 148
Other. . . . . . . . . . . . . . . . . -- 4 5
------- ------- -------
Total deferred tax liabilities . . . $ 725 $ 940 $ 1,176
------- ------- -------
------- ------- -------
Net deferred tax assets. . . . . . . $ 161 $ 1,285 $ 2,105
------- ------- -------
------- ------- -------
As the company cannot carry losses back to prior years, and has a current
year loss, a valuation allowance is provided on the net operating loss
carryforwards and net deferred income tax assets of the parent company. Income
tax expense in the current year is to provide for the valuation allowance on
beginning of year net deferred tax assets, and to provide for income tax expense
at the PurePulse Technologies subsidiary, which must file a separate tax return.
A-16
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES (CONTINUED)
As of July 31, 1996, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $1,900,000 and $600,000,
respectively. The federal loss carryforward expires in fiscal year 2011, while
the state loss carryforwards expire in fiscal years 1999 through 2001.
The effective income tax rate varied from the statutory federal income tax
rate as follows:
1996 1995 1994
---- ---- ----
Statutory federal income tax rate. . . . (34.0)% 34.0% (34.0)%
State income taxes, net of federal
tax benefit. . . . . . . . . . . . . . (6.0) 7.3 (2.7)
Amortization of minority interest. . . . (1.1) (41.5) (6.6)
Change in valuation allowance and
other items . . . . . . . . . . . . . 52.6 3.8 4.3
------- ------ --------
Effective income tax rate . . . . . . . 11.5% 3.6% (39.0)%
------- ------ --------
------- ------ --------
NOTE 6 - LEASES
Rental expense amounted to $1,992,000, $2,110,000, and $2,343,000 in 1996,
1995, and 1994, respectively, and was incurred primarily for building rental.
Future minimum rental commitments as of July 31, 1996, are as follows (in
thousands):
1997. . . . . . . . . . . . . . . . . . . . . $ 1,453
1998. . . . . . . . . . . . . . . . . . . . . 1,416
1999. . . . . . . . . . . . . . . . . . . . . 1,218
2000. . . . . . . . . . . . . . . . . . . . . 1,002
2001. . . . . . . . . . . . . . . . . . . . . 884
Thereafter. . . . . . . . . . . . . . . . . . 3,135
-------
$ 9,108
-------
-------
Certain leases include renewal options for periods ranging from one to
twenty-five years and are subject to rental adjustment based on consumer price
indices. Substantially all leases provide that the company pay for property
taxes, insurance, and repairs and maintenance.
NOTE 7 - EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
Substantially all employees are covered under the company's defined
contribution retirement plan. Prior to 1994, company contributions under the
plan were based on 5% of defined compensation for covered employees. Effective
January 1, 1994, the company suspended contributions to the plan. There were no
contributions made during the years ended July 31, 1996 and 1995; contributions
aggregated $550,000 in the year ended July 31, 1994.
SAVINGS PLAN
Substantially all employees are eligible to elect coverage under a
contributory employee savings plan which provides for company matching
contributions based on one-half of employee contributions up to certain plan
limits. The company's matching contributions under this plan totaled $541,000,
$568,000, and $611,000 for the years ended July 31, 1996, 1995, and 1994,
respectively.
A-17
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - RELATED PARTY TRANSACTIONS
Mr. Karl M. Samuelian, a member of the Board of Directors of the company,
is a shareholder in the law firm of Parker, Milliken, Clark, O'Hara & Samuelian,
A Professional Corporation, Outside General Counsel to the company. During the
years ended July 31, 1996, 1995, and 1994, the company incurred legal fees for
services amounting to $32,000, $66,000, and $328,000 respectively, to Parker,
Milliken, Clark, O'Hara & Samuelian.
NOTE 9 - IMPAIRMENT LOSSES, RESTRUCTURING AND OTHER CHARGES
In 1996, the company recorded $14.4 million of pre-tax charges primarily in
the second and third quarters. Of this amount, $9.5 million was recorded during
the first two quarters, and included asset write-downs due to the adoption of
FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, an increase in the valuation allowance
against the company's net deferred income tax assets, the cost, primarily in the
form of inventory reserves, of re-positioning the Sierra Capacitor/Filter
operation to focus on a new commercial business area, and other operational
reserves primarily associated with fixed-price contracts and inventory. The
$4.9 million charge in the third quarter resulted primarily from costs
associated with management changes and a restructuring of the company's business
units.
Of the first and second quarter charge, $4.1 million is attributable to the
January 1996 adoption of FASB Statement No. 121. Statement 121 requires that
the carrying amount of certain long-lived assets be written down if an
impairment in value is determined to exist and the assets are not supported by
adequate anticipated future cash flows, as defined by the FASB. Upon adoption
of Statement 121, the company recorded impairment losses to reflect the
difference between pre-adoption carrying values and the estimated fair values of
the assets subject to review, of which approximately $2.6 million was recorded
in restated first quarter results as the cumulative effect of a change in
accounting principle, and the balance of $1.5 million impacted second quarter
results. These assets included primarily facilities and equipment associated
with the chemical analytical services group, and certain other equipment not
currently in substantive use. The chemical analytical services business was not
profitable in fiscal 1996, and the company began exploring its possible sale
during the first quarter of the year. The business was sold in June 1996. The
estimated fair values of the assets were determined by reference to comparable
asset sales, lease values, or estimated discounted future cash flows. The
facilities subject to the impairment loss are corporate assets, and the
chemistry group equipment as well as the majority of the under-utilized
equipment subject to impairment are from the company's Technology Programs and
Systems business segment.
In 1994, a $1 million charge was recorded in the second quarter due to the
closing of the Brobeck division, and $2 million of charges were provided in the
fourth quarter to recognize anticipated losses on contracts, primarily an
overseas contract for customized capacitors which was terminated shortly after
July 31, 1994, and to provide for inventory and work force reduction costs.
A-18
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - ENVIRONMENTAL MATTER
In January 1991, the California Department of Toxic Substances Control, or
DTSC, notified the company that it had been identified as one of a number of
"potentially responsible parties" with respect to alleged hazardous substances
released into the environment at a recycling facility in San Diego County. As
Maxwell is not in the business of transporting or disposing of waste materials,
the company retained the services of the owners of the recycling facility to
transport certain waste material generated by Maxwell. After properly delivering
the materials to the transporter, Maxwell was not further involved in the
transportation, treatment or disposal of the materials. Under California and
Federal "Superfund" laws, Maxwell is a potentially responsible party even though
it was not involved in the transport or disposal of the substances. Moreover,
it is the company's understanding that alleged hazardous substances from at
least approximately 160 other potentially responsible parties were released at
the facility, and that first phase response costs of approximately $7.9 million
have been incurred at the site by the DTSC.
In 1992, the company and approximately 40 other potentially responsible
parties signed a consent order with the State of California. The parties which
signed the consent order have agreed to reimburse the State for $4 million of
the $7.9 million aforementioned response costs incurred, and to pay for certain
on-going and future site investigations and interim response actions outlined in
the consent order. The currently estimated cost of such on-going activities is
$9.4 million, and the company's share of that cost, as allocated by the parties
to the consent order, is currently estimated at approximately 7.0%. The
eventual cost of all removal and remediation activities, for which the company
and the other potentially responsible parties will share in additional
reimbursements to the State, and including the $9.4 million referred to above,
is currently estimated to be in the range of $15 - $20 million. About half of
such amount will consist of maintenance and monitoring costs to be incurred over
a 25-30 year period. The company has accrued its share of such estimated costs;
on the basis of amounts accrued by the company, it is management's opinion that
any additional liability resulting from this situation will not have a material
effect on the company's financial statements.
NOTE 11 - BUSINESS SEGMENTS
For purposes of analyzing and understanding the financial statements, the
company's operations have been classified into the following business segments:
COMMERCIAL AND INDUSTRIAL PC PRODUCTS: Through its I-Bus business unit,
the company designs and manufactures custom and standard PC controllers and
enclosures for original equipment manufacturers, primarily in the telephony and
communications markets.
TECHNOLOGY PROGRAMS AND SYSTEMS: Through its Federal Division, the company
performs scientific research, computer simulation and analysis, develops and
deploys major pulsed power systems, and operates and maintains research and test
facilities, primarily for the U.S. Government Department of Defense.
INFORMATION PRODUCTS AND SERVICES: Through its Information Systems
business unit, the company provides state-of-the-art software solutions for
both state and local and commercial applications, as well as services and
applications for the Internet and for wide-area and local-area networks.
POWER CONVERSION PRODUCTS: Through its Energy Products and PurePulse
Technologies business units, the company designs, develops and manufactures
component parts and subsystems that condition and/or exploit electrical energy,
primarily in the form of pulsed-power, for commercial markets such as
medical/pharmaceutical, transportation and food.
A-19
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - BUSINESS SEGMENTS (CONTINUED)
Business segment financial data for the three years ended July 31 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Sales:
Commercial and Industrial PC Products . . . . . . . . . . . $ 26,131 $ 23,319 $ 18,967
Technology Programs and Systems . . . . . . . . . . . . . . 30,198 31,064 46,625
Information Products and Services . . . . . . . . . . . . . 8,134 5,414 3,586
Power Conversion Products . . . . . . . . . . . . . . . . . 16,448 15,207 16,285
--------- -------- --------
Consolidated total . . . . . . . . . . . . . . . . . . $ 80,911 $ 75,004 $ 85,463
--------- -------- --------
--------- -------- --------
Operating profit (loss):
Commercial and Industrial PC Products . . . . . . . . . . . $ 1,078 $ 2,287 $ 1,411
Technology Programs and Systems . . . . . . . . . . . . . . 2,131 1,550 2,334
Information Products and Services . . . . . . . . . . . . . (3,680) (1,097) (307)
Power Conversion Products . . . . . . . . . . . . . . . . . (752) (561) (2,701)
--------- -------- --------
Total operating profit (loss). . . . . . . . . . . . . (1,223) 2,179 737
Corporate expenses and revenues . . . . . . . . . . . . . . (9,709) (1,448) (3,120)
Interest expense . . . . . . . . . . . . . . . . . . . . . (329) (315) (252)
--------- -------- --------
Income (loss) before income taxes, minority
interest and cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . $ (11,261) $ 416 $ (2,635)
--------- -------- --------
--------- -------- --------
Identifiable assets:
Commercial and Industrial PC Products . . . . . . . . . . . $ 9,166 $ 8,000 $ 7,053
Technology Programs and Systems . . . . . . . . . . . . . . 7,586 12,640 15,235
Information Products and Services . . . . . . . . . . . . . 3,136 3,893 1,862
Power Conversion Products . . . . . . . . . . . . . . . . . 11,253 13,932 16,761
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . 9,583 13,905 13,411
--------- -------- --------
Consolidated total . . . . . . . . . . . . . . . . . . $ 40,724 $ 52,370 $ 54,322
--------- -------- --------
--------- -------- --------
Depreciation and amortization:
Commercial and Industrial PC Products . . . . . . . . . . . $ 316 $ 260 $ 215
Technology Programs and Systems . . . . . . . . . . . . . . 994 1,563 1,953
Information Products and Services . . . . . . . . . . . . . 162 61 49
Power Conversion Products . . . . . . . . . . . . . . . . . 763 1,138 1,185
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . 272 393 381
--------- -------- --------
Consolidated total . . . . . . . . . . . . . . . . . . $ 2,507 $ 3,415 $ 3,783
--------- -------- --------
--------- -------- --------
Capital expenditures:
Commercial and Industrial PC Products . . . . . . . . . . . $ 529 $ 337 $ 342
Technology Programs and Systems . . . . . . . . . . . . . . 240 1,034 2,871
Information Products and Services . . . . . . . . . . . . . 482 435 230
Power Conversion Products . . . . . . . . . . . . . . . . . 670 1,078 763
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . 55 67 456
--------- -------- --------
Consolidated total . . . . . . . . . . . . . . . . . . $ 1,976 $ 2,951 $ 4,662
--------- -------- --------
--------- -------- --------
</TABLE>
A-20
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - BUSINESS SEGMENTS (CONTINUED)
Certain fiscal year 1995 and 1994 segment information has been reclassified
to conform to current year reporting. The effect of the reclassification is
primarily to break those amounts previously reported as commercial, industrial
and scientific products into more distinct categories, and to reflect land and
buildings as corporate assets.
Intersegment sales are insignificant. Operating profit (loss) is sales less
cost of sales and operating expenses, excluding interest expense and corporate
expenses and revenues. Corporate expenses in 1996 include certain restructuring
costs and asset writedowns relating to the adoption of FASB Statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, and in 1994 include a $1 million loss on closing the Brobeck
division. Identifiable assets by segment include the assets directly identified
with those segments. Corporate assets consist primarily of cash and cash
equivalents, deferred income taxes and facilities and land.
Sales under U.S. Government contracts and subcontracts are primarily in the
Technology Programs and Systems business segment, and aggregated $32,622,000,
$32,120,000, and $45,971,000 in 1996, 1995, and 1994, respectively.
Export sales amounted to $7,555,000, $7,318,000, and $9,784,000 in 1996,
1995, and 1994, respectively, principally to countries in Europe and the Pacific
Rim.
NOTE 12 - SUPPLEMENTARY FINANCIAL INFORMATION
Inventories and inventoried costs relating to long-term contracts are
classified as follows at July 31, 1996 and 1995:
1996 1995
---- ----
(In thousands)
Finished goods . . . . . . . . . . . . . . . . . $ 714 $ 1,181
Costs under long-term contracts. . . . . . . . . 226 81
Work in process. . . . . . . . . . . . . . . . . 1,610 2,211
Raw materials and purchased parts. . . . . . . . 4,258 3,766
------- -------
$ 6,808 $ 7,239
------- -------
------- -------
Property, plant and equipment consist of the following at July 31, 1996 and
1995:
1996 1995
---- ----
(In thousands)
Land and land improvements . . . . . . . . . . . $ 3,470 $ 3,780
Buildings and building improvements. . . . . . . 7,448 11,182
Machinery and equipment. . . . . . . . . . . . . 23,267 30,006
Office furniture and equipment . . . . . . . . . 7,249 6,777
Leasehold improvements . . . . . . . . . . . . . 3,347 3,517
-------- --------
44,781 55,262
Less allowances for depreciation and
amortization . . . . . . . . . . . . . . . . . 30,192 35,633
-------- --------
14,589 19,629
Construction in progress . . . . . . . . . . . . 220 686
-------- --------
$ 14,809 $ 20,315
-------- --------
-------- --------
A-21
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
Accounts payable consist of the following at July 31, 1996 and 1995:
1996 1995
---- ----
(In thousands)
Accounts payable and accrued expenses. . . . . . $ 11,388 $ 7,705
Environmental and related reserves . . . . . . . 1,850 1,380
Customer advances. . . . . . . . . . . . . . . . 993 315
-------- --------
$ 14,231 $ 9,400
-------- --------
-------- --------
Included in Other-net is the amortization into income over a three-year
period of amounts contributed by minority shareholders upon the organization of
PurePulse Technologies over such shareholders' proportionate share of PurePulse
Technologies' equity. These amounts were fully amortized at the end of the
third quarter of fiscal 1996, and amounted to $379,000 in 1996 and $508,000 in
each of 1995 and 1994. Also included in Other-net is interest income of
$128,000, $358,000, and $164,000 during the years ended July 31, 1996, 1995, and
1994, respectively.
Financial instruments which subject the company to potential concentrations
of credit risk consist principally of investments in cash equivalents and
accounts receivable. The company invests its excess cash with major corporate
and financial institutions and in U.S. Government backed securities. The company
has established guidelines relative to diversification and maturities to
maintain safety and liquidity, and has not experienced any losses on these
investments. The company's accounts receivable result from contracts with the
U.S. Government, as well as contract and product sales to non-government
customers in various industries. The company performs on-going credit
evaluations of selected non-government customers and generally requires no
collateral.
Supplemental disclosure of cash flow information consists of the following
for the three years ended July 31, 1996:
1996 1995 1994
---- ---- ----
(In thousands)
Cash paid (refunded) for:
Interest . . . . . . . . . . . . . . . . $ 329 $ 315 $ 252
Income taxes . . . . . . . . . . . . . . $ 152 $ (11) $ (998)
Non-cash activities:
Issuance of Common Stock in connection
with deferred compensation
agreement . . . . . . . . . . . . . $ 645 -- --
A-22
<PAGE>
MAXWELL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - QUARTERLY RESULTS OF OPERATIONS AND STOCK INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations and
Common Stock price ranges for the years ended July 31, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
OCTOBER 31 JANUARY 31 APRIL 30 JULY 31
---------- ---------- -------- -------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
1996
Sales. . . . . . . . . . . . . . . . . . $19,172 $19,340 $20,331 $22,068
Gross profit . . . . . . . . . . . . . . 4,308 1,343 4,217 5,150
Net income (loss). . . . . . . . . . . . (2,327) (8,179) (4,823) 153
Earnings (loss) per share:
Primary. . . . . . . . . . . . . . . . (.86) (3.01) (1.76) .05
Fully diluted. . . . . . . . . . . . . (.86) (3.01) (1.76) .05
Common Stock price range:. . . . . . . .
High . . . . . . . . . . . . . . . . . 10 7/8 11 10 1/4 15 1/4
Low. . . . . . . . . . . . . . . . . . 7 1/4 8 1/8 6 3/4 9 3/8
1995
Sales. . . . . . . . . . . . . . . . . . $17,918 $17,630 $17,468 $21,988
Gross profit . . . . . . . . . . . . . . 4,972 4,584 3,785 5,216
Net income (loss). . . . . . . . . . . . 323 237 (464) 219
Earnings (loss) per share:
Primary. . . . . . . . . . . . . . . . .12 .09 (.17) .08
Fully diluted. . . . . . . . . . . . . .12 .09 (.17) .08
Common Stock price range:
High . . . . . . . . . . . . . . . . . 9 8 1/4 9 9
Low. . . . . . . . . . . . . . . . . . 7 6 3/4 6 1/2 6 5/8
</TABLE>
Note 9 of the financial statements contains a description of items which
occurred in the first three quarters of fiscal year 1996, and the second and
fourth quarters of fiscal year 1994, contributing to losses in those quarters.
In the fourth quarter of fiscal year 1996, the company sold its chemical
analytical services business, and reversed the excess amount, totaling $682,000,
of the reserve that had been previously provided for a termination of that
business.
The company's Common Stock is traded in the NASDAQ National Market System
under the symbol MXWL. High and low stock prices reflect closing quotations.
The closing price for the company's stock on October 22, 1996, was $28.25.
As of October 1, 1996, there were 492 record holders of the company's
Common Stock. The company declared no dividends in fiscal years 1996 or 1995,
but distributed a 5% stock dividend during the second quarter of fiscal year
1994 and has on occasion paid cash dividends within the last five fiscal years.
The Board of Directors may consider future year-end cash dividends depending on
the company's cash and other requirements at such time.
A-23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Maxwell Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Maxwell
Technologies, Inc., and subsidiary as of July 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended July 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maxwell
Technologies, Inc., and subsidiary at July 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended July 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, in 1996
the Company changed its method of assessing the impairment of long-lived
assets in accordance with the adoption of Statement of Financial Accounting
Standards No. 121.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Diego, California
September 27, 1996
A-24
