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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAXWELL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-2390133
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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9275 SKY PARK COURT
SAN DIEGO, CALIFORNIA 92123
(619) 279-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DONALD M. ROBERTS, ESQ.
GENERAL COUNSEL
MAXWELL TECHNOLOGIES, INC.
9275 SKY PARK COURT
SAN DIEGO, CALIFORNIA 92123
(619) 279-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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ROGER H. LUSTBERG, ESQ. BRUCE R. HALLETT, ESQ.
THOMAS A. WALDMAN, ESQ. GREG T. WILLIAMS, ESQ.
RIORDAN & MCKINZIE BROBECK, PHLEGER & HARRISON LLP
300 SOUTH GRAND AVENUE, 29TH FLOOR 4675 MACARTHUR COURT, SUITE 1000
LOS ANGELES, CALIFORNIA 90071 NEWPORT BEACH, CA 92660
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Approximate date of commencement of proposed sale of the securities to the
public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form S-3 are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------
Common Stock.................. 1,811,250 shares $31.84375 $57,676,992 $17,478
======================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457, based on the average of the high and low sales price,
$33.1875 and $30.50, respectively, on September 26, 1997 as reported on the
Nasdaq National Market.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED , 1997
1,575,000 SHARES
MAXWELL LOGO
COMMON STOCK
------------------------------
Of the 1,575,000 shares of Common Stock offered hereby, 1,500,000 are being
issued and sold by Maxwell Technologies, Inc. ("Maxwell" or the "Company") and
75,000 are being sold by certain selling stockholders (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MXWL." On September 26, 1997, the last sale price of the Common
Stock, as reported on the Nasdaq National Market, was $30.50. See "Price Range
of Common Stock."
------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 HEREOF.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- ---------------------------------------------------------------------------------------------------------------
Per Share.............. $ $ $ $
Total(3)............... $ $ $ $
===============================================================================================================
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated to be $600,000, payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 236,250
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for the shares will be made at the offices of Cowen &
Company, New York, New York on or about , 1997.
COWEN & COMPANY HAMBRECHT & QUIST
, 1997
<PAGE> 3
[PHOTOS TO COME]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK
IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND CERTAIN SELLING
GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IMMEDIATELY PRIOR TO THE COMMENCEMENT OF
SALES IN THE OFFERING IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus. This Prospectus may contain
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in any
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
Maxwell Technologies, Inc. ("Maxwell" or the "Company") is a worldwide
leader in pulsed power technologies, the storage of electrical energy and
delivery of power in brief controlled bursts. The Company has leveraged its
technical expertise, gained from over 30 years of experience performing research
and development primarily for the United States Department of Defense, to
develop a portfolio of pulsed power based commercial products. These products
address a range of markets and applications and include ultracapacitors for
advanced electrical energy storage and power delivery, purification systems for
water treatment and the sterilization of medical and pharmaceutical products and
electromagnetic interference ("EMI") filter capacitors for implantable medical
devices. In addition to pulsed power based products, the Company offers
industrial computers and subsystems which are sold to OEMs in the computer
telephony, medical, manufacturing automation and other markets. Government
funded research and development projects continue to be an important element of
the Company's business, serving as an incubator for technological innovations
and a resource of scientific and engineering expertise.
The Company's PowerCache ultracapacitors offer solutions to electrical
energy storage and power delivery problems in a wide range of commercial
applications including wireless communications devices, reliable power delivery
for industrial processing and computing equipment and automotive electrical
subsystems. The Company's ultracapacitors provide benefits such as extending
battery life and increasing signal strength in wireless communications devices
and protecting against power fluctuations and outages in industrial
applications. The Company also designs and manufactures high voltage capacitors
that are used in applications such as medical and industrial lasers, x-ray
machines and high-speed trains. Pulsed power technology has also enabled the
development of the Company's PureBright purification systems which deliver
pulses of light to kill microorganisms in applications ranging from water
treatment to sterilization of food packaging and medical and pharmaceutical
products. The Company's EMI filters prevent electromagnetic radiation emitted
from devices such as cellular phones and household appliances from disrupting
the functioning of implantable heart defibrillators and pacemakers and other
sensitive electronic equipment. The Company's pulsed power products are sold
primarily to OEMs in target markets and through direct sales channels.
The Company intends to continue to execute its commercialization strategy,
develop products incorporating its core technologies and identify and penetrate
key markets for its products. The Company has established a number of strategic
partnerships with industry leaders for product development, marketing and sales.
Through these relationships the Company obtains specific market knowledge,
product and customer validation and access to funding for product development.
The Company has relationships with, among others, Tetra Pak International AB,
("Tetra Pak"), one of the world's leading food packaging equipment
manufacturers, PacifiCorp, a diversified utility and telecommunications company,
a leading automobile manufacturer and an international restaurant chain.
As part of its shift to a commercially-oriented business, in 1996 the
Company completed a restructuring that organized like and synergistic businesses
into subsidiaries, creating focused centers of expertise for product
development, manufacturing, marketing and sales. In addition, the Company added
a new senior management team to drive the commercialization of Maxwell's
portfolio of core technologies and market penetration of the resulting products.
The Company was incorporated in California in 1965 as Maxwell Laboratories,
Inc. and reincorporated in Delaware in 1986. The Company's name was changed to
Maxwell Technologies, Inc. in 1996. Unless otherwise indicated, all references
to "Maxwell" or the "Company" refer to Maxwell Technologies, Inc. and its
consolidated subsidiaries. The Company's executive offices are located at 9275
Sky Park Court, San Diego, California 92123. Its telephone number is (619)
279-5100.
PowerCache(TM), PureBright(R), CoolPure(R), JAMIS(R) and ElectroBlast(TM)
are trademarks of the Company. All other trademarks or tradenames referred to in
this Prospectus are the property of their respective owners.
3
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THE OFFERING
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Common Stock offered:
By the Company............................. 1,500,000 shares
By the Selling Stockholders................ 75,000 shares
Common Stock to be outstanding after this
offering................................... 7,642,911 shares(1)
Use of proceeds.............................. For general corporate purposes, including working
capital and capital expenditures for facilities
and equipment and for possible acquisitions.
Nasdaq National Market symbol................ MXWL
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
YEAR ENDED JULY 31,
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1993 1994 1995 1996 1997
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales.................................................. $86,902 $85,463 $75,004 $ 80,911 $101,411
Gross profit........................................... 21,137 16,908 18,557 15,018 31,304
Operating income (loss)................................ 1,962 (2,972) (117) (11,330) 4,101
Net income (loss)...................................... 1,022 (1,687) 315 (15,176) 4,024
Net income (loss) per share(2)......................... $ 0.19 $ (0.32) $ 0.06 $ (2.76) $ 0.60
Weighted average common and common equivalent shares
outstanding(2)....................................... 5,436 5,350 5,356 5,494 6,644
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<CAPTION>
JULY 31, 1997
---------------------
AS
ACTUAL ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital................................................................. $10,908 $53,598
Total assets.................................................................... 47,120 89,810
Long-term debt, excluding current portion....................................... 465 465
Stockholders' equity............................................................ 27,410 70,100
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(1) Based on shares outstanding as of July 31, 1997. Excludes (i) 207,884 shares
of Common Stock reserved for future grant under the Company's 1995 Stock
Option Plan (the "1995 Option Plan") and Director Stock Option Plan; (ii)
options to purchase an aggregate of 1,054,680 shares of Common Stock
outstanding under the Company's 1995 Option Plan, 1985 Stock Option Plan and
Director Stock Option Plan, at a weighted average exercise price of $8.01
per share and (iii) 339,335 shares of Common Stock reserved for future
issuance under the Company's 1994 Employee Stock Purchase Plan and Director
Stock Purchase Plan. See "Capitalization" and Note 4 of Notes to
Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of shares used in calculating net income (loss) per share.
(3) Adjusted to reflect the sale of 1,500,000 shares of Common Stock by the
Company hereby at an assumed public offering price of $30.50 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
Except as otherwise indicated, all information contained in this Prospectus
(i) assumes no exercise of the Underwriters' overallotment option and (ii) has
been adjusted to reflect the 2-for-1 stock split effected in December 1996. The
term fiscal year shall refer to the 12 month period ended or ending July 31 of a
given year.
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RISK FACTORS
Prospective investors should consider carefully, in addition to other
information contained in this Prospectus, the following factors before
purchasing the shares offered hereby.
DEPENDENCE ON PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE
Many of the Company's products, especially its ultracapacitor and
purification products, are in the development stage and are alternatives to
existing technologies. The Company's success is dependent in part on market
acceptance of its new products and there can be no assurance that any material
commercial market will develop for these products. The Company expects that its
ultracapacitor and purification products will compete with existing products
that are well established in the marketplace and that, in some cases, are less
expensive. The future success of the Company will depend in large part on the
Company's ability to accurately anticipate market demand for its products and
services as well as improve its existing technologies and products. The
Company's ability to demonstrate a technological or economic advantage, or both,
over competitive products in addition to the technical, financial and other
risks involved in introducing new products and technologies are critical to the
Company achieving its goals. There can be no assurance that the Company will be
successful in identifying markets for its technologies or in developing,
manufacturing and marketing new commercial products or enhancements to existing
products that address the needs of these markets, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
CONTINUING TRANSITION TO COMMERCIAL BUSINESS
The Company is continuing its transition from its historical reliance on
funded research and development business for defense and other federal
government agencies to developing, manufacturing and marketing of products and
services for commercial markets. The Company's success in this regard will
depend upon a number of factors, including the Company's ability to gain
customer acceptance for its products and services, to expand its customer base
through sales and marketing efforts, to expand successfully its manufacturing
capacity, to develop extensions of its existing products and services into new
applications and to conceive and develop new products and services. Commencing
in fiscal 1996, the Company changed its senior management and reorganized its
operations along product and service lines. There can be no assurance that the
Company will be able to continue its transition to commercial businesses. The
Company's inability to achieve any of these objectives would have a material
adverse effect on the Company's business, results of operations and financial
condition.
FLUCTUATIONS IN OPERATING RESULTS; HISTORY OF LOSSES
Although the Company had net income of $4.0 million in fiscal 1997, it has
incurred significant losses in two of the past five years. Net losses for the
Company's 1996 and 1994 fiscal years were approximately $15.2 million and $1.7
million, respectively. Of the fiscal 1996 loss, $14.4 million arose from charges
related to the reorganization of the Company's operations, a change in
accounting principle and other charges more fully described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
the Consolidated Financial Statements and Notes thereto contained herein. The
Company may in the future experience significant fluctuations in revenues and
operating results from period to period as a result of a number of factors
including, without limitation, the volume and timing of orders and market
acceptance of the Company's products; the Company's ability to fill orders on a
timely basis; pricing policies of the Company or its competitors; variations in
the mix of product sales; the timing of product introductions by the Company or
its competitors; cancellation, suspension or other action taken by the United
States government or its agencies on its programs and contracts with the
Company; product obsolescence resulting from new product introductions or
changes in customer demand; and expenses associated with the acquisition of
businesses, products or technologies. The Company anticipates that, in order to
obtain market penetration, from time to time it will sell new products at prices
yielding margins below those it ultimately expects to achieve, and significant
aggressive pricing in a particular quarter or quarters could adversely affect
the results of operations for such periods. The impact of the foregoing factors
may cause the Company's operating results to be below
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<PAGE> 7
the expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock could be materially adversely affected.
Quarterly results are not necessarily indicative of future performance for any
particular period, and there can be no assurance that the Company will attain or
sustain growth in sales and profitability on a quarterly or annual basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EXTENSIVE RELIANCE ON STRATEGIC RELATIONSHIPS; RESTRICTIONS DUE TO EXCLUSIVITY
RIGHTS
The Company has established and will continue to seek to establish
strategic relationships with corporate partners and research relationships with
United States government agencies to support its various development programs,
leverage its expertise and manufacturing resources, obtain an understanding of
and access to markets and validate products. The Company currently collaborates
with a variety of strategic partners, including Tetra Pak, a leading food
packaging machinery and products company, for purification systems, and
PacifiCorp, a leading utility holding company, for ultracapacitors.
The loss of certain of its strategic relationships could have a material
adverse effect on the Company's sales growth. The Company's future success will
depend in part on its continued relationships with various of its strategic
partners, its ability to enter into other similar collaborative arrangements,
the interest of certain of the Company's strategic partners in the potential
products under development, the Company's success in meeting expectations of
strategic partners and, ultimately, their success in marketing or willingness to
purchase any such products. These programs may require the Company to share
control over its development, manufacturing and marketing programs, limit its
ability to license its technology to others, relinquish certain rights to its
technology or restrict its ability to engage in certain areas of product
development, production and marketing. Some of the Company's existing
collaborative arrangements permit, and future arrangements also may permit, the
Company's strategic partners to use or disclose the technology developed in the
program without any royalty obligation, to the extent that the technology is
jointly developed. Furthermore, the Company often grants an exclusivity right to
its strategic partner as an inducement to the partner to participate in the
development of a product or application. Any exclusivity rights granted to
strategic partners may inhibit the Company's ability to find a wider market for
certain of its commercial products and thus may materially reduce revenues
during the exclusivity period. There can be no assurance that the Company will
be able to enter into strategic arrangements on commercially reasonable terms or
that these arrangements, if established, will result in successful programs to
develop, manufacture or market pulsed power and other products or that the
Company's strategic partners will not seek to manufacture jointly developed
products themselves or obtain them from alternative sources. See
"Business -- Strategic Partnerships."
LIMITED VOLUME MANUFACTURING EXPERIENCE
The Company has limited experience with volume manufacturing of commercial
products. To date, the Company has not manufactured in volume its
ultracapacitors or purification systems. The Company may face challenges in
scaling up production of its new products, especially those products that
contain newly developed technologies, including problems involving production
yields, quality control and assurance, component supply and shortages of
qualified management and other personnel. In addition, the Company will need to
expand its current facilities or obtain additional facilities in order to
manufacture a substantial quantity of its ultracapacitor, purification and EMI
filter products. There can be no assurance that the Company will be successful
in expanding its facilities or obtaining additional facilities, or that it will
be able to overcome the management, technological, engineering and other
challenges associated with the production of significant quantities of products
at acceptable cost on a timely basis. The Company may elect to outsource
manufacturing of certain of its products, if such opportunities are available.
Outsourcing of manufacturing involves risks with respect to quality assurance,
cost and the absence of close engineering support. In addition, part of the
Company's ultracapacitor development strategy is the implementation of a process
that could allow customization of products while retaining the benefits of
volume manufacturing and materials procurement. There can be no assurance that
such a process can be developed and implemented in time to meet the Company's
needs in this regard. Difficulties in manufacturing or in obtaining appropriate
facilities or locating
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and qualifying outsourcing for manufacturing could have a material adverse
effect on the Company's business, financial condition and results of operations.
LIMITED SALES AND MARKETING EXPERIENCE
The Company has limited experience marketing and selling ultracapacitors
and purification systems. To market these products, the Company will be required
to develop a marketing and sales force that will be able to effectively
demonstrate the advantages of these products over competing products and other
traditional solutions. Furthermore, the highly technical nature of the Company's
products limits the pool of potential sales personnel. The Company also enters
into agreements with distributors or sales representatives regarding the
marketing of its products. By entering into such agreements, the Company may be
substantially dependent upon the efforts of others in deriving commercial
benefits from its products. There can be no assurance that the Company will be
successful in marketing and selling its products, that it will be able to
establish adequate sales and distribution capabilities, that it will be able to
enter into marketing agreements with third parties on financially acceptable
terms or that any third parties with whom it enters into such arrangements will
be successful in marketing the Company's products. The Company's inability to
achieve any of these objectives would have a material adverse effect on the
Company's business, results of operations and financial condition.
DEPENDENCE ON OEM CUSTOMERS; LENGTHY SALES CYCLES
A substantial portion of the Company's sales are derived from sales to a
relatively small number of OEM customers. The timing and amount of sales to
these customers ultimately depend on sales levels and shipping schedules for the
OEM products into which the Company's products are incorporated. The Company has
no control over the shipping date or volumes of products shipped by its OEM
customers, and there can be no assurance that any OEM will continue to ship
products that incorporate the Company's products at current levels or at all.
Failure of these OEMs to achieve significant sales of products incorporating the
Company's products and fluctuations in the timing and volume of such sales could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The decision process leading to the selection of the Company's products and
services is typically lengthy, with significant additional time required for
design, engineering and product approval before commercial shipments can begin.
Moreover, although customers sometimes substitute a new and better product into
an existing product, market opportunities with respect to any particular
customer typically occur at the time the customer is engaged in the design of a
new product or a substantial enhancement of an existing product, which typically
occur at infrequent intervals. Any failure of the Company to maintain continuing
awareness of its customers' product development schedules, or its inability to
provide the optimum solution at the time of such development can cause the
Company to miss a market opportunity that may not reappear for a substantial
period of time.
Lucent Technologies ("Lucent"), an OEM customer of the Company, accounted
for approximately 11.9% of the Company's total sales in fiscal 1997 and is a
significant customer of the Company's Industrial Computers and Subsystems
business segment. A substantial portion of the Company's existing sales to
Lucent involves products that have not been designed into Lucent's next
generation products and the Company therefore expects that its business with
Lucent will decline substantially in the second half of fiscal 1998 and
subsequent periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon the establishment and
maintenance of proprietary technologies. Although the Company attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that the steps taken by
the Company to protect its proprietary technologies will be adequate to prevent
misappropriation by third parties or will be adequate under the laws of some
foreign countries, which may not protect the Company's proprietary rights to the
same extent as do the laws of the United States. In addition, others could
"reverse engineer" the
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Company's products in order to determine their method of operation and introduce
competing products or develop competing technology independently. Any such
adverse circumstances could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company uses employee and third-party confidentiality and
non-disclosure agreements to protect its trade secrets and unpatented know-how.
The Company requires each of its employees to enter into a proprietary rights
and non-disclosure agreement in which the employee agrees to maintain the
confidentiality of all proprietary information of the Company and, subject to
certain exceptions, to assign to the Company all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment. In addition, the Company regularly enters into non-disclosure
agreements with third parties, such as consultants, potential joint venture
partners and customers. No assurance can be given that these methods will enable
the Company to maintain its trade secrets or unpatented know-how or that third
parties will not independently develop and/or patent substantially equivalent
proprietary information or copy, develop or otherwise obtain and use the
Company's proprietary technology without authorization.
The Company has historically relied primarily on its technological and
engineering abilities and on its design and production capabilities, rather than
on patents, for the development and maintenance of its business. However, the
Company does file patent applications on concepts and processes developed by the
Company's personnel and, as its commercial businesses expand, the Company has
placed increased emphasis on patents to provide protection for certain of its
technologies and products. The Company believes that its future success will
depend in part on its ability to maintain its patents, add to them where
appropriate, and to develop new products and applications without infringing the
patent and other proprietary rights of third parties and without breaching or
otherwise losing rights in technology licenses obtained by the Company for other
products. There can be no assurance that any patent owned by the Company will
not be circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with claims of the scope
sought by the Company, if at all. If challenged, there can be no assurance that
the Company's patents (or patents under which it licenses technology) will be
held valid or enforceable. In addition, there can be no assurance that others
will not claim rights in the technology covered by the patents and other
proprietary technology owned or licensed by the Company or that others have not
developed or will not develop similar products or technology without violating
the Company's proprietary rights. The invalidity of a patent or determination
that the Company (or its licensor) does not hold sole rights to the technology
covered thereby could have a material adverse effect on the Company,
particularly if the Company is unable to design around others' proprietary
rights.
Competing research and patent activity in many of the Company's
technologies is substantial and the markets are large enough that conflicting
patent and other proprietary rights claims may result in disputes or litigation.
Although the Company does not believe any of its products or proprietary rights
infringe the rights of third parties, there can be no assurance that
infringement claims will not be asserted against the Company in the future. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all. If
infringement were established, the Company could be required to pay damages or
be enjoined from making, using or selling the infringing product. Likewise,
there can be no assurance that a third party's product, if infringing on the
Company's proprietary rights, may be prevented from doing so without litigation.
Any of the foregoing could have a material adverse effect upon the Company's
business, financial condition and results of operations.
A number of the patents and patent applications owned or licensed by the
Company are subject to "march-in" rights and non-exclusive, royalty-free,
confirmatory licenses held by various governmental agencies or other entities.
March-in rights refer to the right of the United States government or a United
States government agency to cancel agreements and require a contractor to grant
licenses to third parties if the contractor fails to continue to develop the
technology related to the agreements. Confirmatory licenses permit the United
States government agencies or other governmental entities to select vendors
other than the Company to produce products for the United States government
which would otherwise infringe the
8
<PAGE> 10
Company's patent rights which are subject to the royalty-free licenses. In
addition, the United States government has the right to require the Company to
grant licenses (including exclusive licenses) under such patents and patent
applications or other inventions to a third party if the United States
government determines that adequate steps have not been taken to commercialize
such inventions, such action is necessary to meet public health or safety needs,
such action is necessary to meet requirements for public use under federal
regulations or such action is necessary because the Company has not exercised
reasonable efforts to ensure products manufactured pursuant to such invention
are manufactured in the United States. See "Business -- Patents, Licenses and
Trademarks."
COMPETITION
The markets in which the Company sells commercial products is highly
competitive, rapidly changing and significantly affected by new product
introductions and other market activities of industry participants. The
Company's primary competitors in ultracapacitors include Panasonic and SAFT, a
part of the Alcatel-Alsthom Group; in government-funded research and system
development include the Physics International unit of Primex Corporation and in
the passive backplane segment for industrial computers, include Texas
Microsystems, Diversified Technology, Advantech, Industrial Computer Source,
Teknor and Trenton. The Company's emerging products also compete with
established technologies in many markets, including batteries in ultracapacitor
products and a number of established methods of treating water and
decontaminating food packaging and medical products.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition, and a larger installed base of customers than the
Company. In addition, certain competitors have well-established relationships
with customers and potential customers of the Company. Furthermore, as the
Company's new products gain acceptance, companies with significantly greater
resources than the Company could attempt to increase their presence in these
markets. In order to be successful in the future, the Company must continue to
respond promptly and effectively to the challenges of technological change and
its competitors' innovations by continually enhancing its own product offerings.
There can be no assurance, however, that the Company's products will continue to
compete favorably or that the Company will be successful in the face of
increasing competition from new products and enhancements introduced by existing
competitors or new companies entering its market. See "Business -- Competition."
RISKS ASSOCIATED WITH GOVERNMENT BUSINESS
A substantial portion of the Company's sales (approximately 33% in fiscal
1997, 40% in fiscal 1996 and 43% in fiscal 1995) is derived from contracts with
the United States government, principally agencies of the United States
Department of Defense, and subcontracts with government suppliers. The
reductions in defense budgets over the past several years have adversely
affected the Company's business, particularly in the area of system
survivability products and services, such as weapons effects simulation and
testing. The Company has experienced significant reductions in this business as
the Department of Defense has responded to reduced global threats and shrinking
defense budgets. The Company has also experienced increased competition in
bidding for new defense programs from contractors seeking to replace their lost
government business. There can be no assurance that defense spending in general
or that contract awards to the Company specifically will not be reduced in the
future. A significant loss of United States government funding would have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company's United States government business is also subject to other
various risks, including: unilateral termination for the convenience of the
government; reduction or modification in the event of changes in the
government's requirements or budgetary constraints; increased or unexpected
costs causing losses or reduced profits under fixed-price contracts or
unallowable costs under cost plus contracts; risks of potential disclosure of
the Company's confidential information to third parties; the failure or
inability of a contractor to perform its obligations under a contract in
circumstances where the Company is a partner contractor or subcontractor; the
failure of the government to exercise options provided for in the contracts and
the exercise of march-in rights or confirmatory licenses by the government.
There can be no assurance that the
9
<PAGE> 11
Company's contracts with the Department of Defense and other government agencies
will not be terminated, reduced or modified or that the grant of such licenses
and rights will not result in a loss of potential revenues, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company participates in government funded programs which may extend for
several years, but are normally funded on an annual basis and shorter periods in
some cases. There can be no assurance that funding will continue for programs
covering the Company's development projects or that the Company can compete
successfully in obtaining contracts for such programs. A significant reduction
in, or discontinuation of, such funding or of the Company's participation in
such programs would have a material adverse effect on the Company's business,
results of operations and financial condition.
SUBSTANTIAL FUTURE CAPITAL NEEDS
The Company believes that, in order to achieve its long-term strategic
objectives and maintain and enhance its competitive position, it will need
significant additional financial resources over the next several years. To meet
anticipated volume production requirements for several of the Company's product
lines, in particular ultracapacitors and purification systems, the Company will
need expanded manufacturing capabilities and facilities or viable production
alternatives. The Company anticipates that the estimated net proceeds from this
offering, together with cash flow from operations and possible debt financing or
leasing, should be adequate to support the Company's anticipated facilities
expansion and equipment purchases through fiscal 1998. The Company anticipates
that it will require additional capital in the future to fund its continuing
expansion into commercial markets, to construct and equip additional facilities,
or to acquire new or complementary businesses, product lines and technologies.
Currently the Company has a $10 million line of credit, but there can be no
assurance that any necessary additional financing will be available to the
Company on acceptable terms or at all. If adequate funds are not available, the
Company may be required to change, delay, reduce or eliminate its planned
product commercialization strategy or its anticipated facilities expansion plans
and expenditures, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part upon the
continued service of its key technical and senior management personnel. The
Company is dependent on its ability to identify, hire, train, retain and
motivate high quality personnel, especially key manufacturing executives and
highly skilled engineers and scientists involved in the ongoing development,
introduction and enhancement of the Company's products and technologies. The
industries in which the Company competes are characterized by a high level of
employee mobility and aggressive recruiting of skilled personnel. The Company's
employees may terminate their employment with the Company at any time.
Accordingly, there can be no assurance that any of the Company's current key
employees will continue to work for the Company. Loss of services of key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.
RELIANCE ON THIRD PARTY SUPPLIERS
The Company's success is dependent in part on its ability to secure
qualified and adequate sources for supplies of materials, components and
sub-assemblies. The Company manufactures most of its products using a large
number of components or sub-assemblies, many of which are of commercially
available industrial parts and the remainder of which are custom-made to the
Company's specifications (by the Company and certain qualified outside
manufacturers). The Company endeavors to maintain more than one source of supply
for each of its major components or subassemblies, to the extent possible,
although certain suppliers are currently the sole source of one or more items
upon which the Company is dependent in the manufacture of its EMI filters and
industrial computing products. In the past, the Company has on occasion
experienced difficulty in obtaining timely delivery of power supplies for
industrial computers from outside suppliers which has adversely impacted the
Company's delivery time to its customers and in one circumstance the Company
believes such
10
<PAGE> 12
delivery problems were a contributing factor to the loss of certain business
from a major customer. There can be no assurance that these and other similar
supply problems will not recur. In addition, the Company currently has only one
qualified supplier for a certain component of its ultracapacitors and is
contractually obligated to qualify at least one additional supplier. No
assurance can be given that such qualification will be completed in a timely
manner. Moreover, the current sole domestic source of a component of the
Company's EMI filter has indicated its plans to design, build and sell a
competing filter in the future. The Company believes this supplier will continue
to sell to the Company but that, if necessary, the Company could replace this
supplier. Although the Company seeks to reduce its dependence on sole and
limited source suppliers, the partial or complete loss of these sources could
have at least a temporary material adverse effect on the Company's results of
operations and damage customer relationships due to the complexity of the
products supplied and the significant amount of time required to qualify new
suppliers.
PRODUCT LIABILITY RISKS
Certain of the Company's products may expose it to product liability risks.
The Company's EMI filters are components of implantable medical devices and, due
to the litigious environment surrounding the medical device industry, subject
the Company to an increased risk of product liability claims that may involve
significant defense costs. Other of the Company's products, such as
ultracapacitors and purification systems, may also be used in functions
involving significant product liability risks. There can be no assurance that
product liability claims will not be asserted against the Company in the future.
Although the Company maintains product liability insurance with coverage limits
it believes to be adequate, there can be no assurance that this coverage will in
fact be adequate to protect the Company against future product liability claims.
In addition, product liability insurance is expensive and there can be no
assurance that, in the future, product liability insurance will be available to
the Company in amounts or on terms satisfactory to the Company, if at all. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on the Company's business,
financial condition and results of operations.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances. The failure to comply with
current or future regulations could result in substantial fines being imposed on
the Company, suspension of production, alteration of its manufacturing process
or cessation of operations. Such regulations could require the Company to
acquire expensive remediation or abatement equipment or to incur substantial
expenses to comply with environmental regulations. Any failure by the Company to
control the use, disposal or storage of, or adequately restrict the discharge
of, hazardous or toxic substances could subject the Company to significant
liabilities.
POTENTIAL DILUTIVE IMPACT OF EMPLOYEE STOCK OPTION PROGRAMS AT SUBSIDIARIES
The Company has adopted stock option plans at each of its five principal
operating subsidiaries providing for the issuance of incentive and nonqualified
stock options to purchase common stock of these companies. Any of these
subsidiary stock options that have an exercise price per share less than the
fair market value per share of the common stock of a subsidiary ("in-the-money")
will have a negative impact on the Company's earnings per share. The Company
expects that its reported diluted earnings per share will be reduced in future
quarters due to the increased fair market value of certain of the Company's
subsidiaries. Such options, when and if exercised, will dilute the Company's
actual ownership interests in its subsidiaries, thus reducing the Company's
share of the net income, potential dividends or distributions and proceeds of
any sale or other disposition of such subsidiary. The equity interests upon
exercise of stock options in the subsidiaries would be accounted for as a
minority interest. Based on current programs, the dilutive impact attributable
to these option plans could be up to 13% at each of the Company's principal
operating subsidiaries (17% at one subsidiary). In addition, certain key
employees of one of the Company's Information Products and Services
subsidiaries, Maxwell Business Systems, Inc., currently own an aggregate of 20%
and have the right to purchase up to an additional 29% of that subsidiary.
Currently, no established trading market exists for the
11
<PAGE> 13
common stock underlying any of the subsidiary options and such options are not
exchangeable for Common Stock of the Company. The Company has no plan to offer
an exchangeability feature for options to purchase Company Common Stock or
otherwise provide liquidity for these subsidiary options, but the Company could
consider such alternatives in the future.
ECONOMIC IMPACT OF POTENTIAL PUBLIC OFFERINGS OF SUBSIDIARY STOCK
By conducting its operations through separate subsidiaries, the Company
promotes clearer market definition and product identity. This business unit
focus also allows the Company to more actively monitor opportunities for growth
or cost savings and to promote entrepreneurism with each subsidiary. While this
corporate structure also affords the Company a high level of flexibility to
implement various strategic alternatives, including future public offerings of
subsidiary stock, sales of subsidiaries or strategic acquisitions, certain of
these alternatives may have negative effects upon the Company's consolidated
sales, gross profit, net income and earnings per share. For example, any public
offering or other sale of a minority portion of a subsidiary's stock would
reduce that subsidiary's contribution to the Company's net income and earnings
per share. While any transaction would be preceded by a determination that such
transaction is in the best interests of the Company and its stockholders, such a
transaction could, nonetheless, have a material adverse effect on the Company's
results of operations.
GOVERNMENT REGULATION
The testing, manufacture and sale of certain of the Company's products are
subject to regulation by numerous governmental authorities. Pursuant to the
Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the United States Food and Drug Administration (the "FDA") regulates
the preclinical and clinical testing, manufacture, labeling, storage,
distribution and promotion of food and medical products and processes. The
Company has obtained clearance from the FDA of its CoolPure technology for
preservation of liquid foods. In addition, the Company has obtained clearance
from the FDA of PureBright for food use and is applying for similar approvals in
Canada and Europe, as well as supporting customers in obtaining clearance of
PureBright for medical applications. Implantable defibrillators and pacemakers
that incorporate the Company's EMI filter have been approved by the FDA. Delays
in receipt of or failure to receive anticipated approvals or clearances, the
loss of previously received approvals or clearances, limitations on intended use
imposed as a condition of such approvals or clearances, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
The testing, preparation of necessary marketing applications and processing
of those applications with the FDA is expensive and time consuming, can vary
based on the type of product and may take several years to complete. There is no
assurance that the FDA will act favorably or quickly in making such reviews, and
significant difficulties or costs may be encountered by the Company or others in
its efforts to obtain FDA approvals that could delay or preclude the Company
from marketing any products it may develop. The FDA may also require
postmarketing testing and surveillance to monitor the effects of approved
products or place conditions on any approval that could restrict the commercial
applications of such products. Product approvals may be withdrawn if compliance
with regulatory standards is not maintained or if problems occur following
initial marketing. Noncompliance with applicable requirements can result in,
among other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the United
States government to grant pre-market clearance or pre-market approval for
products, withdrawal of marketing clearances or approvals and criminal
prosecution.
RISKS ASSOCIATED WITH ACQUISITIONS
As part of its business strategy, the Company regularly reviews possible
acquisitions of complementary companies, technologies or products, and
periodically engages in discussions regarding such possible acquisitions.
Acquisitions involve numerous risks, including evaluating new technologies;
difficulties in the assimilation of the operations, products, personnel and
cultures of the acquired companies; the ability to manage effectively
geographically remote units; the diversion of management's attention from other
day-to-
12
<PAGE> 14
day business concerns; risks of entering markets in which the Company has
limited or no direct experience and the potential loss of key employees of the
acquired companies. In addition, acquisitions may result in dilutive issuances
of equity securities; the incurrence of debt; reduction of any then-existing
cash balances; amortization expenses related to goodwill and other intangible
assets and other charges to operating results that may materially adversely
affect the Company's results of operations. Moreover, there can be no assurance
that any equity or debt financings proposed in connection with any acquisition
would be available to the Company on acceptable terms or at all, when, and if,
suitable strategic acquisition opportunities arise. Although management expects
to carefully analyze any opportunity before committing the Company's resources,
there can be no assurance that any acquisition that is completed will result in
long-term benefits to the Company or its stockholders or that the Company's
management will be able to manage effectively the resulting business.
LONG-TERM FIXED-PRICE CONTRACTS
A portion of Maxwell's software business consists of work under a small
number of large, multi-year fixed-price contracts with state and local
government agencies involving sophisticated integration and networking tasks and
a certain amount of application software development. In addition, certain of
the Company's other businesses, primarily those conducted in its government
funded research and systems development business, may also enter into long-term
fixed-price contracts for large hardware systems or components. Events and
developments such as unanticipated delays in program schedule, failure to
anticipate costs accurately over a two- or three-year period or performance
problems with important vendors can adversely affect the profitability of such
contracts. See "Business -- Government Business."
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors is divided into three classes, each of
which is elected and serve overlapping three-year terms. In addition, the
Company has adopted a rights plan that, among other things, grants rights to
purchase Common Stock to all stockholders at a price significantly below market
value, at $32.50 per share, upon a business combination in the event a single
person or group has previously acquired more than 20% of the outstanding Common
Stock without the Board of Directors having elected to redeem such rights.
Furthermore, the Company's certificate of incorporation contains a "fair price
provision" intended to require an acquiror to obtain the consent of the Board of
Directors to any business combination involving the Company. The Company's
certificate of incorporation and bylaws also contain provisions barring
stockholders action by written consent and the calling by stockholders of a
special meeting. Amendment of such provisions requires a super majority vote by
the stockholders, except with the consent of the Board of Directors. The rights
plan and provisions of the Company's certificate of incorporation and bylaws
could delay, deter or prevent a merger, tender offer, or other business
combination or change in control involving the Company that some, or a majority
of, stockholders might consider to be in their best interests, including offers
or attempted takeovers that might otherwise result in such stockholders
receiving a premium over the market price of the Common Stock. See "Description
of Capital Stock -- Common Stock Rights" and "-- Additional Anti-Takeover
Provisions."
LIMITED TRADING VOLUME; VOLATILITY OF STOCK PRICE
The Company's Common Stock is traded on the Nasdaq National Market. Trading
volume in the twenty trading days ended September 29, 1997 averaged 16,555
shares traded per day. Trading of relatively small blocks of stock can have a
significant impact on the price at which the stock is traded. The Company
believes factors such as quarterly fluctuations in financial results,
announcements of new technologies impacting the Company's products,
announcements by competitors or changes in securities analysts' recommendations
may cause the market price to fluctuate, perhaps substantially. These
fluctuations, as well as general economic conditions, such as recessions or high
interest rates, may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."
13
<PAGE> 15
FORWARD-LOOKING STATEMENTS
This Prospectus may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such statements are subject to a number of risks and
uncertainties. Actual results in the future could differ materially from those
described in any forward-looking statements as a result of the Risk Factors set
forth above and the matters set forth elsewhere in this Prospectus generally.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,500,000 shares of Common
Stock offered by the Company hereby are estimated to be approximately $42.7
million, after deducting the underwriting discount and commissions and estimated
offering expenses payable by the Company at an assumed public offering price of
$30.50 per share (the last reported sales price of the Common Stock on the
Nasdaq National Market on September 26, 1997). The Company intends to use the
estimated net proceeds from this offering for general corporate purposes,
including working capital and capital expenditures for facilities and equipment.
In addition, proceeds may be used for acquisitions of complementary businesses,
products or technologies. Although the Company regularly reviews various
acquisition opportunities and periodically engages in discussions regarding such
possible acquisitions, the Company currently has no commitments, agreements or
understandings with respect to any future acquisitions. Pending such uses, the
Company will invest the proceeds in short-term, investment-grade securities. The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
DIVIDEND POLICY
The Company currently anticipates that any earnings will be retained for
the development and expansion of its business and, therefore, does not
anticipate paying dividends on its Common Stock in the foreseeable future. In
addition, under the Company's Line of Credit Agreement, neither the Company nor
any of its subsidiaries may, directly or indirectly, pay any cash dividends to
its stockholders.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MXWL." The following table sets forth, for the fiscal periods
indicated, the high and low closing sales prices for the Common Stock as
reported by the Nasdaq National Market. The prices for fiscal 1996 and the first
and second quarters of fiscal 1997 have been adjusted to reflect the 2-for-1
stock split which occurred in December 1996.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR 1996
Quarter ended October 31, 1995......................... $ 5 7/8 $ 3 5/8
Quarter ended January 31, 1996......................... 5 1/2 4 1/16
Quarter ended April 30, 1996........................... 5 1/8 3 3/8
Quarter ended July 31, 1996............................ 7 5/8 4 11/16
FISCAL YEAR 1997
Quarter ended October 31, 1996......................... $15 1/2 $ 6 3/4
Quarter ended January 31, 1997......................... 25 1/8 17
Quarter ended April 30, 1997........................... 23 18
Quarter ended July 31, 1997............................ 23 1/4 18
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on September 26, 1997 was $30.50 per share. As of August 31, 1997, there
were 505 holders of record of the Company's Common Stock.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company at July
31, 1997 and as adjusted to give effect to the sale by the Company of 1,500,000
shares of Common Stock offered hereby and the application of the estimated net
proceeds therefrom at an assumed public offering price of $30.50 per share (the
last reported sales price of the Common Stock on the Nasdaq National Market on
September 26, 1997).
<TABLE>
<CAPTION>
JULY 31, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, excluding current portion............................ $ 465 $ 465
-------- --------
Stockholders' equity:
Common stock, $0.10 par value; 20,000,000 shares authorized,
6,142,911 shares issued and outstanding, actual, and 7,642,911
shares issued and outstanding, as adjusted(1)................... 614 764
Additional paid-in capital......................................... 22,364 64,904
Deferred compensation.............................................. (622) (622)
Retained earnings.................................................. 5,054 5,054
-------- --------
Total stockholders' equity...................................... 27,410 70,100
-------- --------
Total capitalization....................................... $ 27,875 $ 70,565
======== ========
</TABLE>
- ---------------
(1) Based on shares outstanding as of July 31, 1997. Excludes (i) 207,884 shares
of Common Stock reserved for future grant under the 1995 Option Plan and
Director Stock Option Plan; (ii) options to purchase an aggregate of
1,054,680 shares of Common Stock outstanding under the Company's 1995 Option
Plan, 1985 Stock Option Plan, and Director Stock Option Plan at a weighted
average exercise price of $8.01 per share and (iii) 339,335 shares of Common
Stock reserved for future issuances under the 1994 Employee Stock Purchase
Plan and Director Stock Purchase Plan. See Note 4 of Notes to Consolidated
Financial Statements.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
fiscal years ended July 31, 1995, 1996 and 1997, and consolidated balance sheet
data at July 31, 1996 and 1997 are derived from the Consolidated Financial
Statements of the Company and Notes thereto, which have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this Prospectus.
The following selected consolidated statement of operations data for the years
ended July 31, 1993 and 1994 and consolidated balance sheet data at July 31,
1993, 1994 and 1995 are derived from audited financial statements of the Company
not included in this Prospectus. The following selected data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Sales.................................. $86,902 $85,463 $75,004 $ 80,911 $101,411
Cost of sales.......................... 65,765 68,555 56,447 65,893 70,107
------- ------- ------- -------- -------
Gross profit......................... 21,137 16,908 18,557 15,018 31,304
Operating expenses:
Selling, general and administrative
expenses.......................... 13,525 14,068 13,636 15,564 21,900
Research and development expenses.... 5,650 4,794 5,038 5,081 5,303
Restructure and asset impairment
losses (1)........................ -- -- -- 5,703 --
Loss on closing of Brobeck
division.......................... -- 1,018 -- -- --
------- ------- ------- -------- -------
Total operating expenses.......... 19,175 19,880 18,674 26,348 27,203
------- ------- ------- -------- -------
Operating income (loss)................ 1,962 (2,972) (117) (11,330) 4,101
Interest expense....................... 244 252 315 329 173
Other-net.............................. (35) (589) (848) (398) (150)
------- ------- ------- -------- -------
Income (loss) before income taxes,
minority interest and loss from
cumulative effect of change in
accounting principle................. 1,753 (2,635) 416 (11,261) 4,078
Income tax expense (benefit)........... 683 (1,028) 15 1,296 --
Minority interest in net income of
subsidiary........................... 48 80 86 50 54
Loss from cumulative effect of change
in accounting principle (1).......... -- -- -- 2,569 --
------- ------- ------- -------- -------
Net income (loss)...................... $ 1,022 $(1,687) $ 315 $(15,176) $ 4,024
======= ======= ======= ======== =======
Earnings (loss) per share:
Income (loss) per share before
cumulative effect of change in
accounting principle.............. $ 0.19 $ (0.32) $ 0.06 $ (2.29) $ 0.60
Net income (loss) per share.......... $ 0.19 $ (0.32) $ 0.06 $ (2.76) $ 0.60
======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................ $20,142 $18,091 $17,855 $ 7,288 $ 10,908
Total assets........................... 55,086 54,322 52,370 40,724 47,120
Long-term debt, excluding current
portion.............................. 1,515 2,797 1,928 1,018 465
Total stockholders' equity............. 36,645 34,960 35,364 20,745 27,410
</TABLE>
- ---------------
(1) See Note 8 of Notes to Consolidated Financial Statements.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
From its roots as a pulsed power and advanced software applications company
performing research and development primarily for the United States Department
of Defense ("DOD"), Maxwell today has a portfolio of commercial products and
services derived from the technologies and expertise accumulated from its long
history of government funded pulsed power research and development. Although
Maxwell is aggressively pursuing technology commercialization, government funded
research and development continues as a significant part of the Company's
business, with sales under United States government contracts comprising 33% of
total sales in fiscal 1997. These efforts, and the technology advancements they
produce, are important factors in the development of applications with
commercial value.
The Company sustained a net loss of $15.2 million in fiscal 1996, including
charges totaling $14.4 million related to the following: (i) the adoption of
FASB Statement No. 121; (ii) the fiscal 1996 reorganization of the Company
including senior management related severance and recruitment charges and
charges for facilities consolidations; (iii) the establishment of a valuation
allowance for net deferred income tax assets and (iv) the establishment of
certain contract, inventory, environmental and related reserves. See
"-- Quarterly Results of Operations" and Note 8 of Notes to Consolidated
Financial Statements.
In implementing its business reorganization, the Company selected a new
Chief Executive Officer, refocused or divested certain product lines,
consolidated certain of its facilities and recast the Company into distinct
business and operating units with new senior management for these business units
(the "Reorganization"). As part of the Reorganization which became effective
August 1, 1996, the Company placed its government focused operations into a
single business unit. The Company's new business segments are as follows:
- 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.
- 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.
- 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 DOD.
- 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.
The Company recognizes substantially all revenue from the sale of
manufactured products and short-term fixed-price contracts upon shipment of
products or completion of services. Revenues, including estimated profits, on
long-term fixed-price contracts are recognized as costs are incurred. Revenues,
including fees earned, on cost plus contracts are also recognized as costs are
incurred. Contract revenue is reflected in the Company's sales and includes
amounts received from the United States government and commercial customers for
the funded research and development efforts of the Company. Provisions are made
on a current basis to fully recognize any anticipated losses on contracts.
A significant portion of the Company's product sales are to a relatively
small number of OEMs. OEM sales are characterized by relatively long product
life cycles and generally lower gross margins that can vary throughout product
life cycles. Gross margins are typically lower in the early stages of product
introduction before the Company has achieved a sufficient volume of sales to
increase absorption of its fixed costs. In addition, the Company may price its
products aggressively in order to form new OEM relationships, introduce new
products or achieve market penetration. The Company may receive product
development funding from its
18
<PAGE> 20
OEM customers that could partially mitigate these impacts on gross margins.
Gross margins on OEM sales are also particularly sensitive to changes in product
and customer mix because of margin variances among individual products and the
relative importance of a single large sale on overall operating results.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
operating data for the Company, expressed as a percentage of sales.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Sales......................................................... 100.0% 100.0% 100.0%
Cost of sales................................................. 75.3 81.4 69.1
------- ------- -------
Gross profit................................................ 24.7 18.6 30.9
Operating expenses:
Selling, general and administrative expenses................ 18.2 19.3 21.6
Research and development expenses........................... 6.7 6.3 5.2
Restructure and asset impairment losses..................... -- 7.0 --
------- ------- -------
Total operating expenses................................. 24.9 32.6 26.8
------- ------- -------
Operating income (loss)....................................... (0.2) (14.0) 4.1
Interest expense.............................................. 0.4 0.4 0.2
Other-net..................................................... (0.11) (0.5) (0.2)
------- ------- -------
Income (loss) before income taxes, minority interest and loss
from cumulative effect of change in accounting principle.... 0.5 (13.9) 4.1
Income tax expense............................................ -- 1.6 --
Minority interest in net income of subsidiary................. 0.1 0.1 0.1
Loss from cumulative effect of change in accounting
principle................................................... -- 3.2 --
------- ------- -------
Net income (loss)........................................... 0.4% (18.8)% 4.0%
======= ======= =======
</TABLE>
The following table sets forth, for the periods indicated, the Company's
business segment sales, gross profit and gross profit as a percentage of
business segment sales.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1995 1996 1997
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Power Conversion Products:
Sales....................................................... $15,207 $16,448 $27,039
Gross profit............................................. 3,930 3,887 10,142
Gross profit as a percentage of sales.................... 25.8% 23.6% 37.5%
Industrial Computers and Subsystems:
Sales....................................................... $23,319 $26,131 $34,259
Gross profit............................................. 7,754 7,633 11,537
Gross profit as a percentage of sales.................... 33.3% 29.2% 33.7%
Technology Programs and Systems:
Sales....................................................... $31,064 $30,198 $31,087
Gross profit............................................. 6,232 5,659 6,246
Gross profit as a percentage of sales.................... 20.1% 18.7% 20.1%
Information Products and Services:
Sales....................................................... $ 5,414 $ 8,134 $ 9,026
Gross profit............................................. 641 (2,161) 3,379
Gross profit as a percentage of sales.................... 11.8% (26.6)% 37.4%
</TABLE>
19
<PAGE> 21
Sales
In fiscal 1997, the Company's total sales increased $20.5 million, or
25.3%, to $101.4 million from $80.9 million in fiscal 1996. In fiscal 1996,
sales increased $5.9 million, or 7.9%, to $80.9 million from $75.0 million in
fiscal 1995. International sales amounted to $12.6 million in fiscal 1997, $7.6
million in fiscal 1996 and $7.3 million in fiscal 1995. The increase in
international sales in fiscal 1997 was primarily attributable to increased
international revenues from customer funded development in the Power Conversion
Products business segment.
Power Conversion Products. In fiscal 1997, Power Conversion Products sales
increased $10.6 million, or 64.4%, to $27.0 million from $16.4 million in fiscal
1996. This increase was primarily attributable to higher revenues from customer
funded ultracapacitor development and sales of prototype ultracapacitor products
to potential OEM customers for evaluation, increased sales of EMI filters for
implantable medical products and increased revenues from customer funded
development of pulsed power purification systems.
In fiscal 1996, Power Conversion Products sales increased $1.2 million, or
8.2%, to $16.4 million from $15.2 million in fiscal 1995 as a result of higher
sales of certain pulsed power components, the introduction in the last half of
fiscal 1996 of the Company's EMI filters for implantable medical products and
increased revenues from customer funded development of pulsed power purification
systems.
Industrial Computers and Subsystems. In fiscal 1997, Industrial Computers
and Subsystems sales increased $8.1 million, or 31.1%, to $34.3 million from
$26.1 million in fiscal 1996. 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 in fiscal 1997 was derived from increased sales to OEM customers
primarily in the computer telephony market. The largest portion of the increase
consisted of 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 its next
generation products. However, the Company's products have recently been
integrated into several new OEM products to be introduced by other OEM
customers. The Company believes that orders for industrial computers and
subsystems from these new OEM customers should largely offset the loss of sales
described above. If sales of the OEMs' new products do not achieve the levels
projected by the OEM, the Company may be unable to offset the expected loss of
sales.
In fiscal 1996, sales in this business segment increased $2.8 million, or
12.1%, to $26.1 million from $23.3 million in fiscal 1995. This increase was
also due to increased shipments to OEM customers as a result of design wins on
new OEM products.
Technology Programs and Systems. In fiscal 1997, sales in the Technology
Programs and Systems segment increased $0.9 million, or 2.9%, to $31.1 million
from $30.2 million in fiscal 1996. This increase was primarily attributable to
revenues from a new contract for high-voltage power supplies for a Department of
Energy accelerator project and increased work levels on two large multi-year
contracts for the DOD. This increase was partially offset by the absence of
revenue from the Company's chemical analytical services business, which was sold
in the fourth quarter of fiscal 1996, the winding-down of the Company's
environmental consulting business and lower hardware systems sales.
Revenues for fiscal 1997 included amounts related to the closure of three
DOD pulsed power simulation facilities operated by the Company for many years in
San Diego. These closures will be concluded in the first half of fiscal 1998 and
the underlying contracts with the DOD will be completed. However, the Company
has subsequently received additional long-term contracts from the DOD, including
one for research on next-generation pulsed power switch technology for x-ray
simulators. These and other contracts with the DOD 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.
20
<PAGE> 22
In fiscal 1996, sales in this business segment decreased $0.9 million, or
2.8%, to $30.2 million from $31.1 million in fiscal 1995 primarily as a result
of reduced sales of chemical analytical services, partially offset by increased
revenues from the two multi-year DOD contracts.
Information Products and Services. In fiscal 1997, sales of Information
Products and Services increased $0.9 million, or 11.0%, to $9.0 million from
$8.1 million in fiscal 1996. This increase primarily reflects greater sales of
the Company's job-cost accounting software, partially offset by 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 scheduled to be substantially completed in the first half of fiscal 1998.
In fiscal 1996, sales in this business segment increased $2.7 million, or
50.2%, to $8.1 million from $5.4 million in fiscal 1995 principally due to
revenues attributable to the commencement of work in fiscal 1996 on one of the
CJIS Contracts.
Gross Profit
In fiscal 1997, the Company's gross profit was $31.3 million, or 30.9% of
sales, compared to $15.0 million, or 18.6% of sales, in fiscal 1996. The
increase in gross profit as a percentage of sales was primarily due to the
increased overall sales in fiscal 1997, resulting in improved overhead
absorption, and an improved mix of products and services, particularly in the
Power Conversion Products business segment. In fiscal 1996, the Company's gross
profit was $15.0 million, or 18.6% of sales, compared to $18.6 million, or 24.7%
of sales, in fiscal 1995. The decreases in fiscal 1996 were primarily
attributable to the portion of the $14.4 million charge taken in fiscal 1996
that was recorded in cost of sales.
Power Conversion Products. In fiscal 1997, Power Conversion Products gross
profit increased $6.3 million to $10.1 million from $3.9 million in fiscal 1996.
As a percentage of sales, gross profit increased to 37.5% in fiscal 1997 from
23.6% in fiscal 1996. This increase in gross profit as a percentage of sales
reflected improved overhead absorption and an improved mix of products and
services, including higher sales of EMI filters for implantable medical devices
and greater revenues from funded research and development.
As the Company introduces ultracapacitor 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.
In fiscal 1996 and 1995, gross profits in this business segment were
consistent at $3.9 million. As a percentage of sales, gross profit decreased to
23.6% in fiscal 1996 from 25.8% in fiscal 1995 primarily due to the portion of
the $14.4 million charge taken in fiscal 1996 that was recorded in cost of
sales.
Industrial Computers and Subsystems. In fiscal 1997, Industrial Computers
and Subsystems gross profit increased $3.9 million, or 51.1%, to $11.5 million
from $7.6 million in fiscal 1996. As a percentage of sales, gross profit
increased to 33.7% in fiscal 1997 from 29.2% in fiscal 1996 due to increased
sales of certain higher margin customized OEM products and improved overhead
absorption from the higher overall sales. In addition, cost of sales in fiscal
1996 reflected higher inventory write-offs than in fiscal 1997.
In fiscal 1996, gross profit decreased $0.1 million, or 1.6%, to $7.6
million from $7.8 million in fiscal 1995. As a percentage of sales, gross profit
decreased to 29.2% in fiscal 1996 from 33.3% in fiscal 1995 as a result of
higher inventory write-offs in fiscal 1996 and the impact in fiscal 1996 of
shipments on several large, competitively bid procurements that had lower profit
margins.
Technology Programs and Systems. Technology Programs and Systems gross
profit was $6.2 million, $5.7 million and $6.2 million in fiscal years 1997,
1996 and 1995, respectively. As a percentage of sales, gross profit remained
relatively constant at 20.1% in fiscal 1995, 18.7% in fiscal 1996 and 20.1% in
fiscal 1997. The stability of gross profit as a percentage of sales resulted
from the predominance of government cost plus contracts in this business
segment. See "Business -- Government Business."
Information Products and Services. In fiscal 1997, Information Products and
Services gross profit increased $5.5 million to $3.4 million from $(2.2) million
in fiscal 1996. As a percentage of sales, gross profit increased to 37.4% in
fiscal 1997 from (26.6)% in fiscal 1996. In fiscal 1996, the Company recorded
reserves
21
<PAGE> 23
against the CJIS Contracts because total contract completion costs were
projected to exceed the contract value on these fixed price contracts. In
addition, fiscal 1996 reflects a write-off of certain capitalized software
development costs. To a lesser extent, the comparative improvement in fiscal
1997 is attributable to increased sales of the Company's higher margin job-cost
accounting software products.
In fiscal 1996, gross profit in this business segment decreased $2.8
million to $(2.2) million from $0.6 million in fiscal 1995. As a percentage of
sales, gross profit decreased to (26.6)% in fiscal 1996 from 11.8% in fiscal
1995, reflecting the impact in fiscal 1996 of the reserves recorded on the CJIS
Contracts and the write-off of certain capitalized software development costs.
Selling, General and Administrative Expenses
In fiscal 1997, the Company's selling, general and administrative expenses
increased $6.3 million, or 40.7%, to $21.9 million from $15.6 million in fiscal
1996. As a percentage of total sales, selling, general and administrative
expenses increased to 21.6% in fiscal 1997 from 19.3% in fiscal 1996. These
increases were attributable primarily to (i) increased sales and marketing
costs, principally from the addition of new sales and marketing personnel added
as part of the Company's plan to grow its commercial businesses, and commissions
earned on higher commercial sales in fiscal 1997 primarily in the Company's
Power Conversion Products and Industrial Computers and Subsystems business
segments; (ii) accruals under new incentive and profit sharing plans implemented
in fiscal 1997 and (iii) additions to senior management, both at the executive
and business unit levels, to support the Company's new strategic direction.
In fiscal 1996, selling, general and administrative expenses increased $1.9
million, or 14.1%, to $15.6 million from $13.6 million in fiscal 1995. As a
percentage of sales, selling, general and administrative expenses increased to
19.3% in fiscal 1996 from 18.2% in fiscal 1995. These increases were
attributable primarily to a charge in fiscal 1996 of approximately $1.5 million
for environmental and other matters and for amounts in connection with the
Reorganization, as well as higher sales and marketing costs in support of the
Company's commercial business initiatives.
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. Research and development expenses were $5.3 million,
$5.1 million and $5.0 million for fiscal 1997, 1996 and 1995, respectively. The
level of research and development expenses reflects the Company's ability to
obtain customer funding to support a significant portion of its research and
product development activities. Because of the increased overall sales level,
however, as a percentage of sales, research and development expenses decreased
to 5.2% in fiscal 1997 from 6.3% in fiscal 1996 and 6.7% in fiscal 1995.
Interest Expense
In fiscal 1997, interest expense decreased to $173,000 from $329,000 in
fiscal 1996 as a result of lower average borrowings. In fiscal 1996, interest
expense remained relatively constant in comparison to fiscal 1995.
Other-net
In fiscal 1997, other-net was $150,000, compared to $398,000 in fiscal 1996
and $848,000 in fiscal 1995. The decrease in other-net primarily reflects
completion in April 1996 of the amortization into income of amounts contributed
by minority stockholders upon the organization of the Company's PurePulse
Technologies, Inc. subsidiary over such stockholders' proportionate share of
PurePulse's equity. In fiscal 1996 and fiscal 1995 other-net included $379,000
and $508,000 of such income, respectively, while none was included in fiscal
1997. The balance of other-net in all three fiscal years was principally
interest income.
22
<PAGE> 24
Income Tax Expense
The Company has net operating loss carryforwards which offset the Company's
provision for income taxes in fiscal 1997. Fiscal 1996 income tax expense is
primarily due to the establishment of a valuation allowance of $1.1 million for
the net deferred income tax assets of the Company due to the losses incurred in
fiscal 1996. Income tax expense was incurred at an effective rate of 3.6% in
fiscal 1995, which primarily reflects the non-taxable status of the $508,000 of
amortization described above.
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly financial information for
the eight quarters ended July 31, 1997, and such data expressed as a percentage
of the Company's net sales for the periods indicated. The information has been
presented by the Company on a basis consistent with the Consolidated Financial
Statements included elsewhere in this Prospectus and includes all necessary
adjustments, consisting only of normal recurring adjustments, that management
considers necessary for a fair presentation of the unaudited quarterly results
when read in conjunction with the Consolidated Financial Statements and Notes
thereto. These operating results are not necessarily indicative of results that
may be expected for any subsequent periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------
OCT. JAN. APR. JULY OCT. JAN. APR. JULY
31, 31, 30, 31, 31, 31, 30, 31,
1995 1996 1996 1996 1996 1997 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Sales.................................. $19,172 $19,340 $20,331 $22,068 $24,017 $24,577 $25,922 $26,895
Cost of sales.......................... 14,864 17,997 16,114 16,918 16,958 16,939 17,599 18,611
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......................... 4,308 1,343 4,217 5,150 7,059 7,638 8,323 8,284
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Selling, general and
administrative..................... 3,133 4,569 3,955 3,907 5,179 5,489 5,875 5,357
Research and development............. 983 1,335 1,223 1,540 1,058 1,212 1,407 1,626
Restructure and asset impairment
losses............................. -- 2,568 3,817 (682) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses......... 4,116 8,472 8,995 4,765 6,237 6,701 7,282 6,983
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)................ 192 (7,129) (4,778) 385 822 937 1,041 1,301
Interest expense....................... 71 73 92 93 44 39 45 45
Other-net.............................. (161) (202) (96) 61 (56) (32) (35) (27)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes,
minority interest, and loss from
cumulative effect of change in
accounting principle................. 282 (7,000) (4,774) 231 834 930 1,031 1,283
Income tax expense..................... 28 1,172 37 59 -- -- -- --
Minority interest in net income of
subsidiary........................... 12 7 12 19 18 18 (28) 46
Loss from cumulative effect of change
in accounting principle.............. 2,569 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $(2,327) $(8,179) $(4,823) $ 153 $ 816 $ 912 $ 1,059 $ 1,237
======== ======== ======== ======== ======== ======== ======== ========
AS A PERCENTAGE OF SALES:
Sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 77.5 93.1 79.3 76.7 70.6 68.9 67.9 69.2
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......................... 22.5 6.9 20.7 23.3 29.4 31.1 32.1 30.8
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Selling, general and
administrative..................... 16.4 23.6 19.4 17.7 21.6 22.4 22.7 20.0
Research and development............. 5.1 6.9 6.0 7.0 4.4 4.9 5.4 6.0
Restructure and asset impairment
losses............................. -- 13.3 18.8 (3.1) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses......... 21.5 43.8 44.2 21.6 26.0 27.3 28.1 26.0
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)................ 1.0 (36.9) (23.5) 1.7 3.4 3.8 4.0 4.8
Interest expense....................... 0.3 0.3 0.5 0.4 0.2 0.2 0.2 0.2
Other-net.............................. (0.8) (1.0) (0.5) 0.3 (0.3) (0.2) (0.2) (0.2)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes,
minority interest, and loss from
cumulative effect of change in
accounting principle................. 1.5 (36.2) (23.5) 1.0 3.5 3.8 4.0 4.8
Income tax expense..................... 0.1 6.1 0.2 0.3 -- -- -- --
Minority interest in net income of
subsidiary........................... 0.1 -- -- -- 0.1 0.1 (0.1) 0.2
Loss from cumulative effect of change
in accounting principle.............. 13.4 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... (12.1)% (42.3)% (23.7)% 0.7% 3.4% 3.7% 4.1% 4.6%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
23
<PAGE> 25
The three months ended October 31, 1995 reflected a $2.6 million loss
attributable to the adoption of FASB Statement No. 121. The three months ended
January 31, 1996 included charges of $6.9 million consisting of the
following: (i) approximately $2.0 million recorded in cost of sales for contract
and inventory charges; (ii) $1.2 million in selling, general and administrative
expenses attributable primarily to environmental and other matters and charges
related to the Reorganization; (iii) $2.6 million of charges reflected in
restructure and asset impairment losses relating to the Reorganization and to
the adoption of FASB Statement No. 121 and (iv) $1.1 million recorded in income
tax expense for the establishment of a valuation allowance for net deferred
income tax assets. The reduction in gross profit as a percent of sales in the
quarter is a result of the portion of these charges included in cost of sales.
The three months ended April 30, 1996 included $3.8 million of charges
related principally to the Reorganization and included in restructure and asset
impairment losses and $0.8 million of further contract and inventory charges
included in cost of sales.
The $0.7 million credit in restructure and asset impairment losses in the
three months ended July 31, 1996 reflects the reversal of the remainder of the
reserve previously recorded in anticipation of losses on the termination of the
Company's chemical analytical services business upon completion of the sale of
that business during this period.
The increase in selling, general and administrative expenses that commenced
with the three months ended October 31, 1996 is attributable to the increased
sales and marketing costs, benefit plan accruals and senior management additions
reflecting the Reorganization and the implementation of strategies for pursuing
commercial business.
The Company may in the future experience significant fluctuations in
revenues and operating results from period to period as a result of a number of
factors including, without limitation: the volume and timing of orders and
market acceptance of the Company's products; the Company's ability to fill
orders on a timely basis; pricing policies of the Company or its competitors;
variations in the mix of product sales; the timing of product introductions by
the Company or its competitors; cancellation, suspension or other action taken
by the United States government on its contracts with the Company; product
obsolescence resulting from new product introductions or changes in customer
demand and expenses associated with the acquisition of technologies or
businesses. The Company believes that quarter-to-quarter comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indicators of future performance. Quarterly results in the future may
fluctuate due to the factors discussed above or other factors. Further, the
Company's historical operating results are not necessarily indicative of future
performance for any particular period. There can be no assurance that the
Company's past revenue growth or its past profitability will continue on a
quarterly, annual or other basis. Due to all of the foregoing factors, it is
highly likely that in certain future quarters the Company's operating results
will be below the expectations of public market analysts and investors.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on a combination of internally
generated funds and bank borrowings to finance its working capital requirements
and capital expenditures. In addition, in fiscal 1997, the Company received
approximately $2.5 million from the exercise of stock options and purchases
under its stock purchase plans.
Cash flow from operations in fiscal 1997 was $2.9 million, with net income
plus depreciation and amortization of approximately $6.6 million partially
offset by increases in accounts receivable and inventory in support of the
higher fiscal 1997 sales.
The Company's capital expenditures in fiscal 1997 increased to $4.7 million
from $2.0 million in fiscal 1996, primarily for the acquisition of production
and computer equipment and other assets needed to support growth of the
Company's business units. The Company has currently budgeted capital
expenditures of $7.0 million for fiscal 1998 to support growth, including
expansion of manufacturing facilities for the EMI filter and ultracapacitor
operations, and expansion in one of the Company's owned buildings. In addition,
the
24
<PAGE> 26
Company will be addressing the need for high-volume manufacturing of
ultracapacitors, and commitments may be made during fiscal 1998 toward meeting
such needs. Alternatively, the Company may consider leasing facilities or
manufacturing equipment or both or may satisfy volume manufacturing requirements
through outsourcing or under licensing arrangements with third parties. If the
Company decides to internally finance construction of such facilities, a
significant amount of capital would be required.
The Company re-negotiated its bank line of credit during fiscal 1997,
converting the line of credit to a two year unsecured arrangement and increasing
the amount available to $10.0 million. The interest rate on the line of credit
is tied to LIBOR or the bank's prime rate. As of July 31, 1997, there were no
outstanding borrowings under the line of credit.
The Company believes that the net proceeds from this 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
through fiscal 1998. In addition to addressing the need for high volume
manufacturing of its ultracapacitor products, 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.
SUBSIDIARY OPTION PROGRAMS
The Company has implemented employee stock option plans at each of its five
principal operating subsidiaries providing for the issuance of incentive and
nonqualified stock options to purchase common stock of these companies by each
subsidiary. The option plans are intended to encourage an entrepreneurial
atmosphere in each business segment, providing focused rewards promoting growth.
Options that are "in-the-money" at the subsidiary level will have a negative
impact on the Company's earnings per share. The Company expects that its
reported diluted earnings per share will be reduced in future quarters due to
in-the-money subsidiary options. Except to the extent exercised, however, such
subsidiary options will not affect the Company's consolidated net income as
reported in its consolidated statement of operations. Such options, when and if
exercised, will dilute the Company's actual ownership interests in its
subsidiaries, thus reducing the Company's share of the net income, potential
dividends or distributions and proceeds of any sale or other disposition of such
subsidiary. The equity interests upon exercise of stock options in the
subsidiaries would be accounted for as a minority interest. Based on current
programs, the dilutive impact attributable to these option plans could be up to
13% at each principal operating subsidiary (17% at one subsidiary). In addition,
certain key employees of the Company's Maxwell Business Systems, Inc. subsidiary
in the Information Products and Services business segment currently own an
aggregate of 20% and have the right to purchase up to an additional 29%, of that
subsidiary. See "Risk Factors -- Potential Dilutive Impact of Employee Stock
Option Programs at Subsidiaries" and "Management -- Executive Compensation."
INFLATION AND CHANGES IN PRICES
Generally, the Company has been able to increase prices to offset its
inflation-related increased costs in its commercial businesses. A substantial
portion of the Company's business with agencies of the United States government
consists of cost-reimbursement contracts which permit recovery of inflation
costs. Fixed-price contracts with government and other customers typically
include estimated costs for inflation in the contract price.
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
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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.
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BUSINESS
GENERAL
Maxwell Technologies, Inc. ("Maxwell" or the "Company") is a worldwide
leader in pulsed power technologies, the storage of electrical energy and
delivery of power in brief controlled bursts. The Company has leveraged its
technical expertise, gained from over 30 years of experience performing research
and development primarily for the United States Department of Defense, to
develop a portfolio of pulsed power based commercial products. These products
address a range of markets and applications and include ultracapacitors for
advanced electrical energy storage and power delivery, purification systems for
water treatment and the sterilization of medical and pharmaceutical products and
electromagnetic interference ("EMI") filter capacitors for implantable medical
devices. In addition to pulsed power based products, the Company offers
industrial computers and subsystems which are sold to OEMs in the computer
telephony, medical, manufacturing automation and other markets. Government
funded research and development projects continue to be an important element of
the Company's business, serving as an incubator for technological innovations
and a resource of scientific and engineering expertise.
The Company's PowerCache ultracapacitors offer solutions to electrical
energy storage and power delivery problems in a wide range of commercial
applications including wireless communications devices, reliable power delivery
for industrial processing and computing equipment and automotive electrical
subsystems. The Company's ultracapacitors provide benefits such as extending
battery life and increasing signal strength in wireless communications devices
and protecting against power fluctuations and outages in industrial
applications. The Company also designs and manufactures high voltage capacitors
that are used in applications such as medical and industrial lasers, x-ray
machines and high-speed trains. Pulsed power technology has also enabled the
development of the Company's PureBright purification systems which deliver
pulses of light to kill microorganisms in applications ranging from water
treatment to sterilization of food packaging and medical and pharmaceutical
products. The Company's EMI filters prevent electromagnetic radiation emitted
from devices such as cellular phones and household appliances from disrupting
the functioning of implantable heart defibrillators and pacemakers and other
sensitive electronic equipment. The Company's pulsed power products are sold
primarily to OEMs in target markets and through direct sales channels.
As part of its shift to a commercially-oriented business, in 1996 the
Company completed a restructuring that organized like and synergistic businesses
into subsidiaries, creating focused centers of expertise for product
development, manufacturing, marketing and sales. In addition, the Company added
a new senior management team to drive the commercialization of Maxwell's
portfolio of core technologies and market penetration of the resulting products.
INDUSTRY BACKGROUND
Pulsed Power
Pulsed power is the storage of electrical energy and the delivery of brief
controlled bursts of electricity at high power for periods typically ranging
from a microsecond up to 60 seconds. Research and development of pulsed power
technologies have been funded for over 30 years, primarily by the United States
government. The expertise gained through this funded research forms the basis
for the development of commercial products based on pulsed power technologies.
In recent years, pulsed power applications have been developed which offer
solutions to power storage and delivery problems in a wide range of commercial
applications, including wireless communications, automotive electrical
subsystems, water treatment and sterilization of medical and pharmaceutical
products and food packaging. Benefits of pulsed power include extending battery
life, improving system performance, reducing cost and system size and enabling
new system functions.
Ultracapacitors. The proliferation and increasing complexity of electronic
products and the electrical power requirements associated with them are spurring
demand for innovative solutions for power delivery in a wide variety of
applications including portable electronics, power quality and automotive
electrical subsystems. Portable electronic products such as wireless
communications devices, which typically transmit data in a series of short
bursts and personal data assistants, which typically have subsystems that start
up and shut down
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rapidly, require reliable internal power sources that are capable of supplying
repeated bursts of power and that adhere to exacting size and weight
constraints. In addition, computer-intensive businesses, manufacturers and other
commercial users of high-speed industrial processing equipment, such as
semiconductor manufacturers and high speed printers, demand power quality (i.e.,
the uninterrupted supply of power at a constant voltage). In the absence of
power quality protection, small fluctuations in power often shut down automated
production systems, which may damage products on the assembly line and cause
significant delays in business operations. Technology Insights estimates that
the power quality market in the year 2000, including adjustable speed drives,
uninterruptable power systems and engine start and actuator applications, will
amount to over $11 billion. Moreover, automobile manufacturers are utilizing an
increasing number of electrical subsystems that require sophisticated power
management in conventional combustion engine vehicles. In response to
legislation adopted in several U.S. states requiring zero-emission vehicles,
automobile manufacturers are also seeking enabling technologies for commercially
viable electric vehicles and hybrid combustion/electric vehicles.
Batteries and capacitors have long served as electrical energy storage and
power delivery devices. However, limitations in battery and capacitor
performance are an obstacle to both the continued enhancement of many electronic
devices and the development of new applications. Batteries degrade over time, do
not effectively provide bursts of power and do not function well in extreme
temperatures or allow for practical, accurate measurement of remaining energy
reserves. The capacitor, utilized in situations in which high power output in
short bursts is required, differs from batteries in that it can charge and
discharge stored energy rapidly and does not degrade with each charge and
discharge. However, traditional capacitors are not suitable for energy storage
and power delivery applications which require higher energy storage capability
and longer discharge times.
Advances in pulsed power technology have enabled the development of
ultracapacitors for providing bursts of power when an accelerated injection of
energy is required for an application. Ultracapacitors combine certain
characteristics of batteries and traditional capacitors. Like batteries,
ultracapacitors discharge energy at low voltages. Like traditional capacitors,
ultracapacitors store and discharge electrical energy rapidly, do not degrade
with repeated use and can be quickly recharged. In contrast to traditional
capacitors, ultracapacitors have significantly greater energy storage capability
and longer discharge times, making them suitable for many applications that fall
outside the performance parameters of traditional capacitors.
Purification Systems. Pulsed power technologies can also be utilized for
microbial decontamination by delivering intense bursts of light or pulses of
electricity to kill microorganisms. Conventional techniques for controlling
microorganisms commonly present in water and other liquids, on foods, on food
packaging and on medical products include filtering, heat pasteurization and
sterilization, ionizing radiation and application of chemicals. Conventional
purification techniques often fail to effectively fulfill end-user needs for a
variety of reasons, including failure to eliminate certain microorganisms in
water supplies (chlorination, ultraviolet light and similar processes), change
in taste and texture of foods (heat and chemicals), time and cost (many
conventional techniques, including autoclave heat sterilization of medical
instruments), environmental concerns (ionizing radiation and chemicals) and
effective monitoring of performance by the user (most conventional techniques).
The markets for purification technologies where pulsed power purification
systems may be applied are large and growing. According to the Water Quality
Association, the worldwide market for water treatment technologies is expected
to be approximately $13.9 billion in 1997. Pulsed light purification products
are targeted to a specialized portion of this market.
EMI Filtering
The electromagnetic fields and signals generated by electronic devices can
interfere with and disrupt the functioning of other electronic devices. Certain
categories of electronic products, including implantable medical devices such as
pacemakers and defibrillators and aerospace guidance and communications systems,
may fail to perform as required in the presence of EMI. In recent years, the FDA
has publicly expressed concern about the potentially deleterious effect on the
safe operation of implantable medical devices caused by
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an increasingly large variety of EMI sources, including household appliances and
cellular telephones and other wireless communication devices that operate in an
increasingly large part of the electromagnetic spectrum. To combat the effects
of EMI, some manufacturers of electronic products incorporate EMI filters into
the circuitry of their products. An alternative approach blocks EMI from
entering an electronic device at the opening used by, for example, power leads
or sensors (the "feedthrough"). These feedthrough filters block EMI from
entering an electronic device without interfering with its functionality. In
addition to feedthrough filtering capabilities, electronic device manufacturers
seek EMI filters that can block a broad range of electromagnetic frequencies and
conform to small form factors.
Industrial Computers and Subsystems
Industrial computers form the backbone and control system for many types of
electronic equipment. Unlike general purpose computers such as PCs, industrial
computers provide a computing platform for a larger system made by an OEM. These
products can be designed to accept specialized additional hardware and software
from a customer or third party vendor and satisfy additional requirements such
as high reliability, non-standard input/output capability and specific form
factors. Industrial computers are incorporated into a broad range of products,
including computer telephony products (voice messaging systems, interactive
voice response servers and telephone switch management systems),
telecommunications products (cellular base stations, two-way paging systems,
advanced intelligent networks, enhanced service systems and video conferencing
servers), Internet/worldwide web servers, electronics and semiconductor testing,
manufacturing and assembly equipment, a range of medical devices and other
commercial applications.
The rapid proliferation of complex electronics applications has created
attractive markets for highly focused industrial computer manufacturers who
possess the engineering know-how and experience to provide design-intensive
solutions. OEMs frequently conclude that their needs for such products can be
better met by specialized outside manufacturers rather than by developing these
capabilities internally. Electronic Trend Publications estimates that the size
of the total industrial computer market will exceed $2.5 billion worldwide in
1997.
OEMs are also continually seeking means to integrate more functionality and
new technologies into smaller enclosures with higher levels of fault tolerance
at lower cost. In industrial computers, a number of architectures are currently
in use. One of the most prevalent architectures, passive backplane, facilitates
compatibility with components designed for PCs, design flexibility, fault
tolerance, customization of input/output ports and cost effectiveness.
CompactPCI, an emerging architecture which certain OEMs are beginning to design
into their next generation products, will incorporate the cost effectiveness and
design flexibility of passive backplane architecture, while enhancing ruggedness
and fault tolerance in a smaller form factor. According to Electronic Trend
Publications, annual sales of industrial computers and subsystems incorporating
CompactPCI architecture are projected to exceed $400 million in 2000 and grow to
$1.0 billion in 2001.
Government Funded Research and Systems Development
The United States government relies on companies with significant
scientific and technical expertise to provide technology-driven research and
development programs supporting a variety of military and space programs. Many
of the United States' strategic defense capabilities are examined and tested
through weapons effects simulation and computer modeling. Additionally, research
and development is required on techniques to harden electronics against weapons
effects and the space environment, devise sensors designed to detect hostile
environments, particularly in space applications, and devise alternate means of
generating nuclear fuel without the potential environmental impact of
traditional methods. Many of these efforts involve the development, design,
construction and operation of major pulsed power systems and the application of
sophisticated computer modeling and analysis of complex physical phenomena.
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MAXWELL'S SOLUTIONS
With over 30 years of experience in pulsed power research and development
programs, Maxwell has developed substantial scientific and engineering expertise
in electrical energy storage and power delivery systems. The Company has
leveraged its expertise, particularly in pulsed power, to design and manufacture
a range of products which apply pulsed power technology to commercial
applications and address a number of commercial markets.
Ultracapacitors. The Company is a leader in ultracapacitor development. In
a 1996 study conducted by the Idaho National Energy Laboratory, the Company's
PowerCache ultracapacitor demonstrated a substantial performance advantage in
both the storage of electrical energy and the release of power over all of the
other organizations that participated in the study, including competing
commercial developers of this technology as well as national laboratories. The
flexibility of the Company's PowerCache ultracapacitor technology enables it to
produce ultracapacitors in a wide range of sizes and energy storage capabilities
that address a broad range of applications. The Company has initially targeted
its ultracapacitor products to the wireless communications, power quality and
automotive markets. In the wireless communications market, the Company's
ultracapacitors are being used as battery supplements in two-way pagers,
wireless modems and emergency locator beacons to extend battery life and to
increase signal strength. In the power quality market, banks of PowerCache
ultracapacitors offer solutions for temporary voltage fluctuations and power
interruptions, diesel and electric motor startup and battery load leveling and
enhancements. In the automotive market, the Company is providing ultracapacitors
for evaluation in electrical subsystems in combustion engine vehicles for
applications ranging from catalytic converter preheating, airbag actuators and
seat belt tighteners to power steering and power braking subsystems. The Company
is also collaborating with leading automobile companies to develop PowerCache
ultracapacitors for use as battery supplements or replacements in electric
vehicles and hybrid electric vehicles.
Purification Systems. The Company's pulsed power based purification
products, PureBright and CoolPure, address the limitations of conventional
techniques for microbial decontamination. The PureBright system utilizes pulsed
power to deliver intense light pulses in rapid sequence to kill a wide range of
microorganisms in water and pharmaceutical products, on food and packaging
surfaces and on medical products. The PureBright system is effective against
many microorganisms, including cryptosporidium, which conventional systems fail
to kill, and meets treatment standards as stringent as those for pharmaceutical
products sterilization. PureBright does not pollute the environment and is
readily monitored for performance by end-users. The Company's CoolPure system,
now in prototype development, uses high energy electric pulses, rather than
light pulses, to decontaminate opaque or cloudy liquids and liquid foods.
Other Pulsed Power Products. Leveraging its experience researching,
designing and operating major pulsed power systems for the United States
government, the Company designs and manufactures traditional high voltage
capacitors, power supplies and other electrical components for applications
requiring reliable sources of high power output. The Company's products are
incorporated in portable heart defibrillators, medical and industrial lasers and
power conditioning equipment for x-ray machines and high speed trains.
EMI Filters. The Company's EMI filter is a feedthrough filter capacitor
that blocks a broad range of frequencies and is available in small form factors.
The Company's patented EMI filter enables it to meet the increasing demand for
smaller filters by mounting the feedthrough filter on the surface of an
implantable device. In the implantable heart defibrillator market, the Company
believes its EMI feedthrough filter is a market leader because of its small size
and effective broadband filtering capabilities. The Company currently supplies
EMI filters to CPI/Guidant for defibrillator and pacemaker applications and has
a contract to supply the Pacesetter division of St. Jude Medical, Inc. with EMI
filters for pacemakers. The Company's EMI filters are also sold for military and
space program applications.
Industrial Computers and Subsystems. The Company's industrial computing
products, incorporating passive backplane architecture, offer the advantages of
high input/output slot capacity, fault tolerance and low cost demanded by OEMs.
The Company is currently developing new products based on CompactPCI
architecture which incorporate the cost effectiveness and design flexibility of
passive backplane architecture and provide increased ruggedness and fault
tolerance in a smaller form factor. The Company believes it is a
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leading supplier of passive backplane systems, particularly for the growing
computer telephony and other telecommunications markets.
Government Funded Research and Systems Development. Maxwell continues to
provide high technology research and systems development to the United States
Department of Defense, other government agencies and national laboratories. The
Company is a leader in pulsed power research, weapons effects simulations and
complex computer modeling and analysis of physical phenomena. Additionally, the
Company's expertise addresses the government's needs in power quality and power
conditioning for large, high energy systems, electric and electrothermal gun
research, advanced pulsed power development, high-power microwave source
development and technology oversight for space-based sensor development.
STRATEGY
Having expanded its business beyond funded research and development
activities to a focus on commercial opportunities, Maxwell intends to continue
to execute its commercialization strategy, develop products incorporating core
technologies and identify and penetrate key markets for its products. The
Company's strategy encompasses the following elements:
Capitalize on Technical Expertise. Through its long history of research and
development in pulsed power, the Company has become a leader in the development
of commercial products based on pulsed power technologies and intends to
continue to capitalize on its technical expertise in this area. In the wireless
communications market, the Company has developed ultracapacitor products that
extend battery life and increase functionality in devices such as two-way
pagers. In the purification systems market, the Company has leveraged its
expertise in pulsed power to create systems which are designed to offer rapid,
"in-line" decontamination for food packaging and medical product manufacturing,
enabling customers to achieve increased production efficiency. The Company
intends to continue pursuing research and development programs, principally
those funded by strategic partners and the government, that enhance its
technical expertise and enable improvement of existing products and development
of additional products.
Focus on Selected Large and Growing Commercial Markets. In recent years,
the Company has chosen to enter selected large and growing commercial markets in
which the Company believes it has enabling technology or in which the Company's
technical expertise offers a competitive advantage. For its ultracapacitor
products, the Company has targeted the wireless communications, power quality
and automotive markets in which battery performance is a critical issue.
Similarly, the Company's EMI filter business is focusing on medical applications
in which manufacturers are increasingly concerned about the effects of EMI on
implantable devices. The Company intends to increase penetration of its current
target markets and to continue pursuing clearly defined commercial market
opportunities that enable it to leverage its core technologies.
Leverage Strategic Partnerships. The Company has established a number of
strategic partnerships with industry leaders for product development, marketing
and sales. Through these strategic partnerships, Maxwell seeks to obtain
specific market knowledge and enhanced understanding of market demands and
needs, access to funding for continued product development, product and customer
validation and a channel for market penetration. In recent years the Company has
formed or expanded strategic partnerships with, among others, Tetra Pak, a
worldwide leader in food packaging equipment, to develop sterilization systems
for incorporation into food packaging machinery, PacifiCorp, a diversified
utility holding company, to develop and market ultracapacitor products for the
power quality marketplace, a leading automobile manufacturer to develop
ultracapacitors as battery supplements in electric and hybrid electric vehicles
and an international restaurant chain to develop a PureBright system for water
treatment. The Company intends to leverage its existing strategic partnerships
and seek new strategic partners in promising markets.
Expand International Presence. The Company intends to pursue international
markets as key avenues for growth and increase the percentage of sales generated
in international markets. In fiscal 1997, the Company's international sales were
12.4% of total sales, compared to 9.3% of total sales in fiscal 1996. In
furtherance of its strategy, the Company has concluded key strategic
partnerships with international companies such as an international wireless
communications company, a leading automobile manufacturer
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and Tetra Pak. In 1997, the Company opened a sales office in London focused on
purification systems and industrial computers.
Create Focused Centers of Expertise. As part of its shift to a
commercially-oriented business, in 1996 the Company completed a reorganization
that combined like and synergistic businesses into business units, creating
focused centers of expertise. The Company intends to continue operating in
business units focused on clearly defined markets. The Company believes that
this structure facilitates the management and commercialization of its diverse
technology base. The Company has provided and will continue to provide
incentives to encourage entrepreneurism from its employees and senior managers.
PRODUCTS
Ultracapacitors
Maxwell's PowerCache ultracapacitor represents a significant improvement in
ultracapacitors. The Company's ultracapacitors are distinguished by the large
amount of energy they can store in a given physical volume. The Company's
ultracapacitor is scalable in that it can be manufactured in a broad range of
shapes and sizes. Currently, the Company is producing ultracapacitors from
matchbook size to cells measuring 2" x 2" x 6", while maintaining the same high
energy storage per unit volume. The Company's ultracapacitors can be linked to
supply higher power for applications such as automotive and power quality
systems. The Company's ultracapacitors range in price from a few dollars to over
$1,000 per cell. The Company is initially targeting the wireless communications,
power quality and automotive markets for its ultracapacitors.
Wireless Communications. In wireless communications devices, PowerCache
ultracapacitors increase signal strength and significantly extend battery life
for devices that transmit in sequences of bursts. The Company's ultracapacitors
have been incorporated into portable devices dependent on battery power
including two-way pagers, wireless modems and emergency locator beacons. The
Company has developed, under a strategic partnership with a telecommunications
OEM, a matchbook size ultracapacitor that has been designed into the OEM's next
generation wireless modems and two-way pagers. The Company is constructing a
facility for volume production to meet anticipated demands of that OEM. The same
ultracapacitor is being designed into an emergency locator beacon made by
another OEM. The Company is also engaged in research and development for an
ultracapacitor for cellular telephones, which require shorter discharge times
(0.01 to 0.1 seconds) than many other wireless devices (0.1 to 3.0 seconds).
However, because substantial technical challenges must be overcome, no assurance
can be given as to whether the Company will be able to develop an ultracapacitor
suitable for use in cellular phones.
Power Quality. The Company's ultracapacitors can function as a standby
reserve of power to be supplied in the event of an electrical interruption or
voltage fluctuation in an external power source. Maintaining power quality is
important to a variety of end users, such as manufacturers using automated
production equipment, for whom power interruptions can cause substantial product
losses and restart delays, and computer-intensive businesses to which data
losses can cause substantial expense. Maxwell's strategic partner in the power
quality market is PacifiCorp, a leading utility company. PacifiCorp has provided
substantial development funding and will be selling distributed energy
generating systems incorporating the Company's ultracapacitors, utilizing
ultracapacitors in its own backup systems and marketing ultracapacitor systems
to industrial customers for whom power quality is an important concern. Maxwell
has sold PacifiCorp a 56-volt, 300,000 joule bank of ultracapacitors for
demonstration purposes consisting of 56 cells connected in series and parallel,
with each cell 2" x 2" x 6" and having 2,700 farad capacitance. The Company is
manufacturing an additional 56-volt bank and a 170-volt bank for PacifiCorp for
demonstration and application purposes, with the 170-volt bank specifically
intended to address the power quality requirements of semiconductor
manufacturers. Additional potential applications include remote telephone
switching offices and utility switching stations handling major power grid
realignments.
Automotive. In conventional combustion engine vehicles, the Company's
PowerCache ultracapacitor has applications in catalytic converter pre-heating,
air bag deployment, seat belt tightening and engine ignition. In addition, the
Company's ultracapacitor may create significant energy efficiencies by enabling
the replacement of vacuum and hydraulic subsystems for power steering and power
brakes with electrical subsystems utilizing
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pulsed power. In electric vehicles, the Company's ultracapacitor can reduce the
load on the battery pack by using its stored energy for acceleration power and
recapturing energy otherwise lost during braking. Ultracapacitors can thus
significantly extend battery life and improve driving range. Similarly, in
hybrid electric vehicles, the ultracapacitor provides acceleration power for
passing and hill climbing, thereby allowing highly efficient, low pollution
constant power engines to be used. The timing of development and consumer
acceptance of electric vehicles is uncertain because such acceptance is driven
by factors including legislative mandates and continued technical improvement.
As a result, the Company believes market acceptance of ultracapacitor use in
electrical subsystems for combustion vehicles will precede widespread use of
electric vehicles and may provide a larger initial potential market for
ultracapacitors. Three automobile manufacturers and two automotive component
manufacturers are in discussions with the Company to utilize ultracapacitors in
the development of electrical subsystems for combustion vehicles. The Company
has sold ultracapacitors to leading automotive manufacturers for tests in
electric vehicles.
Purification Systems
The Company's PureBright and CoolPure purification systems are based on two
patented pulsed power processes incorporating capacitors and other pulsed power
components designed and manufactured by the Company. The PureBright system
utilizes intense pulsed light to kill microorganisms, including cryptosporidium,
viruses and spores in water and pharmaceuticals, on food and food packaging
surfaces and on medical products. The CoolPure system uses a direct electrical
pulse to kill microorganisms in liquids and liquid foods, such as juices, dairy
products and sauces. The Company's PureBright product line includes compact
water treatment systems and large industrial systems that can be used on a
standalone basis or as a component designed into other industrial equipment.
Prices of the Company's purification systems range from a few thousand dollars
to over $100,000. PureBright systems are in field testing for restaurant water
treatment applications, have been designed in as an option in Tetra Pak's next
generation food packaging machinery and are in the FDA approval process for use
as a sterilization device for certain medical products manufactured by other
strategic partners.
Water Quality. The Company, in a strategic partnership with an
international restaurant chain, has developed a PureBright system for water
treatment in restaurants. The PureBright system is designed to replace
ultraviolet light treatment and chemical treatments such as chlorine for
elimination of microorganisms in water. The PureBright water treatment system
designed for restaurant use is a four-gallon per minute wall-mounted unit with
dimensions of 16" x 30" x 11" and plugs into standard electrical power outlets.
The restaurant partner is now engaged in field testing the on-site performance
of the system. The Company has granted exclusivity for restaurant use to its
strategic partner for a two-year period, but intends to market the system for
point-of-entry or point-of-use applications to hotels, laboratories,
manufacturers, healthcare providers and, after the exclusivity period, other
restaurant operators. The Company believes PureBright technology will be
particularly useful in developing nations because of uneven water quality levels
found in some of those countries. The Company believes PureBright can be an
effective and easily monitored safeguard against domestic water quality
problems, such as cryptosporidium outbreaks, that are not effectively controlled
by some conventional technologies.
Medical and Pharmaceutical Product Sterilization. Maxwell is also marketing
PureBright systems for sterilization of medical and pharmaceutical products and
packaging materials. PureBright systems for medical and pharmaceutical
applications consist of a standard enclosure containing the pulsed power
delivery system, with dimensions of 2' x 3' x 6', linked by cable to a flash
lamp unit. The flash lamp unit is configurable to the customer's specific
requirements for integration into processing line equipment. The Company has
strategic partnerships with medical and pharmaceutical product companies, which
are seeking FDA approval for PureBright's integration into blow-fill-seal
plastic packaging equipment and certain disposable medical product manufacturing
equipment. The Company also intends to market PureBright for medical product
sterilization applications where it would provide a cost-effective alternative
to expensive, time consuming autoclave heat-based sterilization systems.
Food Packaging. Through a long-standing partnership with Tetra Pak, the
Company has developed PureBright systems for food packaging applications similar
in size, price and customizable features to the
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PureBright systems for medical and pharmaceutical products. Tetra Pak has
incorporated PureBright as an option in its next generation container filling
machines. The Company's relationship with Tetra Pak prohibits the Company from
pursuing additional customers in most food packaging applications, but permits
it to pursue additional customers in cup, lid, bottle cap and hot-filled pouch
purification applications.
Food Treatment. PureBright systems similar to those used in medical and
food packaging may also have application in the market for reducing microbial
contamination on the surface of food products. The Company believes reduction of
surface microbes will extend the shelf life of a variety of foods. Among other
potential applications, the Japanese government is funding a study testing the
efficacy of purification systems, including the PureBright system, for meat
decontamination.
The CoolPure system, currently in prototype stage, kills microorganisms
using pulses of electricity, rather than light. The CoolPure system is being
designed to be used with opaque or cloudy liquids or pumpable foods such as
juices, dairy products and sauces, which the PureBright light pulses are unable
to penetrate. CoolPure is effective against vegetative bacteria, a narrower
range of microorganisms than those controlled by PureBright. The Company has
supplied CoolPure prototypes to the United States Army and an international food
products company. CoolPure is composed of a 89" x 68" x 84" pulsed power unit,
linked to a smaller treatment chamber with electrodes applying the electrical
pulses.
EMI Filters
Maxwell's patented EMI feedthrough filter capacitor absorbs electromagnetic
energy from a broad band of frequencies. The Company believes it has significant
advantages over competing technologies because its filters block a broad band of
EMI frequencies from entering the device, in contrast to filters that are
embedded in the internal circuitry and are designed to absorb only a specific
frequency. Furthermore, the Company's surface mount filter design enables a
smaller form factor than competing feedthrough filters. The FDA has approved the
implantable pacemakers and heart defibrillators that contain the Company's
filter.
The Company currently has supply agreements with two of the largest
manufacturers of implantable medical devices, CPI/Guidant, whose implantable
defibrillators use the Company's filters, and the Pacesetter division of St.
Jude Medical, Inc., which is incorporating the Company's EMI filter in certain
of its implantable heart pacemakers. The Pacesetter contract, awarded in March
1997, expands the market penetration of the Company's device from implantable
defibrillators to pacemakers. The Company also manufacturers and sells
high-reliability feedthrough filter capacitors for military and commercial space
program applications in which broad band screening of EMI and device size are
important specifications.
Other Pulsed Power Products
The Company designs, manufactures and sells a number of electrical
components, including a range of high voltage capacitors supplying from
thousands of volts to tens of thousands of volts. Maxwell has long been a major
supplier of capacitors used in portable and stationary heart defibrillators used
by medical personnel to treat heart attacks. The Company also manufactures high
voltage capacitors for lasers for medical applications such as eye surgery,
dentistry and dermatology, and for industrial applications such as
microlithography for semiconductor manufacturing, flat panel annealing for LCD
displays, marking, welding, drilling and cutting. Other high-voltage capacitors
are sold for use in specialized applications and for use in large systems for
the United States government.
The Company has licensed traction capacitor technology from Thomson-CSF, a
multi-national industrial company, with rights to manufacture and distribute
such products in the United States. Traction capacitors, used in locomotives to
condition electric power running from a diesel generator to the electric motor,
have been used for years in Europe's high speed trains. Maxwell is supplying
traction capacitors to the consortium led by Bombardier and GEC Alsthom selected
to build AMTRAK's Northeast Corridor train, which is expected to be the first
high speed tilt train system in the United States. AMTRAK has announced that it
plans to upgrade its rail network to high speed trains nationwide over the next
20 years and the Company intends to pursue opportunities with locomotive
manufacturers to supply traction capacitors as well as capacitors for braking
and other subsystems for these programs.
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The Company also develops, manufactures and sells a line of compact power
supplies used for charging high voltage capacitors for the medical and
industrial laser markets. Portions of this product line are manufactured under
license from Auburn University.
Government Funded Research and Systems Development
Maxwell is engaged in a variety of research and development programs in
pulsed power, weapons effects simulation and pulsed power and sensor systems
design and construction. These services are primarily supplied to the United
States government and its agencies including the Air Force and the Defense
Special Weapons Agency. The Company also provides systems and services to
national laboratories and industrial and defense companies. The Company
typically performs research and development under contracts that allow the
Company to apply developed technology in commercial markets.
The Company performs above-ground simulation and testing of weapons effects
via the design and operation of large-scale X-ray and electromagnetic pulse
producing systems. These systems employ the Company's capacitors and other
pulsed power components. The Company also has developed power quality systems
and power conditioning systems, including a power conditioning system for an
accelerator for tritium production. The Company provides technology oversight
and planning for space-based sensor design and development and testing of
hardening techniques for electronics modified to withstand hazardous effects of
hostile environments. In addition, the Company performs on-site technical,
operations and maintenance support at government facilities involving
applications such as electric and electrothermal gun research, advanced pulsed
power development, high-power microwave source development, energy storage and
system integration of advanced concept demonstration experiments.
A potential commercial application stemming from the Company's funded
research and systems development is ElectroBlast, a process initially identified
using expertise gained in studying effects of advanced weapons technology. The
ElectroBlast process uses a pulsed electric discharge to fracture rock by
rapidly expanding a non-toxic material. If successful, the technology would, in
contrast to dynamite and other conventional explosives, produce no toxic fumes
and minimize dust and flyrock, providing opportunities for continuous tunneling
and thus potentially significant economic advantages over conventional methods.
ElectroBlast is also being investigated as an alternative to explosives in
demolition of concrete structures. The technology has been tested in underground
mines, but is still in the early development stage.
Industrial Computers and Subsystems
Through its industrial computers and subsystems business acquired in 1991,
the Company designs, manufactures and supplies standard, custom and semi-custom
industrial computer modules, platforms and fully-integrated systems to OEMs, on
a worldwide basis. The Company's product line ranges from enclosures, CPU cards
and backplanes to fully integrated and highly customized computer systems. The
Company's product line primarily employs passive backplane architecture and the
Company is completing the development of its first CompactPCI products. Prices
for the Company's standard products such as enclosures, CPU cards and fully
integrated systems range from $1,500 to $10,000.
The Company's components and systems are design-intensive applications
based on Intel's x86 and Pentium architecture and are PC-compatible. The
Company's products are utilized primarily in computer telephony equipment such
as voice-mail servers, interactive voice response servers, telephone switching
servers and telephone network transaction control servers. The Company's
industrial computers are also used in a number of non-telecommunication
applications such as medical (CT Scan, MRI equipment and drug dispensing
equipment), test instrumentation (data acquisition and test), imaging
instrumentation (large-scale optical reading and sorting equipment) and
manufacturing automation (pick-and-place equipment). In addition, the Company
has recently begun marketing its computers as private-labeled products to file
server manufacturers for resale into the small-to-medium file server market.
The Company's enclosures utilize passive backplane technology in which CPU
and input/output functionality is provided by add-in cards for flexibility and
ease of replacement. The Company provides fault resistant and fault tolerant
systems that include redundant components -- cooling fans, power supplies and
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hard disks -- that can be "hot-swapped" without shutting down or otherwise
affecting the system. The Company also provides enclosures with segmented
backplanes that allow two or more independent computer systems to operate within
a single enclosure, an important feature in systems in which fault tolerance or
size requirements are critical. Enclosures are available to support from six to
twenty-five slots and can be configured in rack mount, table top or tower
models.
The Company's products employ several industry standard buses, form factors
and interfaces, which enable OEMs to integrate the Company's products with many
widely available and economical third party products thereby reducing reliance
on potentially higher priced or scarce custom component parts. The Company's
products incorporate standard bus architecture including ISA Bus, PCI Bus, SCSI
Bus and IDE, and microprocessors in the Intel family up to the Pentium Pro and
Pentium II, following its release, and support operating systems including
Windows 95, Windows NT and Solaris.
Computer-Based Analytic Services and Software
Maxwell provides complex computer-based analytic services, primarily to the
United States Department of Defense, and sells various commercial software
products. A primary focus of the Company's government funded research is
computer modeling of physical phenomena and improvement of the architecture of
the computer-based systems and networks used for transmitting and applying data.
The Company has developed highly advanced computer software for modeling and
predicting physical effects such as electromagnetic pulses, electric currents,
shock waves, ground shock and ground movement. The Company uses this software to
perform analysis of weapons effects and systems hardening, space environment
effects and satellite design, electric propulsion and geothermal and earthquake
effects.
In commercial markets, Maxwell provides software-related products and
services for cost accounting and management information systems, Internet
content, educational software and public safety and criminal justice information
systems. The Company is marketing its cost accounting and management information
software programs, which incorporate sophisticated job cost and activity-based
accounting capabilities, to large contractors and others interested in tracking
costs by job, activity or cost center. The software is sold under the JAMIS
(Job-cost Accounting and Management Information Systems) label, and contains
modules necessary for a comprehensive, enterprise-wide system including
accounting functions, Federal Acquisition Regulation compliant billings, human
resources, contracts and purchasing. Development continued in fiscal 1997 on a
new, open platform, graphical user interface based version of this software. The
Company completed development in fiscal 1997 of JAMIS Timecard an online time
recording system that currently operates in a client-server environment
including remote-site entry and is developing Internet compatibility for this
product. The Company also provides Internet content including real-time
municipal traffic information available to users on a co-branded basis with the
Yahoo! search directory and with Microsoft on the upcoming version of its
Internet browser. The Company also offers wide area and local area network and
software integration services. The Company offers interactive educational
software compact discs for mathematics and physical science instruction designed
for in-classroom use. The Company also markets and sells public safety and
criminal justice information system products and integration services, including
client-server based software for criminal case management, law enforcement
records management, computer-aided dispatch, jail management, and fire and
emergency record management.
STRATEGIC PARTNERSHIPS
In recent years the Company has formed or expanded several strategic
partnerships. Through these alliances, Maxwell obtains an enhanced understanding
of market demands and needs, access to funding for continued development and
commercialization of products, and a channel for market penetration. The
strategic partner obtains an opportunity for early adoption or use of the
product or service.
For purification products, the Company frequently accepts initial funding
to engineer a specific application for the strategic partner, thus reducing the
Company's product development expense, and in exchange the strategic partner
often receives a period of exclusivity for the application. The Company's
longest strategic relationship is with Tetra Pak, which has provided research
and product development funding to the
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Company's PurePulse Technologies, Inc. subsidiary since its inception, and owns
approximately 5% of PurePulse. The Company's PureBright system has been
designed-in as an option in Tetra Pak's next generation food packaging
machinery. Tetra Pak has an exclusive license for PureBright in most food
packaging applications. In similar fashion, the Company has received funding
from an international restaurant chain for development of PureBright for water
treatment applications. The Company and this strategic partner are negotiating
an agreement whereby the Company would supply PureBright units to the restaurant
chain, contingent upon successful completion of field testing now in process.
The strategic partner has a two-year exclusive right to use PureBright in its
restaurants beginning when the first system is ordered. For CoolPure, an
international food products company is providing product development funding, is
currently evaluating prototype units and has been granted a period of
exclusivity for use of CoolPure in some applications.
The Company has also developed strategic partner relationships for product
development and marketing of ultracapacitors. PacifiCorp has provided funding
for product development and testing for ultracapacitors in power quality
applications, and PacifiCorp and the Company are jointly marketing
ultracapacitors to industrial customers. The Company is discussing with
PacifiCorp an additional $5 million in funding, possibly including an equity
investment in the Company's subsidiary, Maxwell Energy Products, Inc. A leading
automobile manufacturer provided funding for ultracapacitor development and
purchased prototype units, with the Company providing technology disclosure and
a period of exclusivity that has now expired. The Company is negotiating with
this strategic partner for an expanded development agreement.
The Company's future success will depend in part on its continued
relationships with various of its strategic partners, its ability to enter into
other similar collaborative arrangements, the interest of certain of the
Company's strategic partners in the potential products under development and,
eventually, their success in marketing or willingness to purchase any such
products. The exclusivity rights granted to strategic partners may inhibit the
Company's ability to find a wider market for certain of its commercial products
and thus may materially reduce revenues during the exclusivity period. See "Risk
Factors -- Extensive Reliance on Strategic Relationships; Restrictions Due to
Exclusivity Rights."
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CUSTOMERS
The Company's products and services support a broad base of over 1,000
customers that spans each business segment. A number of the Company's customers
and strategic partners that are evaluating or are in the early stages of
adopting the Company's ultracapacitor products or purification systems have
required confidentiality from the Company and therefore are not named in this
prospectus or identified in the following table. Such customers include a major
wireless telecommunications device manufacturer and automotive manufacturers for
ultracapacitor products and an international restaurant chain, an international
food products company and a medical products manufacturer for purification
products. The following table is a representative list of the Company's
customers by product family.
<TABLE>
<CAPTION>
CUSTOMER APPLICATION PRODUCT
- ---------------------------------- -------------------------- ----------------------------------
<S> <C> <C>
PULSED POWER AND ELECTRONIC COMPONENTS
Cubic Defense Systems, Inc. Defense Nuclear Event Detector
General Electric Medical Systems Medical X-Ray Equipment Resistors
Hewlett-Packard Medical Equipment Defibrillator Capacitors
Los Alamos National Laboratory Physics Research Switches, Capacitors
PacifiCorp Power Quality Ultracapacitors
Pulse Sciences, Inc. Physics Research Capacitors, Power Supplies
SLS Biophile, Ltd. Medical Laser Equipment Capacitors, Power Supplies
TetraPak Food Packaging PureBright Purification Systems
Western Atlas Oil Well/Logging High Temperature Capacitors
Zoll Medical Medical Equipment Defibrillator Capacitors
EMI FILTERS
Baker Hughes Inteq Oil Field Services Capacitors, EMI Filters
Cardiac Control Systems Medical EMI Filters
Guidant/CPI Medical EMI Filters
Lockheed Martin Military EMI Filters
St. Jude/Pacesetter Medical EMI Filters
INDUSTRIAL COMPUTERS AND SUBSYSTEMS
Active Voice Inc. Voice Mail Systems Enclosures, CPU Boards
Allan Crawford Associates Canadian Distributor All Products
Applied Voice Technology, Inc. Voice Mail Systems Enclosures, CPU Boards
AT&T Computer Telephony Fault Tolerant Platforms, CPU
Boards
Banctec Technologies Document Sorting Systems Enclosures, CPU Boards
Brite Voice Interactive Voice Response Enclosures
Comverse Information Systems Computer Telephony Fault Tolerant Platforms
Digital Equipment Corp. Computer Platforms Enclosures, Fault Tolerant
Platforms
Lucent Technologies Voice Messaging Computer Platforms
Videoserver Inc. Video Conferencing Enclosures, CPU Boards
GOVERNMENT FUNDED RESEARCH AND SYSTEMS DEVELOPMENT
Defense Special Weapons Agency Weapons Effects Simulation Pulsed Power Operations, Analysis
Kyobuto Boeki Kaisha, Limited Geophysics and Geothermal Engineering, Scientific Support
Los Alamos National Laboratory Physics Research High Voltage Power Supplies
Mission Research Corporation Electromagnetic Electronic Testing
Interaction
NASA Space Environment Effects Physics Models and Effects
on Systems Analysis
Sandia National Laboratories Pulsed Power Research Engineering, Scientific Support
U.S. Air Force Phillips Lab Electronic Sensors for Technology Oversight and Analysis
Space
Weapons Effects Simulation Pulsed Power Operations and
Support
U.S. Air Force Hanscom AFB Space Physics Engineering and Scientific
Analysis
</TABLE>
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Products and services provided to the Department of Defense constituted a
substantial portion of the Company's sales in fiscal 1997, with sales to the
United States Air Force constituting 14.0% of consolidated sales. Only one other
individual customer, Lucent, accounted for more than 10% of consolidated sales.
Lucent accounted for approximately 11.9% of consolidated fiscal 1997 sales and
is a significant customer in the Industrial Computers and Subsystems business
segment. The Company's products that comprise a significant portion of its sales
to Lucent have not been designed into Lucent's next generation products and the
Company therefore expects that its business with Lucent will decline
substantially in the second half of fiscal 1998 and subsequent periods.
Customers for the Company's software products include federal, state and local
government organizations such as judicial organizations and school districts,
government contractors and textbook publishers.
SALES AND MARKETING
The Company's commercial products sales teams consist of sales personnel
based in its manufacturing facilities and for the Company's industrial computing
products, geographically-dispersed sales offices. These sales teams are often
supported by scientists, application engineers and technical specialists. Sales
and marketing for the Company's products in the United States is handled
directly by the Company. The Company utilizes sales representatives to assist in
the marketing of its products outside the United States and has recently opened
a sales office in London focused on marketing and selling purification systems
and industrial computers in Europe. The Company conducts marketing programs
intended to position and promote its products and services, including trade
shows, seminars, advertising, public relations, distribution of product
literature and a website on the Internet.
As emerging technologies require customer acceptance of new and different
technical approaches, the sales effort for new products includes substantial
involvement from engineers to demonstrate the applications of the Company's
products. Senior management is also significantly involved in gaining access to
customers or potential strategic partners to discuss the Company's emerging
product lines. The time required to demonstrate technical and cost effectiveness
for new technologies often requires an extended initial marketing effort by the
Company. As a result, an important part of the sales strategy for new products
is to capitalize on strategic partnerships formed to develop the product and
establish an avenue to obtain product validation.
In its technology programs and systems segment, the Company's sales and
marketing is primarily conducted by key scientists and other members of its
technical staff. A large portion of this business is obtained in response to
requests for proposals by the government, with the Company's bids and proposals
focused on providing the government with detailed technical information as well
as competitive pricing. Successful performance of the Company's contracts is an
important factor in securing follow-on business, an important source of new
contracts for the Company.
The Company has limited experience marketing and selling ultracapacitors
and purification systems. To market these products, the Company will be required
to develop a marketing and sales force that will be able to effectively
demonstrate the advantages of these products over competing products and other
traditional solutions. Furthermore, the highly technical nature of the Company's
products limits the pool of potential sales personnel. By entering into
agreements with sales representatives, the Company may be substantially
dependent upon the efforts of others in deriving commercial benefits from its
products. See "Risk Factors -- Limited Sales and Marketing Experience."
COMPETITION
In most of the markets in which it operates, Maxwell has a number of
competitors, many of which have longer operating histories, significantly
greater financial, technical, marketing and other resources, greater name
recognition, and a larger installed base of customers than the Company. In some
of the Company's business areas involving emerging technologies, the Company
faces competition from products utilizing alternative technologies.
Although a number of companies are researching and developing
ultracapacitor technology, the Company has two principal competitors in
ultracapacitor products, Panasonic, a division of Matsushita
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<PAGE> 41
Electric Industries, Ltd., and SAFT, a unit of the Alcatel-Alsthom Group and a
prominent international battery supplier. The key competitive factors are
performance (energy stored and power delivered per unit volume), form factor and
breadth of product offerings. The Company believes it competes favorably with
respect to each of these factors. In addition, the Company will rely on
strategic partnerships to secure design wins and on aggressive pricing where
necessary. Ultracapacitors also compete with other technologies including
high-power batteries in power quality and automobile load leveling applications,
flywheels in power quality and automotive applications (including as a power
source for electric vehicles), and superconducting magnetic energy storage in
power quality.
The Company does not believe that its PureBright products have direct
competitors in the application of pulsed power in the form of light to water
treatment, food packaging or sterilization of medical or pharmaceutical
products. Pulsed power competes with many other established and developing
technologies, most of which are available in forms that are significantly less
expensive than the Company's products. For water treatment, the Company faces
competition from many alternative technologies including filtration systems,
reverse osmosis, chemicals, distillation technology and continuous wave
ultraviolet light systems. Alternative technologies also exist for the
sterilization, disinfection and purification of medical products, food packaging
and food products, including technologies such as autoclave heat sterilization,
chemicals, gamma radiation and modified atmosphere packaging. The Company
believes its purification systems will be competitive because of their efficacy
in microbial reduction and their ability to be utilized in processing lines for
food packaging or medical and pharmaceutical products without interruption of
the industrial process and without producing hazardous wastes.
The Company has one principal competitor in United States government funded
pulsed power research and weapons effects simulation, Physics International, a
unit of Primex Corporation. Contracts are awarded by the Department of Defense
based on cost and technical expertise. The Company believes it has the required
technical expertise in the area, and that it has streamlined its business so as
to competitively bid for contracts while remaining profitable.
The Company's EMI filter business competes with AVX Filter, a subsidiary of
Kyocera, in the EMI feedthrough filter market. The competitive factors in this
market include price, breadth of electromagnetic spectrum filtered, small size
and reliability. The Company believes it competes favorably with respect to each
of these factors. The Company believes its patent, for mounting of the filter on
the surface of an implantable medical device's feedthrough, provides a
competitive advantage by allowing manufacture of a smaller sized device.
The Company's traditional high voltage capacitors face competition from
numerous independent electronics suppliers in markets for storage capacitors,
medical and industrial applications and use in large systems by the United
States government as well as from component manufacturing operations within
certain medical and industrial OEM organizations. The largest independent
competitor in the United States is Aerovox, which has competing high voltage
capacitor lines very similar to the Company's. Customers generally select
capacitor components for systems based on criteria such as price, functionality
(i.e. voltage requirements) and past experience with a vendor. The Company
focuses on high-end, high power capacitors, maintains relationships with
customers geared towards achieving design wins and offers competitive pricing.
In the Company's target markets for passive backplane based industrial
computers and subsystems, its competitors include Texas Microsystems,
Diversified Technology, Advantech, the Industrial Computer Source division of
Dynatech, Teknor and Trenton, resulting in a highly fragmented market in which
no one entrant is dominant. Competitive factors in this market include price,
design expertise, functionality and fault tolerance. The Company believes it
competes favorably with respect to each of these factors. CompactPCI is an
emerging technology that is neither widely marketed nor accepted; it will
potentially compete with passive backplane and much more widely installed
VME-based systems for market share. The competitive factors for CompactPCI are
very similar to passive backplane systems.
In complex computer-based analytic services, the Company often competes
with larger, better funded entities to secure government and other contracts.
The Company relies on its expertise in modeling and analysis and ability to make
competitive bids to secure contracts. In commercial software, the JAMIS cost
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accounting system competes principally with one similar government contract
based software application produced by Deltek Systems, as well as with numerous
off-the-shelf and customized accounting software products. The Company relies on
superior performance and an attractive price point to secure market share. The
Company has no significant competitors in the provision of real-time traffic
reports over the Internet, but believes barriers to entry are low. In all of its
businesses, the Company's competitive position depends in part on its ability to
hire and retain highly qualified engineers, scientists and management personnel.
See "Risk Factors -- Competition."
MANUFACTURING AND SUPPLIERS
Maxwell currently manufactures all of its industrial computers and
subsystems, pulsed power components and EMI filters. The Company has four
manufacturing facilities in San Diego, California and one manufacturing facility
in Carson City, Nevada. The Company's EMI filters are manufactured at the Carson
City location. For two facilities in San Diego, the Company has obtained ISO
9001 certification and is seeking ISO 9001 certification for other facilities.
The Company performs low volume manufacturing for certain products, such as
purification systems and major pulsed power systems. In fiscal 1998, the Company
expects to begin volume manufacturing of ultracapacitors, and is preparing for
volume manufacturing of PureBright water treatment systems. For certain emerging
products, the Company will evaluate whether outsourcing or licensing
arrangements are preferable to establishing its own high volume manufacturing
capacity for that product.
The Company generally purchases components and materials, such as
electronics components, dielectric materials and enclosures of metal and
plastic, from a number of suppliers. In certain operations, the Company relies
on a limited number of suppliers or a single supplier. Although the Company
believes there are alternative sources for components and materials currently
obtained from a single source, there can be no assurance that the Company will
be able to identify and qualify alternative suppliers in a timely manner.
Maxwell's industrial computer business relies on single qualified suppliers for
some of its critical components, primarily CPU boards, and the Company considers
the sources of supply to be adequate. However, after one of the Company's
significant OEM customers specified a particular source for power supplies, in
fiscal 1996 the Company experienced interruptions in shipments from this vendor
and the interruption had a materially adverse short-term impact on the Company's
operations. The Company currently has a single qualified supplier for one
component of ultracapacitors and is contractually obligated to qualify at least
one additional supplier of such components. No assurance can be given that
qualification will be completed in a timely manner. Additionally, the EMI filter
produced by the Company relies on a sole domestic source for one component, and
that supplier has indicated its plans to design, build and sell a competing
filter in the future. The Company believes this supplier will continue to sell
to the Company but, if necessary, the Company could replace this supplier.
Although the Company seeks to reduce its dependence on sole and limited source
suppliers, the partial or complete loss of these sources could have at least a
temporary material adverse effect on the Company's results of operations and
damage customer relationships due to the complexity of the products supplied and
the significant amount of time required to qualify new suppliers. See "Risk
Factors -- Reliance on Third Party Suppliers."
The Company has limited experience with volume manufacturing of commercial
products. To date, the Company has not manufactured in volume its
ultracapacitors or purification systems. The Company may face challenges in
scaling up production of its new products, especially those products that
contain newly developed technologies. In addition, the Company will need to
expand its current facilities or obtain additional facilities in order to
manufacture a substantial quantity of its products. There can be no assurance
that the Company will be successful in expanding its facilities or obtaining
additional facilities, or that it will be able to overcome the management,
technological, engineering and other challenges associated with the production
of significant quantities of products at acceptable cost on a timely basis.
Outsourcing of manufacturing involves risks with respect to quality assurance,
cost and the absence of close engineering support. See "Risk Factors -- Limited
Volume Manufacturing Experience."
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RESEARCH AND DEVELOPMENT
The Company conducts internally-funded engineering, research and
development to refine and expand its products and services. Approximately 25% of
the reported research and development expense consists of the Company's
preparation of proposals principally for contracts for funded research and
development for the government. For fiscal 1997, 1996 and 1995, expenditures for
internally-funded research and development were approximately $5,303,000,
$5,081,000 and $5,038,000, respectively.
A substantial portion of the Company's revenues in its Technology Programs
and Systems business segment consists of customer-funded research and
development activities. Additionally, in the Power Conversion Products business
segment, certain large contracts accounted for approximately 25% of sales in the
business segment in fiscal 1997, which contracts represented primarily various
strategic partnership arrangements involving customer funding of research and
product development as well as prototype sales. See "-- Strategy;" "-- Strategic
Partnerships" and "-- Products."
PATENTS, LICENSES AND TRADEMARKS
The Company's success is heavily dependent upon the establishment and
maintenance of proprietary technologies. Although the Company attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that the steps taken by
the Company to protect its proprietary technologies will be adequate to prevent
misappropriation by third parties or will be adequate under the laws of some
foreign countries, which may not protect the Company's proprietary rights to the
same extent as do the laws of the United States.
The Company uses employee and third-party confidentiality and
non-disclosure agreements to protect its trade secrets and unpatented know-how.
The Company requires each of its employees to enter into a proprietary rights
and non-disclosure agreement in which the employee agrees to maintain the
confidentiality of all proprietary information of the Company and, subject to
certain exceptions, to assign to the Company all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment. In addition, the Company regularly enters into non-disclosure
agreements with third parties, such as consultants, potential joint venture
partners and customers.
The Company has historically relied primarily on its technological and
engineering abilities and on its design and production capabilities to gain
competitive business advantages, rather than on patents or other intellectual
property rights. However, the Company does file patent applications on concepts
and processes developed by the Company's personnel, and, as its commercial
businesses expand, the Company has placed increased emphasis on patents to
provide protection for certain of its technologies and products. The Company's
success will depend in part on its ability to maintain its patents, add to them
where appropriate, and to develop new products and applications without
infringing the patent and other proprietary rights of third parties and without
breaching or otherwise losing rights in technology licenses obtained by the
Company for other products. There can be no assurance that any patent owned by
the Company will not be circumvented or challenged, that the rights granted
thereunder will provide competitive advantages to the Company or that any of the
Company's pending or future patent applications will be issued with claims of
the scope sought by the Company, if at all. If challenged, there can be no
assurance that the Company's patents (or patents under which it licenses
technology) will be held valid or enforceable. In addition, a number of the
patents and patent applications owned or licensed by the Company are subject to
"march-in" rights and non-exclusive, royalty-free, confirmatory licenses held by
various governmental agencies or other entities.
Competing research and patent activity in many of the Company's
technologies is substantial and the markets are large enough that conflicting
patent and other proprietary rights claims may result in disputes or litigation.
Although the Company does not believe any of its products or proprietary rights
infringe the rights of third parties, there can be no assurance that
infringement claims will not be asserted against the Company in the future. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all. If
infringement were established, the Company could be required to pay damages or
be enjoined from
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making, using or selling the infringing product. Likewise, there can be no
assurance that a third party's product, if infringing on the Company's
proprietary rights, may be prevented from doing so without litigation. Any of
the foregoing could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on Proprietary Technology."
BACKLOG
The Company's funded backlog as of July 31, 1997, 1996 and 1995 amounted to
approximately $39 million, $38 million and $38 million, respectively. The funded
backlog consists of remaining funding under cost plus contracts for tasks not
yet completed, remaining revenues to be recognized on contracts accounted for on
a percentage of completion basis and firm orders for products not yet delivered.
The Company expects to complete or deliver substantially all of its currently
funded backlog within 12 months. The unfunded portion of contracts awarded was
approximately $23 million, $28 million and $33 million at July 31, 1997, 1996
and 1995, respectively.
GOVERNMENT BUSINESS
A substantial portion of the Company's sales (approximately 33% in fiscal
1997, 40% in fiscal 1996 and 42% in fiscal 1995) is derived from contracts with
the United States government, principally agencies of the United States
Department of Defense, and subcontracts with government suppliers. The
reductions in defense budgets over the past several years have affected the
Company's activities, particularly in the area of system survivability products
and services, such as weapons effects simulation and testing. The Company has
also experienced increased competition in bidding for new defense programs from
contractors seeking to replace their lost business. The Company has experienced
significant reductions in its business with the Department of Defense through
fiscal 1995 as the Department responded to reduced global threats and shrinking
defense budgets. While the Department of Defense has continued to fund, although
at lower levels, research on next-generation pulsed power concepts, the
operation of existing simulation machines has been curtailed. Three of the four
weapons effects simulators in San Diego which were designed, built, and operated
by the Company and owned by the Department of Defense ceased operation on
October 1, 1995. The Company has provided services to the Department of Defense
to assist in the closure of these facilities, and has nearly completed this
task. The Company will continue to provide testing and analysis on the fourth
simulation facility, after the closure of the other three simulation devices.
The Company's funded government contracts are typically performable over a
one-year period. Government agencies may terminate their contracts, in whole or
in part, at their discretion, and in such event, the government agency is
obligated generally to pay the costs incurred by the Company thereunder plus a
fee based upon work completed. Contract costs for services or products supplied
to government agencies, including allocated indirect costs, are subject to audit
and adjustment. Contract costs have been reviewed and accepted by the government
through fiscal 1993. Contract revenues for periods subsequent to fiscal 1993
have been recorded in amounts which are expected to be realized upon final
review and settlement. Contracts entered into by the Company with government
agencies are fixed-price contracts or cost plus contracts. Under a fixed-price
contract, the customer agrees to pay a specific price for performance. Under a
cost plus contract, the customer agrees to pay an amount equal to the Company's
allowable costs in performing the contract, plus a fixed or incentive fee.
Certain costs of doing business, such as interest expenses and advertising
expenses, are not allowable under cost plus contracts. Greater risks are
involved under a fixed-price contract than under a cost plus contract because in
a fixed-price contract the Company assumes responsibility for providing the
specified product or services regardless of the actual costs incurred. Failure
to anticipate technical problems, estimate costs accurately or control costs
during contract performance reduces or eliminates the contemplated profit and
can result in a loss. On the other hand, the government generally permits higher
profit margins when establishing prices for fixed-price contracts because of
such risks. In the technology programs and systems business segment
approximately 77% and 82% of sales were derived from cost plus contracts in
fiscal 1997 and 1996, respectively, and the balance of sales in such years were
derived from fixed-price contracts. See "Risk Factors -- Risks Associated with
Government Business."
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GOVERNMENT REGULATION
The testing, manufacture and sale of certain of the Company's products are
subject to regulation by numerous governmental authorities. Pursuant to the
Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing, manufacture,
labeling, storage, distribution and promotion of food and medical products and
processes. The Company has obtained clearance from the FDA for use of CoolPure
technology for preservation of liquid foods. In addition, the Company has
obtained clearance from the FDA of PureBright for food use and is applying for
similar approvals in Canada and Europe, as well as supporting customers in
obtaining clearance of PureBright for medical applications. The Company's EMI
filter capacitor has been approved for use in implantable defibrillators and
implantable pacemakers of certain medical device manufacturers. Delays in
receipt of or failure to receive anticipated approvals or clearances, the loss
of previously received approvals or clearances, limitations on intended use
imposed as a condition of such approvals or clearances, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
The testing, preparation of necessary marketing applications and processing
of those applications with the FDA is expensive and time consuming, can vary
based on the type of product and may take several years to complete. There is no
assurance that the FDA will act favorably or quickly in making such reviews, and
significant difficulties or costs may be encountered by the Company in its
efforts to obtain FDA approvals that could delay or preclude the Company from
marketing any products it may develop or furnish an advantage to competitors.
The FDA may also require post-marketing testing and surveillance to monitor the
effects of approved products or place conditions on any approvals that could
restrict the commercial applications of such products. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant pre-market clearance or
pre-market approval for products, withdrawal of marketing clearances or
approvals and criminal prosecution. See "Risk Factors -- Government Regulation."
Because of the nature of its operations and the use of hazardous substances
in certain of its ongoing manufacturing and research and development activities,
the Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacturing, storage,
air emission, effluent discharge, handling and disposal of certain materials and
wastes. Although the Company believes it is in material compliance with all
applicable government and environmental laws, rules, regulations, and policies,
there can be no assurance that the Company's business, financial condition and
results of operations will not be materially adversely affected by current or
future environmental laws, rules, regulations and policies or by liability
arising out of any past or future releases or discharges of materials that could
be hazardous. See "Risk Factors -- Environmental Regulations."
SEGMENTS
The Company's business segments are discussed in Note 10 of Notes to
Consolidated Financial Statements. The Company operates in four business
segments: 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); 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), 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) and
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).
44
<PAGE> 46
The Company's operating subsidiaries are Maxwell Energy Products, Inc.
(Power Conversion Products), PurePulse Technologies, Inc. (Power Conversion
Products), I-Bus, Inc. (Industrial Computers and Subsystems), Maxwell Federal
Division, Inc. (Technology Programs and Systems), Maxwell Information Systems,
Inc. (Information Products and Services) and Maxwell Business Systems, Inc.
(Information Products and Services). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
FACILITIES
The Company owns a 45,600 square foot office and laboratory building, a
22,000 square foot manufacturing facility and a 35,000 square foot engineering
and administrative support facility situated on approximately 8.9 acres of land
located in San Diego, California. Approximately three-fourths of the 35,000
square foot building is leased by the Company to another company. The Company
also leases five other facilities in the San Diego area. The Company utilizes
its facilities in the following manner: corporate, sales and administrative
(53,000 sq. ft.); manufacturing, assembly and testing, research and development
laboratories and engineering (276,000 sq. ft.). The Company's leased facilities
in San Diego, California are leased for varying terms and some of them contain
options permitting the Company to extend the lease term. The Company leases or
has commitments to lease office space in Reston and Sterling, Virginia; Orlando,
Tallahassee and Sarasota, Florida; Albuquerque, New Mexico; and Mission Viejo,
California. In addition, the Company owns a 12,400 square foot manufacturing
facility on 2.6 acres of land located in Carson City, Nevada, utilizes on a
rent-free basis 22,000 square feet at Kirtland Air Force Base in Albuquerque,
New Mexico and operates a 500 acre test site in San Diego under a facilities
contract with the Defense Special Weapons Agency.
EMPLOYEES
At July 31, 1997, the Company had 607 employees, including 43 employees
with Ph.D degrees and 79 others with post-graduate degrees. None of the
Company's employees is represented by a labor union. Maxwell considers its
relations with its employees to be good. See "Risk Factors -- Dependence on Key
Personnel."
45
<PAGE> 47
MANAGEMENT
The directors and senior management of the Company are set forth in the
following table. The Company's Board of Directors, consisting of seven members,
is divided into three classes with one class standing for election each year for
a three-year term. The terms of directors in Class II expire at the 1997 annual
meeting of stockholders.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ---- ------------------------------------------------
<S> <C> <C>
Kenneth F. Potashner..... 39 Chairman, President, Chief Executive Officer,
Chief Operating Officer and Director -- Class I
R. Wayne Clark........... 59 Vice President, and President of PurePulse
Technologies, Inc.
Gary J. Davidson......... 41 Vice President -- Finance and Administration,
Treasurer and Chief Financial Officer
Thomas L. Horgan......... 37 Vice President and Director -- Class I
Gregg L. McKee........... 54 Vice President, and President of Maxwell Energy
Products, Inc.
Donald M. Roberts........ 49 General Counsel and Secretary
Walter P. Robertson...... 55 Vice President, and President of Maxwell Federal
Division, Inc.
Terrence M. Siegrist..... 47 Vice President, and President of Maxwell
Information Systems, Inc.
John D. Werderman........ 50 Vice President, and President of I-Bus, Inc.
Lewis J. Colby, Jr. ..... 63 Director -- Class II(1)(2)
Thomas B. Hayward........ 73 Director -- Class III(1)(2)
Alan C. Kolb............. 68 Director -- Class III
Karl M. Samuelian........ 65 Director -- Class III(1)(2)
Donn A. Starry........... 72 Director -- Class II(2)
</TABLE>
- ---------------
(1) Member of the Audit Committe.
(2) Member of the Compensation Committee.
Mr. Potashner joined Maxwell in April 1996 as President, CEO, COO and
Director and was appointed Chairman in April 1997. From 1994 to April 1996, he
served as Executive Vice President, Operations, of Conner Peripherals. From 1991
through 1994 he was Vice President, Product Engineering, for Quantum
Corporation.
Mr. Clark was named Vice President in January 1997. Mr. Clark has been
President of PurePulse Technologies, Inc., a majority-owned subsidiary of the
Company, since its formation in 1988. Prior to becoming President of PurePulse,
Mr. Clark held various executive positions with the Company. He joined the
Company in 1973.
Mr. Davidson served as Corporate Controller of the Company from May 1986
until his appointment as Vice President -- Finance, Treasurer and Chief
Financial Officer in March 1994. Mr. Davidson assumed the duties of Vice
President -- Administration in March 1995. Prior to joining Maxwell in 1986, Mr.
Davidson was a Senior Manager with Ernst & Young.
Mr. Horgan joined the Company in June 1996 as Vice President, Business
Development. From 1995 until joining Maxwell, he was Vice President, Customer
Service, for Conner Peripherals and from 1993 to 1995 served as Director,
Customer Service for Quantum Corporation. From 1991 to 1993 Mr. Horgan served as
European Information Security Center Manager for Digital Equipment Corporation.
Mr. McKee joined the Company in September 1996 as Vice President and
President of Maxwell Energy Products, Inc. From 1990 until joining Maxwell he
served Quantum Corporation in various capacities. From January 1995 until
joining Maxwell he was President, Quantum Malaysia. From February 1993 to
46
<PAGE> 48
December 1995, he served as Corporate Director of Malaysian Operations. From
1990 to January 1993 he was Director of the Customer Service Group.
Mr. Roberts joined the Company as General Counsel in April 1994, and was
appointed Secretary in June 1996. For more than five years prior thereto, Mr.
Roberts was a shareholder of the law firm of Parker, Milliken, Clark, O'Hara &
Samuelian, a Professional Corporation, and a partner of the predecessor law
partnership, and in that capacity had served as an outside legal advisor to the
Company for more than ten years.
Mr. Robertson joined the Company in August 1996 as Vice President and
President of Maxwell Federal Division, Inc. From April 1995 until joining
Maxwell, he served BioSolutions Technologies, a start-up company, as President
and Chief Executive Officer. From May 1994 through November 1994, Mr. Robertson
was Transition Director for Martin Marietta. Prior to that, he served General
Dynamics as Vice President and General Manager, Space Magnetics from 1992
through 1994 and as Vice President, Aircraft Production from 1991 through 1992.
Mr. Siegrist joined the Company in March 1997, and was named President of
Maxwell Information Systems, Inc. in May 1997. From 1990 through 1993, and again
from 1994 until September 1996, Mr. Siegrist held management positions with
Boole & Babbage, Inc., most recently as Director, International Business
Operations. From 1993 to 1994, Mr. Siegrist was Director of Marketing for
Interphase Corporation. From 1979 until joining Boole & Babbage in 1990, Mr.
Siegrist served as Vice President of Sales and Marketing with Lemcom Systems,
Inc.
Mr. Werderman was named President of I-Bus, Inc. in July 1997. Previously,
Mr. Werderman served as Chief Operating Officer of Maxwell Federal Division,
Inc. Prior to joining Maxwell in October 1996, Mr. Werderman worked for M/A.COM,
Inc. for over 15 years, most recently as President and General Manager of their
Baltimore, Maryland operation, M/A.COM Government Products, Inc.
Dr. Colby has been a director of the Company since December 1983. He was
Senior Vice President -- Technology of Allied-Signal, Inc. from 1985 until his
retirement on January 1, 1989, and held the same position with Allied
Corporation from 1981 to 1985.
Admiral Hayward (U.S. Navy, Ret.) is President of Thomas B. Hayward
Associates, Inc., an executive consulting firm. Admiral Hayward served as the
Chief of Naval Operations of the United States Navy from 1978 until his
retirement from active service with the Navy in July 1982. He was appointed a
director of the Company in October 1987.
Dr. Kolb has been a director of the Company since 1970. He also served as a
director from July 1965 to October 1967. From 1970 to 1996, Dr. Kolb served as
Chief Executive Officer of the Company. He was President of the Company from
1970 until 1980 and again from 1992 until 1996. From 1980 to 1995, Dr. Kolb
served as Chairman of the Board. Dr. Kolb stepped down from his positions as
President and Chief Executive Officer in April 1996, and continues with the
Company as a consultant.
Mr. Samuelian has been a director of the Company since 1967 and served as
Secretary from that time until June 1996. From 1978 to June 1980, he also held
the office of Chairman of the Board of the Company. For more than five years,
Mr. Samuelian has been a shareholder in the law firm of Parker, Milliken, Clark,
O'Hara & Samuelian, A Professional Corporation, and a partner in the predecessor
law partnership. The Company retained the firm of Parker, Milliken, Clark,
O'Hara & Samuelian, a Professional Corporation to provide legal services during
fiscal 1997 and said firm has been retained in fiscal year 1998.
General Starry (U.S. Army, Ret.) has been a director of the Company since
1988, and served as Chairman of the Board from October 1995 until April 1997.
General Starry retired from the Army in 1983 and joined Ford Aerospace
Corporation. He retired as Executive Vice President of Ford Aerospace
Corporation in 1990 and thereafter has served as consultant and advisor to
industry and government in the United States and several foreign countries.
47
<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and its four other
most highly compensated executive officers (the "Named Executive Officers")
whose total salary and bonus for fiscal 1997 exceeded $100,000, for services
rendered to the Company and its subsidiaries in all capacities during that
fiscal year. No executive who would otherwise have been includable in such table
on the basis of salary and bonus earned for fiscal 1997 has resigned or
otherwise terminated employment during fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) ---------------------------------------
------------------------------ RESTRICTED STOCK OPTION GRANTS(4) ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OTHER(2) STOCK AWARD(3) (NO. OF SHARES) COMPENSATION(5)
- ----------------------- ---- -------- -------- -------- -------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth F. Potashner
(6) 1997 $400,004 $400,000 $2,850 $190,000 50,000 $ 361,031
Chairman 1996 93,847 100,000 -0- 645,105 177,960 44,000
Chief Executive
Officer, President,
Chief Operating
Officer, Director
Thomas L. Horgan (6) 1997 180,083 81,630 -0- -0- 9,000 19,254
Vice President, 1996 19,615 -0- -0- -0- 60,000 -0-
Director
Gregg L. McKee. (6) 1997 167,990 82,617 -0- -0- 10,000 49,863
Vice President 1996 -0- -0- -0- -0- 60,000 -0-
Walter P. Robertson (6) 1997 165,713 69,228 -0- -0- 69,000 -0-
Vice President
Donald M. Roberts 1997 158,111 78,606 4,671 -0- 8,000 -0-
General Counsel & 1996 150,010 -0- 346 -0- 10,000 -0-
Secretary 1995 150,010 -0- -0- -0- -0- -0-
</TABLE>
- ---------------
(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers under the Company's Savings Plan.
(2) Amounts in this column consist of matching contributions made by the Company
under its Savings Plan. They do not include the dollar value of certain
perquisites and other personal benefits, securities or property the
recipient received as personal benefits. Although such amounts cannot be
determined precisely, the Company has concluded that the aggregate amount
thereof does not exceed as to any of the named individuals the lesser of
$50,000 and 10% of the total salary and bonus paid to such individual for
fiscal 1997.
(3) Mr. Potashner was awarded 10,000 shares of restricted stock in fiscal 1997
and 177,960 shares of restricted stock in fiscal 1996, which restricted
shares vest 25% one year after grant and each month thereafter an additional
1/48 of the total number of shares granted become vested. Mr. Potashner has
full voting power and dividend rights with respect to all of the restricted
stock. At July 31, 1997, the aggregate value of such restricted stock based
on the closing price of the Company's Common Stock on that date was
$4,370,000.
(4) Options shown in this column are options to purchase shares of Common Stock
of Maxwell Technologies, Inc. granted under the Company's 1995 Stock Option
Plan. Each individual in the table also received options in fiscal 1997 to
purchase common stock in each of the Company's principal operating
subsidiaries: Maxwell Energy Products, Inc., PurePulse Technologies, Inc.,
I-Bus, Inc., Maxwell Federal Division, Inc., and Maxwell Information
Systems, Inc. See the following table under the heading "Option Grants in
Last Fiscal Year" for the specific number of shares included in option
grants by each such subsidiary for each individual. In addition, Mr.
Potashner received options in fiscal 1996 to purchase 150,000 shares of
PurePulse Technologies, Inc. common stock.
(5) Represents amounts paid to Mr. Potashner in fiscal 1996 for consulting
activities and in fiscal 1997 for relocation expenses including certain
carrying and sale-related costs for his former residence, and tax offset
payments. Represents amounts paid to Mr. Horgan and Mr. McKee in fiscal 1997
as reimbursement of relocation expenses (including reimbursement of
brokerage commissions on the sale of a residence).
(6) Mr. Potashner and Mr. Horgan were hired as executive officers in fiscal
1996. Mr. McKee and Mr. Robertson were hired as executive officers in fiscal
1997.
48
<PAGE> 50
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information on grants of stock options pursuant
to the Company's 1995 Stock Option Plan, the 1994 Stock Option Plan of the
Company's subsidiary, PurePulse Technologies, Inc. and the 1996 Stock Option
Plans of the Company's other principal operating subsidiaries, Maxwell Energy
Products, Inc., I-Bus, Inc., Maxwell Federal Division, Inc. and Maxwell
Information Systems, Inc., to the Named Executive Officers. Pursuant to
Securities and Exchange Commission rules, the table also shows the value of the
options at the end of the five and ten year option terms if the stock price were
to appreciate annually by 5% and 10%, respectively. These assumed values may not
reflect actual value at the times indicated.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENTAGE OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME AND ENTITY GRANTED(1) FY 1997(2) (PER SHARE) DATE 5% 10%
- --------------------------------- ---------- ------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth F. Potashner
Company........................ 50,000 12.95% $ 19.50 7/22/02 $613,170 $1,553,900
Energy Products................ 100,000 13.65 1.16 11/7/06 72,950 184,870
PurePulse...................... -0- -0- -0- -- -0- -0-
I-Bus.......................... 100,000 15.17 1.15 11/7/06 72,320 183,280
Federal........................ 100,000 14.15 1.45 11/7/06 91,190 231,090
Information Systems............ 100,000 13.34 .26 11/7/06 16,350 41,440
Thomas L. Horgan
Company........................ 9,000 2.33% $ 19.50 7/22/02 $ 48,490 $ 107,140
Energy Products................ 37,500 5.12 1.16 11/7/06 27,360 69,330
PurePulse...................... 33,750 10.15 .65 8/7/06 13,800 34,960
I-Bus.......................... 37,500 5.69 1.15 11/7/06 27,120 68,730
Federal........................ 37,500 5.31 1.45 11/7/06 34,200 86,660
Information Systems............ 37,500 5.00 .26 11/7/06 6,130 15,540
Gregg L. McKee
Company........................ 10,000 2.59% $ 19.50 7/22/02 $ 53,870 $ 119,050
Energy Products................ 125,000 17.06 1.16 11/7/06 91,190 231,090
PurePulse...................... 22,500 6.77 .65 8/7/06 9,200 23,310
I-Bus.......................... 25,000 3.79 1.15 11/7/06 18,080 45,820
Federal........................ 25,000 3.54 1.45 11/7/06 22,800 57,770
Information Systems............ 25,000 3.33 .26 11/7/06 4,090 10,360
Walter P. Robertson
Company........................ 9,000 2.33% $ 19.50 7/22/02 $ 48,490 $ 107,140
60,000 15.54 6.88 8/1/01 114,050 252,020
Energy Products................ 25,000 3.41 1.16 11/7/06 18,240 46,220
PurePulse...................... 22,500 6.77 .65 8/7/06 9,200 23,310
I-Bus.......................... 25,000 3.79 1.15 11/7/06 18,080 45,820
Federal........................ 100,000 14.15 1.45 11/7/06 91,190 231,090
Information Systems............ 25,000 3.33 .26 11/7/06 4,090 10,360
Donald M. Roberts
Company........................ 8,000 2.07% $ 19.50 7/22/02 $ 43,100 $ 95,240
Energy Products................ 37,500 5.12 1.16 11/7/06 27,360 69,330
PurePulse...................... 33,750 10.15 .65 8/7/06 13,800 34,960
I-Bus.......................... 37,500 5.69 1.15 11/7/06 27,120 68,730
Federal........................ 37,500 5.31 1.45 11/7/06 34,200 86,660
Information Systems............ 37,500 5.00 .26 11/7/06 6,130 15,540
</TABLE>
- ---------------
(1) These options are either incentive stock options or non-qualified stock
options and were granted at a purchase price equal to the fair market value
of the underlying common stock at the date of grant. Fair market value of
the Company's Common Stock was based on the trading price of such stock on
the date of grant, and fair market value of the common stock of the
subsidiaries was based on independent outside appraisals. The term of all
options covering shares of common stock of the Company's subsidiaries is ten
years. The term of options covering the Company's Common Stock is five
years, with the exception of Mr. Potashner's options covering Company Common
Stock which have ten year terms. The increments in which the options are
exercisable are determined by the committees which administer the plans.
(2) Total options for the Company include options covering 7,000 shares of
Company Common Stock granted to directors of the Company under the Company's
Director Stock Option Plan.
49
<PAGE> 51
The stock option plans of the Company's five principal operating
subsidiaries permit options to be granted for an aggregate number of shares of
common stock amounting to approximately 13% of the total outstanding shares of
such stock on a fully-diluted basis (17.3% at one subsidiary). At August 31,
1997, the number of shares of common stock subject to outstanding options under
the Company's subsidiary stock option plans was, in the case of each such
subsidiary, 10.3% to 13.6% on a fully-diluted basis.
FISCAL YEAR END OPTION VALUES
Shown below is information on each Named Executive Officer with respect to
the value of stock options, measured in terms of the closing price of the
Company's Common Stock on the date of exercise, and with respect to the value of
unexercised options to purchase the Company's Common Stock held by them and
granted in fiscal 1997 and prior years under the Company's 1995 or 1985 Stock
Option Plans, measured in terms of the closing price of the Company's Common
Stock on July 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED JULY 31, 1997(1) JULY 31, 1997(1)
ON EXERCISE VALUE ----------------------------- -----------------------------
NAME (NUMBER OF SHARES) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ------------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth F.
Potashner........... 34,000 $563,040 25,320 168,640 $ 498,424 $ 2,522,928
Thomas L. Horgan...... -0- -0- 18,000 51,000 328,500 800,250
Gregg L. McKee........ 5,000 63,750 13,000 52,000 208,000 709,500
Walter P. Robertson... -0- -0- -0- 69,000 -0- 1,015,950
Donald M. Roberts..... -0- -0- 11,000 17,000 210,750 196,750
</TABLE>
- ---------------
(1) Does not include options held by the Named Executive Officers to purchase
shares of common stock in the Company's five principal operating
subsidiaries under the stock option plans of such subsidiaries. All options
held by these individuals under such stock option plans were granted in
fiscal 1997 and are shown in the preceding table, except for options to
purchase 150,000 shares of common stock of the Company's PurePulse
Technologies, Inc. subsidiary granted to Mr. Potashner in fiscal 1996 as to
which options for 37,500 shares were exercisable within 60 days of July 31,
1997. No public market exists for the common stock of any of the Company's
subsidiaries. For purposes of the above table, no value has been attributed
to the subsidiary stock options.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Employment Agreement. In March, 1996, the Company entered into an
Employment Contract ("Contract") with Kenneth F. Potashner pursuant to which Mr.
Potashner became the President and Chief Executive Officer of the Company
effective April 26, 1996. The Contract, as amended, is for a term ending July
31, 2000, and requires Mr. Potashner to perform the duties associated with the
office of chief executive of the Company plus such other duties or positions as
the Board of Directors may require. Mr. Potashner is currently also performing
the duties of the Company's chairman, president and chief operating officer. The
Contract provides for a base salary for fiscal 1998 of $450,000 per year,
reviewed annually, with an annual bonus opportunity of up to 200% of base
salary, with a target bonus of 100% of base salary, to be determined by the
Board of Directors. Mr. Potashner has received a total of 187,960 shares of
restricted stock under the Contract and options under the Company's 1995 Stock
Option Plan for a total of 227,960 shares. Both the restricted shares and the
options are subject to four-year vesting schedules.
Under the Contract, Mr. Potashner will be immediately vested in the
restricted shares and stock options, shall receive a payment equal to two years
of his initial base salary plus his initial term target bonus, and shall
continue for one year to receive benefits identical to those being received, in
the event that a "change of control" occurs and either his compensation or
responsibilities are reduced or the Company's headquarters are moved more than
30 miles. A "change of control" is defined as the acquisition by a person or
group of a majority of the Company's stock by direct purchase or through a
merger, the liquidation or sale of substantially all of the assets of the
Company or a change in a majority of the members of the Board of Directors other
than through membership changes determined by the Board itself. If Mr. Potashner
is
50
<PAGE> 52
terminated without cause during the term of the Contract, he will be paid the
base salary and target bonus remaining to be paid for the balance of the stated
term of the Contract (but not less than one full year of such salary and bonus)
and the restricted shares shall become free of any restrictions and stock
options shall become fully vested. In the event Mr. Potashner voluntarily
resigns or is terminated for cause, he shall be paid only such salary and
accrued vacation pay as is then due to him and no acceleration of vesting or
lifting of restrictions shall occur with respect to the restricted shares or
stock options. Upon completion of this offering, pursuant to the Contract, the
Board will consider the grant of additional options to Mr. Potashner.
51
<PAGE> 53
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 31, 1997, and as
adjusted to reflect the sale of the shares offered by the Company and the
Selling Stockholders in this offering, by (i) each person (or group of
affiliated persons) known by the Company to beneficially own more than five
percent of the outstanding shares of Common Stock, (ii) each Selling
Stockholder, (iii) each of the Company's directors, (iv) each of the Named
Executive Officers and (v) all directors and executive officers of the Company
as a group. Unless otherwise indicated, the address for each stockholder is 9275
Sky Park Court, San Diego, CA 92123.
<TABLE>
<CAPTION>
SHARES
OF COMMON STOCK SHARES OF COMMON
BENEFICIALLY STOCK
OWNED BENEFICIALLY
PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1)(2)(3) SHARES OFFERING(2)
NAME AND ADDRESS OF ----------------- BEING -----------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
The TCW Group, Inc............................. 424,576 6.9% -- 424,576 5.6%
865 South Figueroa Street
Los Angeles, California 90017
Dimensional Fund Advisors, Inc.(4)............. 358,020 5.8 -- 358,020 4.7
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Kenneth F. Potashner........................... 254,698 4.1 25,000 229,698 3.0
Gregg L. McKee................................. 13,000 * -- 13,000 *
Walter P. Robertson............................ 18,100 * -- 18,100 *
Thomas L. Horgan............................... 20,200 * -- 20,200 *
Donald M. Roberts.............................. 13,281 * -- 13,281 *
Lewis J. Colby, Jr............................. 33,830 * -- 33,830 *
Thomas B. Hayward.............................. 19,334 * -- 19,334 *
Alan C. Kolb................................... 194,496 3.2 50,000 144,496 1.9
Karl M. Samuelian.............................. 22,174 * -- 22,174 *
Donn A. Starry................................. 16,181 * -- 16,181 *
All directors and executive officers as a group
(14 persons)................................. 651,471 10.6 75,000 576,471 7.5
</TABLE>
- ---------------
* Less than one percent.
(1) Information with respect to beneficial ownership is based on information
furnished to the Company by each shareholder included in the table or
included in filings with the Securities and Exchange Commission. The Company
understands that each individual person has sole voting and investment power
for shares beneficially owned by him, subject to community property laws
where applicable.
(2) Shares of Common Stock subject to options or warrants which are currently
exercisable or exercisable within 60 days of July 31, 1997, are deemed
outstanding for computing the percentage of the person holding such options
or warrants but are not deemed outstanding for computing the percentage of
any other person. Percentage of ownership is based on 6,142,911 shares of
Common Stock outstanding on July 31, 1997 and 7,642,911 shares of Common
Stock outstanding on such date on a pro forma basis after giving effect to
this offering.
(3) Shares of Common Stock beneficially owned prior to the offering include
options exercisable within 60 days of July 31, 1997 to purchase 66,738
shares granted to Mr. Potashner, 13,000 shares granted to Mr. McKee, 18,000
shares granted to Mr. Robertson, 18,000 shares granted to Mr. Horgan, 11,000
shares granted to Mr. Roberts, 19,334 shares granted to Dr. Colby, 19,334
shares granted to Adm. Hayward, 19,334 shares granted to Mr. Samuelian, and
13,028 shares granted to Gen. Starry, respectively, and options to purchase
237,318 shares granted to all directors and officers as a group.
(4) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 358,020 shares of the
Company's Common Stock as of June 30, 1997, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
52
<PAGE> 54
investment company, or in a series of the DFA Investment Trust Company, a
Delaware Business Trust, or the DFA Group Trust and the DFA Participating
Group Trust, investment vehicles for qualified employee benefit plans, all
of which Dimensional Fund Advisors, Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares. Dimensional
has sole dispositive power over all of such 358,020 shares and sole voting
power over 257,938 of such shares. Persons who are officers of Dimensional
Fund Advisors, Inc. also serve as officers of DFA Investment Dimensions
Group Inc. (the "Fund") and the DFA Investment Trust Company (the "Trust"),
each an open-end management investment company registered under the
Investment Company Act of 1940. In their capacity as officers of the Fund
and the Trust, these persons vote 58,892 additional shares which are owned
by the Fund and 41,190 shares which are owned by the Trust (both included in
sole dispositive power above).
53
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $.10 par value. As of September 26, 1997, there were 6,163,151
shares of Common Stock outstanding, excluding shares issuable upon the exercise
of outstanding options to purchase an aggregate of 1,034,440 shares of Common
Stock held by employees, management and Directors. Holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. There is no cumulative voting for the election of
Directors. Holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment to all creditors. Holders
of Common Stock have no preemptive rights and have no rights to convert their
Common Stock into any other securities. All of the outstanding shares of Common
Stock are, and the shares being offered hereby will upon issuance and sale be,
fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
COMMON STOCK RIGHTS
On June 20, 1989, the Board of Directors of Maxwell declared a dividend
distribution of one Right for each outstanding share of its common stock, par
value $.10 per share (the "Common Stock"), to stockholders of record at the
close of business on June 30, 1989. Each Right entitles the registered holder to
initially purchase from the Company one-half of a share of Common Stock at a
purchase price of $32.50 per one-half share (the "Purchase Price"), since
adjusted to $16.25 per one-half share. The description and terms of the Rights
are set forth in a rights agreement, as amended (the "Rights Agreement") between
the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
In general, the Rights become exercisable or transferable only upon the
occurrence of certain events related to changes in ownership of the Common
Stock. Once exercisable, each Right entitles its holder initially to purchase
from the Company one-half of a share of Common Stock at a purchase price of
$16.25 per one-half share. The Rights become exercisable upon the earlier of the
close of business on (i) the tenth day following public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or generally obtained the right to acquire, beneficial ownership of
20% or more of the outstanding shares of Common Stock (the "Stock Acquisition
Date"), or (ii) the tenth business day following the commencement of a tender
offer or exchange offer that would result in a person or group beneficially
owning 20% or more of such outstanding shares of Common Stock. Upon the
occurrence of certain other events related to changes in the ownership of the
Common Stock, each holder of a Right would be entitled to purchase shares of the
Common Stock, or an acquiring corporation's common stock, having a market value
equal to four times the exercise value of the Right. However, Rights are not
exercisable following the occurrence of any of the events set forth above until
such time as the Rights are no longer redeemable by the Company as set forth
below.
The Rights expire at the close of business on June 20, 1999, unless earlier
redeemed by the Company. At any time until the close of business on the tenth
business day following the Stock Acquisition Date, the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (payable in cash,
Common Stock or other consideration deemed appropriate by the Board of
Directors). After the redemption period has expired, the Company's right of
redemption may be reinstated if an Acquiring Person reduces his beneficial
ownership to 10% or less of the outstanding shares of Common Stock in a
transaction or series of transactions not involving the Company. Immediately
upon the action of the Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $.01 redemption price. The Rights, if exercised, will cause a
substantial dilution to the equity interest in Maxwell to a person's or group's
ownership interest in the Company's Common Stock that attempts
54
<PAGE> 56
to acquire the Company on terms not approved by the Company's Board of
Directors. See "Risk Factors -- Anti-Takeover Provisions.'
ADDITIONAL ANTI-TAKEOVER PROVISIONS
The provisions of the Company's certificate of incorporation and bylaws
having possible "anti-takeover" effects are those that: (i) form a classified
Board of Directors with staggered terms of office, eliminate cumulative voting
and permit the removal of directors only for cause; (ii) impose supermajority
shareholder vote or disinterested director approval requirements in connection
with certain mergers, acquisitions and other business combinations, unless
specified minimum price and procedural requirements are satisfied in the
proposed transaction (a "fair price provision"); (iii) eliminate the right of
stockholders to call special stockholders' meetings and limit their right to
take action without a meeting by written consent and (iv) impose supermajority
shareholder vote or disinterested director approval requirements for amendments
to a number of provisions in the Company's charter documents, including the
provisions described in clauses (i) through (iii) above.
In general, the fair price provisions may have the effect of requiring
payment in cash for shares of Common Stock by an acquiror having accumulated 10%
or more of the Common Stock at a price no less than the highest market price of
the Common Stock within a recent date. Such a 10% or more stockholder must also
meet certain procedural requirements intended to prevent accumulations of
additional stock below the fair price.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
either (i) prior to the date at which the person becomes an interested
stockholder, the Board of Directors approves such transaction or business
combination; (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of such
transaction or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to such
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of the corporation's voting stock.
55
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), through their
representatives, Cowen & Company and Hambrecht & Quist LLC, have severally
agreed to purchase from the Company the following respective number of Shares at
the public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Cowen & Company......................................................
Hambrecht & Quist LLC................................................
-----
Total......................................................
=====
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, the Selling
Stockholders and their counsel and the Company's independent auditors. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered if any of such shares are purchased.
The Underwriters propose to offer the Shares of Common Stock directly to
the public at the offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow and such dealers may re-allow a
concession not in excess of $ per share to certain other dealers. The
Underwriters have informed the Company that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority. After the
initial public offering of the Shares, the offering price and other selling
terms may from time to time be varied by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the Effective Date, to purchase up to 236,250 additional
shares of Common Stock at the offering price, less the underwriting discounts
and commissions, set forth on the cover page of this Prospectus, to cover over-
allotments, if any. If the Underwriters exercise such over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by each of them shown in the foregoing table bears to the
total number of Shares of Common Stock offered hereby. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Shares of Common Stock offered hereby.
The Company's senior officers, directors and certain other persons have
agreed that they will not, without the prior written consent of Cowen & Company,
offer, sell or otherwise dispose of any shares of Common Stock, options, rights
or warrants to acquire shares of Common Stock, or securities exchangeable for or
convertible into shares of Common Stock owned by them during the 90-day period
commencing on the Effective Date, subject to the exception that certain
individuals may sell up to an aggregate of 37,000 shares. In addition, the
Company has agreed that it will not, without the prior written consent of Cowen
& Company, offer, sell or otherwise dispose of any shares of Common Stock or
options, rights or warrants to acquire shares of Common Stock, or securities
exchangeable for or convertible into shares of Common Stock during such 90-day
period except in certain limited circumstances.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute to payments the Underwriters may be required to
make in respect thereof.
In connection with this offering, the Underwriters and certain selling
group members or their respective affiliates may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market immediately prior
to the commencement of sales in this offering in accordance with Regulation M
under the Exchange Act. Passive market making consists of displaying bids on the
Nasdaq National Market
56
<PAGE> 58
limited by the bid prices of independent market makers and purchases limited by
such prices and effected in response to order flow. Net purchases by a passive
market maker on each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
In order to facilitate this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot in connection with
this offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase shares of the Common
Stock in the open market. The Underwriters may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Common Stock in this
offering, if the Underwriters repurchase previously distributed Common Stock in
transactions to cover their short positions, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for, and purchase shares of the
Common Stock in market making transactions and impose penalty bids. These
activities may stabilize or maintain the market price of the Common Stock above
market levels that may otherwise prevail. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Riordan & McKinzie, a
Professional Corporation, Los Angeles, California. A principal of Riordan &
McKinzie owns 6,625 shares of Common Stock. Brobeck, Phleger & Harrison LLP,
Newport Beach, California, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the sale of the Common Stock
offered hereby.
EXPERTS
The consolidated financial statements of the Company at July 31, 1997 and
1996 and for each of the three years in the period ended July 31, 1997,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-3 under the
Securities Act with the Securities and Exchange Commission (the "Commission")
with respect to the shares offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and the exhibits and schedules thereto. Statements contained herein concerning
the provisions of any documents are not necessarily complete and, in each
instance, reference is made to the copy of such documents filed as an exhibit to
the Registration Statement, and each such statement shall be deemed qualified in
its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission. A copy of the reports and other information filed by the Company in
accordance with the Exchange Act may be inspected without charge at the offices
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and will also be available for inspection and copying at the regional offices of
the Commission located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and at Room 3190, Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at
57
<PAGE> 59
prescribed rates. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding the
Company at http://www.sec.gov. Such reports, proxy statements and other
information concerning the Company are also available for inspection at the
offices of the Nasdaq National Market, Reports Section, 1735 K Street,
Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission by the
Company are hereby incorporated by reference in this Prospectus.
(1) Annual Report on Form 10-K for the fiscal year ended July 31, 1997.
(2) Description of the Company's Rights contained in the Registration
Statement on Form 8-A dated June 30, 1989.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act, subsequent to the date of this Prospectus and
prior to the termination of the offerings made hereby, shall be deemed
incorporated by reference herein and to be a part hereof from the date of filing
such reports and documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Copies of this
Prospectus, as amended or supplemented from time-to-time, and any other
documents (or parts of documents) that constitute part of this Prospectus under
Section 10(a) of the Securities Act will also be provided without charge to each
such person, upon written or oral request. Requests should be directed to
Maxwell Technologies, Inc., 9275 Sky Park Court, San Diego, California 92123,
Attention: Corporate Secretary; telephone number (619) 279-5100.
58
<PAGE> 60
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets at July 31, 1996 and 1997................................. F-3
Consolidated Statement of Operations for the Years Ended July 31, 1995, 1996 and
1997................................................................................ F-4
Consolidated Statement of Stockholders' Equity for the Three Years Ended July 31,
1997................................................................................ F-5
Consolidated Statement of Cash Flows for the Years Ended July 31, 1995, 1996 and
1997................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maxwell Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Maxwell
Technologies, Inc., and subsidiaries as of July 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended July 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maxwell
Technologies, Inc., and subsidiaries at July 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended July 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, in 1996
the Company changed its method of assessing the impairment of long-lived assets
in accordance with the adoption of Statement of Financial Accounting Standards
No. 121.
/s/ ERNST & YOUNG LLP
San Diego, California
September 12, 1997
F-2
<PAGE> 62
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 1,465 $ 826
Accounts receivable:
Trade and other, less allowance for doubtful accounts of $440 and
$350 at July 31, 1996 and 1997, respectively....................... 8,656 9,391
Long-term contracts (Note 2)........................................ 6,917 9,221
------- -------
15,573 18,612
Inventories and inventoried costs relating to long-term contracts (Note
11)................................................................. 6,808 8,722
Recoverable income taxes............................................... 740 --
Prepaid expenses....................................................... 548 1,203
Deferred income taxes.................................................. 161 161
------- -------
Total current assets................................................ 25,295 29,524
Property, plant and equipment, net (Note 11)............................. 14,809 16,929
Deposits and other....................................................... 620 667
------- -------
$40,724 $47,120
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $14,231 $13,640
Accrued employee compensation.......................................... 2,866 4,465
Current portion of long-term debt...................................... 910 511
------- -------
Total current liabilities........................................... 18,007 18,616
Long-term debt (Note 3).................................................. 1,018 465
Minority interest and additional amounts contributed..................... 954 629
Commitments and contingencies (Notes 6 and 9)
Stockholders' equity (Note 4):
Common stock, $0.10 par value, 20,000 shares authorized, 5,687 and
6,143 shares issued and outstanding at July 31, 1996 and 1997,
respectively........................................................ 568 614
Additional paid-in capital............................................. 19,752 22,364
Deferred compensation.................................................. (605) (622)
Retained earnings...................................................... 1,030 5,054
------- -------
Total stockholders' equity.......................................... 20,745 27,410
------- -------
$40,724 $47,120
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Sales....................................................... $75,004 $ 80,911 $101,411
Cost of sales............................................... 56,447 65,893 70,107
------- -------- --------
Gross profit.............................................. 18,557 15,018 31,304
Operating expenses:
Selling, general and administrative expenses.............. 13,636 15,564 21,900
Research and development expenses......................... 5,038 5,081 5,303
Restructure and asset impairment losses (Note 8).......... -- 5,703 --
------- -------- --------
Total operating expenses............................... 18,674 26,348 27,203
------- -------- --------
Operating income (loss)..................................... (117) (11,330) 4,101
Interest expense............................................ 315 329 173
Other-net (Note 11)......................................... (848) (398) (150)
------- -------- --------
Income (loss) before income taxes, minority interest and
loss from cumulative effect of change in accounting
principle................................................. 416 (11,261) 4,078
Income tax expense (benefit) (Note 5)....................... 15 1,296 --
Minority interest in net income of subsidiary............... 86 50 54
Loss from cumulative effect of change in accounting
principle (Note 8)........................................ -- 2,569 --
------- -------- --------
Net income (loss)........................................... $ 315 $(15,176) $ 4,024
======= ======== ========
Earnings (loss) per share:
Income (loss) per share before cumulative effect of
change in accounting principle....................... $ 0.06 $ (2.29) $ 0.60
======= ======== ========
Net income (loss) per share............................ $ 0.06 $ (2.76) $ 0.60
======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE YEARS ENDED JULY 31, 1997
-----------------------------------------------------------------
TOTAL
COMMON ADDITIONAL DEFERRED RETAINED STOCKHOLDERS'
STOCK PAID-IN CAPITAL COMPENSATION EARNINGS EQUITY
------ --------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1994............... $534 $18,535 $ -- $ 15,891 $ 34,960
Issuance of 28,424 shares under stock
purchase plans..................... 3 86 -- -- 89
Net income for the year............... -- -- -- 315 315
---- ------- ----- --------
Balance at July 31, 1995................ 537 18,621 -- 16,206 35,364
Issuance of 37,684 shares under stock
option plans....................... 4 152 -- -- 156
Issuance of 93,112 shares under stock
purchase plans..................... 9 352 -- -- 361
Deferred compensation related to
issuance of 177,960 shares......... 18 627 (645) -- --
Amortization of deferred
compensation....................... -- -- 40 -- 40
Net loss for the year................. -- -- -- (15,176) (15,176)
---- ------- ----- --------
Balance at July 31, 1996................ 568 19,752 (605) 1,030 20,745
Issuance of 406,656 shares under stock
option plans....................... 41 1,985 -- -- 2,026
Issuance of 39,129 shares under stock
purchase plans..................... 4 438 -- -- 442
Deferred compensation related to
issuance of 10,000 shares.......... 1 189 (190) -- --
Amortization of deferred
compensation....................... -- -- 173 -- 173
Net income for the year............... -- -- -- 4,024 4,024
---- ------- ----- --------
Balance at July 31, 1997................ $614 $22,364 $ (622) $ 5,054 $ 27,410
==== ======= ===== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................................... $ 315 $(15,176) $ 4,024
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 2,907 2,128 2,587
Restructure and asset impairment losses............. -- 5,960 --
Loss from cumulative effect of change in accounting
principle......................................... -- 2,569 --
Provision for losses on accounts receivable......... 45 105 184
Loss on sales of property and equipment............. 122 118 10
Deferred income taxes............................... 820 1,124 --
Minority interest in net income of subsidiary....... 86 50 54
Deferred compensation............................... -- 40 173
Changes in operating assets and liabilities:
Accounts receivable............................... (52) 252 (3,223)
Inventories....................................... 369 (469) (1,914)
Prepaid expenses and other........................ 150 614 (702)
Accounts payable.................................. (525) 2,153 (683)
Accrued employee compensation..................... (255) 185 1,599
Income taxes payable/recoverable.................. (797) 121 832
------- -------- -------
Net cash provided by (used in) operating
activities................................... 3,185 (226) 2,941
Investing activities:
Purchases of property, plant and equipment.................. (2,951) (1,976) (4,725)
Proceeds from sales of property and equipment............... 80 6 8
------- -------- -------
Net cash used in investing activities.......... (2,871) (1,970) (4,717)
Financing activities:
Principal payments on long-term debt........................ (929) (909) (952)
Proceeds from issuance of Company and subsidiary stock...... 89 517 2,502
Repurchase of subsidiary stock.............................. -- -- (413)
------- -------- -------
Net cash provided by (used in) financing
activities................................... (840) (392) 1,137
------- -------- -------
Decrease in cash and cash equivalents.......... (526) (2,588) (639)
Cash and cash equivalents at beginning of year................ 4,579 4,053 1,465
------- -------- -------
Cash and cash equivalents at end of year....... $ 4,053 $ 1,465 $ 826
======= ======== =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company is a leader in pulsed power technologies, providing pulsed
power based systems and components for a wide range of commercial applications
and research and development for both commercial customers and the United States
government. The Company also offers industrial computers and subsystems,
primarily to OEMs in computer telephony and other markets, and software products
and services, both for government research and for various commercial
applications.
Consolidation and Minority Interest Amounts
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.
Cash Equivalents
The Company classifies all highly liquid investments with a maturity of
three months or less when purchased as cash equivalents.
Inventories
Inventories are stated at the lower of cost (principally average cost
method) or market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided over the estimated useful lives of the assets (three
to thirty years). Depreciation and amortization of property, plant and equipment
amounted to $3,415,000, $2,507,000 and $2,587,000 in fiscal 1995, 1996 and 1997,
respectively.
Revenue Recognition
The Company recognizes substantially all revenue from the sale of
manufactured products and short-term fixed price contracts upon shipment of
products or completion of services. Revenues, including estimated profits, on
long-term fixed price contracts are recognized as costs are incurred. Revenues,
including fees earned, on cost plus contracts are also recognized as costs are
incurred. Contract revenue is reflected in the Company's sales and includes
amounts received from the United States government and commercial customers for
the funded research and development efforts of the Company. Provisions are made
on a current basis to fully recognize any anticipated losses on contracts.
Earnings (Loss) Per Share
The computation of net income (loss) per share is based on the weighted
average shares of Common Stock outstanding plus the dilutive effects of Common
Stock equivalents arising from stock options. The weighted average number of
Common and Common equivalent shares outstanding was 5,356,000, 5,494,000 and
6,644,000 in fiscal 1995, 1996 and 1997, respectively. Net income (loss) per
share was unchanged on a fully-diluted basis.
F-7
<PAGE> 67
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under Financial Accounting Standards Board Statement No. 128, Earnings Per
Share, the Company must change the method used to compute earnings per share in
fiscal 1998 and 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 net income (loss) per share
for the three years ended July 31:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ -----
<S> <C> <C> <C>
Primary net income (loss) per share, as reported... $0.06 $(2.76) $0.60
----- ------ -----
Basic net income (loss) per share, as restated
under Statement No. 128.......................... $0.06 $(2.76) $0.68
===== ====== =====
</TABLE>
The impact of Statement No. 128 on the calculation of diluted net income
(loss) per share for the above periods is not expected to be material.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Several of the industries in which the Company operates are
characterized by rapid technological change and short product life cycles. As a
result, estimates are required to provide for product returns, product
obsolescence as well as other matters. Historically, actual amounts recorded
have not varied significantly from estimated amounts.
Stock Split
In November 1996, the Company declared a 2-for-1 stock split of the
Company's common shares, effected as a 100% stock dividend that was distributed
on December 17, 1996 to stockholders of record as of November 26, 1996. Common
stock accounts, earnings per share and weighted average number of share amounts
from prior periods have been restated to reflect the stock split.
NOTE 2 -- ACCOUNTS RECEIVABLE
The following tabulation shows the component elements of accounts
receivable from long-term contracts at July 31:
<TABLE>
<CAPTION>
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
U.S. Government:
Amounts billed........................................... $2,832 $2,108
Amounts unbilled......................................... 427 1,326
Retainage due upon completion of contracts............... 312 287
Commercial customers:
Amounts billed........................................... 988 2,693
Amounts unbilled......................................... 2,358 2,681
Retainage due upon completion of contracts............... -- 126
------ ------
$6,917 $9,221
====== ======
</TABLE>
F-8
<PAGE> 68
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- ACCOUNTS RECEIVABLE (CONTINUED)
The balances billed but not paid by customers pursuant to retainage
provisions under long-term contracts will be due upon completion of the
contracts and acceptance by the customers. Substantially all unbilled
receivables at July 31, 1997 are expected to become due and payable within the
next year.
NOTE 3 -- LONG-TERM DEBT AND CREDIT AGREEMENTS
Long-term debt consisted of the following at July 31:
<TABLE>
<CAPTION>
1996 1997
------ ----
(IN THOUSANDS)
<S> <C> <C>
Variable rate note payable to a bank, due $42,000 monthly
plus interest............................................. $1,292 $750
10.0% fixed rate promissory note, due $3,000 monthly........ 236 226
7.75% fixed rate note payable to a bank, due $100,000
quarterly plus interest................................... 400 --
------ ----
1,928 976
Less current portion........................................ 910 511
------ ----
$1,018 $465
====== ====
</TABLE>
The variable rate bank note is unsecured and bears interest at the bank's
prime rate plus one-half of one percent (9% at July 31, 1997). This bank note
contains certain restrictive covenants relating to net-worth, net-worth-ratio
and quarterly operating results.
Maturities of long-term debt for each of the five years ending July 31,
2002 are: 1998-$511,000; 1999-$263,000; 2000-$14,000; 2001-$16,000; and
2002-$17,000.
The Company also has an unsecured two-year bank line of credit agreement
under which the Company may borrow up to $10 million at the bank's prime rate,
or at LIBOR plus 1.75%. At July 31, 1997, there were no outstanding borrowings
under the line. The line of credit agreement provides that neither the Company
nor any of its subsidiaries may, directly or indirectly, make any distributions
of cash dividends.
NOTE 4 -- STOCK PLANS
Stock Option Plans
In December 1995, the Company adopted the 1995 Stock Option Plan under
which 500,000 shares of Common Stock were reserved for future grant. In January
1997, an additional 300,000 shares were reserved for future issuance. This Plan,
and the Company's Director Stock Option Plan provide for granting either
Incentive Stock Options or Non-Qualified Stock Options to employees and
non-employee members of the Company's Board of Directors, respectively. Options
are also outstanding under an expired stock option plan. The options granted
under these plans are to purchase Common Stock at not less than fair market
value at the date of grant. Employee options are generally exercisable in
cumulative annual installments of 30 percent or 20 percent, while options in the
Director Option Plan are exercisable in full one year after date of grant. All
options have terms of five to ten years.
F-9
<PAGE> 69
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- STOCK PLANS (CONTINUED)
The following table summarizes Company stock option activity for the three
years ended July 31, 1997.
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF SHARES AVERAGE PRICE
--------- -------------
<S> <C> <C>
Balance at August 1, 1994............................ 771,758 $ 5.38
Granted............................................ 224,000 $ 3.77
Exercised.......................................... -- --
Expired or forfeited............................... (278,014) $ 5.49
--------
Balance at July 31, 1995............................. 717,744 $ 4.84
Granted............................................ 623,600 $ 4.31
Exercised.......................................... (37,684) $ 4.13
Expired or forfeited............................... (107,634) $ 5.05
--------
Balance at July 31, 1996............................. 1,196,026 $ 4.57
Granted............................................ 373,700 $ 15.95
Exercised.......................................... (406,656) $ 4.61
Expired or forfeited............................... (108,390) $ 4.42
--------
Outstanding at July 31, 1997......................... 1,054,680 $ 8.60
========
Available for future grant under the 1995 Stock
Option Plan........................................ 83,300
========
Available for future grant under the Director Option
Plan............................................... 124,584
========
</TABLE>
In addition, the Company has established separate stock option plans for
its five principal operating subsidiaries. During fiscal 1997, options to
purchase various shares of subsidiary stock were granted at the estimated fair
value of the subsidiary shares, as determined by an independent outside
appraisal. Options outstanding at July 31, 1997 amount to 10.3% to 13.6% of each
subsidiary's outstanding common stock.
The following table summarizes information concerning outstanding and
exercisable stock options at July 31, 1997.
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
- ----------------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3.56 - 5.00 476,400 $ 3.96 6.4 years 169,875 $ 4.08
$ 5.12 - 7.25 266,580 $ 6.23 3.7 years 164,580 $ 5.73
$11.00 - 20.63 311,700 $15.73 5.0 years -- $ --
--------- -------
1,054,680 334,455
========= =======
</TABLE>
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards Board Statement No. 123, Accounting for Stock-Based
Compensation. In accordance with the provisions of Statement No. 123, the
Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans, and accordingly, no
compensation cost has been recognized for stock options in 1996 or 1997. If the
Company had elected to recognize compensation cost
F-10
<PAGE> 70
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- STOCK PLANS (CONTINUED)
based on the fair value method prescribed by Statement No. 123, the Company's
net income (loss) and net income (loss) per share would have been adjusted to
the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------
1996 1997
-------- ------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net income (loss)
As reported........................................... $(15,176) $4,024
Pro forma............................................. (15,305) 3,405
Net income (loss) per share
As reported........................................... $ (2.76) $ 0.60
Pro forma............................................. (2.78) 0.51
</TABLE>
The impact of outstanding non-vested stock options granted prior to 1996
has been excluded from the pro forma calculations; accordingly, the 1996 and
1997 pro forma adjustments are not indicative of future period pro forma
adjustments when the calculation will reflect all applicable stock options. The
fair value of Company options at date of grant was estimated using the
Black-Scholes option-pricing model with assumptions for both 1996 and 1997 as
follows: risk-free interest rate of 6.0%; dividend yield of 0%; volatility
factor of 52%; and a weighted-average expected term of 3 years. The fair value
of subsidiary options at date of grant was estimated using the Minimum Value
option-pricing model, which is similar to the Black-Scholes model except that it
excludes the factor for volatility since there is no public market for the
subsidiary shares. The estimated weighted average fair value at grant date for
Company options granted during 1996 and 1997 was $1.74 and $7.33 per option,
respectively.
Stock Purchase Plans
In December 1994, the Company established the 1994 Employee Stock Purchase
Plan and a Director Stock Purchase Plan. The employee plan permits substantially
all employees to purchase Common Stock through payroll deductions at 85% of the
lower of the trading price of the Stock at the beginning or at the end of each
six-month offering period. The director plan permits non-employee directors to
purchase Common Stock at 100% of the trading price of the Stock on the date a
request for purchase is received. In fiscal years 1996 and 1997, 93,112 and
39,129 shares were issued under the two plans for an aggregate of $361,000 and
$442,000, respectively. At July 31, 1997, 339,335 shares are reserved for future
issuance under these plans.
Stockholder Rights Plan
In 1989, the Company adopted a Stockholder Rights Plan, and subsequently
distributed one nonvoting Common Stock purchase right ("Right") for each
outstanding share of Common Stock. The Rights are not exercisable and will not
trade separately from the Common Stock unless a person or group acquires, or
makes a tender offer for, 20% or more of the Company's Common Stock. Initially,
each Right entitles the registered holder to purchase one-half of a share of
Company Common Stock at a price of $16.25 per one-half share, subject to certain
anti-dilution adjustments. The Rights expire on June 20, 1999.
If the Rights become exercisable and certain conditions are met, then each
Right not owned by the acquiring person or group will entitle its holder to
receive, upon exercise, Company Common Stock having a market value of four times
the exercise price of the Right. These provisions will not apply if a majority
of the Board of Directors determines that the acquisition or other business
combination is in the best interest of the stockholders. In addition, the
Company may redeem the Rights at a price of $0.01 per Right, subject to certain
restrictions.
F-11
<PAGE> 71
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- STOCK PLANS (CONTINUED)
Deferred Compensation
In 1996 and 1997, one of the executive officers of the Company was granted
shares of the Company's Common Stock subject to certain restrictions. The shares
vest over four year periods, and at the respective grant dates, the shares
issued in fiscal 1996 had a value of approximately $645,000, while the shares
issued in fiscal 1997 had a value of approximately $190,000. Those values, net
of accumulated amortization, are shown as deferred compensation in the
stockholder's equity section of the Balance Sheet. The deferred compensation is
being amortized to expense over the four year vesting periods, and such
amortization totaled $40,000 and $173,000 in fiscal 1996 and 1997, respectively.
NOTE 5 -- INCOME TAXES
Income taxes (credit) are as follows for the years ended July 31:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current......................................... $(634) $ 128 $ --
Deferred........................................ 604 814 --
------ ------ ------
(30) 942 --
State:
Current......................................... (171) 44 --
Deferred........................................ 216 310 --
------ ------ ------
45 354 --
------ ------ ------
$ 15 $1,296 $ --
====== ====== ======
</TABLE>
F-12
<PAGE> 72
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components of
the Company's deferred tax assets and liabilities are as follows at July 31:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Uniform capitalization, contract and inventory-related
reserves........................................... $ 723 $ 1,542 $ 1,465
Environmental and restructure reserves................ 495 1,606 1,195
Asset write-downs under FASB Statement No. 121........ -- 1,062 943
Accrued vacation...................................... 551 506 594
Allowance for doubtful accounts....................... 217 259 321
Other................................................. 239 426 313
NOL carryforwards..................................... 300 2,500 1,800
Valuation allowance................................... (300) (7,015) (5,814)
------ ------- -------
Total deferred tax assets..................... 2,225 886 817
------ ------- -------
Deferred tax liabilities:
Tax over book depreciation............................ 802 617 656
Deferred contract income recognition.................. 134 108 --
Other................................................. 4 -- --
------ ------- -------
Total deferred tax liabilities................ 940 725 656
------ ------- -------
Net deferred tax assets....................... $1,285 $ 161 $ 161
====== ======= =======
</TABLE>
As the Company cannot carry losses back to prior years, and had a loss in
the prior year, a valuation allowance is provided on the net operating loss
carryforwards and net deferred income tax assets of the parent company. The
valuation allowance at July 31, 1997 includes approximately $700,000 relating to
employee stock option and stock purchase plan activity, which upon realization
will result in a credit to additional paid-in capital. Income tax expense in
fiscal year 1996 was to provide for a valuation allowance on beginning of year
net deferred tax assets, and to provide for income tax expense at the PurePulse
Technologies subsidiary, which filed a separate tax return for that year.
As of July 31, 1997, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $4,300,000 and
$3,400,000, respectively. The federal loss carryforward expires in fiscal year
2011, while the state loss carryforwards expire in fiscal years 1999 through
2001.
The effective income tax rate varied from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate................... 34.0% (34.0)% 34.0%
State income taxes, net of federal tax benefit...... 7.3 (6.0) 6.0
Utilization of net operating loss carryforwards..... -- -- (40.0)
Amortization of minority interest................... (41.5) (1.1) --
Valuation allowance and other items................. 3.8 52.6 --
----- ----- -----
Effective income tax rate........................... 3.6% 11.5% --%
===== ===== =====
</TABLE>
F-13
<PAGE> 73
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LEASES
Rental expense amounted to $2,110,000, $1,992,000 and $1,831,000 in fiscal
1995, 1996 and 1997, respectively, and was incurred primarily for building
rental. Future minimum rental commitments as of July 31, 1997, are as follows
(in thousands):
<TABLE>
<S> <C>
1998............................................... $ 2,126
1999............................................... 2,063
2000............................................... 1,827
2001............................................... 1,587
2002............................................... 1,117
Thereafter......................................... 2,672
-------
$11,392
=======
</TABLE>
Certain leases include renewal options for periods ranging from one to
twenty-five years and are subject to rental adjustment based on consumer price
indices. Substantially all leases provide that the Company pay for property
taxes, insurance, and repairs and maintenance.
NOTE 7 -- EMPLOYEE BENEFIT PLAN
Substantially all employees are eligible to elect coverage under a
contributory employee savings plan which provides for Company matching
contributions based on one-half of employee contributions up to certain plan
limits. The Company's matching contributions under this plan totaled $568,000,
$541,000 and $592,000 in fiscal 1995, 1996 and 1997, respectively.
NOTE 8 -- IMPAIRMENT LOSSES, RESTRUCTURING AND OTHER CHARGES
In fiscal 1996, the Company recorded $14.4 million of pre-tax charges
primarily in the second and third quarters. Of this amount, $9.5 million was
recorded during the first two quarters, and included asset write-downs due to
the adoption of FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, an increase in
the valuation allowance against the Company's net deferred income tax assets,
the cost, primarily in the form of inventory reserves, of re-positioning the
Sierra Capacitor/Filter operation to focus on a new commercial business area,
and other operational reserves primarily associated with fixed-price contracts
and inventory. The $4.9 million charge in the third quarter resulted primarily
from costs associated with management changes and a restructuring of the
Company's business units.
Of the first and second quarter charge, $4.1 million is attributable to the
January 1996 adoption of FASB Statement No. 121. Statement 121 requires that the
carrying amount of certain long-lived assets be written down if an impairment in
value is determined to exist and the assets are not supported by adequate
anticipated future cash flows, as defined by the FASB. Upon adoption of
Statement 121, the Company recorded impairment losses to reflect the difference
between pre-adoption carrying values and the estimated fair values of the assets
subject to review, of which approximately $2.6 million was recorded in restated
first quarter results as the cumulative effect of a change in accounting
principle, and the balance of $1.5 million impacted second quarter results.
These assets included primarily facilities and equipment associated with the
chemical analytical services group, and certain other equipment not currently in
substantive use. The chemical analytical services business was not profitable in
fiscal 1996, and the Company began exploring its possible sale during the first
quarter of fiscal 1996. The business was sold in June 1996. The estimated fair
values of the assets were determined by reference to comparable asset sales,
lease values, or estimated discounted future cash flows. The facilities subject
to the impairment loss are corporate assets, and the chemistry group
F-14
<PAGE> 74
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- IMPAIRMENT LOSSES, RESTRUCTURING AND OTHER CHARGES (CONTINUED)
equipment as well as the majority of the under-utilized equipment subject to
impairment are from the Company's Technology Programs and Systems business
segment.
NOTE 9 -- ENVIRONMENTAL MATTER
In 1992, the Company and approximately 40 other potentially responsible
parties signed a consent order with the State of California with respect to
costs to be incurred at a recycling facility to characterize and remediate
hazardous substances. To date, the site has been characterized, and the Company
and the other potentially responsible parties have paid substantially all of
their respective shares of the costs of such characterization. The estimated
cost of monitoring and remediation activities, of which the Company's share is
currently estimated at approximately 3.5%, totals approximately $23 million.
Approximately $21 million of this amount will consist of maintenance, monitoring
and related costs to be incurred over a 25-30 year period. The Company has
accrued its share of such estimated costs; on the basis of amounts accrued by
the Company, it is management's opinion that any additional liability resulting
from this situation will not have a material effect on the Company's financial
statements.
NOTE 10 -- BUSINESS SEGMENTS
For purposes of analyzing and understanding the financial statements, the
Company's operations have been classified into the following business segments:
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.
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.
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.
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.
F-15
<PAGE> 75
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- BUSINESS SEGMENTS (CONTINUED)
Business segment financial data for the three years ended July 31 is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Power Conversion Products................................. $15,207 $ 16,448 $ 27,039
Industrial Computers and Subsystems....................... 23,319 26,131 34,259
Technology Programs and Systems........................... 31,064 30,198 31,087
Information Products and Services......................... 5,414 8,134 9,026
------- -------- --------
Consolidated total................................ $75,004 $ 80,911 $101,411
======= ======== ========
Operating profit (loss):
Power Conversion Products................................. $ (561) $ (752) $ 2,482
Industrial Computers and Subsystems....................... 2,287 1,078 2,417
Technology Programs and Systems........................... 1,550 2,131 1,804
Information Products and Services......................... (1,097) (3,680) (2,886)
------- -------- --------
Total operating profit (loss)..................... 2,179 (1,223) 3,817
Corporate expenses and revenues........................... (1,448) (9,709) 434
Interest expense.......................................... (315) (329) (173)
------- -------- --------
Income (loss) before income taxes, minority
interest and cumulative effect of change in
accounting principle............................ $ 416 $(11,261) $ 4,078
======= ======== ========
Identifiable assets:
Power Conversion Products................................. $13,932 $ 11,253 $ 12,299
Industrial Computers and Subsystems....................... 8,000 9,166 12,167
Technology Programs and Systems........................... 12,640 7,586 8,298
Information Products and Services......................... 3,893 3,136 5,920
Corporate................................................. 13,905 9,583 8,436
------- -------- --------
Consolidated total................................ $52,370 $ 40,724 $ 47,120
======= ======== ========
Depreciation and amortization:
Power Conversion Products................................. $ 1,138 $ 763 $ 887
Industrial Computers and Subsystems....................... 260 316 469
Technology Programs and Systems........................... 1,563 994 647
Information Products and Services......................... 61 162 258
Corporate................................................. 393 272 326
------- -------- --------
Consolidated total................................ $ 3,415 $ 2,507 $ 2,587
======= ======== ========
Capital expenditures:
Power Conversion Products................................. $ 1,078 $ 670 $ 1,768
Industrial Computers and Subsystems....................... 337 529 992
Technology Programs and Systems........................... 1,034 240 424
Information Products and Services......................... 435 482 1,231
Corporate................................................. 67 55 310
------- -------- --------
Consolidated total................................ $ 2,951 $ 1,976 $ 4,725
======= ======== ========
</TABLE>
Intersegment sales are insignificant. Operating profit (loss) is sales less
cost of sales and operating expenses, excluding interest expense and corporate
expenses and revenues. Corporate expenses in fiscal 1996
F-16
<PAGE> 76
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- BUSINESS SEGMENTS (CONTINUED)
include certain restructuring costs and asset writedowns relating to the
adoption of FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. Identifiable assets by
segment include the assets directly identified with those segments. Corporate
assets consist primarily of cash and cash equivalents, facilities and land, and,
as of July 31, 1997, certain telecommunications, computers and networking
equipment of the Company .
Sales under United States government contracts and subcontracts are
primarily in the Technology Programs and Systems business segment, and
aggregated $32,120,000, $32,622,000 and $33,526,000, in fiscal 1995, 1996, and
1997, respectively. The portion of such sales to the United States Air Force in
fiscal 1997 amounted to 14.0% of total Company sales in that year. A customer of
the Industrial Computers and Subsystems business segment represented 11.9% of
total sales of the Company in fiscal 1997.
International sales amounted to $7,318,000, $7,555,000 and $12,609,000 in
fiscal 1995, 1996, and 1997, respectively, principally to countries in Europe
and the Pacific Rim.
NOTE 11 -- SUPPLEMENTARY FINANCIAL INFORMATION
Inventories and inventoried costs relating to long-term contracts are
classified as follows at July 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................... $ 714 $ 1,793
Costs under long-term contracts.................. 226 --
Work in process.................................. 1,610 882
Raw materials and purchased parts................ 4,258 6,047
------- -------
$ 6,808 $ 8,722
======= =======
</TABLE>
Property, plant and equipment consist of the following at July 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements....................... $ 3,470 $ 3,470
Buildings and building improvements.............. 7,448 7,581
Machinery and equipment.......................... 23,267 25,939
Office furniture and equipment................... 7,249 7,861
Leasehold improvements........................... 3,347 3,462
------- -------
44,781 48,313
Less allowances for depreciation and
amortization................................... 30,192 32,113
------- -------
14,589 16,200
Construction in progress......................... 220 729
------- -------
$14,809 $16,929
======= =======
</TABLE>
Accounts payable consist of the following at July 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued expenses............ $11,618 $10,516
Environmental reserves........................... 1,620 1,252
Customer advances................................ 993 1,872
------- -------
$14,231 $13,640
======= =======
</TABLE>
F-17
<PAGE> 77
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
Included in Other-net in fiscal 1995 and 1996 is the amortization into
income over a three-year period of amounts contributed by minority stockholders
upon the organization of the Company's PurePulse Technologies, Inc. subsidiary
over such stockholders' proportionate share of PurePulse Technologies' equity.
These amounts were fully amortized at the end of the third quarter of fiscal
1996, and amounted to $508,000 and $379,000 in fiscal 1995 and 1996,
respectively. Also included in Other-net is interest income of $358,000,
$128,000 and $147,000 in fiscal 1995, 1996 and 1997, respectively.
Financial instruments which subject the Company to potential concentrations
of credit risk consist principally of investments in cash equivalents and
accounts receivable. The Company invests its excess cash with major corporate
and financial institutions and in United States government backed securities.
The Company has established guidelines relative to diversification and
maturities to maintain safety and liquidity, and has not experienced any losses
on these investments. The Company's accounts receivable result from contracts
with the United States government, as well as contract and product sales to
non-government customers in various industries. The Company performs ongoing
credit evaluations of selected non-government customers and generally requires
no collateral.
Supplemental disclosure of cash flow information consists of the following
for the three years ended July 31:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (refunded) for:
Interest................................... $315 $329 $ 173
Income taxes............................... $(11) $152 $(831)
Non-cash activities:
Issuance of Common Stock in connection with
deferred compensation agreement......... $ -- $645 $ 190
</TABLE>
F-18
<PAGE> 78
[INSIDE BACK COVER]
<PAGE> 79
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS, ANY OF THE
UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 15
Dividend Policy....................... 15
Price Range of Common Stock........... 15
Capitalization........................ 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 27
Management............................ 46
Principal and Selling Stockholders.... 52
Description of Capital Stock.......... 54
Underwriting.......................... 56
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 57
Incorporation of Certain Documents by
Reference........................... 58
Index to Consolidated Financial
Statements.......................... F-1
=============================================
</TABLE>
======================================================
1,575,000 SHARES
MAXWELL LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
COWEN & COMPANY
HAMBRECHT & QUIST
, 1997
======================================================
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Securities and
Exchange Commission and the NASD filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
Securities and Exchange Commission registration fee....................... $ 17,478
NASD filing fee........................................................... 6,268
Nasdaq National Market listing fee........................................ 17,500
Blue Sky fees and expenses................................................ 5,000
Printing expenses......................................................... 150,000
Legal fees and expenses................................................... 250,000
Accounting fees and expenses.............................................. 125,000
Transfer Agent and Custodian fees......................................... 10,000
Miscellaneous............................................................. 18,754
--------
Total........................................................... $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Maxwell Technologies, Inc. (the "Company") is a Delaware corporation.
Article V of the Company's Bylaws provides that the Company may indemnify its
officers and Directors to the full extent permitted by law. Section 145 of the
General Corporation Law of the State of Delaware ("GCL") provides that a
Delaware corporation has the power to indemnify its officers and directors in
certain circumstances.
Subsection (a) of Section 145 of the GCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding provided that such director or officer acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, provided that such director or officer had no cause to believe his
or her conduct was unlawful.
Subsection (b) of Section 145 of the GCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided that
such director or officer acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such director or officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action was brought shall determine that despite the
adjudication of liability, such director or officer is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith; that indemnification
II-1
<PAGE> 81
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and that the corporation shall have
power to purchase and maintain insurance on behalf of a director or officer of
the corporation against any liability asserted against him or her or incurred by
him or her in any such capacity or arising out of his or her status as such
whether or not the corporation would have the power to indemnify him or her
against such liabilities under Section 145.
Article Seventeenth of the Company's Certificate of Incorporation currently
provides that each Director shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the GCL, or (iv) for any transaction from which the Director
derived an improper benefit.
The Company has entered into indemnity agreements with each of its
Directors and executive officers. The indemnity agreements generally indemnify
such persons against liabilities arising out of their service in their
capacities as Directors, officers, employees or agents of the Company. The
Company may from time to time enter into indemnity agreements with additional
individuals who become officers or Directors of the Company.
The form of Underwriting Agreement, filed as Exhibit 1 hereto, provides for
the indemnification of the Company, its controlling persons, its directors and
certain of its officers by the Underwriters against certain liabilities,
including liabilities under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.+
3.2 Amendment to Restated Certificate of Incorporation of the Registrant
dated November 12, 1986.++
3.3 Bylaws of the Registrant as amended to date.+
4.1 Rights Agreement dated as of June 20, 1989.+++
5.1 Opinion of Riordan & McKinzie, a Professional Corporation.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Riordan & McKinzie (included in Exhibit 5).
24.1 Powers of Attorney with respect to the Company (included on the
signature page).
27.1 Financial Data Schedule.
</TABLE>
(b) Financial Statement Schedules
None.
- ---------------
+ Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended July 31, 1987 and incorporated by reference herein.
++ Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended July 31, 1997 and incorporated by reference herein.
+++ Filed as an exhibit to the Company's Registration Statement on Form 8-A
dated June 30, 1989 and incorporated by reference herein.
II-2
<PAGE> 82
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933 (the "Securities Act"), each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(2) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a Director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such Director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue;
(3) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective; and
(4) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Diego, State of California, on this 29th day of
September, 1997.
MAXWELL TECHNOLOGIES, INC.
By: /s/ KENNETH F. POTASHNER
------------------------------------
Kenneth F. Potashner
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth F. Potashner, Gary J. Davidson and Donald
M. Roberts and each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys to any and
all amendments to said Registration Statement, or any related registration
statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<S> <C> <C>
/s/ KENNETH F. POTASHNER President, Chief Executive September 29, 1997
- --------------------------------------------- Officer and Director
Kenneth F. Potashner (Principal Executive
Officer)
/s/ GARY J. DAVIDSON Vice President -- Finance September 29, 1997
- --------------------------------------------- and Administration, Chief
Gary J. Davidson Financial Officer and
Treasurer (Principal
Financial and Accounting
Officer)
/s/ LEWIS J. COLBY, JR. Director September 29, 1997
- ---------------------------------------------
Lewis J. Colby, Jr.
/s/ THOMAS B. HAYWARD Director September 29, 1997
- ---------------------------------------------
Thomas B. Hayward
/s/ THOMAS L. HORGAN Director September 29, 1997
- ---------------------------------------------
Thomas L. Horgan
</TABLE>
II-4
<PAGE> 84
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<S> <C> <C>
/s/ ALAN C. KOLB Director September 29, 1997
- ---------------------------------------------
Alan C. Kolb
/s/ KARL M. SAMUELIAN Director September 29, 1997
- ---------------------------------------------
Karl M. Samuelian
/s/ DONN A. STARRY Director September 29, 1997
- ---------------------------------------------
Donn A. Starry
</TABLE>
II-5
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.+
3.2 Amendment to Restated Certificate of Incorporation of the Registrant
dated November 12, 1986.++
3.3 Bylaws of the Registrant as amended to date.+
4.1 Rights Agreement dated as of June 20, 1989.+++
5.1 Opinion of Riordan & McKinzie, a Professional Corporation.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Riordan & McKinzie (included in Exhibit 5).
24.1 Powers of Attorney with respect to the Company (included on the
signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended July 31, 1987 and incorporated by reference herein.
++ Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended July 31, 1997 and incorporated by reference herein.
+++ Filed as an exhibit to the Company's Registration Statement on Form 8-A
dated June 30, 1989 and incorporated by reference herein.
<PAGE> 1
EXHIBIT 1.1
1,575,000 SHARES
MAXWELL TECHNOLOGIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
October __, 1997
COWEN & COMPANY
HAMBRECHT & QUIST L.L.C.
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. Introductory. Maxwell Technologies, Inc., a Delaware corporation (the
"Company"), and the selling shareholders named in Schedule B hereto (the
"Selling Shareholders") propose to sell, pursuant to the terms of this
Agreement, to the several underwriters named in Schedule A hereto (the
"Underwriters," or, each, an "Underwriter"), an aggregate of 1,575,000 shares of
common stock, $0.10 par value (the "Common Stock") of the Company. The aggregate
of 1,575,000 shares so proposed to be sold is hereinafter referred to as the
"Firm Stock". The Company also proposes to sell to the Underwriters, upon the
terms and conditions set forth in Section 3 hereof, up to an additional 236,250
shares of Common Stock (the "Optional Stock"). The Firm Stock and the Optional
Stock are hereinafter collectively referred to as the "Stock". Cowen & Company
("Cowen") and Hambrecht & Quist L.L.C. are acting as representatives of the
several Underwriters and in such capacity are hereinafter referred to as the
"Representatives".
2. Representations and Warranties
(a) Representations and Warranties and Agreements of the
Company. The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) A registration statement, including all financial
statements and exhibits thereto, on Form S-3- (File No. 333-_____) in the form
in which it became or becomes effective and also in such form as it may be when
any post-effective amendment thereto shall become effective with respect to the
Stock, including any preeffective prospectuses included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, copies of which (including all documents incorporated
by reference therein) have heretofore been delivered to the Representatives, has
been carefully prepared by the Company in conformity with the requirements of
the Securities Act and has been filed with the Commission under the Securities
Act; one or more amendments to such registration statement, including in each
case an amended preeffective prospectus, copies of which
<PAGE> 2
amendments (including all documents incorporated by reference therein), have
heretofore been delivered to the representatives, have been so prepared and
filed. If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Stock may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement, including all financial statements and exhibits thereto, as amended
by said post-effective amendment. The term "Registration Statement" as used in
this Agreement shall also include any registration statement relating to the
Stock that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this Agreement means the
prospectus, including all financial statements included therein, in the form
included in the Registration Statement, or, (A) if the prospectus included in
the Registration Statement omits information in reliance on Rule 430A under the
Securities Act and such information is included in a prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b) and (B) if prospectuses that meet the requirements of Section 10(a)
of the Securities Act are delivered pursuant to Rule 434 under the Securities
Act, then (i) the term "Prospectus" as used in this Agreement means the
"prospectus subject to completion" (as such term is defined in Rule 434(g) under
the Securities Act) as supplemented by (a) the addition of Rule 430A information
or other information contained in the form of prospectus delivered pursuant to
Rule 434(c)(2) under the Securities Act or (b) the information contained in the
term sheets described in Rule 434(c)(3) under the Securities Act, and (ii) the
date of such prospectuses shall be deemed to be the date of the term sheets. The
term "Preeffective Prospectus" as used in this Agreement means the prospectus
subject to completion in the form included in the Registration Statement at the
time of the initial filing of the Registration Statement with the Commission,
and as such prospectus shall have been amended from time to time prior to the
date of the Prospectus. Any reference herein to any Preeffective Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Form S-3 under the Securities Act,
as of the date of such Preeffective Prospectus or Prospectus, as the case may
be, and any reference to any amendment or supplement to any Preeffective
Prospectus or the Prospectus shall be deemed to refer to and include any
documents filed after such date under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and so incorporated by reference.
(ii) The Commission has not issued or threatened to issue any
order preventing or suspending the use of any Preeffective Prospectus, and, at
its date of issue, each Preeffective Prospectus conformed in all material
respects with the requirements of the Securities Act and did not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and, when the
Registration Statement becomes effective and at all times subsequent thereto up
to and including each of the Closing Dates (as hereinafter defined), the
Registration Statement and the Prospectus and any amendments or supplements
thereto contained and will contain all material statements and information
required to be included therein by the Securities Act and conformed and will
conform in all material respects to the requirements of the Securities Act and
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, included or will include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made (with respect to the Prospectus only), not misleading;
provided, however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from any Preeffective
Prospectus or the Registration Statement or the Prospectus or any such amendment
or supplement thereto in direct reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter,
directly or through the Representatives, specifically for inclusion therein;
there is no
2.
<PAGE> 3
franchise, lease, contract, agreement or document required to be described in
the Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed therein as required; and
all descriptions of any franchises, leases, contracts, agreements or documents
contained in the Registration Statement are accurate and complete descriptions
of such documents in all material respects.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and except as
set forth or contemplated in the Prospectus, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations, direct or contingent
other than in the ordinary course of business, nor entered into any transactions
not in the ordinary course of business, and there has not been any material
adverse change in the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the capital stock (other
than as a result of option exercises pursuant to options exercised pursuant to
grants disclosed in the Registration Statement), short-term or long-term debt of
the Company (other than borrowings or payments made pursuant to the terms and
conditions of the Company's revolving credit agreement as the same is described
in the Registration Statement) and its subsidiaries considered as a whole
(collectively, a "Material Adverse Change").
(iv) The financial statements, together with the related notes,
set forth in the Prospectus and elsewhere in the Registration Statement fairly
present, on the basis stated in the Registration Statement, the financial
position and the results of operations and changes in financial position of the
Company and its consolidated subsidiaries at the respective dates or for the
respective periods therein specified. Such statements and related notes have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis. The selected and summary financial and
statistical data set forth in the Prospectus under the captions "Selected
Consolidated Financial Data" and "Summary Consolidated Financial Data" and in
the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
1997, incorporated by reference in the Prospectus fairly present, on the basis
stated in the Registration Statement and such Annual Report, the information set
forth therein.
(v) Ernst & Young LLP, who have expressed their opinions on the
audited financial statements included in the Registration Statement and the
Prospectus are independent public accountants as required by the Securities Act
and the Rules and Regulations.
(vi) The Company and each of its subsidiaries have been duly
organized and are validly existing and in good standing as corporations under
the laws of their respective jurisdictions of organization, with power and
authority (corporate and other) to own or lease their properties and to conduct
their businesses as described in the Prospectus; the Company and each of its
subsidiaries are in possession of and operating in compliance with all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders required for the conduct of its business, all of which
are valid and in full force and effect except where the failure to possess or
operate in compliance would not cause a Material Adverse Change; and the Company
and each of such subsidiaries are duly qualified to do business and in good
standing as foreign corporations in all other jurisdictions where their
ownership or leasing of properties or the conduct of their businesses requires
such qualification except where the failure to be so qualified would not cause a
Material Adverse Change. The Company and each of its subsidiaries have all
requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and permits of
and from all public regulatory or governmental agencies and bodies to own, lease
and operate their properties and conduct their businesses as now being conducted
and as described in the Registration Statement and the Prospectus except where
the failure to be so qualified would not cause a Material Adverse Change, and no
such consent, approval, authorization, order, registration, qualification,
license or permit contains a materially burdensome restriction not
3.
<PAGE> 4
adequately disclosed in the Registration Statement and the Prospectus. The
Company owns or controls, directly or indirectly, only the following
corporations, associations or other entities: PurePulse Technologies, Inc.
("PurePulse"), Maxwell Energy Products, Inc., Maxwell Federal Division, Inc.,
I-Bus, Inc., Maxwell Business Systems, Inc. ("MBS"), Maxwell Justice Systems,
Inc. ("MJS") and Maxwell Information Systems, Inc. With the exception of
PurePulse, MBS and MJS, [and assuming that no options exercisable for shares of
such subsidiaries are exercised], each of the Company's subsidiaries is wholly
owned by the Company. The Company owns approximately 85% of the capital stock of
PurePulse. Five percent of PurePulse is owned by Terra Laval Holdings & Finance
SA and the balance is owned by employees and former employees. The Company owns
approximately 80% of MBS, with approximately 20% owned by employees. Maxwell
Information Systems, Inc. owns approximately 90% of MJS, with approximately 10%
owned by employees.
(vii) The Company's authorized and outstanding capital stock is
on the date hereof, and will be on the Closing Dates, as set forth under the
heading "Capitalization" in the Prospectus, except as a result of the exercise
of options granted pursuant to the terms and conditions of option plans
described in the Registration Statement. The outstanding shares of common stock
(including the outstanding shares of Stock) of the Company conform to the
description thereof in the Prospectus and have been duly authorized and validly
issued and are fully paid and nonassessable; are duly listed on the Nasdaq
National Market and have been issued in compliance with all federal and state
securities laws and were not issued in violation of or subject to any preemptive
rights or similar rights to subscribe for or purchase securities. Except as
disclosed in or contemplated by the Prospectus and the financial statements of
the Company and related notes thereto included in the Prospectus, neither the
Company nor its subsidiaries have outstanding any options or warrants to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of their respective capital stock or any
such options, rights, convertible securities or obligations, except, with
respect to the Company, for options granted and sales of stock made subsequent
to the date of information provided in the Prospectus pursuant to the Company's
stock purchase and stock option plans as disclosed in the Prospectus. The
description of the Company's stock option and other stock plans or arrangements,
and the options or other rights granted or exercised thereunder, as set forth in
the Prospectus, accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights. All
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable and the shares owned by
the Company are owned free and clear of any liens, encumbrances, equities or
claims except for an option to purchase 29% of MJS issued to certain employees
and the shares of MJS owned by Maxwell Information Systems, Inc., are owned by
Maxwell Information Systems, Inc. free and clear of any liens, encumbrances,
equities or claims.
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly and validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights and will conform to the description thereof in the Prospectus. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the transfer and sale of the stock to be sold by
the Selling Security holders or the issuance and sale of the stock as
contemplated herein.
(ix) Except as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries, officers, directors or other affiliates is a party or of which any
property of the Company or any subsidiary or affiliate is subject, which, if
determined adversely to the Company or any subsidiary or other party, reasonably
could be expected to have individually or in the aggregate (i) prevent or
adversely affect the transactions contemplated by this
4.
<PAGE> 5
Agreement, (ii) suspend the effectiveness of the Registration Statement, (iii)
prevent or suspend the use of the Preeffective Prospectus in any jurisdiction or
(iv) result in a Material Adverse Change; and to the best of the Company's
knowledge no such proceedings are threatened or contemplated against the Company
or any subsidiary or other party by governmental authorities or others. The
Company is not a party nor subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body or other governmental
agency or body. The description of the Company's litigation under the heading
"Litigation" in the Prospectus is true and correct, complies with the Rules and
Regulations and provides a fair summary of the matters addressed therein.
(x) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated (A) will not result
in any violation of the provisions of the certificate of incorporation, by-laws
or other organizational documents of the Company or its subsidiaries, or any
law, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or its subsidiaries or any of their
properties or assets, (B) will not conflict with or result in a breach or
violation of any of the terms or provisions of or constitute a default under any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which they or any of their properties are or may be bound, the certificate of
incorporation, bylaws or other organizational documents of the Company or any of
its subsidiaries, or any law, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or will result in the creation of a lien
or encumbrance of any nature whatsoever.
(xi) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby, except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under the Securities Act
or the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the
securities or "Blue Sky" laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the Underwriters.
(xii) The Company has the full corporate power and authority to
enter into this Agreement and to perform its obligations hereunder (including to
issue, sell and deliver the Stock), and this Agreement has been duly and validly
authorized, executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equitable principals,
and except to the extent indemnification provided herein is contrary to law or
public policy.
(xiii) The Company and its subsidiaries are in all material
respects in compliance with, and conduct their businesses in conformity with,
all applicable federal, state, local and foreign laws, rules and regulations of
any court or governmental agency or body; to the knowledge of the Company,
otherwise than as set forth in the Registration Statement and the Prospectus, no
prospective change in any of such federal or state laws, rules or regulations
has been adopted which, when made effective, would cause a Material Adverse
Change. In the ordinary course of business, employees of the Company conduct
periodic review of the effect of Environmental Laws (as defined below) on the
business operations and properties of the Company and its subsidiaries in the
ordinary course of which they seek to identify and evaluate noncompliances and
on and/or off-site contamination of buildings, soil and/or ground water with
Hazardous Materials resulting from the Company's operations and associated costs
and liabilities. Except as disclosed in the Registration Statement, the company
and its subsidiaries have no on and/or off-site contamination of Hazardous
Materials resulting from their operations and are in compliance with all
applicable existing federal, state, local and foreign laws and regulations
relating to the protection of human
5.
<PAGE> 6
health or the environment or imposing liability or requiring standards of
conduct concerning any Hazardous Materials ("Environmental Laws"), except for
such instances on noncompliance which, either singly or in the aggregate, would
not cause a Material Adverse Change. The term "Hazardous Material" means (a) any
"hazardous substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, amended, (b) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act, as amended, (c) any
petroleum or petroleum product, (d) any polychlorinated biphenyl and (e) any
pollutant or hazardous, dangerous or toxic chemical, waste or substance
regulated under or within the meaning of any other Environmental Law.
(xiv) The Company and its subsidiaries have filed all necessary
federal, state, local and foreign income, payroll, franchise and other tax
returns and have paid all taxes shown as due thereon or with respect to any of
their properties, and there is no tax deficiency that has been, or to the best
knowledge of the Company is likely to be, asserted against the Company or any of
its subsidiaries or any of their respective properties or assets that would
cause a Material Adverse Change.
(xv) No person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement or otherwise.
(xvi) Neither the Company nor any of its officers, directors or
other affiliates has taken or will take, directly or indirectly, any action
designed or intended to stabilize or manipulate the price of any security of the
Company, or which caused or resulted in, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any security of the Company.
(xvii) The Company has provided the Representatives with all
financial statements since July 31, 1992 to the date hereof that are available
to the officers of the Company, including financial statements for the months of
August and September of 1997.
(xviii) The Company and its subsidiaries own or possess the
right to use all patents, trademarks (including, without limitation, "Maxwell"),
trademark registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by them or any of them or necessary for the conduct of
their respective businesses, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
its subsidiaries with respect to the foregoing. To the best of the Company's
knowledge, the Company's business as now conducted and as proposed to be
conducted does not and will not infringe or conflict with any patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses or
other intellectual property or franchise right of any person. No claim has been
made or threatened in writing against the Company or any of its subsidiaries
alleging the infringement by the Company or any of its subsidiaries of any
patent, trademark, service mark, trade name, copyright, trade secret, license in
or other intellectual property right or franchise right of any person which
claim has had or could be reasonably expected to cause a Material Adverse
Change.
(xix) The Company and its subsidiaries have performed all
material obligations required to be performed by them under all contracts
required by Item 601(b)(10) of Regulation S-K under the Securities Act to be
filed as exhibits to the Registration Statement, and neither the Company nor any
of its subsidiaries nor any other party to such contract is in default under or
in breach of any such obligations. Neither the Company nor any of its
subsidiaries has received any notice of such default or breach.
6.
<PAGE> 7
(xx) The Company is not involved in any labor dispute nor to
the best of the Company's knowledge is any such dispute threatened. The Company
is not aware that (A) any executive, key employee or significant group of
employees of the Company or any subsidiary plans to terminate employment with
the Company or any such subsidiary or (B) any such executive or key employee is
subject to any noncompete, nondisclosure, confidentiality, employment,
consulting or similar agreement that would be violated by the present or
proposed business activities of the Company and its subsidiaries. Neither the
Company nor any subsidiary has or expects to have any liability for any
prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other plan
which is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or any subsidiary makes or ever has made
a contribution and in which any employee of the Company or any subsidiary is or
has ever been a participant. With respect to such plans, the Company and each
subsidiary are in compliance in all material respects with all applicable
provisions of ERISA.
(xxi) The Company has obtained the written agreement described
in Section 8(l) of this Agreement from each of its officers, directors and
holders of Common Stock listed on Schedule C hereto.
(xxii) The Company and its subsidiaries have, and the Company
and its subsidiaries as of the Closing Dates will have, good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned or proposed to be owned by them which is material to the
business of the Company or of its subsidiaries, in each case free and clear of
all liens, encumbrances and defects except such as are described the Prospectus
or such as would not cause a Material Adverse Change; and any real property and
buildings held under lease by the Company and its subsidiaries or proposed to be
held after giving effect to the transactions described in the Prospectus are, or
will be, as of each of the Closing Dates, held by them under valid, subsisting
and enforceable leases with such exceptions as would not cause a Material
Adverse Change.
(xxiii) The Company and its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are customary in the businesses in which they are engaged
or propose to engage after giving effect to the transactions described in the
Prospectus; and neither the Company nor any subsidiary of the Company has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue their businesses at a cost that
would not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company and its subsidiaries
considered as a whole, except as described in or contemplated by the Prospectus.
(xxiv) Other than as contemplated by this Agreement, there is
no broker, finder or other party that is entitled to receive from the Company
any brokerage or finder's fee or other fee or commission as a result of any of
the transactions contemplated by this Agreement.
(xxv) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida)
(xxvi) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with
7.
<PAGE> 8
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(xxvii) To the best of the Company's knowledge, neither the
Company nor any of its subsidiaries nor any employee or agent of the Company or
any of its subsidiaries has made any payment of funds of the Company or any of
its subsidiaries or received or retained any funds in violation of any law, rule
or regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
(xxviii) Neither the Company nor any of its subsidiaries is or,
after application of the net proceeds of this offering as described under the
caption "Use of Proceeds" in the Prospectus, will become an "investment company"
or an entity "controlled" by an "investment company" as such terms are defined
in the Investment Company Act of 1940, as amended.
(xxix) Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the matters
covered thereby.
(b) Representations and Warranties and Agreements of the Selling
Shareholders. Each Selling Shareholder represents and warrants to, and agrees
with, the several Underwriters that such Selling Shareholder:
(i) Now has, and on the Closing Dates will have, valid and
marketable title to the Shares to be sold by such Selling Shareholder, free and
clear of any lien, claim, security interest or other encumbrance, including,
without limitation, any restriction on transfer, and has full right, power and
authority to enter into this Agreement, the Power of Attorney and the Custody
Agreement (each as hereinafter defined), and, to the extent such Selling
Shareholder is a corporation, has been duly organized and is validly existing
and in good standing as a corporation under the laws of its jurisdiction of
organization.
(ii) Now has, and on each of the Closing Dates will have, upon
delivery of and payment for each share of Stock hereunder, full right, power and
authority, any approval required by law to sell, transfer, assign and deliver
the Stock being sold by such Selling Shareholder hereunder, and each of the
several Underwriters will acquire valid and marketable title to all of the Stock
being sold to the Underwriters by such Selling Shareholder, free and clear of
any liens, encumbrances, equities claims, restrictions on transfer or other
defects whatsoever.
(iii) Has duly executed and delivered a lock-up agreement, in
substantially the form heretofore delivered by the Representatives (the "Lock-up
Agreement").
(iv) Has duly executed and delivered a power of attorney, in
substantially the form heretofore delivered by the Representatives (the "Power
of Attorney"), appointing Kenneth F. Potashner, Gary J. Davidson and Donald M.
Roberts as attorney-in-fact (the "Attorneys-in-fact") with authority to execute
and deliver this Agreement on behalf of such Selling Shareholder, to authorize
the delivery of the shares of Stock to be sold by such Selling Shareholder
hereunder and otherwise to act on behalf of such Selling Shareholder in
connection with the transactions contemplated by this Agreement.
(v) Has duly executed and delivered a custody agreement, in
substantially the form heretofore delivered by the Representatives (the "Custody
Agreement"), with [Chase Mellon Services, Inc.] as custodian (the "Custodian"),
pursuant to which certificates in negotiable form for the shares of
8.
<PAGE> 9
Stock to be sold by such Selling Shareholder hereunder have been placed in
custody for delivery under this Agreement.
(vi) Has, by execution and delivery of each of this Agreement,
the Power of Attorney and the Custody Agreement, created valid and binding
obligations of such Selling Shareholder, enforceable against such Selling
Shareholder in accordance with their terms, except to the extent that rights to
indemnity hereunder may be limited by federal or state securities laws or the
public policy underlying such laws.
(vii) The performance of this Agreement, the Custody Agreement
and the Power of Attorney, and the consummation of the transactions contemplated
hereby and thereby will not result in a breach or violation by such Selling
Shareholder of any of the terms or provisions of, or constitute a default by
such Selling Shareholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder or any of its properties is bound, or any judgment of
any court or governmental agency or body applicable to such Selling Shareholder
or any of its properties, or to such Selling Shareholder's knowledge, any
statute, decree, order, rule or regulation of any court or governmental agency
or body applicable to such Selling Shareholder or any of its properties.
Each Selling Shareholder agrees that the shares of Stock represented by
the certificates held in custody under the Custody Agreement are for the benefit
of and coupled with and subject to the interests of the Underwriters, the other
Selling Shareholders and the Company hereunder, and that the arrangement for
such custody and the appointment of the Attorneys-in-fact are irrevocable; that
the obligations of such Selling Shareholder hereunder shall not be terminated by
operation of law, whether by the death or incapacity, liquidation or
distribution of such Selling Shareholder, or any other event, that if such
Selling Shareholder should die or become incapacitated or is liquidated or
dissolved or any other event occurs, before the delivery of the Stock hereunder,
certificates for the Stock to be sold by such Selling Shareholder shall be
delivered on behalf of such Selling Shareholder in accordance with the terms and
conditions of this Agreement and the Custody Agreement, and action taken by the
Attorneys-in-fact or any of them under the Power of Attorney shall be as valid
as if such death, incapacity, liquidation or dissolution or other event had not
occurred, whether or not the Custodian, the Attorneys-in-fact or any of them
shall have notice of such death, incapacity, liquidation or dissolution or other
event.
(c) Representations and Warranties and Agreements of the Underwriters.
The information set forth in the last paragraph on the front cover page and
under "Underwriting" in the Registration Statement, any Preeffective Prospectus
and the Prospectus relating to the Stock issued by the Company (insofar as such
information relates to the Underwriters) constitutes the only information
furnished by the Underwriters to the Company for inclusion in the Registration
Statement, any Preeffective Prospectus and the Prospectus, and the
Representatives represent and warrant to the Company that the statements made
therein are correct.
3. Purchase by, and Sale and Delivery to, Underwriters--Closing Dates. The
Company and the Selling Shareholders agree, severally and not jointly, to sell
to the Underwriters the Firm Stock, with the number of shares to be sold by the
Company and each Selling Shareholder being the number of Shares set opposite
his, her or its name in Schedule B; and on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase the Firm Stock from the Company and the Selling
Shareholders, the number of shares of Firm Stock to be purchased by each
Underwriter being set opposite its name in Schedule A, subject to adjustment in
certain circumstances in accordance with Section
9.
<PAGE> 10
12 hereof. The number of shares of Stock to be purchased by each Underwriter
from each Selling Shareholder hereunder shall bear the same proportion to the
total number of shares of Stock to be purchased by such Underwriter hereunder as
the number of shares of stock being sold by each Selling Shareholder bears to
the total number of shares of Stock being sold by all Selling Shareholders,
subject to adjustment by the Representatives to eliminate fractions.
The purchase price per share to be paid by the Underwriters to the
Company and the Selling Shareholders will be the price per share set forth in
the table on the cover page of the Prospectus under the heading "Proceeds to the
Company" (the "Purchase Price").
The Company and the Selling Shareholders will deliver the Firm Stock to
the Representatives for the respective accounts of the several Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company and the Selling Shareholders given at or prior to 12:00 Noon, New York
Time, on the second full business day preceding the First Closing Date (as
defined below) or, if no such direction is received, in the names of the
respective Underwriters or in such other names as Cowen may designate (solely
for the purpose of administrative convenience) and in such denominations as
Cowen may determine, against payment of the aggregate Purchase Price therefor by
certified or official bank check or checks in immediately available funds (same
day funds), payable to the order of the Company and Chase Mellon Shareholder
Services, Inc. as Custodian for the Selling Shareholders, all at the offices of
[Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022]. The time and date of the delivery and closing shall be at 10:00
A.M., New York Time, on ________ , 1997, in accordance with Rule 15c6-1 of the
Exchange Act. The time and date of such payment and delivery are herein referred
to as the "First Closing Date". The First Closing Date and the location of
delivery of, and the form of payment for, the Firm Stock may be varied by
agreement between among the Company, the Selling Shareholders and Cowen. The
First Closing Date may be postponed pursuant to the provisions of Section 12.
The Company and the Selling Shareholders shall make the certificates for
the Stock available to the Representatives for examination on behalf of the
Underwriters not later than 10:00 A.M., New York Time, on the business day
preceding the First Closing Date at the offices of Cowen & Company, Financial
Square, New York, New York 10005.
It is understood that Cowen or other Representatives, individually and
not as Representatives of the several Underwriters, may (but shall not be
obligated to) make payment to the Company or to the Selling Shareholders on
behalf of any Underwriter or Underwriters, for the Stock to be purchased by such
Underwriter or Underwriters. Any such payment by Cowen or other Representatives
shall not relieve such Underwriter or Underwriters from any of its or their
other obligations hereunder.
The several Underwriters agree to make a public offering of the Firm
Stock at the public offering price as soon after the effectiveness of the
Registration Statement as in their judgment is advisable. The Representatives
shall promptly advise the Company and the Selling Shareholders of the making of
the public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase, severally and
not jointly, up to ___________ to _____ shares of Optional Stock. The price per
share to be paid for the Optional Stock shall be the Purchase Price. The option
granted hereby may be exercised as to all or any part of the Optional Stock at
any time, and from time to time, not more than thirty (30) days subsequent to
the effective date of this Agreement. No Optional Stock shall be sold and
delivered unless the Firm Stock previously has been, or simultaneously is, sold
and delivered. The
10.
<PAGE> 11
right to purchase the Optional Stock or any portion thereof may be surrendered
and terminated at any time upon notice by the Underwriters to the Company.
The option granted hereby may be exercised by the Underwriters by giving
written notice from Cowen to the Company setting forth the number of shares of
the Optional Stock to be purchased by them and the date and time for delivery of
and payment for the Optional Stock. Each date and time for delivery of and
payment for the Optional Stock (which may be the First Closing Date, but not
earlier) is herein called the "Option Closing Date" and shall in no event be
earlier than two (2) business days nor later than ten (10) business days after
written notice is given. (The Option Closing Date and the First Closing Date are
herein called the "Closing Dates".) Optional Stock shall be purchased for the
account of each Underwriter in the same proportion as the number of shares of
Firm Stock set forth opposite such Underwriter's name in Schedule B hereto bears
to the total number of shares of Firm Stock (subject to adjustment by the
Underwriters to eliminate odd lots). Upon exercise of the option by the
Underwriters, the Company agrees to sell to the Underwriters the number of
shares of Optional Stock set forth in the written notice of exercise and the
Underwriters agree, severally and not jointly and subject to the terms and
conditions herein set forth, to purchase the number of such shares determined as
aforesaid. The Company will deliver the Optional Stock to the Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Selling Shareholders given at or prior to 12:00 Noon, New York Time, on the
second full business day preceding the Option Closing Date or, if no such
direction is received, in the names of the respective Underwriters or in such
other names as Cowen may designate (solely for the purpose of administrative
convenience) and in such denominations as Cowen may determine, against payment
of the aggregate Purchase Price therefor by certified or official bank check or
checks in Clearing House funds (next day funds), payable to the order of the
Company all at the offices of [Willkie Farr & Gallagher, One Citicorp Center,
153 East 53rd Street, New York, New York 10022]. The Option Closing Date and the
location of delivery of, and the form of payment for, the Option Stock may be
varied by agreement between among the Company and Cowen. The Option Closing Date
may be postponed pursuant to the provisions of Section 12.
4. Covenants and Agreements of the Company. The Company covenants and agrees
with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A of the of the Rules and
Regulations, use its best efforts to cause the Registration Statement to become
effective, (ii) if the Company and the Representative[s] have determined to
proceed pursuant to Rule 430A of the Rules and Regulations, use its best efforts
to comply with the provisions of and make all requisite filings with the
Commission pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use its best
efforts to comply with all the applicable provisions thereof. The Company will
advise the Representatives promptly as to the time at which the Registration
Statement becomes effective, will advise the Representatives promptly of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible the lifting thereof, if issued. The
Company will advise the Representatives promptly of the receipt of any comments
of the Commission or any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for additional
information and will not at any time file any amendment to the Registration
Statement or supplement to the Prospectus which shall not previously have been
submitted to the Representatives a reasonable time prior to the proposed filing
thereof or to which the Representatives shall
11.
<PAGE> 12
reasonably object in writing or which is not in compliance with the Securities
Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to the
Registration Statement or the Prospectus which in the opinion of the
Representatives may be necessary to enable the several Underwriters to continue
the distribution of the Stock and will use its best efforts to cause the same to
become effective as promptly as possible. The Company will promptly file all
reports and any definitive proxy or information statements required to be filed
with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the Stock.
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be delivered
under the Securities Act any event relating to or affecting the Company or any
of its subsidiaries occurs as a result of which the Prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Securities Act, the Company will promptly notify the Representatives
thereof and will prepare an amendment or supplement to the Prospectus or make an
appropriate filing pursuant to Section 13 or 14 of the Exchange Act which will
correct such statement or omission; and in case any Underwriter is required to
deliver a prospectus relating to the Stock nine (9) months or more after the
effective date of the Registration Statement, the Company upon the request of
the Representatives and at the expense of such Underwriter will prepare promptly
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Securities Act. The Company
authorizes the Underwriters and all dealers to whom any of the Stock may be sold
by the several Underwriters to use the Prospectus, as from time to time amended
or supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the Rules and Regulations.
(d) The Company will deliver to the Representatives, at or before the
Closing Dates, signed copies of the Registration Statement, as originally filed
with the Commission, and all amendments thereto including all financial
statements and exhibits thereto and all documents theretofore incorporated by
reference therein, and will deliver to the Representatives such number of copies
of the Registration Statement, including such financial statements and all
documents theretofore incorporated by reference therein but without exhibits,
and all amendments thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the Representatives, from
time to time until the effective date of the Registration Statement, as many
copies of the Preeffective Prospectus as the Representatives may reasonably
request. The Company will deliver or mail to or upon the order of the
Representatives on the date of the initial public offering, and thereafter from
time to time during the period when delivery of a prospectus relating to the
Stock is required under the Securities Act, as many copies of the Prospectus, in
final form or as thereafter amended or supplemented as the Representatives may
reasonably request.
(e) The Company will make generally available to its shareholders as
soon as practicable, but not later than fifteen (15) months after the effective
date of the Registration Statement, an earning statement which will be in
reasonable detail (but which need not be audited) and which will comply with
Section 11(a) of the Securities Act, covering a period of at least twelve (12)
months beginning after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.
12.
<PAGE> 13
(f) The Company will cooperate with the Representatives to enable the
Stock to be registered or qualified for offering and sale by the Underwriters
and by dealers under the securities laws of such jurisdictions as the
Representatives may designate and at the request of the Representatives will
make such applications and furnish such consents to service of process or other
documents as may be required of it as the issuer of the Stock for that purpose;
provided, however, that the Company shall not be required to qualify to do
business or to file a general consent (other than that arising out of the
offering or sale of the Stock) to service of process in any such jurisdiction
where it is not now so subject. The Company will, from time to time, prepare and
file such statements and reports as are or may be required of it as the issuer
of the Stock to continue such qualifications in effect for so long a period as
the Representatives may reasonably request for the distribution of the Stock.
The Company will advise the Representatives promptly after the Company becomes
aware of the suspension of the qualifications or registration of (or any such
exception relating to) the Common Stock of the Company for offering, sale or
trading in any jurisdiction or of any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any orders suspending such
qualifications, registration or exception, the Company will, with the
cooperation of the Representatives use its best efforts to obtain the withdrawal
thereof.
(g) The Company will furnish to its shareholders annual reports
containing financial statements certified by independent public accountants and
with quarterly summary financial information in reasonable detail which may be
unaudited. During the period of five (5) years from the date hereof, the Company
will deliver to the Representatives and, upon request, to each of the other
Underwriters, as soon as they are available, copies of each annual report of the
Company and each other report furnished by the Company to its shareholders and
will deliver to the Representatives, (i) as soon as they are available, copies
of any other reports (financial or other) which the Company shall publish or
otherwise make available to any of its shareholders as such, (ii) as soon as
they are available, copies of any reports and financial statements furnished to
or filed with the Commission or any national securities exchange and (iii) from
time to time such other information concerning the Company as the
Representatives reasonably may request. So long as the Company has active
subsidiaries, such financial statements will be on a consolidated basis to the
extent the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its shareholders generally. Separate financial statements
shall be furnished for all subsidiaries whose accounts are not consolidated but
which at the time are significant subsidiaries as defined in the Rules and
Regulations.
(h) The Company will use its best efforts to list the Stock, subject to
official notice of issuance, on the Nasdaq National Market concurrently with the
effectiveness of the Registration Statement.
(i) The Company will maintain a transfer agent and registrar for its
Common Stock.
(j) For a period of five (5) years subsequent to the date hereof, prior
to filing its quarterly statements on Form 10-Q, the Company will have its
independent auditors perform a limited quarterly review of its quarterly
numbers.
(k) The Company will not for a period of 90 days following the
commencement of the public offering of the Stock by the Underwriters, directly
or indirectly, (i) sell, offer, contract to sell, make any short sale, pledge,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or (ii) enter into any swap or other agreement that transfers, in whole or
in part, any of the economic consequences or ownership of Common Stock, whether
any such transaction
<PAGE> 14
described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, other than (I)
the Company's sale of Common Stock hereunder (II) the Company's issuance of
Common Stock upon the exercise of warrants and stock options which are presently
outstanding and described in the Prospectus, (III) the grant of options pursuant
to the terms and conditions of the Company's 1995 Stock Option Plan and
Directors Stock Option Plan, and to the extent such grants are described in the
Prospectus and (IV) the sale and issuance of Common Stock pursuant to the terms
and conditions of the Employee Stock Purchase Plan and the Director Stock
Purchase Plan.
(l) The Company will apply the net proceeds from the sale of the Stock
as set forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of Item 504 of
Regulation S-K.
(m) The Company will supply the Representatives with copies of all
correspondence to and from, and all documents issued to and by, the Commission
in connection with the registration of the Stock under the Securities Act.
(n) Prior to each of the Closing Dates the Company will furnish to the
Representatives, as soon as they have been prepared, copies of any unaudited
interim consolidated financial statements of the Company and its subsidiaries
for any periods subsequent to the periods covered by the financial statements
appearing in the Registration Statement and the Prospectus.
(o) Prior to each of the Closing Dates the Company will issue no press
release or other communications directly or indirectly and hold no press
conference with respect to the Company or any of its subsidiaries, the financial
condition, results of operations, business, prospects, assets or liabilities of
any of them, or the offering of the Stock, without the prior written consent of
the Representatives. For a period of twelve (12) months following the first
Closing Date, the Company will use its best efforts to provide to the
Representatives copies of each press release or other public communications with
respect to the financial condition, results of operations, business, prospects,
assets or liabilities of the Company at least twenty-four (24) hours prior to
the public issuance thereof or such longer advance period as may reasonably be
practicable.
(p) During the period of five (5) years after the date hereof, the
Company will furnish to the Representatives, and upon request of the
Representatives, to each of the Underwriters: (i) as soon as practicable after
the end of each fiscal year, copies of the Annual Report of the Company
containing the balance sheet of the Company as of the close of such fiscal year
and statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, or the NASD
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its Common Stock.
5. Payment of Expenses.
(a) The Company will pay (directly or by reimbursement) all costs, fees
and expenses incurred in connection with expenses incident to the performance of
the obligations of the Company and of the Selling Shareholders under this
Agreement and in connection with the transactions contemplated hereby, including
but not limited to (i) all expenses and taxes incident to the issuance and
delivery of the Stock to the Representatives; (ii) all expenses incident to the
registration of the Stock under the Securities
14.
<PAGE> 15
Act; (iii) the costs of preparing stock certificates (including printing and
engraving costs); (iv) all fees and expenses of the registrar and transfer agent
of the Stock; (v) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Stock to the Underwriters; (vi)
fees and expenses of the Company's counsel and the Company's independent
accountants (but not Underwriters' counsel, except as specified below); (vii)
all costs and expenses incurred in connection with the preparation, printing
filing, shipping and distribution of the Registration Statement, each
Preeffective Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein , the Selling
Shareholders' Powers of Attorney, the Custody Agreement, the "Agreement Among
Underwriters" between the Representatives and the Underwriters, the Master
Selected Dealers' Agreement, the Underwriters' Questionnaire and the Blue Sky
memoranda (including related fees and expenses of counsel to the Underwriters)
and this Agreement; (viii) all filing fees, attorneys' fees and expenses
incurred by the Company or the Underwriters in connection with exemptions from
the qualifying or registering (or obtaining qualification or registration of)
all or any part of the Stock for offer and sale and determination of its
eligibility for investment under the Blue Sky or other securities laws of such
jurisdictions as the Representatives may designate; (ix) all fees and expenses
paid or incurred in connection with filings made with the NASD; and (x) all
other costs and expenses incident to the performance of their obligations
hereunder which are not otherwise specifically provided for in this Section.
(b) The Company on behalf of each Selling Shareholder will pay (directly
or by reimbursement) all fees and expenses incident to the performance of such
Selling Shareholder's obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to any fees and
expenses of counsel for such Selling Shareholder, such Selling Shareholder's pro
rata share of fees and expenses of the Attorneys-in-fact and the Custodian but
excluding all expenses and taxes incident to the sale and delivery of the Stock
to be sold by such Selling Shareholder to the Underwriters hereunder which
expenses and taxes shall be paid by the appropriate Selling Shareholders.
(c) In addition to their other obligations under Section 6(a) hereof,
the Company and each Selling Shareholder (provided that the obligation of each
Selling Shareholder under this Section 5(c) shall in no event exceed the amount
of proceeds received by such Selling Shareholder from the sale of Stock pursuant
to this Agreement) jointly and severally agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon (i) any statement or omission or any
alleged statement or omission, (ii) any act or failure to act or any alleged act
or failure to act or (iii) any breach or inaccuracy in their representations and
warranties, they will reimburse each Underwriter on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's and each Selling Shareholder's obligation to
reimburse each Underwriter for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, each Underwriter shall promptly return it to the
Company and each Selling Shareholder, as the case may be, together with
interest, compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by Bank of America, San Francisco, California (the "Prime
Rate"). Any such interim reimbursement payments which are not made to an
Underwriter in a timely manner as provided below shall bear interest at the
Prime Rate from the due date for such reimbursement. This expense reimbursement
agreement will be in addition to any other liability which the Company or any
Selling Shareholder may otherwise have. The request for reimbursement will be
sent to the Company with a copy to each Selling Shareholder. In the event that
the Company fails to make such reimbursement payment within thirty (30) days of
the reimbursement request, the Representatives shall notify the Selling
Shareholders of their obligation to
15.
<PAGE> 16
make such reimbursement payments within fifteen (15) days; provided, however,
that each Selling Shareholder shall be required to advance at such time only its
pro rata portion of the reimbursement payment. To the extent that any Selling
Shareholder fails to pay its pro rata portion in timely response to the
Underwriters' request, the other Selling Shareholders shall be jointly and
severally liable for such reimbursement payment and each shall render such
payment to the Representatives within fifteen (15) days of written demand
therefor by the Representatives.
(d) In addition to its other obligations under Section 6(b) hereof, each
Underwriter severally agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in Section 6(b) hereof which relates to written information furnished
to the Company by or on behalf of any Underwriter, directly or through the
Representatives specifically for inclusion in the Prospectus, it will reimburse
the Company (and, to the extent applicable, each officer, director, controlling
person or Selling Shareholder) on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling Shareholder)
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, the Company
(and, to the extent applicable, each officer, director, controlling person or
Selling Shareholder) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (c) and/or (d) of
this Section 5, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in paragraph (b) and/or (c) of this Section 5 and would not
resolve the ultimate propriety or enforceability of the obligation to reimburse
expenses which is created by the provisions of Section 6.
6. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls such Underwriter within the meaning of the
Securities Act and the respective officers, directors, partners, employees,
representatives and agents of each of such Underwriter (collectively, the
"Underwriter Indemnified Parties" and, each, an "Underwriter Indemnified
Party"), against any losses, claims, damages, liabilities or expenses (including
the reasonable cost of investigating and defending against any claims therefor
and counsel fees incurred in connection therewith), joint or several, which may
be based upon the Securities Act, or any other statute, at common law or
otherwise, (i) on the ground or alleged ground that any Preeffective Prospectus,
the Registration Statement or the Prospectus (or any Preeffective Prospectus,
the Registration Statement or the Prospectus as from time to time amended or
supplemented) includes or allegedly includes an untrue statement of a material
fact or
16.
<PAGE> 17
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made (with respect to the Preeffective Prospectus and Prospectus
only), not misleading, unless such statement or omission was made directly in
reliance upon, and in conformity with, written information furnished to the
Company by any Underwriter, directly or through the Representatives,
specifically for inclusion therein or (ii) for any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or relating
in any manner to, the Stock or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or
expense arising out of or based upon matters covered by clause (i) above
(provided that the Company shall not be liable under this clause (ii) to the
extent that it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, or liability or expense resulted
directly from any such acts or failures to act undertaken or omitted to be taken
by such Underwriter through its gross negligence or willful misconduct. The
Company will be entitled to participate at its own expense in the defense or, if
it so elects, to assume the defense of any suit brought to enforce any such
liability, but if the Company elects to assume the defense, such defense shall
be conducted by counsel chosen by it; provided, that such counsel shall be
reasonably acceptable to the Underwriters. In the event the Company elects to
assume the defense of any such suit and retain such counsel, any Underwriter
Indemnified Party, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i) the
Company shall have specifically authorized the retaining of such counsel at the
Company's expense (but no more than one counsel for the Underwriters) or (ii)
the parties to such suit include any such Underwriter Indemnified Party and the
Company, and such Underwriter Indemnified Party has been advised by counsel to
the Underwriters that one or more legal defenses may be available to it or them
which may not be available to the Company, in which case the Company shall not
be entitled to assume the defense of such suit notwithstanding its obligation to
bear the fees and expenses of such additional counsel; provided that the Company
need only bear the fees and expenses of one counsel to the Underwriters. This
indemnity agreement is not exclusive and will be in addition to any liability
which the Company might otherwise have and shall not limit any rights or
remedies which may otherwise be available at law or in equity to each
Underwriter Indemnified Party.
(b) Each Selling Shareholder, jointly and severally, agrees to indemnify
and hold harmless each Underwriter Indemnified Party against any losses, claims,
damages, liabilities or expenses (including, unless such Selling Shareholder
elects to assume the defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection therewith),
joint or several, which may be based upon the Securities Act, or any other
statute, at common law or otherwise, on the ground or alleged ground that any
Preeffective Prospectus, the Registration Statement or the Prospectus (or any
Preeffective Prospectus, the Registration Statement or the Prospectus, as from
time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made (with respect to the Preeffective Prospectus and
Prospectus only), not misleading, unless such statement or omission was made
directly in reliance upon, and in conformity with, written information furnished
to the Company by any Underwriter, directly or through the Representatives,
specifically for inclusion therein. Such Selling Shareholder shall be entitled
to participate at his own expense in the defense, or, if he she or it so elects,
to assume the defense of any suit brought to enforce any such liability, but, if
such Selling Shareholder elects to assume the defense, such defense shall be
conducted by counsel chosen by her, him or it; provided, that such counsel shall
be reasonably acceptable to the Underwriter Indemnified Parties. In the event
that any Selling Shareholder elects to assume the defense of any such suit and
retain such counsel, the Underwriter Indemnified Parties, defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) such Selling Shareholder shall have
specifically authorized the retaining of such counsel; provided, however, that
the obligation of each Selling Shareholder under this Section 6(b) shall
17.
<PAGE> 18
in no event exceed the amount of proceeds received by such Selling Shareholder
from the sale of Stock pursuant to this Agreement or (ii) the parties to such
suit include such Underwriter Indemnified Parties and such Selling Shareholder,
and such Underwriter Indemnified Parties have been advised by counsel that one
or more legal defenses may be available to it or them which may not be available
to such Selling Shareholder, in which case such Selling Shareholder shall not be
entitled to assume the defense of such suit notwithstanding its obligation to
bear the fees and expenses of such counsel at the Selling Shareholders' expense
(but no more than one counsel for the Underwriters). This indemnity agreement is
not exclusive and will be in addition to any liability which such Selling
Shareholder might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to each Underwriter
Indemnified Party. The Company and the Selling Shareholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of such liability for which they each
shall be responsible.
(c) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the "Company
Indemnified Parties") and each Selling Shareholder and each person, if any, who
controls a Selling Shareholder within the meaning of the Securities Act
(collectively, the "Shareholder Indemnified Parties"), against any losses,
claims, damages, liabilities or expenses (including, unless the Underwriter or
Underwriters elect to assume the defense, the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which arise out of or are based in
whole or in part upon the Securities Act, or any other statute or regulation, at
common law or otherwise, on the ground or alleged ground that any Preeffective
Prospectus, the Registration Statement or the Prospectus (or any Preeffective
Prospectus, the Registration Statement or the Prospectus, as from time to time
amended and supplemented) includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, but only insofar as any such statement or
omission was made directly in reliance upon, and in conformity with, written
information furnished to the Company by such Underwriter, directly or through
the Representatives, specifically for inclusion therein; provided, however, that
in no case is such Underwriter to be liable with respect to any claims made
against any Company Indemnified Party or Shareholder Indemnified Party against
whom the action is brought unless such Company Indemnified Party or Shareholder
Indemnified Party shall have notified such Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Company
Indemnified Party or Shareholder Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any liability which it may
have to any Company Indemnified Party or Shareholder Indemnified Party otherwise
than on account of its indemnity agreement contained in this paragraph. Such
Underwriter shall be entitled to participate at its own expense in the defense,
or, if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if such Underwriter elects to assume the defense, such
defense shall be conducted by counsel chosen by it. In the event that any
Underwriter elects to assume the defense of any such suit and retain such
counsel, the Company Indemnified Parties or Shareholder Indemnified Parties and
any other Underwriter or Underwriters or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, respectively. The Underwriter against whom
indemnity may be sought shall not be liable to indemnify any person for any
settlement of any such claim effected without such Underwriter's consent. This
indemnity agreement is not exclusive and will be in addition to any liability
which such Underwriter might otherwise have and shall not limit any rights or
remedies which may otherwise be available at law or in equity to any Company
Indemnified Party or Shareholder Indemnified Party.
18.
<PAGE> 19
(d) Neither the Company nor any Selling Shareholder will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification is or may be sought hereunder
(whether or not such Underwriter or any person who controls such Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(e) If the indemnification provided for in this Section 6 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a), (b)
or (c) above in respect of any losses, claims, damages, liabilities or expenses
(or actions in respect thereof) referred to herein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other from the offering of the Stock. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Shareholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, defending, settling or compromising any
such claim. Notwithstanding the provisions of this subsection (e), (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the shares of the Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and (ii)
no Selling Shareholder shall be liable under this Section 6(c) for more than the
proceeds received by such Selling Shareholder from the sale of Stock pursuant to
this Agreement. The Underwriters' obligations to contribute are several in
proportion to their respective underwriting obligations and not joint. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc. The respective
indemnities, covenants, agreements, representations, warranties and other
statements of the Company, the Selling Shareholders and
19.
<PAGE> 20
the several Underwriters, as set forth in this Agreement or made by them
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter, the
Selling Shareholders, the Company or any of its officers or directors or any
controlling person, and shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters' Obligations. The respective obligations of the
several Underwriters hereunder shall be subject to the accuracy, at and (except
as otherwise stated herein) as of the date hereof and at and as of each of the
Closing Dates, of the representations and warranties made herein by the Company
and the Selling Shareholders, to compliance at and as of each of the Closing
Dates by the Company and the Selling Shareholders with their covenants and
agreements herein contained and other provisions hereof to be satisfied at or
prior to each of the Closing Dates, and to the following additional conditions:
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or the Representatives, shall be threatened by the Commission, and
any request for additional information on the part of the Commission (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required pursuant to
Rule 424(b) or Rule 434 of the Rules and Regulations, shall have been made in
the manner and within the time period required by Rule 424(b) and Rule 434 of
the Rules and Regulations, as the case may be.
(b) The Representatives shall have been satisfied, in their sole
discretion, that there shall not have occurred any change ,on a consolidated
basis, prior to each of the Closing Dates in the condition (financial or
otherwise), properties, business, management, prospects, net worth or results of
operations of the Company and its subsidiaries considered as a whole, or any
change in the capital stock, short-term or long-term debt of the Company and its
subsidiaries considered as a whole, such that (i) the Registration Statement or
the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the opinion of the Representatives, is material, or
omits to state a fact which, in the opinion of the Representatives, is required
to be stated therein or is necessary to make the statements therein not
misleading, or (ii) it is unpracticable in the reasonable judgment of the
Representatives to proceed with the public offering or purchase the Stock as
contemplated hereby.
(c) The Representatives shall be satisfied, in their sole discretion,
that no legal or governmental action, suit or proceeding affecting the Company
which is material and adverse to the Company or which affects or may affect the
Company's or the Selling Stockholders' ability to perform their respective
obligations under this Agreement shall have been instituted or threatened and
there shall have occurred no Material Adverse Change in any existing such
action, suit or proceeding.
(d) At the time of execution of this Agreement, the Representatives
shall have received from Ernst & Young LLP, independent certified public
accountants, a letter, dated the date hereof, in form and substance satisfactory
to the Underwriters.
(e) The Representatives shall have received from Ernst & Young LLP,
independent certified public accountants, letters, dated each of the Closing
Dates, to the effect that such accountants reaffirm, as of each of the Closing
Dates, and as though made on each of the Closing Dates, the statements made in
the letter furnished by such accountants pursuant to paragraph (d) of this
Section 8.
20.
<PAGE> 21
(f) The Representatives shall have received from Riordan & McKinzie,
counsel for the Company, opinions, dated each of the Closing Dates, to the
effect set forth in Exhibit I hereto.
(g) The Representatives shall have received from __________, patent
counsel for the Company, opinions, dated each of the Closing Dates, to the
effect set forth in Exhibit II hereto.
(h) The Representatives shall have received from __________, counsel for
the Selling Shareholders, opinions dated each of the Closing Dates to the effect
set forth in Exhibit III hereto.
(i) The Representatives shall have received from Brobeck, Phleger &
Harrison LLP, counsel for the Underwriters, their opinions dated each of the
Closing Dates with respect to the incorporation of the Company, the validity of
the Stock, the Registration Statement and the Prospectus and such other related
matters as it may reasonably request, and the Company and the Selling
Shareholders shall have furnished to such counsel such documents as they may
request for the purpose of enabling them to pass upon such matters.
(j) The Representatives shall have received certificates, dated each of
the Closing Dates, of the chief executive officer or the President and the chief
financial or accounting officer of the Company to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best
of the knowledge of the signers, no proceedings for that
purpose have been instituted or are pending or
contemplated under the Securities Act;
(ii) Neither any Preeffective Prospectus, as of its date, nor
the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, as of the time when the
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such
certificate, included any untrue statement of a material
fact or omitted to state any material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they
were made (with respect to the Preeffective Prospectus
and Prospectus only), not misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and
the Prospectus, and except as set forth or contemplated
in the Prospectus, neither the Company nor any of its
subsidiaries has incurred any material liabilities or
obligations, direct or contingent, nor entered into any
material transactions in either case not in the ordinary
course of business and there has not been any Material
Adverse Change, or any change in the capital stock
(except as a result of the exercise of options granted
pursuant to the terms and conditions of plans as
described in the Registration Statement), short-term or
long-term debt of the Company (except for borrowings or
payments under the Company's revolving credit agreements
as described in the Prospectus) and its subsidiaries
considered as a whole;
21.
<PAGE> 22
(iv) The representations and warranties of the Company in
this Agreement are true and correct in all material
respects at and as of each of the Closing Dates, and the
Company has complied in all material respects with all
the agreements and performed or satisfied all the
conditions on its part to be performed or satisfied at
or prior to the Closing Dates; and
(v) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus,
and except as disclosed in or contemplated by the
Prospectus, (a) the business and operations conducted by
the Company and its subsidiaries have not sustained a
loss by strike, fire, flood, accident or other calamity
(whether or not insured) of such a character as to
interfere materially with the conduct of the business
and operations of the Company and its subsidiaries
considered as a whole; (b) no legal or governmental
action, suit or proceeding is pending or threatened
against the Company which is material to the Company,
whether or not arising from transactions in the ordinary
course of business, or which may materially and
adversely affect the transactions contemplated by this
Agreement; (c) since such dates and except as so
disclosed, the Company has not repurchased or otherwise
acquired any of the Company's capital stock; and (d) the
Company has not declared or paid any dividend, or made
any other distribution, upon its outstanding capital
stock payable to stockholders of record on a date prior
to the Closing Date.
(k) The Representatives shall have received a certificate or
certificates, dated each of the Closing Dates, of each of the Selling
Shareholders (or their Attorney-in-fact) to the effect that as of each of the
Closing Dates their representations and warranties in this Agreement are true
and correct as if made on and as of each of the Closing Dates, and that they
have performed in all material respects all of their obligations and satisfied
all the conditions on their part to be performed or satisfied at or prior to the
Closing Dates.
(l) The Company and each of the Selling Shareholders shall have
furnished to the Representatives such additional certificates as the
Representatives may have reasonably requested as to the accuracy, at and as of
each of the Closing Dates, of the representations and warranties made herein by
them and as to compliance at and as of each of the Closing Dates by them with
their covenants and agreements herein contained and other provisions hereof to
be satisfied at or prior to each of the Closing Dates, and as to satisfaction of
the other conditions to the obligations of the Underwriters hereunder.
(m) Cowen shall have received the written agreements, substantially in
the form of Exhibit IV hereto, of the Company, officers, directors and holders
of Common Stock listed in Schedule C.
The Nasdaq National Market shall have approved the stock for listing,
subject only to official notice of issuance.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram
22.
<PAGE> 23
at or prior to each of the Closing Dates, but Cowen, on behalf of the
Representatives, shall be entitled to waive any of such conditions.
9. Effective Date. This Agreement shall become effective immediately as to
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by the
Representatives of telegrams (i) advising Underwriters that the shares of Stock
are released for public offering or (ii) offering the Stock for sale to
securities dealers, whichever may occur first.
10. Termination. This Agreement (except for the provisions of Section 5) may be
terminated by the Company at any time before it becomes effective in accordance
with Section 9 by notice to the Representatives and may be terminated by the
Representatives at any time before it becomes effective in accordance with
Section 9 by notice to the Company. In the event of any termination of this
Agreement under this or any other provision of this Agreement, there shall be no
liability of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to
the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First Closing
Date trading in securities on any of the New York Stock Exchange, American Stock
Exchange, Nasdaq National Market, Chicago Board of Options Exchange, Chicago
Mercantile Exchange or Chicago Board of Trade shall have been suspended or
minimum or maximum prices shall have been established on any such exchange or
market, or a banking moratorium shall have been declared by New York or United
States authorities; (ii) trading of any securities of the Company shall have
been suspended on any exchange or in any over-the-counter market; (iii) if at or
prior to the First Closing Date there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign power or of
any other insurrection or armed conflict involving the United States or (B) any
change in financial markets or any calamity or crisis which, in the sole
judgment of the Representatives, makes it impractical or inadvisable to offer or
sell the Stock on the terms contemplated by the Prospectus; (iv) if there shall
have been any development or prospective development involving particularly the
business or properties or securities of the Company or any of its subsidiaries
or the transactions contemplated by this Agreement, which, in the judgment of
the Representatives, makes it impracticable or inadvisable to offer or deliver
the Stock on the terms contemplated by the Prospectus; (v) if there shall be any
litigation or proceeding, pending or threatened, which, in the sole judgment of
the Representatives, makes it impracticable or inadvisable to offer or deliver
the Stock on the terms contemplated by the Prospectus; or (vi) if there shall
have occurred any of the events specified in the immediately preceding clauses
(i) - (v) together with any other such event that makes it, in the judgment of
the Representatives, impractical or inadvisable to offer or deliver the Stock on
the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other provisions hereof,
if this Agreement shall not become effective by reason of any election of the
Company or the Selling Shareholders pursuant to the first paragraph of Section
10 or shall be terminated by the Representatives under Section 8 or Section 10,
the Company will bear and pay the expenses specified in Section 5 hereof (as
well as the fees and expenses of counsel to the Underwriters) and, in addition
to their obligations pursuant to Section 6 hereof, the Company will reimburse
the reasonable out-of-pocket expenses of the several Underwriters
23.
<PAGE> 24
(including reasonable fees and disbursements of counsel for the Underwriters)
incurred in connection with this Agreement and the proposed purchase of the
Stock, and promptly upon demand the Company will pay such amounts to the
Representatives.
12. Substitution of Underwriters. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder and
the aggregate number of shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed ten percent (10%) of the total
number of shares underwritten, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the shares which such defaulting Underwriter or Underwriters agreed but failed
to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight (48)
hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company and
the Selling Shareholders shall have the right to postpone the Closing Dates for
a period of not more than five (5) full business days in order that the Company
and the Selling Shareholders may effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter of
its liability to the Company, the Selling Shareholders or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter, the Selling Shareholders or the Company, except
for expenses to be paid or reimbursed pursuant to Section 5 and except for the
provisions of Section 6.
13. Notices. All communications hereunder shall be in writing and, if sent to
the Underwriters shall be mailed, delivered or telegraphed and confirmed to the
Representatives c/o Cowen & Company at Financial Square, New York, New York
10005 except that notices given to an Underwriter pursuant to Section 6 hereof
shall be sent to such Underwriter at the address furnished by the
Representatives or, if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed c/o Donald M. Roberts, General Counsel, Maxwell
Technologies, Inc. 9275 Sky Park Court, San Diego, California 92123.
14. Successors. This Agreement shall inure to the benefit of and be binding upon
the several Underwriters, the Company and the Selling Shareholders and their
respective successors and legal representatives. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person other
than the persons mentioned in the preceding sentence any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties,
covenants, agreements and indemnities of the Company and the Selling
Shareholders contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the indemnities of the several Underwriters shall also be for the
benefit of each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any,
24.
<PAGE> 25
who control the Company or any Selling Shareholders within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
16. Authority of the Representatives. In connection with this Agreement, the
Representatives will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Cowen, as Representative, will be binding
on all the Underwriters; and any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Shareholders.
17. Partial Unenforceability. The invalidity or unenforceability of any Section,
paragraph or provision of this Agreement shall not affect the validity or
enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
18. General. This Agreement constitutes the entire agreement of the parties to
this Agreement and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings and negotiations with respect to the subject
matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, any one of the Attorneys-in-fact on
behalf of the Selling Shareholders and the Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. Any person executing and
delivering this Agreement as Attorney-in-fact for the Selling Shareholders
represents by so doing that he or she has been duly appointed as
Attorney-in-fact by such Selling Shareholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-fact to take such
action.
25.
<PAGE> 26
If the foregoing correctly sets forth the understanding, of the parties,
please indicate the acceptance by the Representatives in the space provided
below for that purpose, whereupon this letter and the acceptance by the
Representatives shall constitute a binding agreement between the parties.
Very truly yours,
MAXWELL TECHNOLOGIES, INC.
By:____________________________
Kenneth F. Potashner
President and Chief Executive Officer
SELLING SHAREHOLDERS LISTED
IN SCHEDULE B
By: Attorney-in-fact
By:______________________________
Kenneth F. Potashner Acting on
his own behalf and on behalf of
the Selling Shareholders listed
in Schedule B.
Accepted and delivered in
Los Angeles, California as of
the date first above
written.
COWEN & COMPANY
HAMBRECHT & QUIST L.L.C.
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: COWEN & COMPANY
By: Cowen Incorporated,
its general partner
By:______________________________
John P. Dunphy
Managing Director - Syndicate
26.
<PAGE> 27
SCHEDULE A
(Shares to be Purchased)
<TABLE>
<CAPTION>
Number Number of
of Firm Optional
Shares Shares
to be to be
Name Purchased Purchased
- ---- --------- ---------
<S> <C> <C>
Cowen & Company .....................
Hambrecht & Quist L.L.C. ............
--------- ---------
Total................................
========= =========
</TABLE>
<PAGE> 28
SCHEDULE B
(Shares to be Sold)
<TABLE>
<CAPTION>
Number of Number of
Firm Optional
Shares to Shares to
be Sold be Sold
--------- ---------
<S> <C> <C>
Maxwell Technologies, Inc.
Selling Shareholders
--------- ---------
Total
========= =========
</TABLE>
<PAGE> 29
SCHEDULE C
(Parties subject to Lock-up Agreements)
<PAGE> 30
SCHEDULE A
[Underwriters]
<PAGE> 1
EXHIBIT 5.1
[RIORDAN & McKENZIE LETTERHEAD]
September 29, 1997
Maxwell Technologies, Inc.
9275 Sky Park Court
San Diego, CA 92123
Ladies and Gentlemen:
We have acted as counsel to Maxwell Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "1933 Act"), of the sale in an
underwritten public offering of up to 1,736,250 authorized but unissued shares
of the Common Stock, $.10 par value (the "Common Stock"), of the Company (the
"Company Shares") (including an over-allotment option to purchase an aggregate
of up to 236,250 additional shares granted to the Underwriters) and up to 75,000
shares of Common Stock issued to certain selling stockholders (the "Outstanding
Shares"). This opinion is delivered to you in connection with the Registration
Statement on Form S-3, (the "Registration Statement"), for the aforementioned
sale, to be filed with the Securities and Exchange Commission (the "Commission")
under the 1933 Act.
In rendering the opinion set forth herein, we have made such investigations
of fact and law, and examined such documents and instruments, or copies thereof
established to our satisfaction to be true and correct copies thereof, as we
have deemed necessary under the circumstances.
Based upon the foregoing and such other examination of law and fact as we
have deemed necessary, and in reliance thereof, we are of the opinion that (i)
the Company Shares have been duly authorized and will, upon sale and delivery
thereof and receipt by the Company of full payment therefor as set forth in the
Registration Statement, be validly issued, fully paid and nonassessable, and
(ii) the Outstanding Shares are duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ RIORDAN & McKENZIE
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
September 12, 1997, in the Registration Statement (Form S-3) and related
Prospectus of Maxwell Technologies, Inc. for the registration of 1,811,250
shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS, CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-3.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 826,000
<SECURITIES> 0
<RECEIVABLES> 9,391,000
<ALLOWANCES> 350,000
<INVENTORY> 8,722,000
<CURRENT-ASSETS> 29,524,000
<PP&E> 49,042,000
<DEPRECIATION> 32,113,000
<TOTAL-ASSETS> 47,120,000
<CURRENT-LIABILITIES> 18,616,000
<BONDS> 0
0
0
<COMMON> 614,000
<OTHER-SE> 26,796,000
<TOTAL-LIABILITY-AND-EQUITY> 47,120,000
<SALES> 101,411,000
<TOTAL-REVENUES> 101,411,000
<CGS> 70,107,000
<TOTAL-COSTS> 70,107,000
<OTHER-EXPENSES> 27,203,000
<LOSS-PROVISION> 184,000
<INTEREST-EXPENSE> 173,000
<INCOME-PRETAX> 4,078,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,078,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,024,000
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
