<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 31, 1997 Commission File Number 0-10964
MAXWELL TECHNOLOGIES, INC.
Delaware IRS ID #95-2390133
9275 Sky Park Court
San Diego, California 92123
Telephone (619) 279-5100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 30, 1997, Registrant had only one class of common stock of which
there were 7,775,345 shares outstanding.
<PAGE> 2
PART I - FINANCIAL STATEMENTS
Maxwell Technologies, Inc.
Consolidated Condensed Balance Sheet
(in thousands)
Assets
<TABLE>
<CAPTION>
October 31, July 31,
1997 1997
-------- --------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,022 $ 826
Accounts receivable - net 21,409 18,612
Inventories:
Finished products 961 1,793
Work in process 1,652 882
Parts and raw materials 5,715 6,047
-------- --------
8,328 8,722
Prepaid expenses 1,412 1,203
Deferred income taxes 161 161
-------- --------
Total current assets 32,332 29,524
Property, plant and equipment - net 17,380 16,929
Deposits and other assets 869 667
-------- --------
$ 50,581 $ 47,120
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,672 $ 13,640
Accrued employee compensation 3,919 4,465
Short-term borrowings and
current portion of long-term debt 2,611 511
-------- --------
Total current liabilities 19,202 18,616
Long-term debt 337 465
Minority interest 1,610 629
Stockholders' equity:
Common stock 641 614
Additional paid-in capital 22,891 22,364
Deferred compensation (570) (622)
Retained earnings 6,470 5,054
-------- --------
29,432 27,410
-------- --------
$ 50,581 $ 47,120
======== ========
</TABLE>
Note: The Balance Sheet at July 31, 1997 has been derived from the audited
financial statements at that date.
See notes to consolidated condensed financial statements.
<PAGE> 3
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Operations - (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months
Ended October 31,
1997 1996
------- -------
<S> <C> <C>
Sales $27,756 $24,017
Cost of sales 18,481 16,958
------- -------
Gross profit 9,275 7,059
Operating expenses:
Selling, general and administrative expenses 6,132 5,179
Research and development expenses 1,689 1,058
------- -------
Total operating expenses 7,821 6,237
------- -------
Operating income 1,454 822
Interest expense 105 44
Other--net (48) (56)
------- -------
Income before income taxes and minority interest 1,397 834
Income tax expense -- --
Minority interest in net income (loss) of subsidiary (19) 18
------- -------
Net income $ 1,416 $ 816
======= =======
Earnings per share $ 0.20 $ 0.12
======= =======
Weighted average number of shares 6,912 6,450
======= =======
</TABLE>
Note: Earnings per share is based upon weighted average number of shares of
common stock outstanding and all dilutive stock options. Per share
amounts are unchanged on a fully diluted basis.
See notes to consolidated condensed financial statements.
<PAGE> 4
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Cash Flows - (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended October 31,
1997 1996
------- -------
<S> <C> <C>
Operating Activities:
Net income $ 1,416 $ 816
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 694 725
Deferred compensation 52 41
Minority interest in net income (loss) of subsidiary (19) 18
Changes in operating assets and liabilities - net (4,328) (1,196)
------- -------
Net cash provided by (used in)
operating activities (2,185) 404
------- -------
Investing Activities:
Purchases of property and equipment (1,145) (619)
------- -------
Net cash used in
investing activities (1,145) (619)
------- -------
Financing Activities:
Principal payments on long-term debt (128) (269)
Proceeds from short-term borrowings 2,100 --
Proceeds from issuance of Company and subsidiary stock 1,554 995
------- -------
Net cash provided by
financing activities 3,526 726
------- -------
Increase in cash and
cash equivalents 196 511
Cash and cash equivalents at beginning of period 826 1,465
------- -------
Cash and cash equivalents
at end of period $ 1,022 $ 1,976
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 5
PART I - continued
NOTES TO FINANCIAL STATEMENTS
1. General
The preceding interim consolidated condensed financial statements
contain all adjustments (consisting of normal recurring accruals) which are, in
the opinion of management, necessary for a fair and accurate presentation of
financial position at October 31, 1997 and the results of operations for the
three month period then ended. These interim financial statements should be read
in conjunction with the Company's July 31, 1997 audited consolidated financial
statements and notes thereto included in its Proxy Statement for the 1997 Annual
Meeting of Shareholders. Interim results are not necessarily indicative of those
to be expected for the full year.
The consolidated financial statements include the accounts of Maxwell
Technologies, Inc., and its subsidiaries. All significant intercompany
transactions and account balances are eliminated in consolidation.
In November 1996, the Company declared a 2-for-1 split of the Company's
common shares, effected as a 100% stock dividend that was distributed on
December 17, 1996 to shareholders of record as of November 26, 1996. Common
stock accounts, earnings per share and weighted average number of share amounts
from fiscal year 1997 have been restated to reflect the stock split.
Backlog of unfilled orders at October 31, 1997 was $72.4 million, of
which $34.0 million is fully funded.
2. Issuance of Stock by Subsidiary
In October 1997, Maxwell Energy Products, Inc., a subsidiary of the
Company, issued a 7.5% equity interest consisting of preferred stock to
PacifiCorp Energy Ventures, Inc. in exchange for cash and certain rights as part
of a strategic alliance involving ultracapacitors. After one year and for a five
year period thereafter, PacifiCorp has the right, under certain conditions, to
exchange its equity interest in Maxwell Energy Products, Inc. for common stock
of the Company.
3. Subsequent Event
In November 1997, the Company issued 1,500,000 shares of its common
stock in a follow-on public offering at $34.00 per share. Net proceeds to the
Company were approximately $47 million.
<PAGE> 6
PART I - continued
4. Pending Adoption of Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted for the
quarter ending January 31, 1998. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new standard, the dilutive effect of stock options
will be excluded from basic earnings per share. The impact is expected to result
in the following basic earnings per share for the three months ended October 31:
<TABLE>
<CAPTION>
Three Months
Ended October 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Primary earnings per share, as reported $ 0.20 $ 0.12
======= ======
Basic earnings per share, as
restated under Statement No. 128 $ 0.23 $ 0.14
======= ======
</TABLE>
Diluted earnings per share as reported under Statement No. 128 for the
above periods is not expected to be materially different than primary earnings
per share as previously reported.
<PAGE> 7
PART I - continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
BUSINESS SEGMENTS
The Company operates in four business segments, as follows:
o Power Conversion Products: Includes design, development and
manufacture of electrical components and subsystems, including
products that capitalize on pulsed power such as
ultracapacitors, microbial purification systems, high voltage
capacitors and other electrical components and EMI filter
capacitors.
o Industrial Computers and Subsystems: Includes design and
manufacture of standard, custom and semi-custom industrial
computer modules, platforms and fully integrated systems
primarily for OEMs.
o Technology Programs and Systems: Includes research and
development programs in pulsed power, pulsed power systems
design and construction, weapons effects simulation and
computer-based analytic services, primarily for the Department
of Defense (DOD).
o Information Products and Services: Includes design, development
and integration of software products and services including job
cost accounting and management information systems and other
software products including applications for the Internet, as
well as wide-area and local-area network and software
integration services.
RESULTS OF OPERATIONS
The following table sets forth selected operating data for the Company,
expressed as a percentage of sales, for the quarters ended October 31, 1997 and
1996.
<TABLE>
<CAPTION>
Three Months
Ended October 31,
1997 1996
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 66.6 70.6
------ -------
Gross profit 33.4 29.4
Operating expenses:
Selling, general and administrative expenses 22.1 21.6
Research and development expenses 6.1 4.4
------ -------
Total operating expenses 28.2 26.0
------ ------
Operating income 5.2 3.4
Interest expense 0.4 0.1
Other--net (0.2) (0.2)
------ ------
Income before income taxes and minority interest 5.0 3.5
Income tax expense -- --
Minority interest in net income (loss) of subsidiary (0.1) 0.1
------- ------
Net income 5.1% 3.4%
====== ======
</TABLE>
<PAGE> 8
PART I - continued
The following table sets forth the Company's business segment sales,
gross profit and gross profit as a percentage of business segment sales for the
quarters ended October 31, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months
Ended October 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Power Conversion Products:
Sales $8,391 $6,302
Gross profit 3,575 2,294
Gross profit as a percentage of sales 42.6% 36.4%
Industrial Computers and Subsystems
Sales $8,903 $8,375
Gross profit 3,600 2,802
Gross profit as a percentage of sales 40.4% 33.5%
Technology Programs and Systems
Sales $8,509 $6,889
Gross profit 1,422 1,255
Gross profit as a percentage of sales 16.7% 18.2%
Information Products and Services
Sales $1,953 $2,451
Gross profit 678 708
Gross profit as a percentage of sales 34.7% 28.9%
Consolidated
Sales $27,756 $24,017
Gross profit 9,275 7,059
Gross profit as a percentage of sales 33.4% 29.4%
Sales
</TABLE>
Sales for the three months ended October 31, 1997 were $27,756,000, a
record quarterly high for the Company and a 16% increase over the $24,017,000
for the same period one year ago. The sales gains occurred primarily in the
Power Conversion Products and Technology Programs and Systems business segments,
as more fully described in the discussion below.
Power Conversion Products. In the quarter ended October 31, 1997, Power
Conversion Products sales increased $2.1 million, or 33.1%, to $8.4 million from
$6.3 million in the first quarter of last fiscal year. This increase was
primarily attributable to higher revenues from the Company's PowerCache(TM)
ultracapacitor business, including marketing and technology access rights with
PacifiCorp, our new strategic partner in power quality applications of the
ultracapacitor, increased sales of electromagnetic interference (EMI) filters
for implantable heart defibrillators and pacemakers and higher sales of other
pulsed power components including switches under an 18-month, $3.6 million
contract received in April of 1997.
<PAGE> 9
PART I - continued
Industrial Computers and Subsystems. In the quarter ended October 31,
1997, Industrial Computers and Subsystems sales increased $0.5 million, or 6.3%,
to $8.9 million from $8.4 million in the first quarter of last fiscal year.
Sales in this business segment are made principally to OEM customers and are
primarily derived from the shipment of computers and subsystems that are
"designed-in" to the OEM's products. The sales increase was derived from
increased sales to OEM customers primarily in the computer telephony market,
including sales to a single, long-standing OEM customer for use in products that
are nearing the conclusion of their product cycles. The Company does not
currently expect that it will receive orders from this customer for their next
generation of products. However, the Company's components have been integrated
into several new OEM products which have been or will be introduced by other OEM
customers. The Company believes that orders for industrial computers and
subsystems from these new OEM customers, some of which began shipping shortly
after the end of the fiscal quarter, should largely offset the loss of sales
described above when full ramp-up of these new products is achieved.
Technology Programs and Systems. In the quarter ended October 31, 1997,
sales in the Technology Programs and Systems segment increased $1.6 million, or
23.5%, to $8.5 million from $6.9 million in the first quarter of last fiscal
year. This increase was primarily attributable to revenues from a contract for
high-voltage power supplies for a Department of Energy accelerator project, work
on which was substantially completed shortly after the end of the quarter, and
increased revenues from two large multi-year DOD contracts. These increases were
partially offset by the decrease in revenue related to the closure of three DOD
pulsed power simulation facilities operated by the Company for many years in San
Diego. These closures are substantially complete at this time. However, in the
last several months the Company has received several long-term contracts from
the DOD which, if funded up to the ceiling amounts, could amount to over $35
million. These and other contracts with the DOD could maintain or increase
revenue levels in this business segment; however, these programs are subject to
periodic Government funding provisions. The level of future DOD expenditures in
the Company's research and development area and the related impact on funding
for the Company's contracts are not predictable and, therefore, previously
reported results are not necessarily indicative of those to be expected in the
future.
Information Products and Services. In the quarter ended October 31,
1997, sales of Information Products and Services decreased $0.5 million, or
20.3%, to $2.0 million from $2.5 million in the first quarter of last fiscal
year. This decrease primarily reflects a decline in revenues from two large
multi-year software development contracts for criminal justice information
systems (the "CJIS Contracts"). Work on the CJIS Contracts is winding down and
is scheduled to be substantially completed in the second quarter of fiscal 1998.
The decrease in revenue from the CJIS Contracts was partially offset by
increased revenue from the Company's new contract with Addison Wesley to expand
educational math software products on CD-ROM.
Gross Profit
In the quarter ended October 31, 1997, the Company's gross profit was
$9.3 million, or 33.4% of sales, compared to $7.1 million, or 29.4% of sales, in
the first quarter of last fiscal year. The increase in gross profit as a
percentage of sales was primarily due to the improved overhead absorption
resulting from the overall increase in sales as compared to the prior year, and
an improved mix of products and services, particularly in the Power Conversion
Products and Industrial Computers and Subsystems business segments.
Power Conversion Products. In the quarter ended October 31, 1997, Power
Conversion Products gross profit increased $1.3 million to $3.6 million from
$2.3 million in the first quarter of last fiscal year.
<PAGE> 10
PART I - continued
As a percentage of sales, gross profit increased to 42.6% in this year's first
quarter from 36.4% in the first quarter of the prior year. This increase in
gross profit as a percentage of sales reflected improved overhead absorption and
a higher margin mix of products and services, including funded ultracapacitor
development and marketing and technology access rights as a part of the
strategic relationship with PacifiCorp, and higher sales of EMI filters for
implantable heart defibrillators and pacemakers.
As the Company introduces ultracapacitor or other new products it may
offer aggressive pricing to gain market penetration. This would have an adverse
impact on gross profit margins until the Company reaches full production
volumes.
Industrial Computers and Subsystems. In the quarter ended October 31,
1997, Industrial Computers and Subsystems gross profit increased $0.8 million,
or 28.5%, to $3.6 million from $2.8 million in the first quarter of last fiscal
year. As a percentage of sales, gross profit increased to 40.4% in this year's
first quarter from 33.5% in the first quarter of the prior year primarily due to
a sales mix which included certain higher margin OEM products which are nearing
the end of their product cycle. According to OEM projections, sales of these
higher margin products will comprise a smaller portion of the product mix after
the end of the fiscal 1998 first quarter.
Technology Programs and Systems. Technology Programs and Systems gross
profit was $1.4 million and $1.3 million for the quarters ended October 31, 1997
and 1996, respectively. As a percentage of sales, gross profit decreased to
16.7% in this year's first quarter from 18.2% in the first quarter of the prior
year. This decrease is primarily the result of current quarter under-absorbed
overhead costs on cost plus government contracts. The Company expects that the
recovery of these costs under current billing rates will occur in the second
half of fiscal year 1998, resulting in a full-year gross profit margin in this
business segment comparable to that of the prior fiscal year.
Information Products and Services. In the quarter ended October 31,
1997, Information Products and Services gross profit was $0.7 million, virtually
unchanged from the first quarter of last fiscal year. As a percentage of sales,
however, gross profit increased to 34.7% in this year's first quarter from 28.9%
in the first quarter of the prior year. This increase in gross profit as a
percent of sales over the prior year is due to the increased revenue and
associated gross margin on the educational software contracts, which more than
offsets reduced margins on the CJIS Contracts.
Selling, General and Administrative Expenses
In the quarter ended October 31, 1997, the Company's selling, general
and administrative expenses increased $0.9 million, or 18.4 %, to $6.1 million
from $5.2 million in the first quarter of last fiscal year. As a percentage of
total sales, selling, general and administrative expenses increased to 22.1% in
this year's first quarter from 21.6% in the first quarter of the prior year. The
increase in the dollar amount of selling, general and administrative expenses is
primarily attributable to costs associated with additional sales and marketing
personnel and infrastructure, which the Company continues to enhance, and the
current management team, which was put into place over the course of the prior
fiscal year.
Research and Development Expenses
The Company's research and development expenses reflect only internally
funded research and development programs. Costs associated with United States
government and other customer funded research and development contracts are
included in cost of sales. The level of internally funded research and
development expenses reflects the Company's ability to obtain customer funding
to support a
<PAGE> 11
PART I - continued
significant portion of its research and product development activities.
Internally funded research and development expenses were $1.7 million and $1.1
million for the three months ended October 31, 1997 and 1996, respectively. As a
percentage of sales, these expenses increased to 6.1% in this year's first
quarter from 4.4% in the first quarter of the prior year. This increase in
internally funded research and development expense is due to ultracapacitor
development, including associated power electronics systems, and CompactPCI and
product development for major new programs in the Industrial Computers and
Subsystems business segment.
Interest and Income Tax Expense
In the three months ended October 31, 1997, interest expense increased
to $105,000 from $44,000 in the first quarter of last fiscal year, primarily as
a result of increased average borrowings under the Company's bank line of
credit. The Company has net operating loss carryforwards which offset the
Company's provision for income taxes in both the current quarter and in the
prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations in the current year's first quarter was $2.2
million. This is attributable to an increase in accounts receivable due to the
higher quarterly sales volume plus a reduction in accounts payable and accrued
compensation for required first quarter payments, including payments under the
Company's incentive and profit sharing plans, with such uses of cash more than
offsetting first quarter net income and non-cash depreciation and amortization
expenses. The Company has an unsecured bank line of credit of $10.0 million,
with the interest rate tied to LIBOR or the bank's prime rate. As of October 31,
1997, $2.1 million was outstanding under the line of credit to fund first
quarter working capital requirements. In November 1997, the Company completed a
follow-on public offering of 1.5 million shares of its Common Stock, and
received net proceeds of approximately $47 million. A portion of the proceeds
was used to repay the balance on the bank line of credit, and the remainder of
the proceeds are intended for general corporate purposes, including working
capital and the current forecast of capital expenditures for facilities and
equipment, including manufacturing requirements for EMI filters and
ultracapacitors.
The Company believes that the net proceeds from the follow-on offering,
together with cash generated from operations and funds available under its bank
line of credit, will be sufficient to finance its operations and capital
expenditures for the next 18 to 24 months. During this period, the Company will
be addressing the need for high-volume manufacturing of ultracapacitors, and may
make commitments to acquire facilities and manufacturing equipment for such
purposes. Alternatively, the Company may consider leasing such facilities or may
satisfy volume manufacturing requirements through outsourcing or under licensing
arrangements with third parties. If the Company decides to internally finance
construction of facilities, a significant amount of capital would be required.
In addition to addressing the need for high volume manufacturing, the Company
may also from time to time consider acquisitions of complementary businesses,
products or technologies, which may require additional funding. Sources of
additional funding for these purposes could include one or more of the
following: cash flow from operations; investments by strategic partners and
additional debt or equity financing. There can be no assurance that the Company
will be able to obtain additional sources of financing on favorable terms, if at
all, at such time or times as the Company may require such capital.
<PAGE> 12
PART I - continued
ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Under Statement No. 128, the Company will
be required to present basic net income per share, which excludes the effects of
dilutive common stock equivalents, and diluted net income per share. Basic net
income per share is expected to be higher than the currently presented primary
net income per share in periods of positive earnings due to the exclusion of
dilutive stock options in its computation. Diluted net income per share is not
expected to be materially different from the earnings per share amounts which
would be computed under the current method.
The Company is required to adopt Statement No. 128 in its fiscal quarter
ending January 31, 1998, and at that time all historical net income per share
data presented will be restated to conform to the provisions of Statement No.
128.
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," "believes," "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 1997 for a discussion of certain of those factors.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 - Stock Purchase Agreement among Maxwell Technologies,
Inc., Maxwell Energy Products, Inc. and PacifiCorp
Energy Ventures, Inc.
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed one report on Form 8-K relating to events
occurring during the quarter ended October 31, 1997. The Form 8-K was
filed on November 10, 1997, and reported under Item 5 Other Events,
that the Company issued a Press Release concerning a transaction with
PacifiCorp Energy Ventures, Inc. which as completed on October 30,
1997.
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAXWELL TECHNOLOGIES, INC.
December 15, 1997 /s/ Gary Davidson
- ---------------------------------- --------------------------------------
Date Gary Davidson, Chief Financial Officer
and Authorized Officer
<PAGE> 1
EXHIBIT 10
MAXWELL ENERGY PRODUCTS, INC.
STOCK PURCHASE AGREEMENT
DATED AS OF
OCTOBER 30, 1997
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
Section 1. Purchase and Sale of Stock ...................................... 1
1.1 Sale and Issuance of Series A Stock ............................. 1
1.2 Closing ......................................................... 1
Section 2. Representations and Warranties of the Company ................... 2
2.1 Organization, Good Standing and Qualification ................... 2
2.2 Capitalization .................................................. 2
2.3 Subsidiaries .................................................... 3
2.4 Authorization ................................................... 3
2.5 Valid Issuance of Preferred and Common Stock .................... 3
2.6 Governmental Consents ........................................... 4
2.7 Litigation ...................................................... 4
2.8 Intellectual Property ........................................... 4
2.9 Employee Invention and Secrecy Agreements ....................... 6
2.10 Permits ......................................................... 6
2.11 Compliance With Other Instruments ............................... 6
2.12 Offering ........................................................ 6
2.13 Agreements; Action .............................................. 7
2.14 Disclosure ...................................................... 8
2.15 Registration Rights ............................................. 8
2.16 Title to Property and Assets .................................... 8
2.17 Employee Plans and Agreements ................................... 8
2.18 Taxes ........................................................... 8
</TABLE>
PAGE i
<PAGE> 3
<TABLE>
<S> <C>
2.19 Minute Books .................................................... 9
2.20 Labor Agreements and Actions .................................... 9
2.21 Employees ....................................................... 9
2.22 Insurance ....................................................... 10
2.23 Manufacturing and Marketing Rights .............................. 10
2.24 Environmental and Safety Laws ................................... 10
2.25 Real Property Holding Corporation ............................... 10
2.26 Financial Statements ............................................ 10
2.27 Changes ......................................................... 11
Section 3. Representations and Warranties of the Investor .................. 12
3.1 Authorization ................................................... 12
3.2 Purchase Entirely for Own Account ............................... 12
3.3 Investment Experience; Accredited Investor Status ............... 13
3.4 Restricted Securities ........................................... 13
3.5 Legend .......................................................... 13
3.6 Residency ....................................................... 14
3.7 Title ........................................................... 14
Section 4. Conditions of Investor's Obligations at the Closing ............. 14
4.1 Representations and Warranties .................................. 14
4.2 Performance ..................................................... 14
4.3 Compliance Certificate .......................................... 15
4.4 Reservation of Conversion Stock ................................. 15
4.5 Delivery of Shares .............................................. 15
</TABLE>
PAGE ii
<PAGE> 4
<TABLE>
<S> <C>
4.6 Consents, Permits and Waivers ................................... 15
4.7 Research, Development & Supply Agreement ........................ 15
4.8 Shareholder Agreement ........................................... 15
4.9 Board of Directors .............................................. 15
4.10 Opinion of Company Counsel ...................................... 16
4.11 Proceedings and Documents ....................................... 18
Section 5. Conditions of the Company's Obligations at the Closing .......... 18
5.1 Representations and Warranties .................................. 18
5.2 Performance ..................................................... 18
5.3 Payment of Purchase Price ....................................... 18
5.4 Bill of Sale and Assignment ..................................... 19
5.5 Securities Laws Qualification ................................... 19
5.6 Research, Development & Supply Agreement ........................ 19
5.7 Shareholder Agreement ........................................... 19
Section 6. Registration Rights ............................................. 19
6.1 Definitions ..................................................... 19
6.2 Request for Registration ........................................ 20
6.3 Company Registration ............................................ 22
6.4 Obligations of the Company ...................................... 22
6.5 Furnish Information ............................................. 23
6.6 Expenses of Demand Registration ................................. 24
6.7 Expenses of Company Registration ................................ 24
6.8 Underwriting Requirements ....................................... 24
</TABLE>
PAGE iii
<PAGE> 5
<TABLE>
<S> <C>
6.9 Indemnification ................................................. 25
6.10 Reports Under Securities Exchange Act of 1934 ................... 28
6.11 Form S-3 Registration ........................................... 28
6.12 Assignment of Registration Rights ............................... 30
6.13 Limitations on Subsequent Registration Rights ................... 30
Section 7. Covenants of the Company ........................................ 30
7.1 Delivery of Annual Financial Statements and Other
Information ..................................................... 30
7.2 Delivery of Financial Statements ................................ 31
7.3 Inspection ...................................................... 31
7.4 Right of First Offer ............................................ 32
7.5 Insurance ....................................................... 33
7.6 Issuance of Series A Stock ...................................... 33
7.7 Reservation of Common Stock ..................................... 33
7.8 Employee Invention and Secrecy Agreement ........................ 34
7.9 Termination of Covenants ........................................ 34
Section 8. Covenants of the Parent ......................................... 34
Section 9. Miscellaneous ................................................... 34
9.1 Survival of Warranties .......................................... 34
9.2 Successors and Assigns .......................................... 34
9.3 Governing Law ................................................... 35
9.4 Counterparts .................................................... 35
9.5 Titles and Subtitles ............................................ 35
9.6 Notices ......................................................... 35
</TABLE>
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<TABLE>
<S> <C>
9.7 Attorneys' Fees ................................................. 35
9.8 Finders' Fees ................................................... 36
9.9 Amendments and Waivers .......................................... 36
9.10 Severability .................................................... 36
9.11 Entire Agreement ................................................ 36
</TABLE>
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of October
30, 1997, by and among MAXWELL ENERGY PRODUCTS, INC., a California corporation
(the "Company"), MAXWELL TECHNOLOGIES, INC., a Delaware corporation (the
"Parent"), and PACIFICORP ENERGY VENTURES, INC., an Oregon corporation (the
"Investor").
WHEREAS, the Company is a wholly-owned subsidiary of the Parent; and
WHEREAS, the Investor desires to purchase, and the Company and the
Parent desire the Company to sell and issue to the Investor, shares of the
Company's Series A Preferred Stock;
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, THE PARTIES HEREBY AGREE AS FOLLOWS:
SECTION 1. PURCHASE AND SALE OF STOCK
1.1 SALE AND ISSUANCE OF SERIES A STOCK
(a) The Company shall adopt and file with the Corporation
Division of the Secretary of State of the State of California on or before the
Closing (as defined below) the Restated Articles of Incorporation with the
designation of the Series A Preferred Stock (the "Series A Stock"), in the form
attached hereto as Exhibit A (the "Restated Articles of Incorporation"), and
will have authorized the issuance pursuant to this Agreement of 466,217 shares
of Series A Stock.
(b) Subject to the terms and conditions of this Agreement, the
Investor agrees to purchase, and the Company agrees to sell and issue to the
Investor, at the Closing (as defined below) 466,217 shares of Series A Stock in
consideration of $1 million in cash plus the transfer and assignment from the
Investor to the Company of the assets identified on Schedule A.
1.2 CLOSING
The purchase and sale of the Series A Stock shall take place at the
offices of Perkins Coie, 1211 S.W. Fifth Avenue, Suite 1500, Portland, Oregon,
at 10:00 a.m., on October 30, 1997 or at such other location and time as the
Company and the Investor mutually agree upon (which time and place are
designated as the "Closing"). At the Closing, the Company shall deliver to the
Investor certificates representing the Series A Stock which Investor is
purchasing against delivery to the Company by such
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Investor of both a cashiers check or wire transfer of funds in the amount of $1
million payable to the Company's order and a Bill of Sale and Assignment
effectively conveying to the Company the assets set forth on Schedule A attached
hereto (the "Transferred Assets").
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Parent hereby represent and warrant to the Investor
that, except as set forth on a Schedule of Exceptions attached hereto as
Schedule B specifically identifying the relevant Section or subsection hereof:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has the requisite
corporate power and authority to conduct its business as now conducted and as
proposed to be conducted in the future. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business or
properties.
2.2 CAPITALIZATION
The authorized capital of the Company consists, or will consist prior to
the Closing, of:
(a) Preferred Stock. 466,217 shares of preferred stock, all of
which shall be designated as Series A Stock, and none of which shall be
outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Series A Stock will be as stated in the Restated Articles of
Incorporation.
(b) Common Stock. 10,000,000 shares of common stock (the "Common
Stock"), 5,000,000 shares of which are issued and outstanding and held by
Parent, 466,217 shares of which are reserved for issuance upon the conversion of
the Series A Stock and 750,000 shares of which are reserved for issuance upon
the exercise of stock options granted or to be granted under the Company's 1996
Stock Option Plan (the "Plan"). 733,100 options have been granted under the
Plan, of which 48,750 options have been forfeited back to the Company.
Accordingly, 684,350 options are outstanding and 65,650 options are available
for grant.
(c) Rights. Except for the conversion privileges of the Series A
Stock and other rights, privileges and agreements contemplated pursuant to this
Agreement, and as set forth in subsection 2.2(b) above, there are not
outstanding any options, warrants, subscriptions, rights (including conversion
or preemptive rights or
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first refusal rights) or agreements for the purchase or acquisition from the
Company, or to the Company's knowledge, from any shareholder, of any shares of
the Company's capital stock or securities convertible into its capital stock.
Except for the voting agreements contained in the Shareholder Agreement to be
entered into as of the date of Closing among the parties set forth therein,
substantially in the form attached hereto as Exhibit B, the Company is not a
party or subject to any agreement or understanding, and, to the best knowledge
of the Company and the Parent, there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 SUBSIDIARIES
The Company does not own or control, directly or indirectly, any
interest in any other corporation, association, partnership or other entity;
provided that this representation does not include entities owned or controlled
by Parent, other than indirectly through the Company. The Company is not a
participant in any joint venture, partnership, or similar arrangement.
2.4 AUTHORIZATION
All corporate action on the part of the Company and the Parent, their
respective officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Shareholder Agreement and the
Research, Development & Supply Agreement (the latter two agreements hereinafter
referred to as the "Collateral Agreements") contemplated herein, the performance
of all obligations of the Company hereunder and thereunder and the
authorization, issuance and delivery of the Series A Stock being sold hereunder
and the Common Stock issuable upon conversion of the Series A Stock have been
taken or will be taken prior to the Closing, and this Agreement and the
Collateral Agreements constitute valid and legally binding obligations of the
Company and the Parent, as the case may be, enforceable in accordance with its
and their terms. Prior to the Closing, the Company will have adopted and filed
with the Corporation Division of the Secretary of State of the State of
California the Restated Articles of Incorporation.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK
(a) The Series A Stock, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free of any liens or
encumbrances created by the Company and will be issued in compliance with
federal and state securities laws. The Common Stock issuable upon conversion of
the Series A Stock has been duly and validly reserved for issuance and, upon
issuance in accordance with
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the terms of the Restated Articles of Incorporation, will be duly and validly
issued, fully paid and nonassessable and free of any liens or encumbrances
created by the Company and will be issued in compliance with federal and state
securities laws.
(b) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws.
2.6 GOVERNMENTAL CONSENTS
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, regional,
state or local governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement, except for filings, if any, required pursuant to applicable state
securities laws, which filings will be made within the required statutory
period.
2.7 LITIGATION
There is no action, suit, proceeding, or investigation pending or
currently threatened against the Company or the Parent or any of their
respective officers, directors, employees or agents which questions the validity
of this Agreement or the Collateral Agreements, or the right of the Company or
the Parent to enter into this Agreement or the Collateral Agreements, or to
consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, conditions, affairs, prospects or business of the Company or the
Parent, financially or otherwise, or any change in the current equity ownership
of the Company . Neither the Company or the Parent nor, to the best knowledge of
the Company and the Parent, any of their respective officers, directors,
employees or agents is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality in any such case relating to or affecting the Company or the
Parent. There is no legal action, lawsuit, legal proceeding or investigation
related to any of the foregoing by the Company or the Parent or, to the best
knowledge of the Company and the Parent, any of their respective officers,
directors, employees or agents currently pending or which the Company or the
Parent or, to the best knowledge of the Company and the Parent, any of their
respective officers, directors, employees or agents intends to initiate.
2.8 INTELLECTUAL PROPERTY
(a) The Company owns, or is licensed or otherwise entitled to exercise,
rights to, all patents, trademarks, trade names, service marks, copyrights, mask
work
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rights, trade secret rights and other intellectual property rights, and any
applications or registrations therefor, and all mask works, schematics,
technology, source code, know-how, computer software programs and all other
tangible and intangible information or material, that are used or currently
proposed to be used in the business of the Company as currently conducted or as
currently proposed to be conducted (collectively, the "Intellectual Property
Rights").
(b) The Schedule of Exceptions lists all patents, registered copyrights,
registered trademarks and service marks and mask work rights, and any
applications or registrations therefor, included in the Intellectual Property
Rights, indicating, in each case, whether such Intellectual Property Right is
owned by the Company or used pursuant to a license or other right. The Company
does not currently market software or other products that would be eligible to
be registered for copyright protection with the United States Copyright Office
and any foreign offices.
(c) Neither the execution and delivery of this Agreement or the
Collateral Agreements, nor the performance of the Company's obligations
hereunder and thereunder will constitute a violation of or cause the loss of any
rights pursuant to any license, sublicense or agreement described in the
Schedule of Exceptions.
(d) No claims with respect to the Intellectual Property Rights have been
asserted or, to the best knowledge of the Company and the Parent, are threatened
by any person, and the Company and the Parent know of no pending claims (i) to
the effect that the manufacture, sale or use of any product as now used or
offered or proposed for use or sale by the Company infringes any copyright,
patent, trade secret or other intellectual property right, (ii) against the use
by the Company of any Intellectual Property Rights, or (iii) challenging the
ownership, validity or effectiveness of any of the Intellectual Property Rights.
(e) To the best knowledge of the Company and the Parent, all patents and
registered trademarks, service marks, and other company, product or service
identities and registered copyrights held by the Company are valid and
subsisting.
(f) To the best knowledge of the Company and the Parent, there has not
been and there is not now any unauthorized use, infringement or misappropriation
of any of the Intellectual Property Rights by any third party, including without
limitation any employee or former employee of the Company or the Parent, which
unauthorized use, infringement or misappropriation would have a material adverse
effect on the Company.
(g) No Intellectual Property Rights are subject to any outstanding
order, judgment, decree, stipulation or settlement agreement restricting in any
manner the licensing thereof by the Company. Except as described in the Schedule
of
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Exceptions, the Company has not entered into any agreement granting any third
party the right to bring infringement actions with respect to, or otherwise to
enforce rights with respect to, any Intellectual Property Right.
2.9 EMPLOYEE INVENTION AND SECRECY AGREEMENTS
Each employee of the Company has executed an Invention and Secrecy
Agreement in the form attached hereto as Exhibit C. The Company is not aware
that any employee is in material violation thereof, and the Company will use its
best efforts to prevent any such violation.
2.10 PERMITS
The Company has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of the Company, and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS
The Company is not in violation of any provision of its Restated
Articles of Incorporation or Bylaws or in material violation or default of any
provision of any instrument, judgment, order, writ, decree or contract to which
it is a party or by which it is bound or, any provision of any federal or state
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of this Agreement and the Collateral Agreements by the Company
and the Parent and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or default or require any consent
under or be in conflict with or constitute, with or without the passage of time
and giving of notice, either a violation or default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
2.12 OFFERING
Subject in part to the truth and accuracy of the Investor's
representations set forth in this Agreement, the offer, sale and issuance of the
Series A Stock and the issuance of the Conversion Stock as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act of
1933, as amended (the "Act"), and will have been registered or qualified (or are
exempt from registration or
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qualification) under the registration, permit or qualification requirements of
all applicable state securities laws. Neither the Company nor any agent acting
on its behalf will take any action hereafter that would cause the loss of such
exemption.
2.13 AGREEMENTS; ACTION
(a) Except for agreements explicitly contemplated hereby and
agreements between the Company and its employees with respect to employee stock
options, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, affiliates or any
affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which involve (i) obligations
(contingent or otherwise) of, or payments to, the Company in excess of $50,000,
(ii) ongoing commitments or obligations of the Company that cannot be terminated
in 90 or fewer days, (iii) the license of any Intellectual Property Rights to or
from the Company, (iv) provisions restricting the development, manufacture or
distribution of the Company's products or services or (v) indemnification by the
Company with respect to infringements of Intellectual Property Rights. No
default exists by the Company, or to the best knowledge of the Company and the
Parent , by any other party, under any contract or agreement to which the
Company is a party that would have a material adverse effect on the Company.
(c) Other than certain discussions between the Company and the
Investor, the Company has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company, or a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.
(d) The Company is not a party to and is not bound by any
contract, agreement, instrument, decree or administrative order, or subject to
any restriction under its Articles of Incorporation or Bylaws, which materially
and adversely affects its business as now conducted or as proposed to be
conducted, its properties or its financial condition.
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2.14 DISCLOSURE
The Company and the Parent have provided the Investor and its legal
counsel with all information that the Company believes is reasonably necessary
to enable the Investor to decide whether to purchase the Series A Stock. Neither
this Agreement, the schedules and exhibits attached hereto nor any other written
plans, statements or certificates provided to the Investor in connection with
its purchase of the Series A Stock, contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements made
herein or therein not misleading in light of the circumstances under which they
were made.
2.15 REGISTRATION RIGHTS
Except as provided in Section 6 of this Agreement, the Company has not
granted or agreed to grant any registration rights to any person or entity.
2.16 TITLE TO PROPERTY AND ASSETS
The Company has good and marketable title to its property or assets,
free and clear of any liens, claims or encumbrances. With respect to the
property and assets it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free of any material liens, claims or
encumbrances.
2.17 EMPLOYEE PLANS AND AGREEMENTS
The Company does not have any Employee Benefit Plan as defined in the
Employee Retirement Income Security Act of 1974, as amended. The Company is not
bound by or subject to any written or, to the best knowledge of the Company and
the Parent, oral, express or implied contract, commitment or arrangement with
any employee which, in any such case, relates to compensation, benefits or other
financial obligations of the Company.
2.18 TAXES
The Company has filed all tax returns and reports required by law. All
taxes shown to be due and payable on any assessments received by the Company and
all other taxes (federal, state, foreign and local) due and payable by the
Company on or before the date hereof have been paid. There are no agreements,
waivers or other arrangements providing for an extension of time with respect to
the assessment of any tax or deficiency against the Company, nor are there any
actions, suits, proceedings, investigations or claims now pending against the
Company in respect of any tax or assessment, or, to the best knowledge of the
Company or the Parent, any matters under discussion within any federal, state,
foreign or local authority relating to any
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taxes or assessments, or any claims for additional taxes or assessments asserted
by any such authority.
2.19 MINUTE BOOKS
The copy of the minute books of the Company provided to the Investor
contains a record of all meetings of the Company's directors and shareholders
and all actions by written consent without a meeting since the time of
incorporation and reflects all material transactions referred to in such minutes
accurately in all material respects.
2.20 LABOR AGREEMENTS AND ACTIONS
The Company is not bound by or subject to any written or oral, express
or implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the best knowledge of the Company or the
Parent, has sought to represent any of the employees, representatives or agents
of the Company.
2.21 EMPLOYEES
To the best knowledge of the Company or the Parent, none of the
Company's officers, directors or employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement
or obligation, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as conducted and as proposed to be conducted. To the best
knowledge of the Company or the Parent, no prior employer of any of the
Company's officers, directors or employees has any right to or interest in any
inventions, improvements, discoveries or other information assigned to the
Company by such employee pursuant to the Employee Inventions and Secrecy
Agreement executed by such employee, or otherwise so assigned. The execution and
delivery of this Agreement will not, to the best knowledge of the Company or
Parent, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe it is or will be necessary to use any inventions of any of its
employees (or persons it currently intends to hire) made prior to their
employment by the Company. The Company has taken all appropriate measures to
ensure that each employee is employed on an "at will" basis and has no right to
any material compensation following termination of employment with the Company
other than rights to exercise stock options pursuant to the Plan. To the best
knowledge of the Company or the Parent, no officer or key employee intends to
terminate his or her employment with the Company, nor does the
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Company have a present intention to terminate the employment of any officer or
key employee.
2.22 INSURANCE
The Company has in full force and effect fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed. The Company has in full force and effect products liability and
errors and omissions insurance in amounts customary for companies similarly
situated.
2.23 MANUFACTURING AND MARKETING RIGHTS
The Company has not granted rights to manufacture, produce, assemble,
license, market, or sell its products to any other person and is not bound by
any agreement that affects the Company's exclusive right to develop,
manufacture, assemble, distribute, market, or sell its products.
2.24 ENVIRONMENTAL AND SAFETY LAWS
The Company is not in material violation of any applicable statute, law,
or regulation relating to the environment or occupational health and safety, and
to the best of the Company's and Parent's knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law,
or regulation.
2.25 REAL PROPERTY HOLDING CORPORATION
The Company is not a real property holding corporation within the
meaning of Internal Revenue Code Section 897(c)(2) and any regulations
promulgated thereunder.
2.26 FINANCIAL STATEMENTS
The Company has delivered to the Investor (a) its unaudited financial
statements (balance sheet, income and expense statement, statement of
stockholders' equity and statement of cash flows) at July 31, 1997 and for the
fiscal year then ended, and (b) the audited financial statements at July 31,
1997 and for the fiscal year then ended of the Parent. The Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other, except that unaudited Financial Statements may not contain all footnotes
required by generally accepted accounting principles. The Financial Statements
fairly present the financial condition and operating results of the Company and
the Parent as of the dates, and for the periods, indicated therein. Except as
set forth in the Financial Statements, the Company has no material
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liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to July 31, 1997 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. Except as disclosed in the Financial Statements, the Company is not
a guarantor or indemnitor of any indebtedness of any other person, firm, or
corporation. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
2.27 CHANGES
To the best knowledge of the Company or the Parent and except for
transactions contemplated herein, since July 31, 1997, there has not been:
(a) any change in the assets, liabilities, financial condition,
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business or that is not material to the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(e) any material change to a material contract or arrangement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(g) any sale, assignment, or transfer of Intellectual Property;
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(h) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(i) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers, or directors, or any members of their
immediate families, other than travel advances;
(k) any declaration, setting aside, or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) any other event or condition of any character that might
materially and adversely affect the business, properties, prospects, or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted); or
(m) any agreement or commitment by the Company to do any of the
things described in this Section 2.27.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company that:
3.1 AUTHORIZATION
The Investor has full power and authority to execute, deliver and
perform its obligations under this Agreement and to own the Series A Stock. All
corporate action on the part of the Investor and its officers, directors and
shareholders necessary for the authorization, execution and delivery of this
Agreement and the Collateral Agreements and the performance of all obligations
of the Investor hereunder and thereunder have been taken or will be taken prior
to the Closing, and this Agreement and the Collateral Agreements constitute
valid and legally binding obligations of the Investor, enforceable in accordance
with its and their terms.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT
This Agreement is made with the Investor in reliance upon the Investor's
representation to the Company, which, by the Investor's execution of this
Agreement, the Investor hereby confirms, that the Series A Stock to be received
by the Investor and the Common Stock issuable upon conversion of the Series A
Stock (collectively,
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the "Securities") will be acquired for investment for the Investor's own account
and not with a view to the distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same in a manner contrary to the Act or applicable
state securities laws.
3.3 INVESTMENT EXPERIENCE; ACCREDITED INVESTOR STATUS
The Investor is an investor in securities of companies in the
development stage and acknowledges that the Securities are a speculative risk.
The Investor is able to fend for itself in the transactions contemplated by this
Agreement, can bear the economic risk of its investment (including possible
complete loss of such investment) for an indefinite period of time and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Securities. The
Investor represents it has not been organized for the purpose of acquiring the
Series A Stock. The Investor understands that the Securities have not been
registered under the Act, or under the securities laws of any jurisdiction, by
reason of reliance upon certain exemptions, and that the reliance of the Company
on such exemptions is predicated upon the accuracy of the Investor's
representations and warranties in this Section 3.
3.4 RESTRICTED SECURITIES
The Investor understands that the Securities are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Act only in certain limited circumstances
and in accordance with the terms and conditions set forth in the legend
described in Section 3.5 below. In this connection, the Investor represents that
it is familiar with Securities and Exchange Commission ("SEC") Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3.5 LEGEND
(a) It is understood that the certificates evidencing the Securities
may bear one or all of the following legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN
EFFECTIVE
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REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, OR (ii)
THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF
THESE SECURITIES OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THIS
CORPORATION STATING OR DEMONSTRATING THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
(b) Notwithstanding the legend set forth in (a) above, no
registration statement or opinion of counsel shall be necessary for a transfer
made pursuant to Rule 144.
3.6 RESIDENCY
For purposes of the application of state securities laws, the Investor
represents that it is a resident of the state of Oregon.
3.7 TITLE
The Investor has good and valid title to the Transferred Assets, free
and clear of any material liens or encumbrances.
SECTION 4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT THE CLOSING
The obligations of the Investor under Section 1.1(b) of this Agreement
are subject to the fulfillment at or before the Closing of each of the following
conditions:
4.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company and the Parent
contained in Section 2 hereof shall be true and correct in all material respects
on and as of the Closing with the same effect as though such representations and
warranties had been made as of the date of the Closing.
4.2 PERFORMANCE
The Company shall have performed and complied with all agreements,
covenants, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
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4.3 COMPLIANCE CERTIFICATE
The Chief Executive Officer or President of the Company and an
authorized officer of the Parent shall deliver to the Investor at the Closing a
certificate executed by each of them certifying that the conditions specified in
Sections 4.1 and 4.2 have been fulfilled.
4.4 RESERVATION OF CONVERSION STOCK
The Common Stock issuable upon conversion of the Series A Stock shall
have been duly authorized and reserved for issuance upon such conversion.
4.5 DELIVERY OF SHARES
The Company shall have delivered to the Investor at the Closing stock
certificates representing the Series A Stock to be purchased by the Investor.
4.6 CONSENTS, PERMITS AND WAIVERS
The Company shall have obtained any and all consents, permits and
waivers necessary or appropriate for consummation of the transactions
contemplated by this Agreement and the other agreements contemplated herein
(except for such as may be properly obtained subsequent to the Closing).
4.7 RESEARCH, DEVELOPMENT & SUPPLY AGREEMENT
The Company and the Investor shall have executed and delivered the
Research, Development & Supply Agreement in substantially the form attached
hereto as Exhibit D.
4.8 SHAREHOLDER AGREEMENT
The Investor, the Company and the Parent shall have entered into a
Shareholder Agreement in the form of Exhibit B hereto.
4.9 BOARD OF DIRECTORS
Effective as of the Closing, the directors of the Company shall be
Kenneth Potashner, Gary Davidson, Donald Roberts, Gregg McKee and a fifth
director to be nominated by the Investor.
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4.10 OPINION OF COMPANY COUNSEL
The Investor shall have received from Donald M. Roberts, General Counsel
for the Parent, an opinion, dated as of the date of the Closing, in form and
substance satisfactory to the Investor.
4.11 PROCEEDINGS AND DOCUMENTS
All corporate and other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto, including
evidence of filing the Restated Articles of Incorporation with the Corporation
Division of the Secretary of State of the State of California, shall be
satisfactory in form and substance to the Investor's counsel, and the Investor
and its counsel shall have received all such counterpart original and certified
or other copies of such documents as they may reasonably request.
SECTION 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING
The obligations of the Company to the Investor under this Agreement are
subject to the fulfillment at or before the Closing of each of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Investor contained in Section
3 shall be true in all material respects on and as of the Closing with the same
effect as though such representations and warranties had been made as of the
date of the Closing.
5.2 PERFORMANCE
The Investor shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement, that are required to be
performed or complied with by it on or before such Closing.
5.3 PAYMENT OF PURCHASE PRICE
The Investor shall have delivered the purchase price in the form of a
cashier's check or bank wire transfer, in the amount specified in Section 1.1(b)
to be delivered at the Closing.
5.4 BILL OF SALE AND ASSIGNMENT
The Investor shall have executed and delivered to the Company a Bill of
Sale and Assignment in the form of Exhibit E hereto.
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5.5 SECURITIES LAWS QUALIFICATION
The offer and sale to the Investors of the Securities shall be qualified
or exempt from qualification under all applicable federal and state securities
laws, which qualification or exemption the Company shall have exercised its best
efforts to obtain.
5.6 RESEARCH, DEVELOPMENT & SUPPLY AGREEMENT
The Company and Investor shall have executed and delivered the Research,
Development & Supply Agreement in the form of Exhibit D hereto.
5.7 SHAREHOLDER AGREEMENT
The Investor, the Company and the Parent shall have entered into a
Shareholder Agreement in the form of Exhibit B hereto.
SECTION 6. REGISTRATION RIGHTS
The Company covenants and agrees as follows:
6.1 DEFINITIONS
For purposes of this Section 6:
(a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(b) The term "Registrable Securities" means (i) Common Stock of
the Company issuable or issued upon conversion of the Series A Stock, and (ii)
any Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
such Series A Stock; provided, however, that shares of Common Stock shall no
longer be treated as Registrable Securities after they have been sold (x) to or
through a broker, dealer or underwriter in a public distribution or a public
securities transaction, whether in a registered offering, pursuant to Rule 144
or otherwise, or (y) by a person in a transaction in which its rights under this
Section 6 are not assigned.
(c) The number of shares of "Registrable Securities then
outstanding" shall be the sum of the number of shares of Common Stock
outstanding that are Registrable Securities, and the number of shares of Common
Stock issuable
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pursuant to then exercisable or convertible securities that upon issuance would
be Registrable Securities.
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 6.14 hereof.
(e) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any successor registration form under the Act
subsequently adopted by the SEC.
6.2 REQUEST FOR REGISTRATION
(a) If the Company shall receive at any time after the earlier of
(i) the fifth anniversary of the Closing, or (ii) six (6) months (or such longer
period not to exceed 270 days, as shall be specified in the underwriters "lock
up" agreement entered into by all of the Company's affiliates and all other
holders of registration rights in connection with such initial public offering)
after the effective date of the first registration statement for a public
offering of securities of the Company, a written request from the Holders of at
least fifty-one percent (51%) of the Registrable Securities then outstanding
that the Company file a registration statement under the Act covering the
registration of at least fifty-one percent (51%) of the Registrable Securities
then outstanding, then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 6.2(b), effect as soon as practicable, and in
any event shall use its best efforts to effect within one hundred twenty (120)
days of the receipt of such request, the registration under the Act of all
Registrable Securities that the Holders request to be registered within twenty
(20) days of the mailing of such notice by the Company, subject to Section 6.8.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 6.2 and the Company
shall include such information in the written notice referred to in subsection
6.2(a). In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
Initiating Holders holding a majority of the Registrable Shares to be included
in the registration and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in customary
form
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with the underwriter or underwriters selected for such underwriting by
Initiating Holders holding a majority of the Registrable Securities to be
included in the registration. Such underwriter or underwriters shall be
reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 6.2, if the
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so
advise all Holders of Registrable Securities that would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated among all Holders
thereof, including the Initiating Holders, in proportion (as nearly as
practicable) to the amount of Registrable Securities of the Company owned by
each Holder. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.
(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 6.2.
(d) Notwithstanding the foregoing, (i) the Company shall not be
obligated to effect a registration pursuant to this Section 6.2 during the
period starting with the date 60 days prior to the Company's good faith
estimated date of filing of, and ending on the date 120 days following the
effective date of, a registration statement pertaining to an underwritten public
offering of securities for the account of the Company, provided the Company is
at all times during such period diligently pursuing such registration, (ii) if
the Company shall furnish to Holders requesting a registration statement
pursuant to this Section 6.2, a certificate signed by the Chairman of the Board
of Directors of the Company stating that in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of not more than one hundred twenty (120) days after receipt of the
request of the Initiating Holders; provided, however, that this right to delay
any requested registration shall not be utilized more than once in any twelve
month period and, (iii) the Company shall not be obligated to effect a
registration pursuant to this Section 6.2 if the Initiating Holders have not
tendered their Registrable Securities to the Parent in exchange for either
securities of the Parent or cash in accordance with Section 2 of the Shareholder
Agreement, unless either (A) one hundred twenty (120) days have passed without
such tender being accepted, or (B) due to the liquidation of the Parent, the
expiration of the Initiating Holders' right to tender their Registerable
Securities to the Parent in accordance with Section 2 of the Shareholder
Agreement or similar circumstances, such tender would be futile.
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6.3 COMPANY REGISTRATION
If (but without any obligation to do so) the Company proposes to
register (including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities, solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, or a registration on any form that does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time and at least forty-five (45) days
prior to the filing of a registration statement covering the Company's
securities, give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after the mailing
of such notice by the Company, the Company shall, subject to the provisions of
Section 6.8, use its best efforts to cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested to be registered.
The Holders' rights under this Section 6.3 may be exercised an unlimited number
of times.
6.4 OBLIGATIONS OF THE COMPANY
Whenever required under this Section 6 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days or, in
the case of Form S-3 registration pursuant to Section 6.11, one hundred eighty
(180) days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the
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Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing. Each Holder shall be required to cease using such
prospectus until the Company has amended or supplemented it to correct such
untrue statement or to state the facts so omitted.
(g) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Section 6, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 6, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
6.5 FURNISH INFORMATION
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 6 with respect to the Registrable
Securities of any selling Holder, that such Holder shall furnish to the Company
such information regarding it, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such
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Holder's Registrable Securities and to execute such documents in connection with
such registration as the Company may reasonably request.
6.6 EXPENSES OF DEMAND REGISTRATION
All expenses other than underwriting discounts and commissions relating
to Registrable Securities, incurred in connection with registrations, filings or
qualifications pursuant to Section 6.2, including (without limitation) all
registration, filing and qualification fees, printers and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one special counsel for the selling Holders selected by them
(which counsel shall be acceptable to the Company) shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 6.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case such
expenses shall be borne by the Holders requesting registration, in proportion to
the number of shares for which registration was requested), unless the Holders
of a majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 6.2; provided further, however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 6.2.
6.7 EXPENSES OF COMPANY REGISTRATION
All expenses other than underwriting discounts and commissions relating
to Registrable Securities incurred in connection with registrations, filings or
qualifications pursuant to Section 6.3, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
disbursements of one special counsel for the selling Holders selected by them
(which counsel shall be acceptable to the Company) shall be borne by the
Company.
6.8 UNDERWRITING REQUIREMENTS
In connection with any offering involving an underwriting of shares of
capital stock being issued by the Company, the Company shall not be required
under Section 6.3 to include any of the Holders' securities in such underwriting
unless such Holders (i) accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and (ii) execute a
"lock-up" agreement, in
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customary form, with the underwriters agreeing not to sell their securities
other than pursuant to the registration statement for such period (not to exceed
180 days) as the Company's affiliates shall have agreed to be so restricted. If
the underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares that
may be included in the underwriting shall be allocated, first, to the Company;
second, to the Holders on a pro rata basis based on the total number of
Registrable Securities held by the Holders; and third, to any shareholder of the
Company other than a Holder. In no event will shares of any other selling
shareholder be included in such registration which would reduce the number of
shares which may be included by Holders without the written consent of Holders
of not less than a majority of the Registrable Securities proposed to be sold in
the offering.
6.9 INDEMNIFICATION
In the event any Registrable Securities are included in a registration
statement under this Section 6:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, directors and agents of
each Holder, any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"),
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will pay to each such Holder,
partner, officer, director or agent, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim,
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damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 6.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable for any such
loss, claim, damage, liability, or action to the extent that it arises out of or
is based upon a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, and any
other Holder selling securities in such registration statement and any partner,
officer, director, or controlling person of any such underwriter or other
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which any of the foregoing persons may become subject, under the Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 6.9(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 6.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 6.9(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 6.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all indemnified parties that may be represented without conflict
by one counsel in the same jurisdiction) shall have the right to retain one
separate counsel, with reasonable fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a
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reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 6.9, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 6.9.
(d) If the indemnification provided for in this Section 6.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other, in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or allegedly untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any person if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Act.
(f) The obligations of the Company and Holders under this Section
6.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 6, and otherwise.
6.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
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(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder forthwith upon request, so long as the
Holder owns any Registrable Securities, (i) a written statement by the Company
that it has complied with the reporting requirements of SEC Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
6.11 FORM S-3 REGISTRATION
In case the Company shall receive one or more written requests from any
Holder or Holders that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in each such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such
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request as are specified in a written request given within thirty (30) days
after receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 6.11: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Company shall
furnish to the Holders a certificate signed by the Chairman of the Board of
Directors of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred and twenty
(120) days after receipt of the request of the Holder or Holders under this
Section 6.11; provided, however, that the Company shall not utilize this right
to delay any requested registration more than once in any twelve (12) month
period; (iii) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance and in which
the Company was not already qualified to do business or had not yet executed a
general consent to service of process, as the case may be, or (iv) more than
three times in any twelve-month period.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses, other than underwriting
discounts and commissions relating to the Registrable Securities, incurred in
connection with the first registration requested pursuant to Section 6.11,
including (without limitation) all registration, filing, qualification,
printer's and accounting fees specifically related to the registration and the
reasonable fees and disbursements of one special counsel for the selling Holder
or Holders (which counsel shall be selected by them and shall be acceptable to
the Company) and counsel for the Company, shall be borne by the Company.
Thereafter such expenses, including fees and disbursements of counsel for the
selling Holder or Holders, shall be borne pro rata by the Holder or Holders
participating in the Form S-3 registration. Registrations effected pursuant to
this Section 6.11 shall not be counted as demands for registration or
registrations effected pursuant to Sections 6.2 or 6.3, respectively.
6.12 ASSIGNMENT OF REGISTRATION RIGHTS
The rights to cause the Company to register Registrable Securities
pursuant to this Section 6 may be assigned by a Holder to a transferee or
assignee of such securities that acquires at least 116,554 shares, appropriately
adjusted for any stock dividend, stock split, or combination applicable to the
Registrable Securities, or, if less, all of the Holder's Registrable Securities,
and who assumes the Holder's
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obligations hereunder; provided the Company is furnished with written notice of
the name and address of the proposed transferee or assignee and the securities
with respect to which such registration rights are being assigned; and provided,
further, that any transfer by the Investor to any of its affiliates shall not be
subject to the limitations on the minimum number of shares to be transferred.
6.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder to (a) require that the Company register any
securities held by such holder unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of its securities will not
reduce the amount of the Registrable Securities of the Holders which is included
or (b) make a demand registration which could result in such registration
statement being declared effective prior to the earlier of either of the dates
set forth in Section 6.2(a) or within 120 days of the effective date of any
registration effected pursuant to Section 6.2.
SECTION 7. COVENANTS OF THE COMPANY
7.1 DELIVERY OF ANNUAL FINANCIAL STATEMENTS AND OTHER INFORMATION
The Company shall deliver to the Investors, and the holders of the
Common Stock into which the Series A Stock has been converted, and the
transferees or assignees of any of the foregoing, provided that such Investor,
or transferee or assignee thereof, holds at least 116,554 shares of Series A
Stock and/or or Common Stock (as presently constituted) into which the Series A
Stock has been converted (each, an "Interested Holder"):
(a) as soon as practicable, but in any event within 90 days after
the end of each fiscal year of the Company, an income statement and statement of
cash flows of the Company for such fiscal year, and a balance sheet of the
Company as of the end of such year, such financial statements to be prepared in
accordance with generally accepted accounting principles and covered by a report
of independent certified public accountants of nationally recognized standing
selected by the Company which report shall be substantially to the effect that
the information contained in such financial statements has been subjected to the
auditing procedures applied in such accountants' audit of the consolidated
financial statements of the Parent, and, in the opinion of such accountants, is
fairly stated in all material respects in relation to such consolidated
financial statements taken as a whole; and
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(b) as soon as practicable, but in any event prior to the end of
each fiscal year, a budget approved by the Board of Directors for the next
fiscal year; and
(c) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as any Interested Holder
may from time to time reasonably request, including, without limitation,
information as may be necessary to confirm the Company's use of the
consideration received under this Agreement and the Collateral Agreements..
The information provided pursuant to this Section 7.1 shall be used by
the Interested Holders solely in furtherance of their interests as Interested
Holders in the Company and the Interested Holders shall maintain the
confidentiality of all confidential information of the Company obtained under
this Section 7.1 and under Sections 7.2 and 7.3 following.
7.2 DELIVERY OF FINANCIAL STATEMENTS
The Company shall deliver to each Interested Holder:
(a) as soon as practicable, but in any event, within 45 days
after the end of each fiscal quarter an unaudited income statement, statement of
cash flow and balance sheet for and as of the end of such quarter and for the
year to date, in reasonable detail;
(b) as soon as practicable, but in any event within 15 days prior
to the end of each fiscal quarter, a budget for the next fiscal quarter; and
(c) within thirty (30) days after the end of each month, an
unaudited income statement, statement of cash flow and balance sheet for and as
of the end of such month, in reasonable detail.
7.3 INSPECTION
The Company shall permit each Interested Holder, at such party's
expense, to visit and inspect the Company's properties, to examine its books of
accounts and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by such
Interested Holder; provided, however, that the Company shall not be obligated
pursuant to this Section 7.3 to provide access to any information that it
reasonably considers to be a trade secret or similar confidential information
unless such Interested Holder provides reasonable assurances in writing that it
will maintain the confidentiality of the information.
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7.4 RIGHT OF FIRST OFFER
Subject to the terms and conditions specified in this Section 7.4, the
Company hereby grants to: (i) the Investor and (ii) any person who acquires
shares of the Series A Stock issued pursuant to this Agreement or shares of the
Common Stock issued upon conversion thereof (such Investor or person is
hereinafter referred to individually as an "Offeree" and collectively as the
"Offerees"), a right of first offer with respect to future sales by the Company
of its New Securities (as hereinafter defined). Each time the Company proposes
to offer any shares of, or securities convertible into or exercisable for, any
class or series of its capital stock ("New Securities"), the Company shall first
make an offering of such New Securities to the Offerees in accordance with the
following provisions:
(a) The Company shall deliver a notice ("Notice") to each Offeree
stating (i) its bona fide intention to offer or issue such New Securities, (ii)
the number of such New Securities to be offered, (iii) the price, if any, for
which it proposes to offer such New Securities, and (iv) the names of proposed
offerees, if known.
(b) Within 20 calendar days after receipt of the Notice, each
Offeree may elect to purchase or obtain, at the price and on the terms specified
in the Notice, up to that portion of such New Securities which equals the
proportion that the number of shares of Common Stock Conversion Equivalents (as
hereinafter defined) then held by the Investor bears to the total number of
shares of Common Stock Conversion Equivalents then held by all shareholders.
"Common Stock Conversion Equivalents" means shares of (i) Common Stock then
outstanding plus (ii) Common Stock issuable upon conversion or exercise of all
convertible securities, options, warrants and other such rights then
outstanding.
(c) If all such New Securities referred to in the Notice are not
elected to be purchased as provided in subsection 7.4(b), the Company may,
during the 90 day period following the expiration of the period provided in
subsection 7.5(b), offer the remaining unsubscribed New Securities to any person
or persons at a price not less than the price specified in the Notice and on the
terms and conditions specified in the Notice. If the Company does not enter into
an agreement for the sale of the New Securities within such period the right
provided hereunder shall be deemed to be revived and such New Securities shall
not be offered unless first reoffered to the Offerees in accordance herewith.
(d) The right of first offer in this Section 7.4 shall not be
applicable to (i) any offering of up to 750,000 shares of Common Stock issued or
issuable under the Plan, (ii) any New Securities offered to the public pursuant
to a registration statement filed under the Act, (iii) the issuance of New
Securities on a pro rata basis
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to all of the Company's shareholders in connection with any stock split, reverse
split, stock dividend or recapitalization, (iv) the issuance of shares of Common
Stock upon conversion of Series A Stock, (v) the issuance of New Securities in
connection with the Company's acquisition of another entity by merger or
purchase of substantially all of the assets, or by any other reorganization
whereby the Company acquires ownership of not less than fifty-one percent of the
voting power of such entity, (vi) the issuance of New Securities in connection
with the Company's formation of a joint venture with another entity whereby the
Company acquires ownership of not less than fifty-one percent of the voting
power of such entity, or (vii) the issuance of New Securities in connection with
an investment by an entity in the Company which is part of a strategic
relationship between the Company and such entity in which other forms of payment
to or by the Company are made or agreed to in connection with the Company's
providing or acquiring services, products or technology.
7.5 INSURANCE
The Company agrees to maintain valid policies of workers' compensation
insurance and of insurance with respect to its properties and business of the
kinds and in the amounts not less than is customarily obtained by corporations
engaged in the same or similar business and similarly situated, including,
without limitation, insurance against loss, damage, fire, theft, public
liability and other risks.
7.6 ISSUANCE OF SERIES A STOCK
The Company shall not issue any shares of its Series A Stock to any
person or entity other than the Investor.
7.7 RESERVATION OF COMMON STOCK
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the conversion of Series A Stock, shares of Common
Stock issuable upon such conversion. The Company will at all times reserve and
keep available shares of Common Stock issuable upon exercise of the Company's
stock options.
7.8 EMPLOYEE INVENTION AND SECRECY AGREEMENT
The Company shall require all employees to execute and deliver an
Employee Invention and Secrecy Agreement in substantially the form attached
hereto as Exhibit C.
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7.9 TERMINATION OF COVENANTS
The covenants set forth in this Section 7 shall terminate and be of no
further force or effect upon (a) the closing date of a primary, public offering
by this Company of shares of Common Stock, registered under the Act, in which
the aggregate offering proceeds paid to the Company are at least $15,000,000 and
the per share price at which such shares of Common Stock are offered to the
public is at least $15.01 (appropriately adjusted for any stock dividend, split
or consolidation of such Common Stock).
SECTION 8. COVENANTS OF THE PARENT
The Parent shall deliver to each Interested Holder copies of all
periodic and special reports furnished to its shareholders, and all information,
documents and reports that it files with the SEC.
SECTION 9. MISCELLANEOUS
9.1 SURVIVAL OF WARRANTIES
The warranties, representations and covenants contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing.
9.2 SUCCESSORS AND ASSIGNS
Except to the extent that the application of certain provisions of this
Agreement to transferees and assignees of the Series A Stock and the Common
Stock issuable upon conversion of the Series A Stock is expressly limited, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
9.3 GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Oregon as applied to agreements among Oregon residents entered into and
to be performed entirely within the State of Oregon.
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9.4 COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9.5 TITLES AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
9.6 NOTICES
All notices required or permitted to be given under this Agreement shall
be in writing. Notices may be served by certified or registered mail, postage
paid with return receipt requested; by private courier, prepaid; by telex,
facsimile or other telecommunication device capable of transmitting or creating
a written record; or personally. Mailed notices shall be deemed delivered five
(5) days after mailing, properly addressed. Couriered notices shall be deemed
delivered on the date that the courier warrants that delivery will occur. Telex
or telecommunicated notices shall be deemed delivered when receipt is either
confirmed by confirming transmission equipment or acknowledged by the addressee
or its office. Personal delivery shall be effective when accomplished. Unless a
party changes its address by giving notice to the other party as provided
herein, notices shall be delivered to the parties at the addresses set forth on
the signature pages hereof.
9.7 ATTORNEYS' FEES
If any suit or action arising out of or related to this Agreement is
brought by any party, the prevailing party or parties shall be entitled to
recover the costs and fees (including without limitation reasonable attorneys'
fees, the fees and costs of experts and consultants, copying, courier and
telecommunication costs, and deposition costs and all other costs of discovery)
incurred by such party or parties in such suit or action, including without
limitation any post-trial or appellate proceeding.
9.8 FINDERS' FEES
Each party represents that it neither is, nor will be, obligated for a
finder's fee or commission in connection with this transaction. The Investor
agrees to indemnify and hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Investor or any of its officers, partners, employees or representatives is
responsible. The Company agrees to
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indemnify and hold harmless the Investor from any liability for any commission
or compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, directors, employees or representatives is responsible.
9.9 AMENDMENTS AND WAIVERS
After the Closing, any term of this Agreement may be amended and the
observance of any term may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the holders of a majority of the aggregate shares of
Series A Stock and/or the Common Stock into which such Series A Stock has been
converted.
9.10 SEVERABILITY
If one or more provisions of this Agreement is held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
9.11 ENTIRE AGREEMENT
This Agreement and the other documents delivered at the Closing
constitute the full and entire understanding and agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements
with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MAXWELL ENERGY PRODUCTS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address: 4949 Greencraig Lane
San Diego, CA 92123
MAXWELL TECHNOLOGIES, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address: 9275 Sky Park Ct.
San Diego, CA 92123
PACIFICORP ENERGY VENTURES, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address: 700 N.E. Multnomah Street
Portland, OR 97232-4116
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SCHEDULE A
SCHEDULE OF ASSETS CONTRIBUTED BY
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SCHEDULE B
SCHEDULE OF EXCEPTIONS
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EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
MAXWELL ENERGY PRODUCTS, INC.
The undersigned certify that:
1. They are the President and Secretary, respectively, of Maxwell Energy
Products, Inc., a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
ARTICLE 1.NAME
The name of the corporation is Maxwell Energy Products, Inc. (the
"Corporation").
ARTICLE 2. PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE 3. SHARES
3.1 The Corporation is authorized to issue two classes of stock to be
designated, respectively "Common Stock" and "Series A Preferred Stock". The
total number of shares of stock which the Corporation shall have authority to
issue shall be 10,466,217, consisting of 10,000,000 shares of Common Stock, and
466,217 shares of Series A Preferred Stock.
3.2 The relative rights, preferences and limitations of the shares of
Common Stock and Series A Preferred Stock are as follows:
3.2.1 Dividends. The holders of Series A Preferred Stock shall be
entitled to receive non-cumulative, preferential dividends each fiscal year and
in preference to any declaration or payment of any dividend (payable other than
in
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Common Stock) on Common Stock during such fiscal year, in an amount equal to
ten percent of the Series A Original Issue Price (defined hereinafter) per share
of Series A Preferred Stock (the "Preferential Dividend") (appropriately
adjusted for any stock dividend, stock split, combination, or similar
recapitalization affecting such shares), payable when, as and if declared by the
Board of Directors of the Corporation, out of the assets of the corporation
legally available therefor; provided, however, no dividend or distribution,
payable other than in Common Stock of the corporation, may be declared or paid
on any shares of Common Stock unless at the same time an equivalent dividend or
distribution is declared or paid on all outstanding shares of Series A Preferred
Stock, such equivalent dividend or distribution to be in addition to the
Preferential Dividend. The Preferential Dividend shall not be cumulative, and no
right to any dividends shall accrue to the holders of the Series A Preferred
Stock in the event the corporation shall fail to declare or pay such dividends.
3.2.2 Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, either voluntary or involuntary,
the assets of the Corporation available for distribution shall be distributed in
the following order and amount:
(1) First, the holders of the Series A Preferred
Stock then outstanding shall be entitled to receive an amount equal to $15.01
for each outstanding share of Series A Preferred Stock, appropriately adjusted
for any stock dividend, split, combination or similar recapitalization (the
"Series A Original Issue Price") and, in addition, an amount calculated to
reflect a 10% annual, compound return on the Series A Original Issue Price from
the Closing to the date that the liquidation preference is paid on each such
share, and, in addition, an amount equal to any dividends declared but not paid
on each such share. If such assets available for distribution shall be
insufficient to permit the payment to the holders of the Series A Preferred
Stock of the full preferential amounts to which they may be entitled, then the
entire assets of the Corporation legally available for distribution shall be
distributed ratably among the holders of shares of the Series A Preferred Stock.
(2) After setting apart or paying in full the
preferential amounts due the holders of the Series A Preferred Stock, as
provided in subsection 3.2.2(a)(1), if assets available for distribution remain
in the Corporation, the holders of the Corporation's Common Stock then
outstanding shall be entitled to receive an amount equal to $15.01 for each
outstanding share of such Common Stock, appropriately adjusted for any stock
dividend, split, combination or similar recapitalization, and, in addition, an
amount equal to any dividends declared but not paid on each such share. If such
assets remaining after completion of the distribution
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required by subsection 3.2.2(a)(1) shall be insufficient to permit the payment
to the holders of the Common Stock of the full preferential amounts to which
they may be entitled, then all such remaining assets of the Corporation legally
available for distribution shall be distributed ratably among the holders of
shares of the Common Stock.
(3) After setting apart or paying in full the
preferential amounts due the holders of the Series A Preferred Stock, as
provided in subsection 3.2.2(a)(1), and the Common Stock, as provided in
subsection 3.2.2(a)(2), then the entire assets of the corporation legally
available for distribution shall be distributed ratably among the holders of
shares of Common Stock, and Series A Preferred Stock based on the number of
shares of Common Stock held by each (assuming conversion of all outstanding
Series A Preferred Stock to Common Stock).
(b) A consolidation or merger of the Corporation with or
into another corporation or other entity or person, or any other corporate
reorganization or other transaction or series of related transactions by the
Corporation, in any such case, in which more than 50 percent of the voting power
of the Corporation is transferred or a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this subsection
3.2.2.
(c) Whenever a distribution of assets provided for in this
section 3.2.2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3.2.3 Voting Rights. Each share of Common Stock shall be entitled
to one vote per share on any matter submitted to the shareholders. Except as
otherwise expressly provided herein or as required by law, the holder of each
share of Series A Preferred Stock shall have the right to that number of votes
equal to the number of shares of Common Stock issuable upon conversion of such
share of Series A Preferred Stock, and shall be entitled to vote, together with
holders of Common Stock, as a single voting group, with respect to any question
upon which holders of Common Stock have the right to vote. Each holder of Common
Stock and/or Series A Preferred Stock shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of the Corporation.
3.2.4 Conversion Rights. The holders of the Series A Preferred
Stock shall have the following rights with respect to the conversion of Series A
Preferred Stock into shares of Common Stock:
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(a) Right to Convert. Any share of the Series A Preferred
Stock may, at the option of the holder, be converted at any time after the date
of issuance of such share, into such number of fully paid and nonassessable
shares of Common Stock as is calculated by dividing the Series A Original Issue
Price by the Conversion Price (determined as hereinafter provided), in effect on
the date the certificate is surrendered for conversion.
(b) Automatic Conversion. Each share of Series A Preferred
Stock shall be converted automatically into the such number of fully paid and
nonassessable shares of Common Stock as is calculated by dividing the Series A
Original Issue Price by the then effective Conversion Price (determined as
hereinafter provided), upon the earlier of: (A) the closing date of a public
offering by the Corporation of shares of Common Stock, registered under the
Securities Act of 1933, as amended, on Form S-1 (or its successor form) in which
the aggregate offering proceeds (before underwriters' commissions and offering
expenses) paid to the Corporation are at least $7,500,000 and the per share
price at which such shares of Common Stock are offered to the public is at least
the amount equal to the product of two and the Series A Original Issue Price
(appropriately adjusted for any stock dividend, split, combination, or
recapitalization affecting such shares), or (B) approval of the conversion by
the holders of a majority of the shares of Series A Preferred Stock) then
outstanding.
(c) Mechanics of Conversion. Before any holder of the
Series A Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series A Preferred Stock, and shall give written notice by mail,
postage prepaid, to the Corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued;
provided, however, that in the event of an automatic conversion pursuant to
subsection 3.2.4(b), the outstanding shares of Series A Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Series A Preferred Stock are either delivered to the Corporation
or its transfer agent, or the holder notifies the Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder, or to the nominee or nominees of such
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holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder tendering
shares for conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion shall not be
deemed to have converted such shares of Series A Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price. The Conversion Price for the Series A
Preferred Stock shall initially be equal to the Series A Original Issue Price.
The Conversion Price shall be subject to adjustment from time to time as
follows:
(1) Certain Stock Issuances.
(A) If the corporation shall issue any
Additional Stock (as hereinafter defined) without consideration or for a
consideration per share less than the Series A Conversion Price in effect
immediately prior to such issuance, the Series A Conversion Price in effect
immediately prior to such issuance shall forthwith (except as otherwise provided
in this subsection 3.2.4(d)(1)) be adjusted or readjusted to a price (calculated
to the nearest cent) equal to the quotient obtained by dividing the total
computed under clause (x) below by the total computed under clause (y) below as
follows:
(x): an amount equal to the sum of (i) the result obtained by
multiplying the number of shares of Common Stock deemed outstanding immediately
prior to such issuance (which shall include the actual number of shares
outstanding plus all shares reserved for issuance upon the conversion of all
outstanding convertible securities) by the Series A Conversion Price then in
effect and (2) the aggregate consideration, if any, received by the Corporation
upon the issuance of such Additional Stock;
(y): the number of shares of Common Stock of this corporation
outstanding immediately after such issuance (including the shares deemed
outstanding as provided above).
(B) No adjustment of the Conversion Price
shall be made in an amount less than one cent per share, provided that any
adjustments
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which are not required to be made by reason of this sentence shall be carried
forward and shall be taken into account in any subsequent adjustment made prior
to three years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections
3.2.4(d)(1)(E)(iii) and (iv), no adjustment of the Series A Conversion Price for
the Series A Preferred Stock pursuant to this subsection 3.2.4(d)(1) shall have
the effect of increasing the Series A Conversion Price above the Series A
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as determined by
the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options
or warrants to purchase, or rights to subscribe for, Common Stock, securities by
their terms convertible into or exchangeable for Common Stock or options or
warrants to purchase, or rights to subscribe for, such convertible or
exchangeable securities (which are not excluded from the definition of
Additional Stock), the following provisions shall apply:
(i) The aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options or warrants to
purchase, or rights to subscribe for, Common Stock shall be deemed to have been
issued at the time such options, warrants or rights were issued and for a
consideration equal to the pro rata consideration (determined in the manner
provided in subsections 3.2.4(d)(1)(C) and (D)), if any, received by the
Corporation upon the issuance of such options, warrants or rights plus the
minimum per share purchase price provided in such options, warrants or rights
for the Common Stock covered thereby;
(ii) The aggregate maximum number
of shares of Common Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the exercise of options or
warrants to purchase, or rights to subscribe for, such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the
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time such securities were issued or such options, warrants or rights were issued
and for a consideration equal to the consideration, if any, received by the
Corporation for any such securities and related options, warrants or rights,
plus the additional consideration, if any, to be received by the Corporation
upon the conversion or exchange of such securities or the exercise of any
related options, warrants or rights (the consideration in each case to be
determined in the manner provided in subsections 3.2.4(d)(1)(C) and (D));
(iii) In the event of any change in
the number of shares of Common Stock deliverable (or any change in the
consideration payable to the Corporation) upon exercise of such options,
warrants or rights or upon conversion of or in exchange for such convertible or
exchangeable securities, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such options, warrants, rights or
securities not converted prior to such change or the options, warrants or rights
related to such securities not converted prior to such change been made upon the
basis of such change, but no further adjustment shall be made for the actual
issuance of Common Stock (or the actual payment of consideration to the
Corporation) upon the exercise of any such options, warrants or rights or the
conversion or exchange of such securities;
(iv) Upon the expiration of any
such options, warrants or rights, the termination of any such rights to convert
or exchange or the expiration of any options, warrants or rights related to such
convertible or exchangeable securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have obtained had the adjustment
which was made upon the issuance of such options, warrants, rights or securities
or options, warrants or rights related to such securities been made upon the
basis of the issuance of only the number of shares of Common Stock actually
issued upon the exercise of such options, warrants or rights, upon the
conversion or exchange of such securities or upon the exercise of the options,
warrants or rights related to such securities; and
(v) If any such options or rights
shall be issued in connection with the issue and sale of other securities of
this corporation, together comprising one integral transaction in which no
specific consideration is allocated to such options or rights by the parties
thereto, such options or rights shall be deemed to have been issued for such
consideration as determined in good faith by the Board of Directors.
(F) "Additional Stock" shall mean any shares
of Common Stock or securities convertible into or exchangeable or exercisable
for shares
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of Common Stock issued (or deemed to have been issued pursuant to subsection
3.2.4(d)(1)(E)) by the Corporation after the date of original issue of the
Series A Preferred Stock (the "Purchase Date") other than:
(i) Common Stock issued pursuant to
a transaction described in subsections 3.2.4(d)(2)hereof.
(ii) 750,000 shares of Common Stock
(appropriately adjusted for any stock dividend, stock split or recapitalization)
issuable or issued to employees, consultants or directors pursuant to employee
option, bonus or incentive plans or arrangements approved by the Board of
Directors.
(iii) Common Stock issued upon
conversion of shares of Series A Preferred Stock.
(2) Adjustments for Stock Splits and Dividends. In
the event the Corporation should at any time or from time to time after the
Purchase Date, fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend, distribution, split
or subdivision if no record date is fixed), the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of each share of the Series A Preferred Stock shall be increased
in proportion to such increase of outstanding shares.
(3) Adjustments for Combinations. If the number of
shares of Common Stock outstanding at any time after the Purchase Date is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of the Series A Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection 3.2.4(d)(1),
then, in each such case for
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the purpose of this subsection 3.2.4(e), the holders of the Series A Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Series A Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common Stock
of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
section 3.2.2 or this section 3.2.4), provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this section 3.2.4 with respect to the rights
of the holders of the Series A Preferred Stock after the recapitalization, to
the end that the provisions of this section 3.2.4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred) shall be applicable after that event as
nearly equivalent as may be practicable.
(g) No Impairment. The Corporation will not, by amendment
of these Restated Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this section 3.2.4 and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
impairment.
(h) No Fractional Shares and Certificate as to
Adjustments.
(1) No fractional shares shall be issued upon
conversion of the Series A Preferred Stock and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share, determined on
the basis of the total number of shares of the Series A Preferred the holder is
at the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
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(2) Upon the occurrence of each adjustment or
readjustment of the Conversion pursuant to this section 3.2.4, the Corporation,
at its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of the
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of the Series A Preferred, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment or
readjustment, (B) the Conversion Price at the time in effect, and (C) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock.
(i) Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Stock, at least 20 days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(k) Notices. Any notice required by the provisions of this
section 3.2.4 to be given to the holders of shares of the Series A Preferred
shall be deemed given if deposited in the United States mail, postage prepaid,
return receipt requested, and addressed to each holder of record at such
holder's address appearing on the books of the Corporation.
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(l) Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Series A Preferred pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
3.2.5 Redemption.
(a) The Series A Preferred Stock shall have no redemption
rights.
(b) The absence of redemption rights shall not affect any
other rights of the Corporation under law to repurchase part or all of the
Series A Preferred Stock.
3.2.6 Protective Provisions. So long as any share of Series A
Preferred Stock is outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the shares of Series A Preferred Stock:
(a) Authorize or issue shares of any new class or series
of capital stock on a parity with or having any preference or priority over any
shares of Series A Preferred Stock then outstanding;
(b) Effect any recapitalization, dissolution, liquidation,
winding up or reorganization of the Corporation;
(c) Enter into any transaction with Maxwell Technologies,
Inc. ("MTI"), or any affiliate (as defined in Rule 144 promulgated under the
Securities Act of 1933, as amended) of MTI, excluding the Corporation itself,
other than allocations to the Corporation for corporate or centralized services
provided or arranged by MTI for its subsidiaries, determined on a basis
substantially the same as in effect on the date of filing of these Restated
Articles of Incorporation, and other than on an arms-length basis, on terms no
less favorable to the Corporation than would be available from an unaffiliated
third-party, or enter into any transaction with MTI or any affiliate of MTI (i)
which can reasonably be anticipated to involve obligations of, or payments to,
the Corporation in excess of $250,000 for a single transaction or series of
related transactions, or (ii) involving the merger, sale of substantial assets,
conveyance, by license or otherwise, of material interests in intellectual
property, or other similar transactions outside the ordinary course of the
Corporation's business;
(d) Amend these Restated Articles of Incorporation or the
Corporation's Bylaws, if such amendment adversely alters or changes the rights,
preferences or privileges of the Series A Preferred Stock; or
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(e) Adopt any fundamental change to its business
inconsistent with the development, manufacture, marketing and sale of
ultracapacitor products in the Stationary Power and Energy Services ("SPES")
market, as defined in that certain Stationary Power and Energy Services Business
Plan dated September 22, 1997.
ARTICLE 4.LIMITATION OF DIRECTOR LIABILITY
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. Any
repeal or modification of this Article 4 by the shareholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation at the time of such repeal or modification.
ARTICLE 5.INDEMNIFICATION
The Corporation is authorized to indemnify the directors and officers of
the Corporation to the fullest extent permissible under California law. Any
repeal or modification of this Article 5 by the shareholders of the Corporation
shall not adversely affect any right or protection of a director or officer of
the Corporation at the time of such repeal or modification.
3. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the required vote of shareholders in accordance
with Section 902, California Corporations Code. The total number of
outstanding shares of the corporation is Five Million (5,000,000). The
number of shares voting in favor of the amendment equaled or exceeded
the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date:_____________
-------------------------------
Gregg L. McKee, Jr., President
-------------------------------
Donald M. Roberts, Secretary
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EXHIBIT B
SHAREHOLDER AGREEMENT
This SHAREHOLDER AGREEMENT (the "Agreement") is made as of October 30,
1997, by and among MAXWELL ENERGY PRODUCTS, INC., a California corporation (the
"Company"), MAXWELL TECHNOLOGIES, INC., a Delaware corporation ("MTI") and
PACIFICORP ENERGY VENTURES, INC., an Oregon corporation ("PEV"), each of whom
own the capital stock of the Company set forth on Schedule 1 hereto.
In consideration of the mutual promises, covenants and agreements
contained herein, the parties hereto agree as follows:
SECTION 1. RESTRICTIONS ON TRANSFER
1.1 PEV'S SHARES; RIGHT OF FIRST OFFER
Except in accordance with the provisions of this Section 1 or
Section 2, PEV may not transfer all or a portion of the Series A Preferred Stock
of the Company ("Preferred Stock") or common stock of the Company ("Common
Stock") into which the Preferred Stock has been converted now or subsequently
held by it (collectively, the "PEV Shares").
(a) PEV agrees that in the event it either receives a good faith
offer to purchase for cash (which offer it wishes to accept) or otherwise
desires to transfer all or a portion of the PEV Shares (the "Offered PEV
Shares"), it shall deliver to the Company a notice of proposed transfer stating
(i) its bona fide intention to sell or otherwise transfer such Offered PEV
Shares, (ii) the number of such Offered PEV Shares to be sold or otherwise
transferred, (iii) the terms and conditions of the proposed transfer including
the purchase price (the "Proposed PEV Price") and (iv) the name of the proposed
transferee, if any. The Company shall have the right to purchase all, but not
less than all, the Offered PEV Shares at the Proposed PEV Price and pursuant to
the terms and conditions stated in the notice. The Company shall, within 15 days
following receipt of PEV's notice, deliver to PEV, a certificate stating whether
the Company has elected to exercise or to not exercise its right to purchase the
Offered PEV Shares. If the Company elects to exercise its right in accordance
with this Section 1.1, the respective parties shall effect a closing on a
mutually agreed date, which closing date shall be within 15 days after the date
of such notice of exercise. The Company may assign its rights under this Section
1.1 to MTI, provided
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that MTI owns at the time of such assignment, directly or indirectly, at least
51% of the Company's outstanding shares, on a fully diluted basis.
(b) Unless the Company agrees to purchase the Offered PEV Shares
offered pursuant to Section 1.1(a) above, PEV may transfer the Offered PEV
Shares at the Proposed PEV Price or at a higher price, provided that (i) the
terms and conditions of the transfer are no more favorable to the transferee
than the terms and conditions stated in PEV's notice to the Company, (ii) such
sale or other transfer is consummated within 120 days from the date of the
notice of proposed transfer, and (iii) any such sale or other transfer is in
accordance with all the terms and conditions hereof, and with applicable
securities laws.
(c) As used in this Section 1.1, the term "transfer" shall mean
any sale, exchange, execution on a pledge, assignment, gift, sale by legal
process under execution or attachment, or change in ownership, voluntary or
involuntary because of any other act or occurrence, but shall not include (i)
transfers by PEV to one or more Affiliates (as defined in Rule 144 promulgated
under the Securities Act of 1933, as amended) of PEV, (ii) an exchange of
securities effected in connection with any merger or recapitalization of the
Company or the sale of substantially all of the Company's Common Stock, or (iii)
a sale of Common Stock in connection with a Public Offering (as hereinafter
defined); and provided further, in the case of a transfer under clause (i),
prior to the transfer, the transferee shall execute and deliver to the Company a
valid and binding agreement to the effect the transferee shall receive and hold
such shares subject to the provisions of this Agreement and there shall be no
further transfer of such shares except in accordance herewith.
1.2 RIGHT OF CO-SALE
(a) MTI agrees that it will not sell or exchange all or a portion
of the Common Stock of the Company that it now or subsequently holds ("MTI
Shares") to or with any third person, unless PEV or any successor to PEV Shares
(a "Holder") shall have been given reasonable opportunity to participate in the
proposed sale or exchange on the same terms and conditions. In the event MTI
receives a good faith offer to purchase for cash (which offer it wishes to
accept) all or a portion of the MTI Shares (the "Offered MTI Shares"), it shall
deliver to the Company and the Holders a notice of proposed transfer stating (i)
its bona fide intention to sell or otherwise transfer the Offered MTI Shares,
(ii) the number of such Offered MTI Shares to be sold or otherwise transferred;
(iii) the terms and conditions of the proposed transfer including the purchase
price (the "Proposed MTI Price") and (iv) the name of the proposed transferee.
Each Holder shall have 15 days from the date on which MTI sent its notice of
proposed transfer in which to elect to participate in the proposed transfer. Any
such election to participate shall be made by giving notice thereof to the
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Company and MTI, which notice shall specify the maximum number of PEV Shares
that such Holder wishes to sell (which number may be greater than the number
which such Holder is entitled to sell pursuant to this section).
(b) If the Offered MTI Shares constitute 75 percent or more of
the outstanding capital stock of the Company (after giving effect to the deemed
conversion of all outstanding convertible preferred stock), MTI shall use its
best efforts to cause the proposed transferee to accept all PEV Shares specified
in the notices of the Holders pursuant to Section 1.2(a). If either (1) the
Offered MTI Shares constitute less than 75 percent of the outstanding capital
stock of the Company (after giving effect to the deemed conversion of all
outstanding convertible preferred stock), or (2) the transferee refuses to
acquire all PEV Shares offered by the Holders, then each Holder who has elected
to participate in MTI's proposed transfer (a "Participating Holder") shall have
the right to sell to the proposed transferee only the number of shares of Common
Stock that equals the product of (i) the total number of MTI Shares to be
transferred to the proposed transferee (which shall not be more than the amount
specified in MTI's notice) multiplied by (ii) the ratio that (A) the number of
shares of Common Stock then held by such Participating Holder together with the
number of shares of Common Stock issuable upon conversion of such Participating
Holder's Preferred Stock (together, "Common Stock Equivalents") bears to (B) the
number calculated by adding the number of Common Stock Equivalents held by all
Participating Holders to the number of MTI Shares.
(c) Each Participating Holder may effect its participation in the
transfer by delivering to MTI for transfer to the proposed transferee one or
more certificates, properly endorsed for transfer, which represent either (i)
the number of shares of Common Stock that the Participating Holder elects to
transfer pursuant to this Section 1.2, or (ii) that number of shares of
Preferred Stock that is then convertible into the number of shares of Common
Stock that the Participating Holder elects to transfer pursuant to this Section
1.2. The stock certificates that the Participating Holder(s) deliver to MTI
shall be transferred by MTI to the proposed transferee in consummation of the
sale of shares pursuant to the terms and conditions specified in MTI's notice,
and MTI shall remit to each Participating Holder that portion of the sale
proceeds to which such Participating Holder is entitled by reason of its
participation in such sale.
(d) MTI shall not permit a merger, consolidation, share exchange
or similar transaction affecting the Company, unless the rights of Holders under
this Section 1.2 are given effect in such transaction as though it had been
structured as a sale or exchange by MTI of Common Stock of the Company.
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SECTION 2. OPTION TO SELL SERIES A STOCK TO MTI
2.1 GRANT OF OPTION
MTI grants to PEV an option (the "Option") to sell to MTI all or part of
the PEV Shares, for cash or shares of MTI common stock (as defined below) as
provided in this Section 2. As used in this Section 2, MTI common stock shall
mean that class of MTI capital stock so denominated on the date hereof or such
other class of capital stock of MTI issued in exchange therefore on a pro rata
basis to MTI's shareholders which is listed on a national securities exchange or
qualified for quotation on the NASDAQ National Market.
2.2 EXERCISE OF OPTION
(a) The Option may not be exercised until the first anniversary of the
date hereof. The Option may be exercised only once.
(b) The Option shall be terminated upon the earlier to occur of (i) the
consummation of the Company's sale of its Common Stock in a bona fide, firm
commitment underwritten public offering pursuant to a registration statement
filed under the Securities Act of 1933, as amended, which results in aggregate
offering proceeds paid to the Company of at least $15,000,000 and the per share
price at which such shares of Common Stock are offered to the public is at least
$15.01 (appropriately adjusted for any stock dividend, split or consolidation of
such Common Stock) (a "Public Offering"), or (ii) the sixth anniversary of the
date hereof.
(c) In the event PEV wishes to exercise the Option, it shall send to MTI
and the Company a written notice (the date of which such notice is sent being
referred to as the "Notice Date") specifying the number of PEV Shares to be
sold, and a place and date not earlier than ninety days (or such additional
time, not to exceed 120 days following the Notice Date, as shall be reasonably
required to complete the closing of such sale) following the Notice Date for the
closing of such sale (the "Option Closing Date").
(d) On the Option Closing Date, PEV shall deliver to MTI certificates
representing the number of PEV Shares specified in the notice, and MTI shall
deliver to PEV either, at MTI's election, (i) cash in the amount of the Fair
Market Value (hereinafter defined) of the PEV Shares tendered, or (ii) if, on
such date, the MTI common stock is traded on a national securities exchange or
the NASDAQ National Market, that number of authorized, unrestricted, freely
tradable shares of MTI common stock calculated by dividing the Fair Market Value
of the PEV Shares tendered by the average closing quotation, or, in an
interdealer quotation system, the
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average closing bid price, for the 20 trading days which concludes two trading
days before the Notice Date.
(e) "Fair Market Value" shall be calculated by an independent appraiser
from a nationally recognized accounting or investment banking firm chosen by
mutual agreement of PEV and MTI, which agreement shall not be unreasonably
withheld. If MTI and PEV are unable to agree upon an appraiser, then each of
them shall name an appraiser meeting the requirements described in the foregoing
sentence, and the two appraisers so named shall appoint a third appraiser
meeting such requirements, which appraiser shall conduct the appraisal
contemplated by this Section 2.2(e). . The appraiser will be instructed to
determine the price at which the Company would change hands between a willing
buyer and a willing seller when neither is under compulsion and both have
reasonable knowledge of relevant facts and shall fully value the Company without
minority, illiquidity or similar discounts. The Fair Market Value of the PEV
Shares tendered shall equal the product of the price determined by the appraiser
and the quotient of the number of Common Stock Equivalents represented by the
tendered PEV Shares and the total number of issued and outstanding shares of the
Company's Common Stock (after giving effect to the deemed conversion of all
outstanding convertible preferred stock).
(f) All parties will bear their own expenses relating to each exercise
of the Option. The appraiser's fee shall be charged one-half to PEV and one-half
to MTI.
2.3 FURTHER ASSURANCES
MTI shall take all actions necessary to enable PEV to realize the
benefits of this Section 2. Without limiting the foregoing, if MTI dissolves or
otherwise ceases to exist prior to the expiration of the Option in connection
with a transaction or series of transactions in which an Affiliate of MTI
becomes a reporting company under Sections 12, 13 or 15 of the Securities and
Exchange Act of 1934, as amended, MTI shall take all actions necessary to assign
its obligations hereunder to such Affiliate.
SECTION 3. ELECTION OF DIRECTORS
(a) PEV shall have the right to designate one (1) person (the "Preferred
Designee") for nomination and election to the Company's Board of Directors (the
"Board"). The name of the person so nominated shall be submitted to the Company
and MTI agrees to take all action necessary or appropriate to cause the
nomination of such representative as candidate for director of the Company. The
Company shall take all actions necessary or appropriate to present such nominee
to the shareholders for election as a director. PEV's initial Preferred Designee
shall be David Hoffman, Vice President of PacifiCorp, and subsequent Preferred
Designees shall be of comparable position within PEV or its affiliates.
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(b) In the election of the Company's directors, MTI agrees to vote its
Stock (as defined below) for election of the Preferred Designee. If the
Preferred Designee resigns or is removed by a vote of the Company's
shareholders, or if his or her Board seat is otherwise vacated for any reason,
then PEV shall have the right to nominate his or her replacement and MTI agrees
to vote its shares for the election of such replacement. MTI further agrees that
it shall not vote its shares for the removal of any representative nominated
pursuant to this Section 3, without the consent of PEV. Should the provisions of
this Section 3 be construed to constitute the granting of proxies, such proxies
shall be deemed coupled with an interest.
(c) For purposes of this Section 4, "Stock" shall mean and include any
and all shares of capital stock of the Company by whatever name called, which
carry voting rights and shall include any Stock now owned or subsequently
acquired by a party hereto, however acquired, including without limitation stock
splits and stock dividends.
(d) MTI hereby grants to, and is deemed to have executed in favor of,
PEV a proxy to vote, or to give a written consent with respect to, all of the
Stock owned by MTI for the election to the Board of such persons as PEV shall be
entitled to designate pursuant to this Section 3.
(e) Each of the parties hereto agrees to take all actions necessary to
maintain the size of the Company's Board at five members. The Company may, with
PEV's consent, which shall not be unreasonably withheld, add a sixth member to
the Board pursuant to Board representation rights granted to a strategic
investor after the date hereof.
SECTION 4. LEGENDS
All certificates representing any Shares shall have endorsed thereon the
following legend, in addition to any legends required by applicable state
securities laws or otherwise:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND
TRANSFERABLE ONLY UPON COMPLIANCE WITH THE TERMS AND CONDITIONS OF A SHAREHOLDER
AGREEMENT (WHICH INCLUDES PROVISIONS RELATING TO A VOTING AGREEMENT AMONG
SHAREHOLDERS WITH RESPECT TO THE ELECTION OF DIRECTORS AND CERTAIN RESTRICTIONS
ON TRANSFERABILITY OF THE SHARES) BETWEEN THE CORPORATION AND THE HOLDER, A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."
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SECTION 5. TERM
This Agreement shall terminate upon the earlier to occur of (i) a Public
Offering, (ii) the liquidation or dissolution of the Company, (iii) the sale by
the Company of all or substantially all of its assets or (iv) the merger or
consolidation of the Company into or with another corporation after which the
shareholders of the Company shall own, by virtue of securities received in
respect of such shares, less than fifty percent (50%) of the voting securities
of the surviving corporation or its parent.
SECTION 6. MISCELLANEOUS
6.1 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
6.2 SUCCESSORS
This Agreement is binding upon and shall inure to the benefit of the
successors and permitted assigns of the Company, PEV and MTI; provided that PEV
may not assign its rights under Section 3, other than to an affiliate, without
the prior written consent of MTI. Except as otherwise provided herein, neither
the Company nor MTI may assign any of their rights hereunder or delegate any of
their duties hereunder without the prior written consent of PEV, except for
assignment in connection with the sale of all or substantially all of the assets
of MTI in which the buyer has expressly agreed in writing to assume all of MTI's
duties hereunder.
6.3 COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6.4 TITLES AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
6.5 NOTICES
All notices required or permitted to be given under this Agreement shall
be in writing. Notices may be served by certified or registered mail, postage
paid with return receipt requested; by private courier, prepaid; by telex,
facsimile or other
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telecommunication device capable of transmitting or creating a written record;
or personally. Mailed notices shall be deemed delivered five (5) days after
mailing, properly addressed. Couriered notices shall be deemed delivered on the
date that the courier warrants that delivery will occur. Telex or
telecommunicated notices shall be deemed delivered when receipt is either
confirmed by confirming transmission equipment or acknowledged by the addressee
or its office. Personal delivery shall be effective when accomplished. Unless a
party changes its address by giving notice to the other party as provided
herein, notices shall be delivered to the parties at the addresses set forth on
the signature pages hereof.
6.6 ATTORNEY FEES
If any suit or action arising out of or related to this Agreement is
brought by any party, the prevailing party or parties shall be entitled to
recover the costs and fees (including without limitation reasonable attorney
fees, the fees and costs of experts and consultants, copying, courier and
telecommunication costs, and deposition costs and all other costs of discovery)
incurred by such party or parties in such suit or action, including without
limitation any post-trial or appellate proceeding.
6.7 SEVERABILITY
If one or more provisions of this Agreement is held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
6.8 AMENDMENTS AND WAIVERS
Any amendment, waiver or modification of this Agreement may be made only
with the written consent of the parties hereto. No failure by any party to
insist upon the strict performance of any provision of this Agreement, or to
exercise any right or remedy consequent upon a breach thereof, shall constitute
a waiver of any such breach or of any subsequent breach of the same or any other
provision. No waiver of any provision of this Agreement shall be deemed a waiver
of any other provision of this Agreement or a waiver of such provision with
respect to any subsequent breach, unless expressly provided in writing.
6.9 ENTIRE AGREEMENT
This Agreement constitutes the full and entire understanding and
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements with respect to the subject matter hereof. There
are no promises, terms, conditions, obligations, representations or warranties
other than those contained in
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this Agreement. This Agreement supersedes all prior communications,
representations or agreements, verbal or written, among the parties relating to
the subject matter hereof.
6.10 SPECIFIC ENFORCEMENT
The parties intend and agree that the provisions of this Agreement shall
be specifically enforceable in any court having jurisdiction to grant the remedy
of specific performance.
IN WITNESS WHEREOF, the parties have executed this SHAREHOLDER AGREEMENT
as of the date first above written.
MAXWELL ENERGY PRODUCTS, INC.
By:
---------------------------------------
Name:
--------------------------------------
Title:
------------------------------------
Address:
PACIFICORP ENERGY VENTURES, INC.
By:
---------------------------------------
Name:
--------------------------------------
Title:
------------------------------------
Address:
MAXWELL TECHNOLOGIES, INC.
By:
---------------------------------------
Name:
--------------------------------------
Title:
------------------------------------
Address:
PAGE 9
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SCHEDULE 1
<TABLE>
<CAPTION>
CLASS A SERIES A PREFERRED
NAME COMMON STOCK STOCK
<S> <C> <C>
PacifiCorp Energy Ventures, Inc. -- 466,217
Maxwell Technologies, Inc. 5,000,000 --
</TABLE>
PAGE 1
<PAGE> 66
EXHIBIT C
EMPLOYEE INVENTION AND SECRECY AGREEMENTS
PAGE 1
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EXHIBIT D
RESEARCH, DEVELOPMENT & SUPPLY AGREEMENT
This Research, Development & Supply Agreement (the "Agreement") is
entered into as of October 30, 1997 (the "Effective Date"), by and between
MAXWELL ENERGY PRODUCTS, INC., a California corporation ("MEP"), and PACIFICORP
ENERGY VENTURES, INC., an Oregon corporation ("PEV").
WHEREAS, the parties each desire the rapid commercialization of MEP's
ultracapacitor technology for stationary power and energy services ("SPES")
applications; and
WHEREAS, MEP desires to receive R&D funding from PEV to develop products
for SPES applications;
WHEREAS, PEV wishes to obtain a reliable source of supply of products
for SPES applications which may result from research, development, and
commercialization of MEP's ultracapacitor technology;
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, THE PARTIES HEREBY AGREE AS FOLLOWS:
AGREEMENT
SECTION 1. DEFINITIONS
Capitalized terms used in this Agreement, and not otherwise defined
herein, shall have the meanings given to them below:
"Affiliate(s)" means any person or entity which directly or indirectly
controls, or is controlled by, or is under common control with a specified
person or entity. The term "control" for purposes of the definition of the term
"Affiliate" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person or entity,
whether through the ownership of voting securities, by contract or otherwise.
"Closing" means the date of this Agreement.
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"First Milestone" refers to the objectives set forth in Section
2.2.2(a)(ii) of this Agreement.
"Modular Packaging Technology" means the modular packaging technology
developed by or for MEP for SPES applications, including all technology arising
out of the MPT Development Program described in Figure 6a of the SPES Business
Plan, as modified in accordance with Section 2.4 of this Agreement.
"Product Development Plan" shall refer to a document meeting the
requirements set forth in clause (B) of Section 2.2.2(a)(ii).
"Product(s)" means the ultracapacitors described in the SPES Business
Plan, whether sold as individual cells, or packaged into banks or modules,
together with both existing designs and future improvements to such
ultracapacitors; provided, that for purposes of this Agreement, Products shall
include only ultracapacitors to be used or sold for SPES applications, including
without limitation the applications identified in column two of the row titled
"Stationary Power and Energy Services" in Table 1 of the SPES Business Plan.
"Proprietary Rights" means any patent, copyright, mask work, trade
secret, know-how or other intellectual property right that is protected or
protectable (whether or not a filing with any government office is made) under
the laws of the United States of America, or other countries, any political
subdivision of any of the foregoing, or any other governmental authority.
"Second Milestone" refers to the objectives set forth in Section
2.2.2(b)(ii) of this Agreement.
"SPES Business Plan" means the document titled Stationary Power and
Energy Services (SPES) Power Cache/Ultracapacitors Business Plan, dated
September 22, 1997, a copy of which is attached hereto as Exhibit A, as modified
in accordance with Section 2.4 of this Agreement.
"Technology" means MEP's Proprietary Rights relating to the Products.
"Transfer" means any sale, exchange, exclusive license, execution on a
pledge, assignment, gift, sale by legal process under execution or attachment,
or other change in ownership, but shall not include a sale of substantially all
of the assets of MEP to a transferee who accepts delegation of MEP's obligations
under this Agreement.
"Unit(s)" means an individual ultracapacitor cell.
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SECTION 2. RESEARCH AND DEVELOPMENT
2.1 DEVELOPMENT
2.1.1 SCOPE OF WORK
MEP shall, in a competent and professional manner, perform services and
work described herein, in the SPES Business Plan and in the Product Development
Plan and shall complete development of the Products to fully comply with the
specifications contained within the SPES Business Plan and the Product
Development Plan.
2.1.2 SCHEDULE
MEP shall perform the services and complete development of the Products
in accordance with the schedules set forth herein, in the SPES Business Plan and
in the Product Development Plan.
2.1.3 REPORTS
MEP will deliver monthly written reports describing progress to date,
problems encountered, delays, any change in MEP's expectations for the schedule,
product performance, or technical capabilities, and other similar matters
relating to completing development of the Products.
2.2 FUNDING
In consideration for MEP's satisfactory performance of the work
specified in Section 2.1, PEV will provide the research and development funding
specified in this Section 2.2.
2.2.1 INITIAL PAYMENT
At the Closing, PEV shall deliver to MEP a cashier's check or wire
transfer of funds in the amount of five hundred thousand dollars ($500,000.00)
payable to MEP's order.
2.2.2 MILESTONE PAYMENTS
(a) First Milestone. Subject to the provisions of Section
2.2.2(c), upon the later of (i) six months after the Closing and (ii) MEP having
successfully both (A) achieved variable manufacturing costs (material plus
labor) per Unit of Three Hundred Dollars ($300.00) or less, and (B) delivered to
PEV a Product Development Plan which will include a detailed project plan to be
agreed upon by PEV and MEP containing the timing for planned tasks and
expenditures for improving
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the performance and cost characteristics of the Products during the twelve
months after the Closing, PEV shall deliver to MEP a check or wire transfer of
funds in the amount of one million two hundred fifty thousand dollars
($1,250,000.00) payable to MEP's order.
(b) Second Milestone. Subject to the provisions of Section
2.2.2(c), upon the later of (i) twelve months after the Closing and (ii) MEP
having successfully both (A) achieved the development of commercial Units with
performance and cost characteristics meeting or exceeding those agreed upon by
PEV and MEP and set forth in the Product Development Plan, and (B) completed the
development of Modular Packaging Technology that meets or exceeds the
specifications set forth in the SPES Business Plan, PEV shall deliver to MEP a
check or wire transfer of funds in the amount of one million two hundred fifty
thousand dollars ($1,250,000.00) payable to MEP's order.
(c) Termination of Funding Obligation. PEV may elect to
terminate its funding obligations under this Section 2.2.2 if (A) PEV provides
MEP with written notice of material breach of this Agreement and MEP fails to
cure such breach within twenty (20) days of such notice, provided further that
if the nature of the breach is such that it cannot be cured with reasonable
effort within twenty (20) days of such notice, the time for cure shall be
extended to ninety (90) days of such notice so long as MEP both initiates
efforts to cure in the first twenty (20) days, and works diligently toward cure,
or (B) if MEP fails to either (i) achieve the First Milestone within twelve
months of the Closing, or (ii) achieve the Second Milestone within eighteen
months of the Closing. If PEV elects to terminate its funding obligations
pursuant to this provision, the termination shall be effective upon PEV
providing written notice of its election to MEP.
2.3 ACCESS TO TECHNOLOGY
MEP agrees that in the event it desires to Transfer all or part of the
Technology or Modular Packaging Technology, it shall deliver to PEV a notice of
proposed transfer stating (i) its bona fide intention to complete a Transfer,
(ii) a description of the specific rights and/or technologies to be transferred,
(iii) the consideration for and terms and conditions of the proposed Transfer;
and (iv) the identity of the proposed transferee, if any. PEV shall have the
right to acquire the rights and/or technologies for the proposed consideration
and pursuant to the proposed terms and conditions. To exercise its right, PEV
shall deliver a notice of acceptance to MEP within 30 days following receipt of
the notice of proposed Transfer. If PEV exercises its right in accordance with
this Section 2.3, PEV and MTI shall effect a closing on a mutually agreed date,
which closing shall be within 30 days after the date of such notice of
acceptance. If PEV does not exercise its right in accordance with this Section
2.3,
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MEP may complete the proposed Transfer with a third-party for consideration
and terms and conditions no more favorable to the transferee than those stated
in the notice of proposed Transfer; provided that the Transfer is completed
within 120 days of the date of the notice of proposed Transfer. If such Transfer
is not completed within such 120-day period, then MEP will not Transfer all or
part of the Technology or Modular Packaging Technology except pursuant to the
procedure set forth in this Section for giving PEV notice and pursuant to PEV's
right to acquire such assets.
2.4 USE OF FUNDS
MEP will use the funds provided by PEV pursuant to this Section solely
for the development and commercialization of the Product in conformance with the
SPES Business Plan and Product Development Plan, material modifications to which
must be approved, after review, by MEP's Board of Directors.
SECTION 3. SUPPLY
3.1 PAYMENT FOR PREFERRED ACCESS
In consideration for MEP's agreement to supply Product to PEV under the
preferred access terms contained in this Section 3, at the Closing PEV shall
deliver to MEP a check or wire transfer of funds in the amount of one million
dollars ($1,000,000.00) payable to MEP's order.
3.2 PROTOTYPES AND DEMONSTRATION UNITS
3.2.1 PEV shall have the right to use the existing prototypes and
demonstration units identified in Exhibit B hereto, at the times, and locations
specified in Exhibit B. PEV shall have the right to reasonable amounts of
additional use of the existing prototypes and demonstration units to promote the
rapid acceptance of the Product in the marketplace, at PEV's expense, and no
additional charge by MEP to PEV.
3.2.2 Representatives of MEP and PEV shall meet within sixty days
of the Closing to review PEV's requirements for additional prototypes and
demonstration units. PEV's purchases of additional prototypes and demonstration
units, if any, shall be made in accordance with the terms specified in Section
3.3 of this Agreement.
3.3 PURCHASE AND SALE OF PRODUCTS
3.3.1 MEP shall manufacture, sell and deliver to PEV or its
Affiliates such Products that are the subject of orders placed by PEV or its
Affiliates.
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3.3.2 PEV or its Affiliates will issue to MEP orders for any
Products that PEV or its Affiliates desire to purchase from MEP during the term
of this Agreement.
3.3.3 MEP will sell Products to PEV or its Affiliates at a price
that does not exceed the lowest of: (i) five hundred dollars ($500.00) per Unit,
(ii) MEP's fully-burdened cost plus ten percent (10%), and (iii) the lowest
price at which MEP has offered or sold Products to any third-party, including
end-users, distributors, resellers, systems integrators, or any other type of
customer, taking into consideration volume, payment terms, delivery schedule and
other pertinent objective factors, less five percent (5%). In the event MEP
offers limited time or limited quantity promotional pricing for Products to any
customer, and such pricing is lower than the lowest price specified in this
Section 3.3.3(i)-(iii), MEP will sell Products to PEV or its Affiliates at the
promotional price less five percent (5%) for the applicable promotional time
and/or promotional quantity, with the exception that this provision shall not
apply to promotions of small quantity and short duration made by MEP during the
first twelve months following Closing, in which MEP gives Products to a
specific, strategically important customer at no charge or nominal charge.
3.3.4 MEP will promptly notify PEV both at the time of any PEV
order and any time upon request by PEV of the pricing, volumes, payment terms,
delivery schedules, features and other pertinent objective factors, of any offer
or sale of the Products by MEP, or any Affiliate of MEP, to a third-party,
including any promotional offer or sale of the Products, that has lower pricing
for the Products than that which MEP previously offered to third-parties. MEP
will promptly notify PEV of the pricing and terms of promotional offers of
limited duration, if such promotional offer has pricing or terms more favorable
than those generally available to PEV, after making such promotional offer.
3.3.5 Prices charged PEV will be adjusted to reflect the best
available price available to PEV pursuant to Section 3.3.3 at the time of order.
3.3.6 MEP shall, at all times, offer to sell Products to PEV on
terms and conditions, including, without limitation, warranty, delivery
schedule, service fees, spare parts price, payment terms and product features,
no less favorable than those offered by MEP or its Affiliates to any other
customer for SPES applications.
3.4 RESALE
3.4.1 PEV or its Affiliates may resell Products, individually or
as a part of an integrated system, anywhere in the world.
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3.4.2 MEP grants to PEV and its Affiliates, such nonexclusive,
perpetual licenses to MEP's Proprietary Rights, with right to sublicense, if
necessary, to use the Products, integrate the Products with other products into
a system, sell the Products, and distribute the Products.
3.4.3 MEP grants to PEV and its Affiliates, a nonexclusive,
perpetual license, with right to sublicense, to use, with proper attribution,
any MEP trademarks or trade names related to the Products, in connection with
PEV's marketing, sales or distribution of the Products or systems containing the
Products, including without limitation the PowerCache trademark and trade name.
3.4.4 Any warranty or indemnity provided by MEP relating to
Products sold by MEP to PEV shall run to the benefit of PEV's customers. PEV may
assign to its customers any and all warranties or indemnities provided by MEP
pertaining to the Products.
3.4.5 MEP will obtain all approvals, if any, required for PEV or
its Affiliates to sell the Products in the form sold by MEP, from industry
groups and/or governmental agencies of the United States (federal, state and
local) or other countries (including governmental subdivisions) or multinational
organizations.
3.5 ROYALTIES
3.5.1 In consideration for PEV's contributions to the development
and commercialization of the Products, MEP will pay to PEV a royalty in the
amount of two percent (2%) of all revenues received by MEP, or any Affiliate of
MEP, from the sale or other distribution of Products (or similar products
derived from ultracapacitor technology and sold for SPES applications),
excluding sales of Products by MEP to PEV, during the five year period starting
at the Closing, such royalties not to exceed, in the aggregate one million
dollars ($1,000,000.00).
3.5.2 Royalty payments shall be made by PEV on a quarterly basis,
within forty-five days after the end of each fiscal quarter.
3.6 NEW TECHNOLOGY
MEP agrees to afford PEV periodic and timely opportunities upon
reasonable advanced notice to review and evaluate all of MEP's technologies,
regardless of stage of development, for potential use by PEV and its Affiliates,
and shall provide the representatives of PEV and its Affiliates with access to
MEP's personnel and records pertaining to such technologies at reasonable times
under appropriate confidentiality restrictions.
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SECTION 4. WARRANTY
4.1 In addition to any warranties that MEP provides to PEV pursuant to
Sections 3.3.6 or 4.2 of this Agreement, MEP warrants that all Products
delivered to PEV or any Affiliate of PEV will not infringe upon or violate any
international or United States patent, copyright, trade secret or other
proprietary right of any third party. This warranty and representation shall
survive any inspection, acceptance and payment.
4.2 At a minimum, MEP will warrant that all Products, including each
Unit delivered to PEV or PEV's Affiliates, will:
4.2.1 Conform to the then current specifications for the Product.
4.2.2 Be free of defects in material and workmanship for a period
of 12 months after the date of shipment.
4.2.3 Consist of all new material.
4.2.4 Comply with all applicable laws and required industry
standards including without limitation UL and CE certifications.
4.3 MEP shall achieve the ISO certifications to be specified in the
Product Development Plan by the time specified therein.
SECTION 5. INDEMNIFICATION
5.1 INDEMNIFICATION FOR INFRINGEMENT
MEP, at its sole expense, shall defend and hold harmless PEV and its
Affiliates, customers, officers, directors, agents, employees, assigns and
successors against any claim that the design, production, testing, packaging,
manufacture, sale, distribution or use of the Products (other than special
order, non-standard systems manufactured by MEP on behalf of PEV, in accordance
with a design provided by PEV to MEP), in the form delivered by MEP, infringes
or contributorily infringes any patent, utility model, industrial design,
copyright, mask work, trade dress right, trademark and/or trade secret of a
third party of either the country in which MEP delivers the Product to PEV or
its Affiliates or the country in which PEV or its Affiliates delivers the
Product to its customer. MEP shall pay all costs of such defense and settlement
and any costs and damages awarded by a court against PEV or its Affiliates or
any customer who purchases the Product from PEV or its Affiliates. In addition
to the indemnity provided above, if such a claim is made or appears likely to be
made, MEP shall also procure the right for PEV and its Affiliates to continue
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using and selling the Product; modify the Product so that it is not infringing;
or replace the Product with a non-infringing substitute; provided that such
replacement or modification shall have fit, form and function substantially
identical to that of the original Product. If use and/or sale of the is enjoined
by a court or if a court requires payment of royalties or other amounts by PEV
or its Affiliates or the customers of PEV or its Affiliates in connection with
the use and/or sale of the Product, MEP shall either: (a) procure, at MEP's sole
expense, the right for PEV and its Affiliates and their customers to continue
using and selling the Product; (b) modify or replace the Product in accordance
with the foregoing sentence; or (c) if none of these alternatives is
commercially reasonable, MEP will take back the Product at MEP's sole expense
and refund to PEV or its Affiliate or their customer, as the case may.
5.2 INDEMNIFICATION FOR PRODUCT LIABILITY
Notwithstanding anything contained herein to the contrary, MEP agrees to
defend and indemnify PEV, its Affiliates, customers, officers, directors,
agents, employees, assigns and successors from and against any losses, damages,
claims, demands, suits, liabilities and expenses (including reasonable
attorneys' fees) that arise out of or result from injuries or death to persons
or damage to property caused by the use of the Products, in the form delivered
by MEP, including claims that the Products were defective or were not safe for
their intended use. MEP shall maintain product liability insurance naming PEV
and PEV's Affiliates as additional insureds.
SECTION 6. COOPERATION
6.1 GENERAL DUTY TO COOPERATE
Each party shall use its best efforts to carry out the purposes of this
Agreement, and to cooperate with the other party.
6.2 COMMITTEE SEAT
PEV will permit one MEP representative to become a member of a PEV
technology committee or other similar committee. The designated committee may
adopt bylaws that would limit the role of outside members, such as the MEP
representative, so long as the MEP representative has no lesser role than any
other committee member who is not an employee of either PEV or its Affiliates.
6.3 AUDIT RIGHTS
PEV shall have the right to conduct, at its own expense, audits to
insure compliance with the provisions of this Agreement, including without
limitation (i) that MEP is using the research and development funds in
compliance with Section 2.4;
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(ii) that PEV is receiving preferred pricing in accordance with the provisions
of Section 3.3; and (iii) that MEP has paid the correct royalty amounts in
accordance with Section 3.5. MEP will cooperate with such audits, and provide
any information reasonably related to the purpose of the audit. In the event
that an audit reveals a material failure on the part of MEP to meet its
obligations under this Agreement, MEP shall correct such failure within thirty
days of receiving notice of the audit results, and reimburse PEV for all
expenses associated with the audit.
6.4 PUBLICITY
The parties may publicize their relationship by referring to each other
in press releases, marketing literature and other public pronouncements relating
to the Products.
SECTION 7. TERM
This agreement shall become effective as of the Closing and shall remain
in effect for five years from the later of (i) the date of delivery by MEP to
PEV of the first 100 Units if PEV orders such Units within 90 days of the
Closing, and (ii) the Closing.
SECTION 8. OTHER PROVISIONS
8.1 FORCE MAJEURE
Any delay and/or failure in performance shall not be deemed a breach
hereof when such delay or failure is caused by or due to causes beyond the
reasonable control of the party charged with such performance hereunder,
including but not limited to fire, flood, accidents, explosions, acts of God and
acts of local, state and/or federal governments or acts of war, but not
including any failure to perform on account of the physical characteristics of
materials, or other scientific or technical barriers. Should a delay occur, the
party claiming force majeure shall notify the other party, in writing,
specifying the nature and anticipated duration of the delay. The date on which a
party's obligations hereunder are due to be fulfilled shall be extended for a
period equal to the time lost as a result of any such delay.
8.2 ASSIGNMENT
Except as expressly allowed herein, neither party shall assign any of
its rights or delegate any of its obligations under this Agreement without the
prior written consent of the other party.
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8.3 APPLICABLE LAW
The interpretation, validity and enforcement of this Agreement shall be
governed by the law of the State of Oregon without regard to conflict of laws
principles. Both parties hereby consent and submit to personal jurisdiction of
the state or federal courts situated in Multnomah County, Oregon , and all
disputes arising in connection with the Agreement shall be heard only by a court
of competent subject matter jurisdiction in Multnomah County, Oregon.
8.4 ENTIRE AGREEMENT
This Agreement, together with all documents expressly referenced herein,
which are incorporated herein by this reference, shall constitute the entire
agreement between MEP and PEV with respect to the subject matter of this
Agreement and shall supersede all prior agreements, understandings and
representations between PEV and MEP with respect.
8.5 MODIFICATION; NON-WAIVER; SEVERABILITY; CUMULATIVE REMEDIES
No addition or modification of this Agreement shall be effective unless
made in writing and signed by the respective representatives of PEV and MEP. Any
delay or failure to enforce at any time any provision of this Agreement shall
not constitute a waiver of the right thereafter to enforce each and every
provision thereof. If any of the provisions of this Agreement is determined to
be invalid, illegal, or otherwise unenforceable, such provision shall be
enforced to the fullest permissible extent and the remaining provisions shall
remain in full force and effect. The rights and remedies provided to each party
herein are cumulative and in addition to any other rights and remedies available
to such party at law or in equity.
8.6 NOTICES
Any notice, demand, acknowledgment, or other communication made or given
by either party in accordance with this Agreement, other than orders, invoices
and other routine order processing correspondence, which is required under this
Agreement or relates to a formal notice of an event of default or demand for
indemnity shall be in writing and sent via facsimile (with confirmation) or by
registered or certified mail, return receipt requested, or by courier service
and addressed to the other party at its address as set forth below (or any other
address of which the other party is notified in accordance with this Section):
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If to PEV: Attn: David Hoffman
PacifiCorp Energy Ventures, Inc.
700 N.E. Multnomah St.
Portland, OR 97232-4116
Fax: (503) 731-2205
If to MEP: Attn: President
Maxwell Energy Products, Inc.
4949 Greencraig Lane
San Diego, CA 92123
Fax: (619) 576-7679
Copy to: Donald M. Roberts
General Counsel
Maxwell Technologies, Inc.
9275 Sky Park Ct.
San Diego, CA 92123
Fax: (619) 277-6754
Any notice shall be deemed to have been duly given and received by the party to
whom it is addressed (i) if sent by telefacsimile, when sent (if confirmation is
received), (ii) if sent by registered mail or certified mail, three (3) business
days after deposit in the mail, postage prepaid, or (iii) if by courier service,
the next business day.
8.7 SURVIVABILITY
The terms and conditions of this Agreement that by their sense and
context are intended to survive after performance hereunder shall survive the
termination or expiration of this Agreement, including but not limited to
Sections 3.4, 4, 5, 6.3 and 8.
8.8 ATTORNEYS' FEES
In the event of any legal proceeding to enforce or construe any of the
provisions of this Agreement or any obligations of either party in connection
herewith, the court or other tribunal of competent jurisdiction may award the
prevailing party in such proceeding, in addition to its damages, its reasonable
attorneys' fees and costs incurred in connection therewith.
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IN WITNESS WHEREOF, the parties have caused their authorized
representatives to execute this Agreement as of the Effective Date.
MAXWELL ENERGY PRODUCTS, INC.
By:
---------------------------------------
Name: Gregg McKee
Title: President and COO
Address: 4949 Greencraig Lane
San Diego, CA 92123
PACIFICORP ENERGY VENTURES, INC.
By:
---------------------------------------
Name: Michael C. Henderson
Title: President and CEO
Address: 700 N.E. Multnomah Street
Portland, OR 97232-4116
PAGE 13
<PAGE> 80
EXHIBIT E
BILL OF SALE AND ASSIGNMENT
PAGE 1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 1,022
<SECURITIES> 0
<RECEIVABLES> 21,409
<ALLOWANCES> 0
<INVENTORY> 8,328
<CURRENT-ASSETS> 32,332
<PP&E> 49,733
<DEPRECIATION> 32,353
<TOTAL-ASSETS> 50,581
<CURRENT-LIABILITIES> 19,202
<BONDS> 337
0
0
<COMMON> 641
<OTHER-SE> 28,791
<TOTAL-LIABILITY-AND-EQUITY> 50,581
<SALES> 27,756
<TOTAL-REVENUES> 27,756
<CGS> 18,481
<TOTAL-COSTS> 18,481
<OTHER-EXPENSES> 7,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 1,397
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,416
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
