<PAGE> 1
As filed with the Securities and Exchange Commission on November 30, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MAXWELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3679 95-2390133
(State or other (Primary Standard (IRS Employer
jurisdiction of incorporation Industrial Classification Identification No.)
or organization) Code Number)
9275 SKY PARK COURT
SAN DIEGO, CALIFORNIA 92123
(619) 279-5100
(Address, including zip code, and telephone number, including
area code, of registrants' 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:
ROGER H. LUSTBERG, ESQ.
THOMAS A. WALDMAN, ESQ.
RIORDAN & MCKINZIE
300 SOUTH GRAND AVENUE
29TH FLOOR
LOS ANGELES, CALIFORNIA 90071
(213) 629-4824
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Merger described herein and after the effective date of the
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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 the form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ] _____
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock....... 893,617 N/A $21,000,000 $1,145
================================================================================
</TABLE>
(1) Provided for information purposes. Represents an agreement as to the value
of the Shares to be issued.
(2) Computed in accordance with the Rule 457(f)(2), solely for the purpose of
calculating the registration fee, based upon the book value of the SEi
Shares ($4,119,000) (as defined herein) at September 30, 1998, the latest
practicable date prior to filing of this Registration Statement.
----------------------
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.
================================================================================
<PAGE> 2
[SEi LOGO]
SPACE ELECTRONICS INCORPORATED
Fellow Stockholders:
I am pleased to invite you to attend a special meeting of stockholders
of Space Electronics Incorporated on:
Thursday, December 31, 1998
10:00 a.m.
4031 Sorrento Valley Boulevard
San Diego, California
THIS IS A VERY IMPORTANT MEETING THAT AFFECTS YOUR INVESTMENT IN SEi.
At this meeting you will be asked to vote on a Merger between SEi and a
wholly-owned subsidiary of Maxwell Technologies, Inc. In the Merger, SEi
stockholders will receive 0.42258 of a share of Maxwell common stock for each
share of SEi stock they own, SEi stock option holders will have the right to
exchange their options for Maxwell common stock, at an exchange ratio based on
the exercise price of the options, and SEi will become a wholly-owned subsidiary
of Maxwell. The exchange ratios for SEi common stock and option holders assumes
that Maxwell common stock will have an average price on Nasdaq over the 20
trading days preceding the date of the Merger between $22.50 and $29.00. The
exchange ratio would change if that were not the case. The exchange of SEi stock
for Maxwell stock (other than for cash paid in lieu of fractional shares) will
be tax-free to SEi stockholders for federal income tax purposes.
Your Board of Directors unanimously recommends that you vote FOR
approval of the Merger, which we believe is in SEi's and your best interests.
Certain stockholders of SEi, who collectively own approximately 78% of the
outstanding shares of common stock of SEi, have agreed to vote in favor of the
Merger. However, Maxwell has the right not to complete the Merger, unless 90% of
the shares voted, in person or by proxy at the meeting, are voted in favor of
the Merger.
We have enclosed a notice of the special meeting and a Proxy
Statement/Prospectus describing the Merger in more detail. We encourage you to
read this document carefully. Also enclosed is a proxy card so you can vote on
the Merger without attending the meeting. Please complete, sign and date the
enclosed proxy card and return it to us as soon as possible in the envelope we
have provided. If you decide to come to the special meeting, you may vote your
shares in person whether or not you have mailed us a proxy.
After the Merger is completed, we will notify you as to how you should
proceed to exchange your SEi certificates for Maxwell certificates. DO NOT SEND
IN YOUR CERTIFICATES UNTIL YOU RECEIVE THIS NOTIFICATION.
Very truly yours,
/s/ ROBERT M. CZAJKOWSKI
-----------------------------------------
Robert M. Czajkowski
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
December __, 1998
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
FOR
PROPOSED MERGER OF
[SEi LOGO]
SPACE ELECTRONICS INCORPORATED
WITH
A SUBSIDIARY OF
[MAXWELL LOGO]
MAXWELL TECHNOLOGIES, INC.
TO BE HELD ON:
Thursday, December 31, 1998
10:00 a.m.
4031 Sorrento Valley Boulevard
San Diego, California
The Board of Directors of Space Electronics Incorporated asks you to
attend this meeting to vote on the following:
1. Proposed Merger. Your vote approving the agreement to merge
SEi with a subsidiary of Maxwell Technologies, Inc. is important. In the
Merger, you will receive 0.42258 of a share of Maxwell common stock for
each share of SEi common stock that you own, and SEi optionholders will
have the right to exchange their options for Maxwell common stock at an
exchange ratio based on the exercise price of the options. The exchange
ratio would change if the average price of Maxwell common stock on
Nasdaq, over a 20 trading period before the Merger, was more than $29.00
or less than $22.50. After the Merger, SEi will be a wholly-owned
subsidiary of Maxwell. The Merger Agreement setting forth the terms of
the Merger is attached to the accompanying Proxy Statement/Prospectus as
Annex A; and
2. Other Business. To consider and vote on any other matters
that properly come before the meeting or any adjournments or
postponements.
Only stockholders who hold their stock at the close of business on
November 25, 1998 are entitled to notice of and to vote at the special meeting
or any adjournments or postponements thereof.
By Order of the Board of Directors,
/s/ ROBERT M. CZAJKOWSKI
-----------------------------------------
Robert M. Czajkowski
Chief Executive Officer
December __, 1998
San Diego, California
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE MERGER.
WE INVITE YOU TO ATTEND THE SPECIAL MEETING BECAUSE IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE
<PAGE> 4
ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY
PERSONALLY VOTE, WHICH WILL REVOKE YOUR SIGNED PROXY. YOU MAY ALSO REVOKE YOUR
PROXY AT ANY TIME BEFORE THE MEETING EITHER IN WRITING OR BY PERSONAL
NOTIFICATION.
<PAGE> 5
PROXY STATEMENT
of
[SEi LOGO]
SPACE ELECTRONICS INCORPORATED
for the Special Meeting of Stockholders
to be held on December 31, 1998
----------------------
PROSPECTUS
of
[MAXWELL LOGO]
MAXWELL TECHNOLOGIES, INC.
Common Stock, par value $.10 per share
----------------------
The Boards of Directors of Maxwell Technologies, Inc. and Space
Electronics Incorporated have agreed to merge SEi with a subsidiary of Maxwell.
SEi would become a wholly-owned subsidiary of Maxwell and SEi stockholders will
have the right to receive 0.42258 of a share of Maxwell common stock for each
share of SEi common stock that they own. SEi optionholders will have the right
to exchange their options for Maxwell common stock at an exchange ratio based on
the exercise price of the options. The exchange ratio would change if the
average price of Maxwell common stock on Nasdaq over a 20 trading period before
the Merger was more than $29.00 or less than $22.50.
Approximately 10% of the shares of Maxwell common stock which each SEi
stockholder or optionholder will be entitled to receive will be held in escrow.
These shares will be released from escrow 12 months after the consummation of
the Merger, unless Maxwell is entitled to indemnification under the Merger
Agreement.
The Merger cannot be completed unless SEi stockholders approve it. The
SEi Board of Directors has scheduled a special meeting for SEi stockholders to
vote on the Merger as follows:
Thursday, December 31, 1998
10:00 a.m.
4031 Sorrento Valley Boulevard
San Diego, California
This document gives you detailed information about the proposed Merger.
Maxwell has provided the information concerning Maxwell, and SEi has provided
the information concerning SEi. Please see "Where you Can Find More Information"
on page 78 for additional information about Maxwell on file with the Securities
and Exchange Commission.
Upon consummation of the Merger, shares of SEi common stock and SEi
options will be exchanged for shares of Maxwell Technologies, Inc.'s common
stock. Maxwell is a public company whose shares are traded on the Nasdaq
National Market under the ticker symbol "MXWL." Owning Maxwell common stock has
certain risks. See "Risk Factors" beginning on page 12 for a discussion of
certain of those risks.
This Proxy Statement/Prospectus and proxy card are being mailed to
stockholders of SEi beginning about December __, 1998.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE MAXWELL COMMON STOCK TO BE ISSUED
UNDER THIS PROXY STATEMENT/ PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/
PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MAXWELL/SEi Merger.......................... 1
SUMMARY..................................................................... 3
The Companies.............................................................. 3
Reason for the Merger...................................................... 3
Recommendation to SEi Stockholders ........................................ 4
What SEi Stockholders Will Receive......................................... 4
What SEi Optionholders Will Receive........................................ 4
Possible Adjustment to Exchange Ratio...................................... 4
Escrow/Stockholder Representatives......................................... 5
Resales of Maxwell common stock by SEi Stockholders........................ 5
What Will Happen to SEi.................................................... 5
Conditions of the Merger................................................... 5
Termination of the Merger.................................................. 5
Vote Required.............................................................. 6
Other Interests of Officers and Directors in the Merger.................... 6
Important Federal Income Tax Consequences.................................. 6
Regulatory Approval........................................................ 6
Accounting Treatment....................................................... 6
What if I am Not in Favor of the Merger.................................... 7
Comparative Per Share Market Price Information............................. 7
Selected Consolidated Financial Data of Maxwell Technologies, Inc.......... 8
Selected Financial Data of Space Electronics Incorporated..................10
Summary Selected Unaudited Pro Forma Combined Financial Data...............11
Comparative Per Share Information..........................................12
Comparative Market Prices..................................................12
RISK FACTORS................................................................13
Statement Regarding Forward-Looking Statements.............................13
Risk Factors Relating to the Merger........................................13
Risk Factors Relating to Maxwell...........................................15
THE SPECIAL MEETING OF SEi STOCKHOLDERS.....................................29
Purpose; Time and Place....................................................29
Voting Rights; Votes Required for Approval.................................29
Share Ownership of Management..............................................29
Proxies....................................................................30
THE MERGER..................................................................31
Background of the Merger...................................................31
Maxwell's Reasons for the Merger...........................................32
SEi's Reasons for the Merger;
Recommendation of the SEi Board of Directors.............................33
Interests of Certain Persons in the Merger.................................35
TERMS OF THE MERGER AGREEMENT...............................................36
The Merger.................................................................36
Merger Consideration.......................................................37
Exchange of SEi Common Shares..............................................37
Exchange of SEi Options....................................................37
Exchange of Stock Certificates and Stock Option Agreements.................37
Adjustment to Exchange Ratio...............................................37
Stochholder Indemnification; Escrow Agreement..............................38
Representations and Warranties.............................................39
Certain Covenants..........................................................42
Conditions to the Merger...................................................43
Termination; Expenses; Amendments..........................................44
Voting Agreements..........................................................45
Certain Federal Income Tax Consequences....................................45
Accounting Treatment of the Merger.........................................47
Regulatory Approval........................................................47
Stock Exchange Listing.....................................................47
RIGHTS OF DISSENTING STOCKHOLDERS...........................................47
Dissenters' Rights Under Delaware Law......................................47
Dissenters' Rights Under California Law....................................50
OPERATIONS AND MANAGEMENT OF THE COMBINED COMPANIES AFTER THE MERGER........52
Operations.................................................................52
Management.................................................................52
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION..........................53
BUSINESS OF SEi.............................................................56
General....................................................................56
Industry Overview..........................................................57
SEi Business Strategy......................................................59
Products and Services......................................................60
Sales and Marketing........................................................62
Customers..................................................................62
Manufacturing and Suppliers................................................63
Patents, Trademarks and Servicemarks.......................................63
Competition................................................................63
Employees..................................................................64
Facilities.................................................................64
Regulatory, Environmental and Legal........................................65
DIVIDEND POLICY OF SEi......................................................65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF SEi..........................................66
Overview...................................................................66
RESULTS OF OPERATIONS.......................................................66
Nine Month Ended September 30, 1998 as Compared to Nine Months Ended
September 30, 1997.......................................................66
Fiscal Year Ended December 31, 1997 as Compared to Fiscal Year Ended
December 31, 1996........................................................67
Fiscal Year Ended December 31, 1996 as Compared to Fiscal Year Ended
December 31, 1995........................................................68
Operations.................................................................68
Liquidity and Capital Resources............................................68
Year 2000 Compliance.......................................................69
Impact of Inflation........................................................69
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SEi.......70
COMPARISON OF RIGHTS OF SEi AND MAXWELL STOCKHOLDERS........................71
</TABLE>
<PAGE> 7
<TABLE>
Page
----
<S> <C>
Classes and Series of Capital Stock........................................ 71
Preferred Stock............................................................ 71
Size and Election of the Board of Directors................................ 71
Removal of Directors....................................................... 72
Other Voting Rights........................................................ 72
Special Meetings of Stockholders; Written Consents......................... 72
Amendment of Repeal of the Certificate of Incorporation
and By-Laws................................................................ 73
Liability of Officers, Directors, Employees and Agents;
Indemnification............................................................ 73
Restrictions on Common Stock................................................ 74
Maxwell Common Stock........................................................ 74
Stockholder Rights Plan..................................................... 75
Additional Anti-Takeover Provisions......................................... 75
Delaware Law................................................................ 76
RESALE OF MAXWELL COMMON STOCK BY STOCKHOLDERS.............................. 76
LEGAL MATTERS............................................................... 77
EXPERTS..................................................................... 77
WHERE YOU CAN FIND MORE INFORMATION......................................... 78
INDEX TO FINANCIAL STATEMENTS............................................... F-1
ANNEXES:
ANNEX A: Agreement and Plan of
Reorganization, dated November 25, 1998
ANNEX B: Appraisal Rights--Section 262 of the DGCL
ANNEX C: Appraisal Rights--Sections 1300-1312 of the California
Corporations Code
</TABLE>
<PAGE> 8
QUESTIONS AND ANSWERS
ABOUT THE MAXWELL/SEi MERGER
Q: WHO IS MAXWELL?
A: Maxwell Technologies, Inc. is a public company that provides pulsed
power-based systems for a wide range of applications and research and
development for both private-sector customers and the U.S. government.
Maxwell's sales were approximately $125.3 million in 1998. Maxwell's core
technology, pulsed power, delivers very high power pulses of electricity or
light in very short bursts. This technology has applications in utilities,
telecommunications, medical equipment and products, food processing and
transportation. Maxwell is also a provider of industrial computers and
subsystems and software products and services.
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: SEi is entering into the merger in order to obtain the best value possible
for its stockholders and to gain access to financial and other resources to
continue its growth. Maxwell is an attractive partner because it intends to
run SEi as an independent business and provide incentives to SEi employees
tied to the performance of that business. Maxwell views combining with SEi as
beneficial because SEi's growing commercial business complements Maxwell's
strategy for growth. To review the reasons for the Merger in greater detail
and related uncertainties, see pages 32 through 34.
Q: HOW WILL I BENEFIT?
A: We believe that stockholders of SEi will benefit by being owners of a
combined company that is better able to compete effectively in its industry
than SEi is on its own. In addition, SEi stockholders will become holders of
shares of Maxwell common stock which are publicly traded on the Nasdaq
National Market (ticker symbol "MXWL").
Q: WHAT DO I NEED TO DO NOW?
A: After satisfying yourself as to the benefits of exchanging your SEi common
stock for Maxwell common stock, just sign your proxy card and mail it to us
in the enclosed return envelope as soon as possible so that your shares may
be represented at the SEi special meeting. The SEi special meeting will take
place on December 31, 1998. The Board of Directors of SEi unanimously
recommends voting in favor of the proposed Merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. We will send SEi stockholders written instructions for exchanging their
stock certificates.
Q: WHAT IS THE EXCHANGE RATIO FOR THE SEi COMMON STOCK?
A: You will receive 0.42258 shares of Maxwell common stock in exchange for each
share of SEi common stock that you own. The SEi common stock exchange ratio
is the product of negotiation and is at a level that each company believes is
fair to its stockholders. However, the exchange ratio is subject to change.
It would change if the average closing price of Maxwell common stock on
Nasdaq over the trading days prior to the Merger exceeded $29.00 or was less
than $22.50. It would be adjusted upward or downward to reflect the
difference between the actual average price and the $29.00 or $22.50 price,
as applicable.
Assuming the 20-day average closing price of Maxwell common stock on Nasdaq
prior to the Merger is between $22.50 and $29.00, 893,617 Maxwell common
shares will be issued to the SEi stockholders. Over the last few weeks,
Maxwell common stock has been trading in the $25-$27 range on Nasdaq. Of
course, the stock prices of publicly-traded companies can fluctuate
dramatically. We cannot guarantee to you that you will be able to sell the
Maxwell common stock you receive in the Merger at $25 or any other price.
Q: WHAT IS THE EXCHANGE RATIO FOR SEi STOCK OPTIONS?
A: SEi optionholders will receive Maxwell common stock in exchange for their
options at an exchange ratio based on the exercise price of the specific
options as follows:
<TABLE>
<CAPTION>
Option Exercise
Price Per SEi
Common Share Exchange Ratio
--------------- ----------------
<S> <C>
$0.51 0.40113
1.41 0.36262
3.62 0.26853
5.55 0.18641
6.37 0.15151
</TABLE>
1
<PAGE> 9
Q: WHAT ABOUT FUTURE DIVIDENDS?
A: Historically, neither Maxwell nor SEi (since converting to a subchapter C
corporation) has paid cash dividends. Maxwell and SEi have had, and Maxwell
will continue to have, a substantial commitment to expanding their
businesses, and that expansion has required the cash that otherwise might be
available for dividends.
Q: WHEN DO MAXWELL AND SEi EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the Merger as quickly as possible. It may
be completed as early as the day of the SEi stockholders meeting.
Q: WHAT ARE THE TAX CONSEQUENCES TO SEi STOCKHOLDERS?
A: The exchange of your SEi shares for shares of Maxwell common stock will
generally be tax-free to SEi stockholders for federal income tax purposes.
Optionholders are treated differently than stockholders. To review in greater
detail the effect that federal taxes will have on you, see pages 45
through 47.
2
<PAGE> 10
SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
Merger fully and for a more complete description of the legal terms of the
Merger, you should read carefully this entire document and the documents we have
referred you to (See "Where You Can Find More Information" on page 78). This
summary and Proxy statement/prospectus contain forward looking statements. All
forward looking statements are based on certain assumptions and involve certain
risks and uncertainties. Actual results may vary significantly from those
discussed herein. For a more complete discussion of certain risk factors, see
"Risk Factors" on page 12.
THE COMPANIES
MT Acquisition Corporation, a wholly-owned subsidiary of
MAXWELL TECHNOLOGIES, INC.
9275 Sky Park Court
San Diego, California 92123
(619) 279-5100
Maxwell provides pulsed power-based systems and components for a wide
range of applications and research and development for both private-sector
customers and the U.S. government. Maxwell's advanced technology solutions
address diverse markets such as utilities, telecommunications, medical equipment
and products, food processing and packaging, and transportation. Maxwell also
offers industrial computers and subsystems, primarily to original equipment
manufacturers in computer telephony and other markets, and software products
and services, both for government research and for various commercial
applications. Maxwell's common stock is traded on the Nasdaq National Market
under ticker symbol "MXWL."
SPACE ELECTRONICS INCORPORATED
4025 Sorrento Valley Boulevard
San Diego, California 92121
(619) 452-4167
SEi designs, manufactures and provides electronic components and related
services for space and other high-reliability applications. SEi provides
low-cost, space-ready and high-reliability "commercial-off-the-shelf" components
and assemblies. SEi's core products consist primarily of integrated circuits and
boards designed and adapted for space flight and/or high-reliability
applications as well as real-time graphics accelerators for embedded computer
systems. SEi also provides a wide variety of microelectronic device testing and
assembly services.
REASONS FOR THE MERGER
The SEi Board of Directors has determined that the terms of the Merger
and the Merger Agreement are fair to and in the best interests of SEi and its
stockholders. In reaching its decision, the SEi Board of Directors considered
the following factors, among other things:
- - the Merger enhances and maximizes the value of SEi common stock while
initially maintaining continuity of SEi's management and strategic direction
and providing liquidity to SEi stockholders;
- - the combination of Maxwell and SEi will create more growth opportunities for
SEi and allow greater access to capital resources, enabling SEi to execute
key business strategies and compete more effectively; and
- - the Maxwell stock that SEi stockholders would receive represents a more
diversified investment than their SEi stock and would be acquired tax-free.
Also, unlike SEi stock, Maxwell stock is traded on the Nasdaq National
Market, permitting SEi stockholders to obtain liquidity for their
investments.
3
<PAGE> 11
RECOMMENDATION TO SEi STOCKHOLDERS
The SEi Board believes that the Merger is in the best interest of SEi
and its stockholders and unanimously recommends that you vote FOR the Merger.
THE MERGER
The Merger Agreement is attached as Annex A to this Proxy Statement/
Prospectus. We encourage you to read the entire Merger Agreement as it is the
legal document that governs the Merger.
WHAT SEi STOCKHOLDERS WILL RECEIVE
As a result of the Merger, you will be entitled to receive 0.42258 of a
share of Maxwell common stock for each share of SEi common stock that you own,
unless the ratio is adjusted as described below. SEi stockholders will not
receive fractional shares. Instead, they will receive a check in payment for any
fractional shares based on the value of Maxwell common stock.
For example, if you own 100 shares of SEi common stock, this will
translate into 42 shares of Maxwell common stock when multiplied by the 0.42258
exchange ratio. You would receive 42 shares of Maxwell common stock and a check
in the amount equal to the market value of any fractional share of Maxwell
common stock that you would otherwise have received. At the assumed price of
$23.50 per share of Maxwell common stock this check would be in the amount of
$6.06.
Do not send in your stock certificates until instructed to do so after
the Merger is completed.
WHAT SEi OPTIONHOLDERS WILL RECEIVE
SEi Optionholders will have the right to exchange their options for Maxwell
common stock. Compare the exercise price of any options you may have to the
exchange ratios shown in the table below (the ratios do not reflect possible
adjustments):
<TABLE>
<CAPTION>
Option Exercise Price Exchange
Per Common Share Ratio
--------------------- --------
<S> <C>
0.51 0.40113
1.41 0.36262
3.62 0.26853
5.55 0.18641
6.37 0.15151
</TABLE>
POSSIBLE ADJUSTMENT TO EXCHANGE RATIO
The exchange ratio agreed upon between Maxwell and SEi reflected the
agreement of the parties that the transaction is fairly valued so long as at the
time of the Merger the value of a share of Maxwell common stock was between
$22.50 and $29.00 per share. If over the 20 trading days preceding the closing
date of the Merger the average closing price of Maxwell common stock on Nasdaq
either exceeds $29.00 or is less than $22.50, the Merger Agreement provides that
fewer shares would be issued by Maxwell if that 20-day average is above $29.00,
and more shares would be issued if the 20-day average is below $22.50.
The exact number of Maxwell shares to be issued would be calculated,
according to the Merger Agreement, as if the parties had initially agreed that
the value of SEi was based on a $29.00 price per Maxwell share (in the event of
a reduction in the number of shares to be issued) or $22.50 per Maxwell share,
if more shares would be issued. The new aggregate number of Maxwell shares to be
issued would be determined by dividing the 20-day average Maxwell common stock
price into the assumed initial transaction value, based on either $22.50 or
$29.00. The exchange ratio for option holders will be calculated first, net of
the exercise price. It is important to realize that if the deemed transaction
value, and therefore the "price" per SEi share, increases to $29.00 per Maxwell
share, the SEi options will have a greater dilutive effect on SEi shareholders.
Conversely, if the deemed transaction value is
4
<PAGE> 12
set at $22.50 per Maxwell share, option holders will receive proportionately
less of the Merger consideration.
Please see the discussion of the "Terms of the Merger Agreement" at page
38 for a more complete discussion of the exchange ratio adjustment.
ESCROW/STOCKHOLDER REPRESENTATIVES
Approximately 10% of the shares to be issued in the Merger by Maxwell
will be deposited in escrow. The purpose of the escrow is to provide a pool of
funds accessible to Maxwell should it be entitled to indemnification by the SEi
stockholders for breaches by SEi of any representations, warranties or covenants
made by SEi in the Merger agreement. For a descriptive list of these
representations, warranties and covenants, please see "The Merger Agreement -
Representations and Warranties"; and "The Merger Agreement - Certain Covenants"
on pages 1 through 43.
By approving the Merger, the stockholders of SEi will appoint Robert
Czajkowski and David Strobel as Shareholder Representatives. The Shareholder
Representatives will each have the power to settle indemnification claims on
behalf of the SEi stockholders by returning escrowed shares to Maxwell. Shares
returned to Maxwell for this purpose will have the effect of reducing the number
of shares of Maxwell common stock to be received by the SEi stockholders and
optionholders. The term of the escrow will be 12 months.
RESALES OF MAXWELL COMMON STOCK BY SEi STOCKHOLDERS
The shares of Maxwell common stock to be issued to the SEi stockholders
and optionholders in the Merger may be resold without restriction by all former
stockholders and optionholders of SEi who are not deemed to be "affiliates," as
such term is defined by the Securities and Exchange Commission, of either
Maxwell or SEi.
WHAT WILL HAPPEN TO SEi
If the Merger is completed, SEi will become a wholly-owned subsidiary of
Maxwell. Individuals who owned stock or held options to purchase stock in SEi
before the Merger will own stock in Maxwell after the Merger. Former SEi
stockholders and optionholders will own less than 10% of Maxwell's outstanding
common stock after the Merger.
CONDITIONS OF THE MERGER
The completion of the Merger depends upon meeting a number of
conditions, including the expiration of a waiting period as required by the
Federal Trade Commission under the Hart-Scott-Rodino Act, and the approval of
the Merger by SEi stockholders owning at least 90% of the shares that are
present in person or by proxy at the SEi Special Meeting, the receipt of a legal
opinion that the Merger will be treated as a tax-free reorganization, and an
opinion of Arthur Andersen LLP, SEi's independent public accountants, that SEi
qualifies to be a party to a pooling-of-interest transaction. Certain of the
conditions to the Merger may be waived by the company entitled to assert the
condition.
TERMINATION OF THE MERGER
Maxwell and SEi can agree to terminate their agreement to merge without
completing the Merger, if, among other things, any of the following occurs:
(1) the Merger is not completed before January 31, 1999
(assuming that the Securities and Exchange Commission has declared
effective the Registration Statement of which this Proxy
Statement/Prospectus is a part, and that the waiting period under the
Hart-Scott-Rodino Act has expired); or
5
<PAGE> 13
(2) the other party breaches or materially fails to comply with
any of its representations or warranties or covenants under the Merger
agreement.
VOTE REQUIRED
Maxwell has made it a condition to the Merger that SEi stockholders
owning at least 90% of the outstanding shares of SEi that are present in person
or by proxy at the SEi Special Meeting, vote in favor of the Merger.
SEi's Board of Directors has unanimously approved the Merger.
Certain stockholders of SEi owning approximately 78% of the outstanding
SEi shares have executed a Voting Agreement with Maxwell. Under this agreement,
these stockholders agreed to vote all of their shares of SEi common stock in
favor of the Merger. They also irrevocably appoint Maxwell as proxy to vote
their SEi shares in favor of the Merger and against any business combination
with a third party.
Maxwell's Board of Directors has unanimously approved the Merger.
Delaware law does not require Maxwell stockholders to approve the Merger.
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
In considering the SEi Board's recommendation that you vote for the
Merger, you should be aware that the officers and directors of SEi have
interests in the Merger that are different from, or in addition to, their rights
as SEi stockholders. The Merger agreement provides that Robert Czajkowski, David
Strobel and Paul Blevins, each an officer of SEi, will enter into
employment and noncompete agreements with Maxwell. Under the employment
agreements, these officers will receive an increase in the salaries that they
currently receive. In addition, Mr. Czajkowski and Mr. Strobel will receive
non-interest bearing loans from Maxwell which will be forgiven over time.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES
We have structured the Merger so that SEi stockholders will not
recognize any gain or loss for federal income tax purposes in the Merger (except
for tax payable because of cash received by SEi stockholders instead of
fractional shares or pursuant to the exercise of dissenters rights). (See
"Certain Federal Income Tax Consequences" on page 45.) The tax consequences to
SEi option holders are likely to be different.
REGULATORY APPROVALS
The Hart-Scott-Rodino Act prohibits us from completing the Merger until
we have furnished certain information and materials to the Antitrust Division of
the Department of Justice and the Federal Trade Commission, and a required
waiting period has ended. The required information was furnished on November 24,
1998 and we expect the waiting period to end on or before December 24, 1998.
However, the Department of Justice and the FTC will continue to have the
authority to challenge the Merger on antitrust grounds before and after the
Merger is completed.
ACCOUNTING TREATMENT
We expect the Merger to qualify as a pooling-of-interests transaction,
which means that we will treat our companies as if they had always been combined
for accounting and financial reporting purposes.
6
<PAGE> 14
WHAT IF I AM NOT IN FAVOR OF THE MERGER
SEi stockholders may vote against the Merger by submitting their proxies
or by attending the SEi special stockholders meeting and may be entitled to
demand dissenters rights under Delaware and California law. For a more complete
discussion of dissenters rights, please see "Rights of Dissenting Stockholders"
on page 47.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Shares of Maxwell common stock are listed on the Nasdaq National Market
under the symbol "MXWL." On November 6, 1998, the last full trading day prior to
the public announcement of the proposed Merger, Maxwell stock closed at $25.938
per share. On November 25, 1998, Maxwell stock closed at $26.8750 per share.
There is no public market for the shares of SEi common stock. The SEi Board of
Directors periodically establishes a per share price for the SEi common stock.
On September 9, 1998, the most recent valuation by SEi's Board of Directors, the
SEi common stock was valued at $6.37 per share. (See "Comparative Market Prices"
on page 12.)
7
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA OF MAXWELL TECHNOLOGIES, INC.
We are providing the following financial information to aid you
in your analysis of the financial aspects of the Merger. We derived this
information from audited consolidated financial statements for the fiscal years
ended July 31, 1994 through 1998. The information is only a summary and you
should read it in conjunction with Maxwell's historical financial statements
(and related notes) contained in Maxwell's annual reports and other information
regarding Maxwell on file with the Securities and Exchange Commission.
See "Where You Can Find More Information" on page 78.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales ........................................................ $ 85,463 $ 75,004 $ 80,911 $ 101,411 $ 125,308
Cost of sales ................................................ 68,555 56,447 65,893 70,107 83,459
--------- --------- --------- --------- ---------
Gross profit .............................................. 16,908 18,557 15,018 31,304 41,849
Operating expenses:
Selling, general and administrative expenses .............. 14,068 13,636 15,564 21,900 26,391
Research and development expenses ......................... 4,794 5,038 5,081 5,303 8,206
Acquired in-process R&D and other
special charges(1) ...................................... -- -- -- -- 8,942
Restructure and asset impairment losses(1) ................ -- -- 5,703 -- --
Loss on closing of Brobeck division ....................... 1,018 -- -- -- --
--------- --------- --------- --------- ---------
Total operating expenses ................................ 19,880 18,674 26,348 27,203 43,539
--------- --------- --------- --------- ---------
Operating income (loss) ...................................... (2,972) (117) (11,330) 4,101 (1,690)
Interest expense ............................................. 252 315 329 173 214
Other-net .................................................... (589) (848) (398) (150) (1,441)
--------- --------- --------- --------- ---------
Income (loss) before income taxes, minority interest and loss
from cumulative effect of change in accounting principle.. (2,635) 416 (11,261) 4,078 (463)
Income tax expense (benefit) ................................. (1,028) 15 1,296 -- 226
Minority interest in net income of subsidiaries .............. 80 86 50 54 80
Loss from cumulative effect of change in accounting
principle(1) ............................................. -- -- 2,569 -- --
--------- --------- --------- --------- ---------
Net income (loss) ............................................ $ (1,687) $ 315 $ (15,176) $ 4,024 $ (769)
========= ========= ========= ========= =========
Basic income (loss) per share:
Basic income (loss) per share before cumulative
effect of change in accounting principle ................ $ (0.32) $ 0.06 $ (2.29) $ 0.68 $ (0.10)
Basic income (loss) per share: ............................ $ (0.32) $ 0.06 $ (2.76) $ 0.68 $ (0.10)
========= ========= ========= ========= =========
Diluted income (loss) per share:
Diluted income (loss) per share before cumulative effect
of change in accounting principle ........................ $ (0.32) $ 0.06 $ (2.29) $ 0.60 $ (0.10)
Diluted income (loss) per share: .......................... $ (0.32) $ 0.06 $ (2.76) $ 0.60 $ (0.10)
========= ========= ========= ========= =========
Shares used in computing:
Basic income (loss) per share: ............................ 5,350 5,351 5,494 5,949 7,677
========= ========= ========= ========= =========
Diluted income (loss) per share: .......................... 5,350 5,356 5,494 6,644 7,677
========= ========= ========= ========= =========
</TABLE>
8
<PAGE> 16
<TABLE>
<CAPTION>
AT JULY 31,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents .................................... $ 4,579 $ 4,053 $ 1,465 $ 826 $ 21,224
Working capital .............................................. 18,091 17,855 7,288 10,908 48,132
Total assets ................................................. 54,322 52,370 40,724 47,120 105,065
Long-term debt, excluding current portion .................... 2,797 1,928 1,018 465 361
Total stockholders' equity ................................... 34,960 35,364 20,745 27,410 75,838
- -------------
(1) See Note 9 of Notes to Consolidated Financial Statements included in
Maxwell's Form 10-K for the fiscal year ended July 31, 1998.
</TABLE>
9
<PAGE> 17
SELECTED FINANCIAL DATA OF SPACE ELECTRONICS INCORPORATED
The following table sets forth selected financial data for SEi derived
from SEi's audited financial statements for 1995, 1996 and 1997 and the
unaudited financial statements for 1993, 1994 and the nine months ended
September 30, 1998 and 1997. The selected financial data should be read in
conjunction with those financial statements included in the Financial Statements
section at the end of the document.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (DOLLARS IN THOUSANDS , (unaudited)
EXCEPT PER SHARE AND SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ............................. $ 922 $1,801 $3,750 $10,598 $11,121 $ 8,602 $ 8,806
Cost of Revenues ..................... 380 952 2,165 4,217 4,606 3,361 5,315
------- ------- ------ ------- -------- -------- --------
Gross Profit ....................... 542 849 1,585 6,381 6,515 5,241 3,491
Selling, general and administrative
expenses ............................ 600 719 1,052 2,777 3,452 2,565 2,906
Research and development expenses .... 4 34 166 488 1,046 700 1,378
------- ------- ------ ------- -------- -------- --------
Income from operations/(loss) ...... (62) 96 367 3,116 2,017 1,976 (793)
Interest, net ........................ (6) (57) (30) (8) 32 -- --
Other, net ........................... -- -- (12) (7) (41) 9 (129)
------- ------- ------ ------- -------- -------- --------
Income/(loss) before taxes ........... (68) 39 325 3,101 2,008 1,985 (922)
Provisions/(benefits) for income tax . -- -- -- 1,144 741 834 (369)
------- ------- ------ ------- -------- -------- --------
Net income/(loss) .................... $ (68) $ 39 $ 325 $ 1,957 $ 1,267 $ 1,151 $ (553)
======= ======= ====== ====== ======= ======== ========
Basic income/(loss) per share......... (.12) .04 .30 1.35 .78 .68 (.32)
Diluted income/(loss) per share....... (.12) .04 .30 1.35 .67 .60 (.29)
Shares used in computing:
Basic income/(loss) per share....... 550,123 927,400 1,077,613 1,447,665 1,634,761 1,692,398 1,746,634
Diluted income/(loss) per share..... 550,123 927,400 1,077,613 1,447,665 1,902,812 1,925,622 1,940,212
======= ======= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------- AS OF
SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
----------- ----------- ---------- ---------- ---------- -------------
(UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ........... $105 $318 $ 262 $2,085 $2,935 $2,140
Total assets............... 306 867 1,904 5,347 7,295 9,127
Long-term debt............. 209 254 118 437 636 849
Stockholders' equity....... 36 212 529 2,488 3,840 3,173
</TABLE>
10
<PAGE> 18
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The Merger will be accounted for as a "pooling-of-interests," which
means that for accounting and financial reporting purposes we will treat our
companies as if they had always been combined. For a more detailed description
of pooling-of-interests accounting see "Accounting Treatment of the Merger" on
page 47.
We have presented below selected unaudited pro forma financial data that
reflects the pooling-of-interests method of accounting and is intended to give
you a better picture of what our businesses might have looked like had they
always been combined. Since Maxwell's and SEi's fiscal years end more than 93
days apart (Maxwell's on July 31 and SEi's on December 31), in order to meet the
reporting requirements for pro forma presentation, the amounts used for SEi are
amounts for the twelve months ended June 30, 1998. The companies would have
performed differently had they been combined, and you should not rely on the pro
forma information as being indicative of the historical results that we would
have achieved or the future results that we will experience after the Merger.
See "Unaudited Pro Forma Combined Financial Information" on page 53.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1998(1)
------------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C>
INCOME STATEMENT DATA:
Sales.............................................. $ 135,989
Gross profit....................................... 46,260
Acquired in process technology and other special
charges.......................................... 8,942
Total operating expenses........................... 48,353
Operating loss..................................... (2,093)
Interest income and other, net..................... 1,132
Loss before income taxes and minority interests.... (961)
Minority interests in income of consolidated
subsidiaries..................................... 80
Income taxes....................................... 226
Net loss........................................... (1,267)
Net loss per share................................. $(.15)
Weighted average number of common shares and
equivalents outstanding.......................... 8,570
BALANCE SHEET DATA:
Working capital .................................. 48,915
Total assets...................................... 113,168
Long-term debt (excluding current portion)........ 1,086
Stockholders' equity.............................. 77,719
</TABLE>
- ----------------------
(1) See notes to Unaudited Pro Forma Combined Financial Information.
11
<PAGE> 19
COMPARATIVE PER SHARE INFORMATION
We have summarized below the per share information for Maxwell and SEi
on a pro forma combined, equivalent and historical basis. The SEi Per Share
Equivalents assume the Merger had occurred on August 1, 1997 and are calculated
by multiplying the Maxwell historical per share amounts by 0.42258. SEi
stockholders will receive 0.42258 shares (unless adjusted because the average
trading price of Maxwell common stock on Nasdaq over a 20 day period prior to
the merger exceeds $29.00 or is less than $22.50) of Maxwell common stock in
exchange for each share of SEi common stock they own. This information shows
how each share of SEi stock that you hold would have participated in the net
income (loss) and book value of Maxwell if the Merger had occurred on
August 1, 1997. However, such amounts do not necessarily reflect
future per share levels of income from continuing operations, cash dividends
and book value of Maxwell.
<TABLE>
<CAPTION>
NET INCOME (LOSS) FOR THE
YEAR ENDED JULY 31, 1998
-------------------------
<S> <C>
UNAUDITED PRO FORMA COMBINED
Net loss per common share........................... $(0.15)
Book value per common share......................... 9.07
SEi PER SHARE EQUIVALENTS
(ASSUMING THE MERGER HAD OCCURRED AUGUST 1, 1997)
Net loss per common share........................... $(0.26)
Book value per common share......................... 4.03
SEi -- HISTORICAL
Net loss per common share........................... $(0.11)(1)
Book value per common share......................... 1.70 (1)
MAXWELL -- HISTORICAL
Net loss per common share........................... $(0.10)
Book value per common share......................... 9.88
</TABLE>
- -----------
(1) For the year ended June 30, 1998.
COMPARATIVE MARKET PRICES
The Maxwell Common stock is listed on the Nasdaq National Market under
the symbol "MXWL." There is no public market for the shares of SEi common stock.
The following table sets forth the closing price per share of Maxwell Common
stock, as reported on the Nasdaq National Market as of: (i) November 6, 1998,
the trading day preceding public announcement of the Merger; and (ii) December
__, 1998, the last practicable date prior to the date of this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE OF MAXWELL COMMON STOCK AS OF
----------------------------------------------------
<S> <C>
November 6, 1998.................................... $25.938
December __, 1998................................... $
</TABLE>
The Maxwell Common stock issued in connection with the Merger is
expected to be listed on the Nasdaq National Market.
12
<PAGE> 20
RISK FACTORS
In addition to the other information in this Proxy
Statement/Prospectus, the SEi stockholders should consider carefully the
following factors in evaluating the Merger.
REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement/Prospectus are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are thus prospective in nature. Such
forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual future results or trends to differ materially from
future results or trends expressed or implied by such forward-looking
statements. The most significant of such risks are discussed in this section.
YOU SHOULD READ AND CAREFULLY CONSIDER THE FACTORS CONTAINED IN THIS SECTION.
The sections of this Proxy Statement/Prospectus that contain
forward-looking statements include the following:
- The Summary;
- Risk Factors;
- The Merger - Maxwell's Reasons for the Merger;
- The Merger - SEi's Reasons for the Merger;
- The Merger - Recommendations of the SEi Board;
- Business of SEi;
- Management's Discussion and Analysis of Financial Condition and
Results of Operations of SEi; and
- the sections called "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business"
contained in Maxwell's Annual Report on Form 10-K for the fiscal
year ended July 31, 1998, which is incorporated herein by
reference.
RISK FACTORS RELATING TO THE MERGER
INTEGRATION OF BUSINESS OPERATIONS
Maxwell and SEi have entered into the Merger Agreement with the
expectation that the Merger will benefit both companies. The Merger may affect
Maxwell's ability to integrate and manage its overall business effectively.
There can be no assurance that Maxwell will be able to integrate successfully
the information technology infrastructure, administrative, management and
service operations of Maxwell and SEi, that such integration will occur in a
timely and efficient manner, if at all, or that the uncertainty associated with
such integration will not result in the loss of customers or key employees. The
successful combination of Maxwell and SEi will require, among other things, the
timely integration of their respective product and service offerings and
coordination of their respective sales and marketing, research and development,
and finance and administrative activities. The failure to achieve such
integration in a timely, effective or efficient manner could have a material
adverse effect on the business, operating results and financial condition of
Maxwell. The integration of the operations of SEi following the Merger will
require the dedication of management resources and temporarily distract
attention from the day-to-day business of Maxwell, which could temporarily
adversely affect Maxwell's business and operating results. There can be no
assurance that Maxwell will not incur additional charges in subsequent quarters
to reflect costs
13
<PAGE> 21
associated with the Merger or that management will be successful in its efforts
to integrate the operations of Maxwell and SEi.
LACK OF FAIRNESS OPINION
SEi could have, but did not seek an opinion from an independent
valuation expert as to the fairness of the Merger to the SEi stockholders from a
financial point of view. Without a written fairness opinion, SEi stockholders
must rely on the determination of the SEi Board of Directors, who are not
experts in transaction evaluations, that the Merger is fair to the SEi
stockholders. Therefore, the SEi stockholders have less assurance that the
Merger is in fact fair to them from a financial point of view than if a fairness
opinion had been obtained. See "The Merger--SEi's Reasons for the Merger."
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER
Maxwell and SEi expect to incur costs and expenses of approximately
$750,000 in connection with the Merger, which will be reflected in the financial
statements of Maxwell in the period that the Merger is consummated. These costs
will therefore negatively impact operating results for the fiscal quarter in
which the Merger is consummated. Although Maxwell and SEi do not believe that
the costs are unreasonable and do not anticipate that they will exceed these
estimates, there can be no assurance that these estimates are correct, or that
unanticipated contingencies will not occur that will either substantially
increase the costs of combining the operations of the companies, result in a
material adverse effect on the operating results of the companies in future
periods or both.
REDUCED RETURNS FOR SEi STOCKHOLDERS
Maxwell believes that beneficial synergies will result from the Merger.
However, such synergies may not be achieved or the combination of the businesses
of Maxwell and SEi, even if conducted in an efficient, effective and timely
manner, may not result in combined operating results and financial condition
superior to what would have been achieved by each company independently. The
issuance of Maxwell common stock in connection with the Merger could reduce the
market price of Maxwell common stock. In addition, SEi stockholders may not
achieve a greater return on investment than if SEi had remained an independent
company.
CHANGE IN VALUE OF THE MERGER AND AMOUNT OF STOCK ISSUABLE IN THE MERGER
Pursuant to the Merger Agreement, SEi stockholders will receive 893,617
shares of Maxwell common stock. The number of shares to be exchanged was
calculated by assuming a per share price of $23.50 for Maxwell Common stock. The
Merger Agreement provides that in the event the market price for Maxwell Common
Stock exceeds (or is lower than) certain values, SEi stockholders will receive
fewer or greater shares. The market price for Maxwell common stock can be
expected to vary with changes in market and economic conditions, Maxwell's
financial condition and prospects, and other factors that generally influence
the market price of securities. These fluctuations could reduce the amount of
shares that SEi stockholders receive in the Merger. Additionally, in the event
that Maxwell's average share price over the 20 trading days prior to the Merger
is below $22.50, the overall value of the Merger consideration paid to SEi
stockholders at the Closing of the Merger will be lower. Further, if the average
price of Maxwell common stock on Nasdaq over the 20 trading days prior to the
Merger exceeds $29.00, the number of shares issuable in the Merger will be
adjusted downward, to a level that reflects a $29.00 per share price.
14
<PAGE> 22
LIMITED SCOPE OF TAX OPINION
Luce, Forward, Hamilton & Scripps LLP has delivered to SEi an opinion
with respect to certain of the expected federal income tax consequences of the
Merger, a copy of which is attached as an exhibit to the Registration Statement
of which this Proxy Statement/Prospectus forms a part. The tax opinion is
limited to the matters set forth therein and does not address any other issues,
including, but not limited to, any state, local, foreign, consolidated return,
employee benefit, and Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), issues related to the limitations on the utilization of
net operating loss carry forwards, or alternative minimum tax consequences to
the parties to the Merger. The tax opinion assumes that the SEi Common stock
will be held as a capital asset by the holders thereof immediately prior to the
Effective Time and does not address the tax consequences that may be relevant to
a particular stockholder subject to special treatment under certain federal
income tax laws. The SEi stockholders are advised to consult their own tax
advisers as to the specific tax consequences of the Merger to them, including
the application and effect of state, local and foreign income and other tax
laws. See "The Merger -- Certain Federal Income Tax Consequences."
RISK FACTORS RELATING TO MAXWELL
RISKS ASSOCIATED WITH DEVELOPING AND MARKETING NEW AND EXISTING PRODUCTS
Many of Maxwell's products are in the development stage and are
alternatives to existing products or are new technologies that provide new
capabilities not presently found in the marketplace. Overcoming the technical,
financial and other risks involved in introducing new products and technologies
will be critical to Maxwell's future success. Maxwell's success in this regard
depends on a number of factors, including:
- its ability to identify and develop a market for its new
products;
- Maxwell's ability to improve its existing technologies and
products;
- its ability to accurately anticipate market demand for its
products; and
- Maxwell's ability to demonstrate its products' technological
and/or economic advantage over the products of its competitors.
If Maxwell cannot address any of these factors, they could have a material
adverse effect on Maxwell's business, results of operations and financial
condition.
CONTINUING TRANSITION TO PRIVATE SECTOR
Historically, Maxwell has relied upon various government agencies to
fund its research and development and to purchase its products. Maxwell is
currently attempting to develop, manufacture and market its products to the
private sector. Maxwell's success in this transition will depend upon a number
of objectives, including the following:
- developing and producing products at competitive prices;
- gaining customer acceptance for its products and services;
15
<PAGE> 23
- expanding its customer base through sales and marketing efforts;
- increasing its manufacturing capacity;
- developing extensions of its existing products and services into
new applications; and
- developing new products and services.
Maxwell's inability to achieve any of these objectives would have a material
adverse effect on Maxwell's business, results of operations and financial
condition.
EXTENSIVE RELIANCE ON STRATEGIC RELATIONSHIPS; RESTRICTIONS DUE TO
EXCLUSIVITY RIGHTS
Maxwell has established and will continue to attempt to establish
strategic and research relationships with corporate partners and United States
government agencies. These strategic relationships help Maxwell in the
development of its products. These relationships also allow Maxwell to obtain an
understanding of and access to markets, and the ability to test its products.
The loss of certain of these strategic relationships could have a material
adverse effect on Maxwell's sales and growth. The success of these relationships
depends on a number of factors, including:
- the interest of certain of Maxwell's strategic partners in the
potential products under development;
- Maxwell's success in meeting the expectations of its strategic
partners; and
- their success in marketing or willingness to purchase any such
products.
Maxwell may not be successful in continuing its relationships with its
current strategic partners. Maxwell also may not be able to enter into new
strategic relationships on commercially reasonable terms or if it does, assure
you that such relationships, if established, will be successful.
Although Maxwell's success depends on its strategic relationships, these
relationships present several risks to Maxwell's business, including the
following:
- These relationships may require Maxwell to share control over
its development, manufacturing and marketing programs, limit
Maxwell's ability to license its technology to others, transfer
certain of Maxwell's technological rights, and restrict
Maxwell's ability to engage in certain areas of product
development, production and marketing;
- Some of Maxwell's existing collaborative arrangements permit,
and future arrangements may also permit, Maxwell's strategic
partners to use or disclose the technology developed in the
program without any royalty obligation to Maxwell, to the extent
that the technology is jointly developed;
- Maxwell often grants an exclusivity right to its strategic
partners 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 Maxwell's ability to
find a
16
<PAGE> 24
wider market for certain of its products which may materially
reduce revenues during the exclusivity period; and
- Maxwell's strategic partners may seek to manufacture jointly
developed products themselves or obtain them from alternative
sources.
RISKS ASSOCIATED WITH ACQUISITIONS
As part of its business strategy, Maxwell regularly reviews possible
acquisitions of complementary companies, technologies or products, and
periodically engages in discussions regarding such possible acquisitions. During
fiscal 1998, Maxwell acquired four businesses with strategic importance to four
different areas of Maxwell's operations. These acquisitions are geographically
dispersed, with two located in California, one in Minnesota and the other in the
United Kingdom. Acquisitions involve a number of risks, including the following:
- correctly evaluating the commercial potential of 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-day
business concerns;
- risks of entering markets in which Maxwell 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, including acquired in-process research
and development meeting certain criteria, similar to the charges that were taken
in connection with two acquisitions in fiscal 1998. These events may materially
adversely affect Maxwell'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 Maxwell on acceptable terms or at all, when,
and if, suitable strategic acquisition opportunities arise. Although Maxwell
expects to carefully analyze any acquisition opportunity before committing its
resources, there can be no assurance that any acquisition that is completed will
result in long-term benefits to Maxwell or its stockholders or that Maxwell's
management will be able to effectively manage the resulting business.
HISTORICAL LOSSES; FLUCTUATING REVENUES AND POSSIBLE NET LOSSES AND
THEIR AFFECT ON MAXWELL'S STOCK PRICE
Maxwell has incurred net losses in three of the past five fiscal years.
Maxwell incurred net losses of approximately $769,000 in fiscal 1998, $15.2
million in fiscal 1996 and $1.7 million in fiscal 1994. For a discussion and
analysis of the results of Maxwell's operations, please read the section called
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Maxwell's Annual Report on Form 10-K. See "Where Can I Find More
Information" on page 78.
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In the future, Maxwell may experience significant fluctuations in
revenues and may incur net losses from period to period as a result of a number
of factors including the following:
- the volume and timing of orders and the level of demand for
Maxwell's products;
- Maxwell's ability to fill orders on a timely basis;
- the prices at which Maxwell sells its products and services as
compared to the prices of its competitors;
- the timing of product introductions by Maxwell or its
competitors;
- the profit margins on Maxwell's mix of product sales;
- product obsolescence resulting from new product introductions or
changes in customer demand;
- the structure and timing of new strategic relationships;
- the cancellation or suspension by the United States government
of its programs and contracts with Maxwell; and
- expenses associated with the acquisition of businesses, products
or technologies.
Maxwell anticipates that, in order to increase its market share, it may
sell new products at profit margins below those it ultimately expects to
achieve. This may result in significant price reductions on its products and
services in a particular quarter or quarters which could adversely affect its
results of operations for such periods. The impact of the foregoing factors may
cause Maxwell's operating results to be below the expectations of public market
analysts and investors. In such event, the price of Maxwell's common stock could
fluctuate.
RISKS ASSOCIATED WITH MAXWELL'S MANUFACTURING PROCESS
As described in more detail below, it may be difficult for Maxwell to
(1) manufacture its products in increased quantities, (2) outsource the
manufacturing of its products, and (3) customize its manufacturing process.
These difficulties could have a material adverse effect on Maxwell's business,
financial condition and results of operations.
Volume Manufacturing. Maxwell has limited experience in manufacturing
its products in high volume. Maxwell may face challenges increasing production
of its new products, especially those products that contain new technologies.
Maxwell may also face problems involving production yields, quality control and
assurance, component supply and shortages of qualified management and other
personnel.
In order to manufacture its products in high volume, Maxwell will need
to continue to expand its current facilities or obtain additional facilities.
Maxwell may not be successful in expanding its facilities or obtaining
additional facilities. In addition, Maxwell may not be successful in overcoming
the management, technological, engineering and other challenges associated with
the production of significant quantities of products at a competitive cost and
on a timely basis.
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Outsourcing. Maxwell may elect to outsource manufacturing of certain of
its products. Outsourcing of manufacturing involves risks with respect to
quality assurance, cost and the absence of close engineering support.
Customized Manufacturing Process. Part of Maxwell's ultracapacitor
manufacturing strategy is to implement a process that will allow customization
of such 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 Maxwell's needs in this regard.
LIMITED MARKETING AND SALES EXPERIENCE; RELIANCE ON THIRD PARTIES
Maxwell has limited experience marketing and selling its products. To
sell its products, Maxwell will need to train its marketing and sales personnel
to effectively demonstrate the advantages of its products over competing
products and other traditional solutions. The highly technical nature of
Maxwell's products may limit Maxwell's ability to retain and attract adequate
sales personnel.
As part of its sales strategy, Maxwell enters into arrangements with
distributors and sales representatives. Because Maxwell enters into such
arrangements, it depends upon the efforts of others to sell its products.
Maxwell may not be successful in marketing and selling its products.
Maxwell's arrangements with third parties may not be successful and Maxwell may
not be able to enter into new marketing and sales arrangements with third
parties on financially acceptable terms. Maxwell's inability to achieve any of
these objectives would have a material adverse effect on Maxwell's business,
results of operations and financial condition.
DEPENDENCE ON OEM CUSTOMERS; LENGTHY SALES CYCLES
A substantial portion of Maxwell's sales are derived from sales to a
relatively small number of original equipment manufacturer ("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 Maxwell's products
are incorporated. Maxwell 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 Maxwell's products at
current levels or at all. Failure of these OEMs to achieve significant sales of
products incorporating Maxwell's products and fluctuations in the timing and
volume of such sales could have a material adverse effect on Maxwell's business,
financial condition and results of operations.
The OEM's decision process leading to the selection of Maxwell's
products and services is typically lengthy. In addition, before commercial
shipments can begin, a significant amount of time is required to design,
engineer and obtain product approval. 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 Maxwell 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 Maxwell to miss a
market opportunity that may not reappear for a substantial period of time.
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DEPENDENCE ON PROPRIETARY TECHNOLOGY
Maxwell's success is heavily dependent upon the establishment and
maintenance of proprietary technologies. Although Maxwell 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 Maxwell 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 Maxwell's proprietary rights to the
same extent as do the laws of the United States. In addition, others could
"reverse engineer" Maxwell'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 Maxwell's business, financial condition and results of operations.
Maxwell uses employee and third-party confidentiality and non-disclosure
agreements to protect its trade secrets and unpatented know-how. Maxwell
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 Maxwell and, subject to
certain exceptions, to assign to Maxwell all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment. In addition, Maxwell regularly enters into non-disclosure agreements
with third parties, such as consultants, potential joint venture partners,
acquisition candidates and customers. No assurance can be given that these
methods will enable Maxwell 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
Maxwell's proprietary technology without authorization.
Maxwell 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,
Maxwell does file patent applications on concepts and processes developed by
Maxwell's personnel and, as its commercial businesses expand, Maxwell has placed
increased emphasis on patents to provide protection for certain of its
technologies and products. Maxwell 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 Maxwell for other products.
There can be no assurance that any patent owned by Maxwell will not be
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to Maxwell or that any of Maxwell's pending or future
patent applications will be issued with claims of the scope sought by Maxwell,
if at all. If challenged, there can be no assurance that Maxwell'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 Maxwell or that others have not developed or will not develop
similar products or technology without violating Maxwell's proprietary rights.
The invalidity of a patent or determination that Maxwell (or its licensor) does
not hold sole rights to the technology covered thereby could have a material
adverse effect on Maxwell, particularly if Maxwell cannot design around others'
proprietary rights.
Competing research and patent activity in many of Maxwell'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
Maxwell 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
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asserted against Maxwell in the future. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require Maxwell to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to Maxwell, or available at all. If infringement were established,
Maxwell 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 Maxwell's proprietary rights, may be prevented
from doing so without litigation. Any of the foregoing could have a material
adverse effect upon Maxwell's business, financial condition and results of
operations.
A number of the patents and patent applications owned or licensed by
Maxwell 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 Maxwell to produce products for the United States government which
would otherwise infringe Maxwell's patent rights which are subject to the
royalty-free licenses. In addition, the United States government has the right
to require Maxwell 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 Maxwell has not
exercised reasonable efforts to ensure products manufactured pursuant to such
invention are manufactured in the United States. For a more detailed description
of Maxwell's proprietary technology, see "Business--Patents, Licenses and
Trademarks" included in Maxwell's Annual Report on Form 10-K for the fiscal year
ended July 31, 1998. See "Where Can I Find More Information" on page 78.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
An increasing portion of Maxwell's revenues are derived from sales to
customers located outside of the United States, and in fiscal 1998, Maxwell
acquired an industrial computer company in the United Kingdom and took the first
steps toward opening an industrial computer facilities in France and Germany.
Maxwell expects sales outside of the United States to continue to represent a
significant and increasing portion of its future revenues. As a result,
Maxwell's business will continue to be subject to certain risks generally
associated with doing business abroad, such as foreign government regulations
and export controls, as well as changes in tax laws, tax treaties, tariffs and
freight rates. As Maxwell's international operations continue to grow, more
management resources will be required to focus on the operation and expansion of
Maxwell's worldwide business and to manage cultural, language and legal
differences inherent in international operations. To the extent that political,
economic and other conditions in these countries result in any prolonged work
stoppages or other inability of Maxwell to obtain components or finished
products, Maxwell's business, results of operations and financial condition
could be materially adversely affected. Moreover, changes in the mix of income
from Maxwell's foreign subsidiaries, expiration of tax holidays and changes in
tax laws and regulations could result in increased tax rates for Maxwell.
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COMPETITION
The markets in which Maxwell sells commercial products are highly
competitive, rapidly changing and significantly affected by the cost and pricing
of products, by new product introductions and other market activities of
industry participants. Maxwell'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 with respect to Maxwell's purification systems.
Many of Maxwell's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition, and a larger existing base of customers than Maxwell.
In addition, certain competitors have well-established relationships with
customers and potential customers of Maxwell. Furthermore, as Maxwell's new
products gain acceptance, companies with significantly greater resources than
Maxwell could attempt to increase their presence in these markets. In order to
be successful in the future, Maxwell must produce products that can be
competitively priced, and 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 Maxwell's products will continue to compete favorably or that
Maxwell will be successful in the face of increasing competition from new
products and enhancements introduced by existing competitors or new companies
entering its markets.
RISKS ASSOCIATED WITH GOVERNMENT BUSINESS
A substantial portion of Maxwell's sales (approximately 32% in fiscal
1998, 33% in fiscal 1997, 40% in fiscal 1996) 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 in the 1990's has adversely affected Maxwell's business,
particularly in the area of system survivability products and services, such as
weapons effects simulation and testing. Several years ago, Maxwell experienced
significant reductions in this business as the Department of Defense responded
to reduced global threats and shrinking defense budgets. Maxwell 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 Maxwell
specifically will not be reduced in the future. A significant loss of United
States government funding would have a material adverse effect on Maxwell's
business, results of operations and financial condition.
Maxwell's United States government business is also subject to various
other risks, including the following:
- 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 Maxwell's confidential
information to third parties;
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- the failure or inability of a contractor to perform its
obligations under a contract in circumstances where Maxwell is a
prime contractor or subcontractor; and
- 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 Maxwell's contracts with the Department of
Defense and other government agencies will not be terminated, reduced or
modified or that the grant of march-in rights or confirmatory licenses will not
result in a loss of potential revenues, any of which could have a material
adverse effect on Maxwell's business, results of operations and financial
condition.
Maxwell 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 Maxwell's development projects or that Maxwell can compete successfully
in obtaining contracts for such programs. A significant reduction in, or
discontinuation of, such funding or of Maxwell's participation in such programs
would have a material adverse effect on Maxwell's business, results of
operations and financial condition.
SUBSTANTIAL FUTURE CAPITAL NEEDS
Maxwell believes that in the future it will need a substantial amount of
capital for a number of purposes including the following:
- to achieve its long-term strategic objectives;
- to maintain and enhance its competitive position;
- to meet anticipated volume production requirements for several
of Maxwell's product lines, in particular its ultracapacitors
and purification systems;
- to expanded its manufacturing capabilities and facilities;
- to establish viable production alternatives;
- 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.
There can be no assurance that the necessary additional financing will be
available to Maxwell on acceptable terms or at all. If adequate funds are not
available, Maxwell 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
Maxwell's business, results of operations and financial condition.
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DEPENDENCE ON KEY PERSONNEL
Maxwell's future performance depends upon the continued service of its
key technical and senior management personnel. Maxwell's performance also
depends on its ability to identify, hire, train, retain and motivate high
quality personnel, especially key manufacturing executives and highly skilled
engineers and scientists. The industries in which Maxwell competes are
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. Maxwell's employees may terminate their employment with
Maxwell at any time. Accordingly, there can be no assurance that any of
Maxwell's current key employees will continue to work for Maxwell. Loss of
services of key employees could have a material adverse effect on Maxwell's
business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
A significant percentage of the software that runs most computers relies
on two digit date codes to perform a number of computation and decision making
functions. As the year 2000 approaches, these computer programs may fail from an
inability to interpret data codes properly, misreading "00" for the year 1900
instead of 2000.
Maxwell believes that its major computer systems are in compliance with
Year 2000 criteria or will be brought into compliance on a timely basis, though
there can be no assurance in that regard. Maxwell may experience problems with
its application software programs, including its financial accounting, billing,
payroll, manufacturing, and engineering software programs, among others. Maxwell
has taken steps to bring many of its products which could be impacted by Year
2000 software problems into compliance, but no assurance can be given that all
such products previously sold can be brought into compliance or that customers
and end users will implement corrective action recommended by Maxwell or that
such corrective action will effectively address the problem. Additionally,
Maxwell's customers or third-party component suppliers and vendors may also
experience business disruptions in connection with the Year 2000 software
problem. Maxwell's business, operating results and financial condition could be
materially adversely affected by Year 2000 problems with its own systems and
products or if any of these customers, vendors or other third-party entities
experience such a business disruption as a result of Year 2000 problems.
RELIANCE ON THIRD PARTY SUPPLIERS
Maxwell's success depends in part on its ability to secure qualified and
adequate sources for supplies of materials, components and sub-assemblies at
prices which will facilitate cost competitive products for Maxwell. Maxwell
manufactures most of its products using a large number of components or
sub-assemblies, many of which are commercially available industrial parts and
the remainder of which are custom-made to Maxwell's specifications (by Maxwell
and certain qualified outside manufacturers). Maxwell tries 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 which Maxwell needs to manufacture its electromagnetic
interference filters and industrial computing products. On occasion, Maxwell has
experienced difficulty in obtaining timely delivery of power supplies for
industrial computers from outside suppliers. This has adversely impacted
Maxwell's delivery time to its customers and in one circumstance Maxwell
believes such 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. The current sole domestic source
of a component of Maxwell's EMI filter has indicated it plans to design,
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build and sell a competing filter in the future. Maxwell believes this supplier
will continue to sell to Maxwell but, if necessary, Maxwell believes that it
could replace this supplier with another vendor or with a component manufactured
by Maxwell. Although Maxwell 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 Maxwell'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
Maxwell may be exposed to certain product liability risks. Maxwell's EMI
filters are components of implantable medical devices and, due to the litigious
environment surrounding the medical device industry, may subject Maxwell to an
increased risk of product liability claims that may involve significant defense
costs. Other of Maxwell'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 Maxwell in the future. Although Maxwell 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 Maxwell
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 Maxwell in amounts or on terms
satisfactory to Maxwell, if at all. A successful product liability claim or
series of claims brought against Maxwell could have a material adverse effect on
Maxwell's business, financial condition and results of operations.
ENVIRONMENTAL REGULATIONS
Maxwell 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
Maxwell, suspension of production, alteration of its manufacturing process or
cessation of operations. Such regulations could require Maxwell to acquire
expensive remediation or abatement equipment or to incur substantial expenses to
comply with environmental regulations. Any failure by Maxwell to control the
use, disposal or storage of, or adequately restrict the discharge of, hazardous
or toxic substances could subject Maxwell to significant liabilities.
POTENTIAL DILUTIVE IMPACT OF EMPLOYEE STOCK OPTION PROGRAMS AT
SUBSIDIARIES
Maxwell has adopted employee stock option plans at each of its four
principal operating subsidiaries providing for the issuance of incentive and
nonqualified stock options to purchase common stock of these companies. In
addition, employee stock options are outstanding in a fifth subsidiary which is
not currently conducting any active business operations and a similar stock
option plan will be put into place at SEi after the Merger. 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 Maxwell's earnings per share. Maxwell expects
that its reported diluted earnings per share will be reduced in future quarters
due to the increased fair market value of certain of Maxwell's subsidiaries.
Such options, when and if exercised, will dilute Maxwell's actual ownership
interests in its subsidiaries, thus reducing Maxwell'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
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these option plans could be up to 12% at each of Maxwell's principal operating
subsidiaries (15% at one subsidiary). In addition, certain key employees of one
of Maxwell's subsidiaries, Maxwell Business Systems, Inc., which markets the
JAMIS accounting software package, 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 common stock underlying any of the
subsidiary options and such options are not exchangeable for shares of Maxwell
common stock. Maxwell has no plan to offer an exchangeability feature for
options to purchase shares of Maxwell common stock or otherwise provide
liquidity for these subsidiary options, but Maxwell could consider such
alternatives in the future.
ECONOMIC IMPACT OF POTENTIAL PUBLIC OFFERINGS OF SUBSIDIARY STOCK
By conducting its operations through separate subsidiaries, Maxwell
promotes clearer market definition and product identity. This business unit
focus also allows Maxwell to more actively monitor opportunities for growth or
cost savings and to promote entrepreneurism within each subsidiary. While this
corporate structure also affords Maxwell 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 Maxwell'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 Maxwell'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 Maxwell and its stockholders, such
transaction could, nonetheless, have a material adverse effect on Maxwell's
results of operations.
RISK ASSOCIATED WITH FDA APPROVAL PROCESS
The testing, manufacture and sale of certain of Maxwell's products are
subject to regulation by many governmental authorities including the Food and
Drug Administration (FDA). The FDA regulates the testing, manufacture, labeling,
storage, distribution and production of food and medical products and processes.
Because some of Maxwell's products are used for food storage or in medical
devices, they are subject to the FDA approval process. These products include
Maxwell's CoolPure and PureBright technologies and the EMI filter.
There are many aspects of the FDA approval process that could have a material
adverse effect on Maxwell's business, financial condition and results of
operations, including the following:
- the testing, preparation of necessary marketing applications and
processing of those applications with the FDA is expensive, can
vary based on the type of product and may take several years to
complete;
- there may be delays in the approval process;
- Maxwell's products may not ultimately receive FDA approval or
clearance;
- the FDA may place limitations on a product's intended use as a
condition to approving or clearing such product;
- the FDA approval process could delay or preclude Maxwell from
marketing any products it may develop;
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- the FDA may require post-marketing 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;
- the FDA may withdraw its approval or clearance of any product if
compliance with regulatory standards is not maintained or if
problems occur following initial marketing; and
- failure to comply with existing or future regulatory
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.
LONG-TERM FIXED-PRICE CONTRACTS
A portion of Maxwell's software business consists of work under a
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 Maxwell'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.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Maxwell's Certificate of Incorporation could make
it more difficult for a third party to acquire control of Maxwell, even if such
change in control would be beneficial to stockholders. Maxwell has a staggered
Board of Directors. This means that the Board is divided into three classes.
Each class is elected to serve a three-year term. Since the three-year terms of
each class overlap the terms of the other classes of directors, the entire board
of directors cannot be replaced in any one year. Furthermore, Maxwell's
certificate of incorporation contains a "fair price provision" intended to
require a potential acquirer to obtain the consent of the Board of Directors to
any business combination involving Maxwell. Maxwell'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. In addition, Maxwell has adopted a
rights plan that, among other things, grants rights to purchase Maxwell's common
stock to all stockholders at a price significantly below market value upon a
business combination in the event a single person or group has previously
acquired more than 20% of Maxwell's outstanding common stock without the Board
of Directors having elected to redeem such rights. The rights plan and
provisions of Maxwell's certificate of incorporation and bylaws could delay,
deter or prevent a Merger, tender offer, or other business combination or change
in control involving Maxwell 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 Maxwell common stock.
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LIMITED TRADING VOLUME; VOLATILITY OF STOCK PRICE
Maxwell common stock is traded on the Nasdaq National Market. The
trading volume of Maxwell common stock each day is relatively small. This means
that sales or purchases of relatively small blocks of stock can have a
significant impact on the price at which the stock is traded. Maxwell believes
factors such as quarterly fluctuations in financial results, announcements of
new technologies impacting Maxwell'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, in the United States and worldwide, such as recessions or
higher interest rates, may adversely affect the market price of Maxwell common
stock.
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THE SPECIAL MEETING OF SEi STOCKHOLDERS
SEi is furnishing this Proxy Statement/Prospectus to holders of SEi
common stock in connection with the solicitation of proxies by the SEi Board of
Directors for use at the Special Meeting. This Proxy Statement/Prospectus and
accompanying form of proxy are first being mailed to the stockholders of SEi on
or about December __, 1998.
THE SEi SPECIAL MEETING
PURPOSE; TIME AND PLACE At the SEi Special Meeting, holders of SEi
common stock will be asked to vote upon the Merger agreement pursuant to which
SEi will merge with and become a wholly-owned subsidiary of Maxwell
Technologies, Inc. The SEi Special Meeting will be held at the offices of SEi
located at 4031 Sorrento Valley Boulevard, San Diego, California, on December
31, 1998, starting at 10:00 a.m., local time.
The SEi Board has unanimously determined that the Merger is fair to and
in the best interests of SEi and its stockholders and has approved the Merger.
THE SEi BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF SEi VOTE "FOR" THE
APPROVAL OF THE MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY AT THE SEi
SPECIAL MEETING.
For a discussion of (1) the interests that the officers and directors of
SEi have with respect to the Merger that are different from, or in addition to,
the interests of stockholders of SEi generally and (2) information regarding the
treatment of options to purchase SEi common stock and other rights of certain
directors and officers of SEi, see "The Merger--Interests of Certain Persons in
the Merger" on page 35. Such interests, together with other relevant factors,
were considered by the SEi Board in making its recommendation to the SEi
stockholders to vote for approval of the Merger and its approval of the Merger.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL The SEi Board has fixed the
close of business on November 25, 1998, as the record date for voting at the SEi
Special Meeting. Only holders of record of shares of SEi common stock on that
date are entitled to notice of and to vote at the SEi Special Meeting. On the
record date for the SEi Special Meeting, there were 1,771,797 shares of SEi
common stock outstanding and entitled to vote at the SEi Special Meeting, held
by approximately 71 stockholders of record. Each holder of record of SEi common
stock is entitled to cast one vote per share. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of SEi common
stock entitled to vote is necessary to constitute a quorum at the SEi Special
Meeting. As a condition to completing the Merger, Maxwell has required that the
holders of 90% of the shares of SEi common stock voting at the SEi Special
Meeting, in person or by proxy, vote to approve and adopt the Merger.
Each of the directors and officers, and certain other stockholders, of
SEi have executed a voting agreement pursuant to which they have agreed to vote
their shares in favor of the Merger. The shares held by these individuals
represent approximately 78% of the outstanding SEi common stock.
SHARE OWNERSHIP OF MANAGEMENT At the close of business on the record
date for the SEi Special Meeting, directors and officers of SEi, as a group,
were the beneficial owners of an aggregate of 1,403,333 shares (approximately
61.9%) of the SEi common stock then outstanding.
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PROXIES. All shares of SEi common stock represented by properly
executed proxies received prior to or at the SEi Special Meeting and not revoked
will be voted in accordance with the instructions indicated in such proxies. If
no instructions are indicated on a properly executed returned proxy, however,
such proxies will be voted FOR the approval of the Merger. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum and for purposes of determining the aggregate voting power and
number of shares represented and entitled to vote at the SEi Special Meeting,
will not be voted and will have the effect of a vote against the Merger.
The SEi Board is not currently aware of any business to be acted upon
at the SEi Special Meeting other than as described herein. If, however, other
matters are properly brought before the SEi Special Meeting, or any adjournments
or postponements thereof, the persons appointed as proxies will have discretion
to vote or act thereon according to their judgment. Such adjournments may be for
the purpose of soliciting additional proxies. Shares represented by proxies
voting against the approval of the Merger will not be voted with respect to any
proposal to adjourn the SEi Special Meeting for the purpose of soliciting
additional proxies.
A stockholder may revoke his or her proxy at any time prior to its use
by delivering to the Secretary of SEi a signed notice of revocation or a
later-dated signed proxy or by attending the SEi Special Meeting and voting in
person. Attendance at the SEi Special Meeting will not in itself constitute the
revocation of a proxy.
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR SEi COMMON STOCK WILL BE MAILED TO FORMER SEi STOCKHOLDERS AS
SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
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THE MERGER
BACKGROUND OF THE MERGER
In April 1998, officers of Maxwell's subsidiary, Maxwell Technologies
Systems Division, Inc., identified SEi as a possible candidate for acquisition
by Maxwell and initiated discussions with Robert Czajkowski, Chief Executive
Officer of SEi, regarding a possible combination between Maxwell and SEi. Walter
Robertson, President of Systems Division, and Mr. Czajkowski had a number of
telephone discussions and occasional face to face meetings in April, May and
June 1998, but these discussions did not lead to agreement on a purchase price
for SEi or an appropriate structure for a combination.
In July 1998, Mr. Czajkowski and Mr. Robertson had further discussions
and Mr. Robertson then informed the senior management of Maxwell that the
discussions had reached a point where it was appropriate to make a formal
written offer to SEi. Such an offer was made in July 1998, involving
alternative proposals, one with a potential purchase price without any
contingencies and another with a larger purchase price, a substantial portion of
which would be paid in the future only if SEi achieved certain performance
goals, neither alternative was accepted by SEi. However, the parties agreed to
resume discussions later in the year. Those discussions were then delayed during
the summer of 1998 by the weakness in the stock market, which impacted Maxwell's
stock price, through the late summer of 1998.
In late September 1998, discussions again commenced regarding a possible
combination of the companies. Mr. Czajkowski indicated to Mr. Robertson that the
differences on purchase price had narrowed somewhat, but that SEi would not
consider an offer with a component tied to future performance. Maxwell then
commenced work on a draft letter of intent, and on October 13, 1998, delivered
the draft to Mr. Czajkowski for consideration by SEi management. The draft
proposed a purchase of the assets of SEi by Maxwell, paid one-half in cash and
one-half in stock.
On October 20, 1998, SEi advised Mr. Robertson that it was rejecting the
offer, on grounds that the consideration was inadequate and that the asset
purchase structure was unacceptable. However, the parties did reach agreement on
other material terms, including that certain senior officers of SEi would enter
into employment agreements on terms to be determined if an acquisition were to
be consummated, and that an option plan would be made available at the
subsidiary level for the key employees of the SEi business joining the Maxwell
organization.
On October 21, 1998, Maxwell's Board of Directors met and, among other
things, received a presentation from Mr. Robertson regarding a possible
acquisition of SEi. The Board discussed the potential acquisition with Mr.
Robertson, and other of Maxwell's senior officers. The Board determined it would
be in Maxwell's best interest to continue discussions with SEi and to
restructure the proposed form of transaction with an increased purchase price,
in order to see if it would be adequate to reach agreement.
From October 22 to November 4, 1998, Mr. Robertson, together with other
members of Maxwell's senior management, engaged in ongoing discussions with
SEi's senior management, and financial and legal representatives, regarding
purchase price and transaction structure. Maxwell prepared several revised
drafts of a letter of intent. On November 4, 1998, the parties reached agreement
on purchase price, on the structure of the transaction, and the valuation of
Maxwell Common stock in the Merger, as well as other material terms. On November
5 and 6, 1998, the parties finalized a letter of intent and the letter of intent
was executed on November 6. Maxwell publicly announced the pending transaction
the following business day.
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<PAGE> 39
Maxwell immediately instructed its counsel to commence work on a
definitive Merger Agreement. From November 11, 1998 to November 25, 1998, the
parties, together with their counsel and outside auditors, negotiated the Merger
Agreement and prepared this Proxy Statement/Prospectus. On November 23, 1998 and
November 25, 1998, the Board of Directors of SEi held meetings at which they
discussed the Merger at length, and then voted to approve the Merger Agreement.
On November 24, 1998, a notification form was filed under the Hart-Scott-Rodino
Act for the Merger. On November 24, 1998, the Board of Directors of Maxwell
approved the Merger and the issuance of Maxwell Common stock at the Closing by
unanimous written consent. On November 25, 1998, the parties executed the Merger
Agreement.
MAXWELL'S REASONS FOR THE MERGER
In determining to approve the Merger, Maxwell's Board of Directors
considered several factors relevant to SEi's business and the risks and benefits
of combining SEi's business with Maxwell's:
- SEi has a fast-growing business in commercial products that
would diversify Maxwell's product line.
- SEi has patent-protected technology that makes it a leader in
the market for radiation hardened microelectronics for space
applications.
- There are potential synergies between the companies, as
Maxwell's Systems business has a profitable space sensors
business and is a leader in radiation testing, including in
space effects on components and parts.
- SEi has a strong management team that has built the business to
current levels in a little over six years.
Maxwell's Board also considered some significant risks associated with
the transaction, including:
- SEi's inventory and production models could quickly become
obsolete due to unexpected changes in electronics technologies
or the satellite business.
- The benefits that Maxwell would realize from the Merger could be
substantially reduced if key SEi personnel were to leave after
the Merger was completed.
- There can be no assurance that SEi can achieve continued growth
in its revenues and earnings in the highly competitive space
electronics marketplace. In addition, Maxwell may be unable to
achieve any synergies between SEi's businesses and Maxwell's own
radiation testing, space sensor and space effects businesses.
- As a result of the Merger, Maxwell's stockholders would
experience dilution of their holdings of Maxwell common stock,
and if SEi's business is not successful, Maxwell's earnings per
share would be reduced as a result.
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<PAGE> 40
Notwithstanding these risks, Maxwell's Board determined that the Merger
was in the best interests of the stockholders of Maxwell, principally because
SEi's prospects for growth and development as a microelectronics supplier to
satellite manufacturers could be enhanced by the support provided by Maxwell.
This, in turn, would have financial benefits for Maxwell and its stockholders.
SEi'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE SEi BOARD
SEi's Reasons for the Merger
The SEi Board has unanimously determined that the Merger Agreement and
the Merger are fair to, and in the best interests of, SEi and its stockholders.
In reaching its determination, the SEi Board consulted with SEi's management, as
well as its consultants, and gave significant consideration to a number of
factors. The following are reasons why the SEi Board believes the Merger will
benefit SEi and its stockholders:
- The SEi Board solicited many offers for the sale of SEi, and
Maxwell's offer to merge provides the SEi stockholders with the
best value for its common stock while maintaining continuity in
the management and strategic direction of SEi and providing
liquidity to SEi stockholders.
- In the Merger, SEi stockholders will receive Maxwell securities
which are traded in an active trading market, the Nasdaq
National Market, thereby permitting the stockholders to obtain
liquidity for their investments, in contrast to the illiquid
nature of their present holdings of SEi common stock.
- The combination of the two companies will create more growth
opportunities for both companies, provide significant economies
of scale and create greater access to capital resources. This
will enable the combined company to execute key business growth
strategies and compete more effectively with competitors having
greater resources than SEi.
- The combination of the technologies and product development
resources of SEi and Maxwell should enable SEi to respond more
effectively to the rapid technological change in and continuing
emergence of the space industry, as well as the demand for high
reliability microelectronics in the defense industry.
- The Merger will provide SEi with an expanded customer base and
product development resources to support its current marketing,
sales and distribution efforts.
In addition to the reasons set forth above, in the course of its
deliberations concerning the Merger, the SEi Board consulted with SEi's
management, financial advisor, legal counsel and accountants and reviewed a
number of other factors relevant to the Merger, including:
- Information concerning the business, assets, operations,
properties, management, financial condition, operating results,
competitive position and prospects of SEi and Maxwell.
- The historical price and volume trading data for Maxwell common
stock as well as the composition of Maxwell's stockholder base.
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<PAGE> 41
- Other alternatives available to SEi in the short and long-term
to achieve SEi's funding, liquidity and other strategic
objectives, including the availability of public and private
financing and a range of other possible business combinations.
- SEi's belief that the management styles and corporate cultures
of the two companies would be complementary.
- The expectation that the Merger will be tax deferred for federal
income tax purposes to SEi's stockholders.
The SEi Board also considered a number of potentially negative factors
in its deliberations concerning the Merger, including:
- The possibility of management disruption associated with the
Merger and the risk that key technical and management personnel
of Maxwell or SEi might not continue with the combined company.
- The possibility that the Merger might adversely affect Maxwell's
or SEi's relationship with certain of their respective
customers.
- The risk that the potential benefits of the Merger might not be
realized.
- The fact that the Merger will preclude other strategic
transaction opportunities which might have been completed by an
independent SEi resulting in higher valuation of SEi stock than
realized in the Merger.
- The risk that SEi's present customers might perceive Maxwell as
a competitor, and refuse to deal with SEi after the Merger.
- The possibility that Maxwell might institute a change in its
strategic direction, or itself be acquired, creating a
potentially adverse effect upon SEi's business prospects.
- The possibility that Maxwell's share price may significantly
change from the assumed price used to calculate the number of
shares to be exchanged pursuant to the Merger Agreement, thereby
decreasing the overall consideration paid and/or number of
shares delivered to SEi stockholders and optionholders in the
Merger.
- The other risks described above under "Risk Factors."
The SEi Board concluded, however, that the benefits of the transaction to SEi
and its stockholders outweighed the risks associated with the foregoing factors.
The foregoing discussion of the information and factors considered by
the SEi Board is not intended to be exhaustive, but is believed to include all
material factors considered by the SEi Board. In view of the wide variety of
factors considered by the SEi Board, the SEi Board did not find it practicable
to quantify or otherwise assign relative weight to the specific factors
considered. However, after taking into account all of the factors set forth
above, the SEi Board unanimously agreed that the Merger Agreement and the Merger
were fair to, and in the best interests of, SEi and its stockholders and that
SEi should proceed with the Merger.
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<PAGE> 42
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of SEi's Board with respect to the
Merger Agreement, holders of SEi common stock should be aware that certain
directors, officers and employees of SEi have certain interests in the Merger
that are in addition to and not necessarily aligned with the interests of
holders of SEi shares and options generally. The SEi Board has considered these
interests, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
Employment Agreements. Each of Robert Czajkowski, David Strobel and Paul
Blevins will, at the Effective Time of the Merger, enter into employment
agreements with SEi, the surviving corporation in the Merger. None of these
individuals currently have such agreements with SEi. There may be additional
employment agreements with David Czajkowski and Rick Ross which are currently
being negotiated.
The agreements will generally provide for a term of three years (two
years in the case of Robert Czajkowski). The salary for David Strobel will be
$155,000 per annum, Paul Blevins will receive $106,000 per annum, and Robert
Czajkowski will receive $175,000 per annum. Each person executing an employment
agreement will receive Maxwell's standard package of perquisites and employment
benefits for persons of similar rank in the Maxwell organization, and will be
eligible for annual bonuses as may be determined by Maxwell's compensation
committee. In many cases, the perquisites, benefits and bonuses are, or will be,
greater than those currently provided to them by SEi.
In addition, if any person executing an employment agreement with SEi is
terminated by Maxwell other than in the event of their death, disability or for
cause (as defined in the Employment Agreements, meaning, primarily, termination
resulting from wrongful actions at the expense of Maxwell or SEi), then that
person would receive a separation benefit. The separation benefit is the
continuation of salary for the lesser of the remaining term of the Employment
Agreement, or two years.
Noncompetition Agreements. Each person who is signing an employment
agreement, as well as the Principal Shareholders of SEi who are not signing
employment agreements, will enter into agreements in which they agree not to
compete with Maxwell. These agreements will have three year terms beginning at
the Effective Time. They will prohibit the signatories from competing against
Maxwell in either the business conducted by SEi, or by Maxwell Technologies
Systems Division, the organization to which SEi will be most closely linked
within Maxwell.
Forgivable Loans. Robert Czajkowski and David Strobel will, at the
Effective Time of the Merger, be given non-interest bearing loans from Maxwell,
in the amount of $100,000 and $60,000, respectively. Robert Czajkowski's loan is
forgivable after two years employment at Maxwell. David Strobel's loan is
forgivable after three years employment at Maxwell.
Full Circle Research, Inc. Technology Sharing Agreement. SEi and Full
Circle Research, Inc. previously entered into a Technology Sharing Agreement
which, according to its terms, upon a sale of either SEi or Full Circle
Research, Inc., each of SEi and Full Circle Research, Inc., would become owners
of a number of shares that at the time of the technology sharing agreement was
entered into equaled 10% of the outstanding common stock of the other company.
Jim Spratt, a director of SEi and principal owner of Full Circle Research, Inc.,
will substantially benefit from the Merger as he and his spouse who were
transferred shares from Full Circle Research, Inc. become a substantially more
significant owner of SEi and receive a substantial number of shares of
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Maxwell common stock at the Effective Time of the Merger in exchange for its
just acquired shares of SEi common stock.
Acceleration of SEi Options. Many of the options granted by SEi to its
employees have not yet vested, but will vest, as a result of the Merger, prior
to the Effective Time. Some of these options are held by senior management of
SEi. See "Security Ownership of Certain Beneficial Owners and Management
of SEi." All options which are vested prior to the Effective Time will be
exchanged for Maxwell common stock at an exchange ratio based on the option
exercise price.
SEi Option Plan. An option plan will be instituted at SEi following the
Merger in order to incentivize SEi's key employees and senior Maxwell officers
who will have management responsibility for SEi's business. The option plan pool
will be equal to 15% of the outstanding common stock of SEi. Of that pool, 8% of
the options will be granted to key SEi employees (to persons and in amounts to
be determined after completion of the Merger by senior SEi management in
consultation with the President of Systems Division), 2% will be granted to
senior Maxwell officers, and 5% will be reserved for future grant to key
employees hired by SEi after the Merger. The exercise price of an option to
purchase SEi common stock after the Merger will be computed based on the fair
market value of post-Merger SEi common stock. That fair market value will be
based in large part on the value of SEi shown by the consideration paid by
Maxwell in the Merger.
Maxwell Options. Certain SEi employees will be eligible for
participation in Maxwell's 1995 Stock Option Plan. They will be granted options
by Maxwell's compensation committee of its Board of Directors at such time and
in such amounts as the committee may determine, based on advice from Maxwell's
management. The exercise price for any options granted under the 1995 Plan is
based on the fair market value of a share of Maxwell common stock at the time of
grant, based on the trading price of the stock on Nasdaq.
TERMS OF THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A hereto. This summary is
qualified in its entirety by reference to the full text of the Merger Agreement.
All stockholders of SEi are urged to read the Merger Agreement, and the exhibits
to the Merger Agreement included in Annex A, carefully and in their entirety.
THE MERGER
The Merger Agreement provides that, subject to the satisfaction or
waiver of the terms and conditions contained therein, including the approval of
90% of the stockholders of SEi voting, in person or by proxy, at the Special
Meeting, MT Acquisition Corporation will be merged with and into SEi, SEi will
be the surviving corporation, and SEi will become a wholly owned subsidiary of
Maxwell. The Merger becomes effective when a certificate of Merger is filed with
the Secretary of State of Delaware, and that time is defined as the "Effective
Time" of the Merger, and the date on which that occurs is defined as the
"Closing Date."
SEi as the surviving corporation will adopt the certificate of
incorporation and bylaws of MT Acquisition Corporation, until such time as those
documents are amended.
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MERGER CONSIDERATION
Maxwell is obligated to issue 893,617 new shares of Maxwell common stock
to SEi's stockholders and option holders when the Merger becomes effective. The
number of shares issued may change as a result of an adjustment to the exchange
ratio described below. According to the terms of those options, all SEi options
that are not currently vested will be accelerated and become vested at the
Effective Time and therefore will be entitled to be exchanged for Maxwell common
stock.
EXCHANGE OF SEi COMMON SHARES
Each SEi Common Share will be exchanged for 0.42258 shares of Maxwell
common stock. No fractional shares will be issued on account of SEi Common
shares being converted into Maxwell common stock, and instead cash equal to the
fraction multiplied by $23.50 will be paid to the option holder. The exchange
ratio and the value used to determine the cash paid in lieu of fractional shares
are each subject to adjustment as disclosed below.
The number of shares of Maxwell common stock received by an SEi
stockholder immediately after the Merger will be reduced by 10% as a result of
the Escrow, described below.
EXCHANGE OF SEi OPTIONS
The formula to determine the number of shares of Maxwell common stock
each option would be entitled to is as follows:
(1) The fully diluted equity of SEi has an agreed upon
value of $21.0 million. SEi has 1,771,797 shares outstanding, and 510,943
options. The aggregate exercise price of these options is approximately
$1,668,864. To determine the value of one share or share equivalent, SEi's Board
added $21.0 million to the aggregate option exercise price and divided that
amount by the total number of shares and share equivalents outstanding. This
provided a fixed value of approximately $9.93 per SEi share.
(2) An option has a deemed value equal to $9.93 less its
exercise price. Each option will be converted into the number of Maxwell shares
determined by comparing its exercise price to the exchange ratio in the table
below. No fractional shares will be issued on account of options converted into
Maxwell common stock, and instead cash equal to the fraction multiplied by
$23.50 will be paid to the option holder.
<TABLE>
<CAPTION>
Option Exercise Price Exchange
Per Common Share Ratio
--------------------- --------
<S> <C>
0.51 0.40113
1.41 0.36262
3.62 0.26853
5.55 0.18641
6.37 0.15151
</TABLE>
The number of shares of Maxwell common stock received by an SEi option
holder immediately after the Merger will be reduced by 10% as a result of the
Escrow, described below.
ADJUSTMENT TO EXCHANGE RATIO
The exchange ratio pursuant to which SEi shares and options will be
converted into Maxwell common stock is subject to adjustment. An adjustment
would be made if, and only if, the average closing price of Maxwell common stock
on Nasdaq on the 20 trading days preceding the closing date of the Merger either
exceeds $29.00 or is less than $22.50.
The adjustment in the total number of shares to be issued would assume a
transaction value based on the 893,617 Maxwell shares to be issued prior to the
adjustment multiplied by either the $29.00 or $22.50 price that is applicable.
This new transaction value would be divided by the actual 20-day average price
of Maxwell common stock to determine the new number of Maxwell shares to be
issued. More than 893,617 Maxwell shares would be issued if the 20-day average
price were to be below $22.50, and fewer Maxwell shares would be issued if the
average exceeds $29.00.
In order to determine the new exchange ratio, the Merger Agreement first
requires that the number of Maxwell shares exchangeable for SEi options be
determined. This determination is made by calculating a new deemed value per SEi
share, equal to the new deemed transaction value (893,617 times $29.00, or
$22.50) plus the aggregate exercise price of the SEi options, with that sum
divided by the total number of SEi shares and SEi options, added together. The
new deemed value per SEi share is used to compute the number of Maxwell shares
allocable to each class of options issued by SEi, and all remaining Maxwell
shares are allocated to the SEi Common Stock. If the adjustment is made because
the 20-day average of Maxwell common stock exceeds $29.00, the SEi options will
have relatively more value and therefore would further dilute the holdings of
SEi common stockholders. Conversely, if more Maxwell shares are issued because
the 20-day average is below $22.50, the SEi options would receive a lower
percentage of the total Merger consideration. In any event, the adjusted
exchange ratio for the SEi common stock would equal the total SEi shares
outstanding divided by the new number of Maxwell common shares to be issued in
respect of the SEi common shares (as opposed to options).
The number of Escrow Shares would be 10% of the new total of Maxwell
common shares to be issued, and the cash payment in lieu of fractional shares
would be based on the 20-day average of closing prices for Maxwell common stock.
EXCHANGE OF STOCK CERTIFICATES AND STOCK OPTION AGREEMENTS
Maxwell's Transfer Agent for its common stock, ChaseMellon Shareholder
Services LLC, will act as exchange agent for the Merger.
Prior to the Effective Time of the Merger, Maxwell will make available
to SEi stockholders a form of a letter of transmittal that must be duly executed
and accompany the surrender of certificates of SEi common stock, and stock
option agreements, in order to receive certificates for newly-issued Maxwell
common stock, and cash in lieu of fractional shares, issued in exchange for SEi
common
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stock or SEi Options, as the case may be. An SEi stockholder is at risk for the
loss of his or her SEi stock certificates, or stock option agreements, until
those documents are actually received by Maxwell's exchange agent.
If an SEi stockholder or option holder presents the required
documentation at the offices of SEi on the Closing Date, Maxwell common stock
and cash in lieu of fractional shares will be delivered promptly to the
stockholder or option holder. If a stockholder or option holder does not present
the documentation to SEi for surrender to the Exchange Agent on the Closing
Date, then Maxwell or the Exchange Agent will mail a letter of transmittal to
the stockholder or option holder, together with instructions for delivering the
letter of transmittal, plus SEi stock certificates or stock option
agreements, to the Exchange Agent. If those documents are received by mail and
the instructions followed, a stock certificate representing Maxwell common stock
and any cash in lieu of fractional shares will be mailed to the former SEi
stockholder or option holder.
An SEi stock certificate held prior to the Merger will not represent an
ownership interest in SEi after the Effective Time, and an option agreement will
no longer entitle the holder to purchase SEi common stock. Until a certificate
representing shares of SEi or an option agreement is surrendered to the Exchange
Agent, it will only represent the right to receive that number of shares of
Maxwell common stock (less the amount escrowed) into which it is convertible as
a result of the Merger, plus the right to receive cash in lieu of fractional
shares.
All shares of Maxwell common stock issued to the SEi stockholders or
option holders in the Merger upon the surrender for exchange of SEi's shares or
options in accordance with the terms of the Merger, including the Escrowed
Shares and cash in lieu of fractional shares, will be deemed to have been issued
in full satisfaction of all rights pertaining to SEi shares or SEi options.
Certificates and option agreements should not be surrendered by the
holders of SEi shares and SEi option agreements until holders receive the letter
of transmittal.
STOCKHOLDER INDEMNIFICATION; ESCROW AGREEMENT
Upon consummation of the Merger, 89,362 shares of Maxwell common stock
(assuming no adjustment to the exchange ratio) otherwise deliverable as
consideration to the SEi stockholders will instead be delivered into escrow. The
escrow is intended to provide Maxwell with recourse in the event that SEi
breaches any representations, warranties or covenants made in the Merger
Agreement. In the event of such a breach, Article 12 of the Merger Agreement
provides that each shareholder of SEi will, for a period of 18 months, indemnify
Maxwell and its affiliates (including SEi after the Merger) for all losses,
costs, damages or liabilities (including, without limitation, reasonable
attorneys' fees) suffered by them. In addition, Maxwell and its affiliates are
indemnified for any taxes that should have been paid or accrued for by SEi, but
were not. Other than the Principal Stockholders of SEi, no shareholder of SEi is
liable to Maxwell in the event of a breach of a representation, warranty or
covenant for an amount that exceeds an SEi's stockholders proportional share of
the funds (in the form of Maxwell common stock).
In the event Maxwell has an appropriate claim for indemnification,
Escrowed Shares held by the escrow agent will be returned to Maxwell in
satisfaction of the claim. Except for certain limited circumstances (excluding
the failure of SEi to
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have paid or accrued all taxes and breaches of covenants made by SEi), in no
event may Maxwell recover under an indemnification claim unless the aggregate
amount of all losses exceeds $100,000, and then only to the extent the aggregate
loss exceeds $100,000.
If a claim is made, the escrow agent will deliver to Maxwell an amount
of shares of Maxwell common stock with a total value (based on $23.50 per share)
equal to the Maxwell's losses, unless within 30 days of the date of a claim the
Stockholder Representatives send the escrow agent a written notice objecting to
the claim. If the Stockholder Representatives object to Maxwell's claim, the
dispute will be submitted to an arbitrator if not previously settled. The $23.50
value will change if the exchanged ratio is adjusted to Maxwell's 20-day average
closing price prior to the Merger.
Under the terms of the Merger Agreement, if it is approved by the
stockholders of SEi, the SEi stockholders will have been deemed to have
irrevocably appointed Robert Czajkowski and David Strobel as the Shareholder
Representatives. In that capacity, each Shareholder Representative, acting
alone, as the attorney-in-fact for the SEi stockholders, will have the power to
contest, settle, compromise or otherwise dispose of any claim made by Maxwell or
its affiliates under the Escrow Agreement. Further, in the Merger Agreement, Mr.
Czajkowski and Mr. Strobel have received the same appointment from the Principal
Shareholders with respect to their indemnification obligations to Maxwell and
its affiliates. No stockholder or Principal Shareholder will have the right to
object to any decision taken by either of the Shareholder Representatives to
release escrow shares to Maxwell in order to satisfy indemnification claims.
The Escrow Agreement requires the escrow agent to deliver to the former
SEi stockholders the Escrowed Shares remaining in escrow 12 months after the
Effective Time, except that if there is a claim by Maxwell prior to that date,
the escrow agent will retain shares equal to 150% of the amount in dispute in
order to cover such claims and additional expenses that may arise in resolving
them, until the claims are resolved. Although SEi is not now aware of any
claims, threatened or asserted, that might lead to return of Escrowed Shares to
Maxwell, it should be understood that the claims could arise resulting in the
entire number of Escrowed Shares being returned to Maxwell. In that event no
shares will be available for distribution to the former SEi shareholders after
the 12 month period has run.
Because the Escrowed Shares will be valued at the same $23.50 price used
to determine the number of shares of Maxwell common stock included in the Merger
consideration, the former SEi stockholders would not, as it relates to any
escrow claims paid, have the benefit of any increase, nor risk of any decrease,
in the market price of Maxwell common stock after the Effective Time of the
Merger.
Shares held in escrow will be registered in the name of the escrow
agent, and the stockholders will be entitled to instruct the escrow agent how to
vote his, her or its shares with respect to any matters placed before the
Maxwell stockholders. SEi stockholders will be entitled to receive cash
dividends, if any, declared or paid by Maxwell on its common stock, but Maxwell
has not paid cash dividends historically. Any additional shares of Maxwell
common stock, or other property that are distributed with respect to the
escrowed shares during the escrow period will be held under the Escrow Agreement
to satisfy any indemnification claims.
REPRESENTATIONS AND WARRANTIES
Each of Maxwell and SEi are making certain representations and
warranties to the other regarding their authority to enter into the transaction
and their business. SEi's representations and warranties are deemed to made by
each SEi stockholder, and also by the Principal Shareholders.
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SEi, its stockholders and Principal Shareholders represent and warrant:
- That SEi is duly organized and in good standing, and qualified
to do business in all states where qualification is required.
- That other than its interest in Full Circle Research, SEi does
not own any capital stock or securities of any entity.
- That SEi's capital stock is duly issued and was issued in
accordance with applicable law.
- That all authorizations, approvals and consents (other than
scheduled items) to enter into the Agreement have been obtained,
and the agreement is enforceable.
- That the Merger does not violate any laws or breach any material
contract of SEi.
- That SEi has paid or accrued for all taxes due.
- As to SEi's transactions with affiliates.
- As to the fair presentation of SEi's financial position in all
material respects in the financial statements of SEi.
- As to SEi's title to its assets and properties.
- That SEi has valid leases and occupancy rights for its real
property.
- That SEi's intellectual property is owned by SEi and does not
infringe the rights of others. SEi further represents that it
has taken steps to protect its intellectual property and that
its software and hardware is free of bugs and viruses in all
material respects.
- As to SEi's accounts receivable and inventory.
- That SEi has all material licenses and permits, and necessary
insurance coverage.
- As to the absence of certain changes in SEi's business since
December 31, 1997.
- As to SEi's material contracts.
- As to SEi's relationship with its suppliers and customers.
- That SEi is in compliance with applicable laws.
- That there are no liabilities of SEi not disclosed to Maxwell.
- As to SEi's employees and employee benefits plans.
- That SEi has no material litigation.
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- That SEi is in compliance with environmental laws, except as
failures to comply that would not have a material adverse effect
on SEi's business.
- That SEi has no obligation to any broker for the transaction,
other than Arthur Andersen LLP.
- That SEi's computer systems or products will not fail in any
material respect as a result of the Year 2000 problem.
- That SEi's government contracts have been performed in
accordance with law and that its foreign business has not been
conducted in violation of any applicable laws.
- That SEi has no material warranty or product liability, except
as disclosed to Maxwell.
- As to the information contained in this Proxy
Statement/Prospectus supplied by SEi.
The Principal Stockholders of SEi separately represent and warrant that
they own their SEi shares, and have the power and authority to enter into the
Merger Agreement.
Maxwell and MT Acquisition Corporation represent and warrant:
- That each is duly organized and in good standing, and qualified
to do business in all states where qualification is required.
- As to Maxwell's capital structure.
- That all authorizations, approvals and consents (other than
scheduled items) to enter into the Agreement have been obtained,
and the agreement is enforceable.
- That the Merger does not violate any laws or breach any material
contract of Maxwell.
- As to the financial statements and reports filed by Maxwell with
the SEC since January 1, 1996.
- That Maxwell has no obligation to brokers or finders.
- That the shares of Maxwell common stock to be issued in the
Merger to SEi's stockholders are duly issued.
- As to the absence of any material adverse change in Maxwell's
business.
- As to the information supplied by Maxwell in this Proxy
Statement/Prospectus.
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In many cases, the representations and warranties of a party would not
be incorrect unless a fact or circumstance would have a "material adverse
effect" on SEi or Maxwell, or one of their assets, business, properties,
prospects, financial condition or results of operations.
CERTAIN COVENANTS
Each of Maxwell and SEi (including SEi's Principal Shareholders) make
certain covenants in the Merger Agreement.
Each party covenants to:
- Use their reasonable best efforts to complete the transaction.
- Give notice to the other party if they discover their
representations and warranties may no longer be accurate.
- To consult each other regarding publicity.
- To prepare and file a registration statement with the SEC
containing this Proxy Statement/Prospectus, and to comply with
the Hart-Scott-Rodino Act.
- To update their disclosure schedules as necessary.
- To refrain from actions that would jeopardize pooling-of-
interests accounting treatment for the Merger.
SEi in addition covenants to:
- Conduct its business in the ordinary course, and to refrain from
taking a number of actions that might have a material effect on
its business without Maxwell's consent, which consent is not to
be unreasonably withheld or delayed.
- Not to enter into any discussions regarding other transactions
involving an acquisition of SEi. If SEi breaches this covenant,
Maxwell will be paid $500,000, and Maxwell will have the right
to pursue all remedies it may have available.
- To provide Maxwell with full access to SEi's business so Maxwell
may continue its due diligence.
- To cause its affiliates to take all actions necessary to cause
the Merger to qualify for pooling-of-interests accounting
treatment, and as a tax free reorganization.
- To convene a shareholder meeting as described in this Proxy
Statement/Prospectus.
Maxwell in addition has undertaken to perform certain covenants after
the Effective Time of the Merger:
- To adopt a stock option plan for SEi. The number of shares in
the plan pool would equal 15% of the outstanding common stock of
SEi after the Merger.
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- To maintain a board of advisors at SEi for a period of at least
one year.
- To cause SEi to be part of the Maxwell Technologies Systems
Division, and to place Systems' Radiation Source Business into
SEi. SEi's executive officers would manage the day-to-day
operations of SEi, with all of the foregoing to be consistent
with Maxwell's overall business goals.
CONDITIONS TO THE MERGER
The obligations of Maxwell and SEi to consummate the Merger are subject
to a number of conditions, any of which may be waived by Maxwell. The conditions
that need to be satisfied for Maxwell to be obligated to close are:
- That the representations and warranties of SEi and its Principal
Shareholders are true in all material respects on the Closing
Date as if made on that date, and that SEi and the Principal
Shareholders have complied in all material respects with all
covenants made by them.
- That all consents and approvals necessary to consummate the
Merger have been obtained.
- That at the meeting of SEi's stockholders, 90% of the shares
present and voting in person or by proxy shall have voted in
favor of the Merger.
- That there is no material litigation involving SEi or that might
block the transaction. Additionally, no legislation or
regulation shall have been enacted that would have a material
adverse effect on SEi or the transaction.
- That there has been no material adverse change in the assets,
properties, financial condition, business, prospects or results
of operations of SEi.
- That an opinion of Luce, Forward, Hamilton & Scripps LLP,
counsel to SEi and the Principal Shareholders, shall have been
delivered.
- Each of Robert Czajkowski, David Strobel, and Paul Blevins shall
have entered into employment and noncompetition agreements with
Maxwell, and the other Principal Stockholders shall have entered
into noncompetition agreements.
- Each Principal Stockholder or other affiliate of SEi shall have
delivered an investment letter to Maxwell regarding certain
restrictions on and representations regarding sales of SEi and
Maxwell common stock.
- Maxwell shall have received evidence to its satisfaction,
including, if it so desires, opinions of Ernst & Young LLP,
Maxwell's independent public auditors, and of Arthur Andersen
LLP, SEi's independent public accountants, that the Merger
qualifies for pooling-of-interests accounting treatment.
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- The Escrow Agreement shall have been delivered by the
Stockholder Representatives.
- The holders of no more than 5% of the issued and outstanding SEi
common stock shall have exercised dissenters' or appraisal
rights.
- The shares of Maxwell common stock to be issued in the Merger
shall have been registered with the SEC, and designated for
listing on the Nasdaq National Market.
- The waiting period under the HSR Act shall have expired or been
terminated.
SEi's obligation to consummate the Merger is subject to the following
conditions, any of which may be waived by the Shareholder Representatives or by
SEi:
- That the representations and warranties of Maxwell are true in
all material respects on the Closing Date as if made on that
date, and that Maxwell has complied in all material respects
with all covenants required to be performed by it prior to the
Effective Time.
- That all consents and approvals necessary for Maxwell to
consummate the Merger have been obtained.
- That no litigation is pending to restrain to prohibit the
Merger.
- That there has been no material adverse change in the assets,
properties, financial condition, business, prospects or results
of operations of Maxwell.
- That opinions of Riordan & McKinzie, counsel to Maxwell, and of
Donald M. Roberts, General Counsel of Maxwell, shall have been
delivered.
- That Maxwell shall have caused SEi to enter into the employment
and noncompetition agreements.
- The Escrow Agreement shall have been executed and delivered by
Maxwell.
- The shares of Maxwell common stock to be issued in the Merger
shall have been registered with the SEC, and designated for
listing on the Nasdaq National Market.
- The waiting period under the HSR Act shall have expired or been
terminated.
- The technology transfer agreement with Full Circle Research
shall have been terminated or renegotiated, and such termination
or new terms would not reasonably be expected to have a Material
Adverse Effect on SEi.
TERMINATION; EXPENSES; AMENDMENTS
Termination. The agreement may be terminated by mutual consent of the
Boards of Directors of Maxwell and SEi. In addition, Maxwell may terminate the
agreement if it has reasonable grounds to believe there has been a material
breach of a representation or warranty or covenant of SEi or the
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Principal Stockholders, if such breach is not curable, or if curable, is not
cured within ten days of SEi receiving written notice of the breach.
Additionally, Maxwell and SEi each have the right to terminate the agreement if
the Merger is not consummated before the later of (1) January 31, 1999, (2) 30
business days after this Proxy Statement/Prospectus is mailed to the SEi
shareholders, or (3) five business days after the review of the transaction
under the HSR Act is completed. Further, prior to December 4, 1998, either party
may terminate the agreement if it is not satisfied with facts or circumstances
discovered in its due diligence of the other party.
Expenses. If the Merger Agreement is terminated, each party will pay the
expenses it incurred in connection with the Merger and the related transactions,
including legal and accounting expenses. In certain events, if Maxwell
terminates the transaction, Maxwell will be required to pay the fees and
expenses of the SEi incurred in connection with the transaction. If the Merger
is completed, the expenses of SEi will be paid by SEi and the expenses of
Maxwell will be paid by Maxwell.
Amendments. The Merger Agreement may be amended in writing by Maxwell,
SEi and a Stockholder Representative at any time before or after the approval of
the Merger Agreement by the SEi stockholders. After stockholder approval has
been obtained, no material amendment of any of the Merger Agreement may be made
which by law requires further approval of the SEi stockholders, without
obtaining the stockholders' approval.
VOTING AGREEMENTS
Concurrently with the execution of the Merger Agreement, certain
stockholders of SEi, including Robert Czajkowski, a director and Chief Executive
Officer of SEi, David Strobel, a director and President of SEi, and Paul
Blevins, SEi's Chief Financial Officer, have entered into a Voting Agreement
with Maxwell to vote their shares in favor of the Merger and against any other
business combination of SEi involving a party other than Maxwell. The shares of
SEi common stock subject to the Voting Agreement represent approximately 78% of
the outstanding shares of SEi common stock as of the record date for the Special
Meeting of SEi stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Holders of SEi common stock are urged to consult with their tax advisors
as to the specific tax consequences to them of the Merger and the related
transactions, including the effects of applicable federal, state, local, foreign
and other tax laws.
The following discussion summarizes certain federal income tax
consequences of the Merger generally applicable to holders of SEi common stock
who hold SEi stock as a capital asset, which is, generally, property held for
investment. The discussion does not address the individual tax position of any
holder of SEi common stock nor does it address the tax consequences that may be
relevant to holders of SEi common stock with a special tax status, including
without limitation, holders that are not citizens or residents of the United
States, holders who are tax-exempt entities, and holders that acquired SEi
common stock upon the exercise of employee stock options or otherwise as
compensation. Moreover, the following discussion does not address the tax
consequences of the Merger under foreign, state or local tax laws or the
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger). Finally, the tax
consequences to holders of stock options are not discussed.
The following discussion is based on existing provisions of the Internal
Revenue Code (the "Code"), existing Treasury Regulations promulgated thereunder,
and administrative rulings and court
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decisions as of the date hereof. All of the foregoing are subject to change,
possibly with a retroactive effect, and any such change could affect the
accuracy of the following discussion. No ruling has been or will be sought from
the Internal Revenue Service (the "IRS") concerning the tax consequences of the
Merger.
Luce, Forward, Hamilton & Scripps LLP, counsel to SEi, has delivered to
SEi an opinion, dated on or about the date hereof (which will be confirmed when
the Merger is consummated), to the effect that the Merger will constitute a
"reorganization" for federal income tax purposes within the meaning of Section
368(a) of the Code. SEI's obligation to effect the Merger is conditioned on the
confirmation of such opinion when the Merger is consummated. On the basis of the
foregoing and subject to the qualifications set forth below, it is the opinion
of Luce, Forward, Hamilton & Scripps LLP that as a result of the Merger
qualifying as a "reorganization," the following United States Federal income tax
consequences will result:
(1) the Merger will constitute a reorganization within the meaning of
Section 368(a)(2)(E) and Section 368(a)(1)(A) of the Code, and SEi, Maxwell and
MT Acquisition Corporation will be parties to the reorganization under Section
368(b) of the Code;
(2) no gain or loss will be recognized by the stockholders of SEi upon
the exchange of their SEi common stock solely for shares of Maxwell common stock
pursuant to the Merger, except to the extent that a holder of SEi common stock
receives cash in lieu of a fractional share of Maxwell common stock.
(3) stockholders of SEi who receive cash in lieu of fractional shares of
Maxwell common stock will recognize gain or loss equal to the difference between
the amount of such cash and the tax basis allocated to such stockholder's
fractional share of Maxwell common stock. Such gain or loss will constitute
capital gain or loss if, on the date the Merger is consummated, such stockholder
has held the SEi common stock as a capital asset;
(4) the aggregate tax basis of the Maxwell common stock received by the
stockholder of SEi pursuant to the Merger (including fractional shares) will be
the same as the aggregate tax basis of such stockholder's SEi common stock
exchanged therefor, provided that the SEi common stock surrendered is held as a
capital asset on the date the Merger is consummated; and
(5) the holding period of the Maxwell common stock received by the SEi
stockholders will include the holding period of the SEi common stock surrendered
in exchange therefor pursuant to the Merger, provided that the SEi common stock
surrendered is held as a capital asset on the date the Merger is consummated.
The opinion of Luce, Forward, Hamilton & Scripps LLP discussed above is
conditioned on the truth and accuracy of certain assumptions, is subject to
certain limitations and qualifications and is based on current law and, among
other things, certain representations of Maxwell and SEi. Reference is made to
the full text of such opinion, which sets forth the assumptions made and matters
considered in connection therewith, a copy of which has been filed as an exhibit
to Maxwell's Registration Statement on Form S-4 of which this Proxy
Statement/Prospectus forms a part. Opinions of counsel are not binding on the
IRS and do not preclude the IRS from adopting a contrary position. In addition,
if any of such representations or assumptions, upon which Luce, Forward,
Hamilton & Scripps LLP expressly relied when rendering its opinion, are
inconsistent with the actual facts, the tax-free status of the Merger could be
adversely affected.
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THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF CERTAIN OF THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO SEi STOCKHOLDERS, WITHOUT
CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH STOCKHOLDER'S
SITUATION. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL
ADVISORS AS TO MATTERS DESCRIBED HEREIN AND ALSO AS TO ANY ESTATE, GIFT, STATE,
LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE MERGER.
Please note that tax consequences to holders of SEi options of the
Merger are not addressed herein. Option holders are urged to consult their own
tax advisors.
ACCOUNTING TREATMENT OF THE MERGER
The Merger is expected to qualify as a pooling-of-interests for
financial reporting purposes in accordance with GAAP, which means that Maxwell
will restate its historical consolidated financial statements to include the
assets, liabilities, stockholders' equity and results of operations of SEi.
REGULATORY APPROVAL
Under the HSR Act and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until
notification and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied.
On November 24, 1998, Maxwell and SEi each filed notification and report
forms with respect to the Merger under the HSR Act with the FTC and the
Antitrust Division. The required waiting period with respect to the Merger will
expire at 11:59 p.m. on December 24, 1998. At any time before or after
consummation of the Merger, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of Maxwell or SEi or any of their respective
subsidiaries. At any time before or after the consummation of the Merger, and
notwithstanding that the HSR Act waiting period has expired, any state could
take such action under its antitrust laws as it deems necessary or desirable.
Such action could include seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of Maxwell or SEi or the Surviving
Corporation. Private parties also may seek to take legal action under the
antitrust laws under certain circumstances.
STOCK EXCHANGE LISTING
It is a condition to the consummation of the Merger that the shares of
Maxwell Common Stock issuable to the stockholders of SEi be designated for
listing on the Nasdaq National Market.
RIGHTS OF DISSENTING STOCKHOLDERS
SEi stockholders may be entitled to demand dissenters rights under
Delaware and California law.
DISSENTERS' RIGHTS UNDER DELAWARE LAW
The following is a brief summary of the procedures for stockholders of
SEi who dissent from the Merger and demand statutory appraisal rights. This
summary is qualified in its entirety by
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reference to Annex B which sets forth the full text of Section 262 of the
Delaware General Corporation Law ("Section 262").
If the Merger is consummated, holders of record of SEi common stock on
the date of the making of a demand pursuant to the provisions of Section 262,
who continuously hold such shares through the Effective Time, have otherwise
complied with Section 262 and have not voted in favor of the Merger will be
entitled to have their shares of SEi common stock (the "Dissenting Stock")
appraised by the Delaware Court of Chancery (the "Chancery Court") and to
receive payment of the fair value of such Dissenting Stock at the Effective Time
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) as determined by such court.
Section 262 represents the exclusive statutory remedy available under
the Delaware General Corporation Law to holders of SEi common stock who elect to
seek appraisal of the fair value of their shares. Persons who are beneficial
owners of shares of SEi common stock but whose shares are held of record by
another person, such as a broker, bank or nominee, should instruct the record
holder to follow the procedures outlined below if such persons wish to dissent
with respect to any or all of their shares. Failure to take any necessary step
may result in a termination or waiver of appraisal rights under Section 262.
Under Section 262, not less than 20 days prior to the SEi Special
Meeting, SEi is required to notify each stockholder eligible for appraisal
rights of the availability of such appraisal rights. This Prospectus/Proxy
Statement constitutes notice to SEi's stockholders that appraisal rights are
available to them. Stockholders of record who desire to exercise their appraisal
rights must satisfy all of the following conditions. A written demand for
appraisal of any shares of SEi common stock must be filed with SEi before the
taking of the vote on the Merger. Such written demand must reasonably inform SEi
of the identity of the stockholder of record and of such stockholder's intention
to demand appraisal of SEi common stock held by such stockholder. This written
demand for appraisal of shares must be in addition to and separate from any
proxy or vote abstaining from or voting against the Merger. Neither voting
against, abstaining from voting on, failing to return a proxy with respect to,
nor failing to vote on the Merger will constitute a demand for appraisal under
Section 262.
Stockholders electing to exercise their appraisal rights under Section
262 must not vote for the approval of the Merger (a failure to return a proxy
will satisfy this condition). If a stockholder returns a signed proxy but does
not specify a vote against the approval of the Merger or a direction to abstain,
the proxy will be voted for the approval of the Merger, which will have the
effect of waiving such stockholder's appraisal rights.
Only the holder of record of SEi common stock is entitled to seek
appraisal of the fair value of the shares registered in such holder's name. A
demand for appraisal must be executed by or for the stockholder of record, fully
and correctly, as such stockholder's name appears on the certificate(s) for SEi
common stock. If SEi common stock is owned of record in a fiduciary capacity
(such as by a trustee, guardian or custodian), such demand must be executed by
the fiduciary. If SEi common stock is owned of record by more than one person
(as in a joint tenancy or tenancy in common), such demand must be executed by
all owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such agent is acting as agent for the
record owner.
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A record owner, such as a person who holds SEi common stock as a nominee
for others, may exercise the right of appraisal with respect to the shares held
for all or fewer than all beneficial owners of shares of SEi common stock as to
which the holder is the record owner. In such case, the written demand must set
forth the number of shares covered by such demand. Where the number of shares is
not expressly stated, the demand will be presumed to cover all shares of SEi
common stock outstanding in the name of such record owner. A dissent submitted
by a beneficial owner who is not the record owner will not be honored.
A stockholder who elects to exercise appraisal rights should mail or
deliver such stockholder's written demand to SEi at 4025 Sorrento Valley
Boulevard, San Diego, California 92121, Attention: Secretary. The written demand
for appraisal should specify the stockholder's name and mailing address and the
number of shares of SEi common stock owned by such stockholder and that such
stockholder is demanding appraisal of such shares. Within 10 days after the
Effective Time, SEi must provide notice of the Effective Time to all
stockholders who have complied with Section 262 and have not voted for the
approval of the Merger.
Within 120 days after the Effective Time, either SEi or any stockholder
who has complied with Section 262 may file a petition in the Chancery Court
demanding a determination of the fair value of such stockholder's dissenting
Stock. If a petition for an appraisal is timely filed, after a hearing on such
petition, the Chancery Court will determine those stockholders entitled to
appraisal rights and will appraise the shares of SEi common stock owned by such
stockholder, determining the fair value of such dissenting Stock, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest to be paid, if any, upon the
amount determined to be the fair value. In determining fair value, the Chancery
Court is to take into account all relevant factors. In Weinberger v. UOP, Inc.
457 A.2d 701 (1983), the Delaware Supreme Court expanded the factors that could
be considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered and that "fair price obviously requires consideration of all
relevant factors involving the value of a company...." The Delaware Supreme
Court stated that in making this determination of fair value, the court must
consider market value, asset value, dividends, earnings prospects, the nature of
the enterprise and any other facts which could be ascertained as of the date of
the Merger which throw any light on future prospects of the merged corporation.
Section 262 provides that fair value is to be "exclusive of any element of value
arising from the accomplishment or expectation of the Merger." In Weinberger,
the Delaware Supreme Court held that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the date
of the Merger and not the product of speculation, may be considered."
Stockholders considering seeking appraisal should be aware that the fair
value of their dissenting Stock determined under Section 262 could be more than,
the same as or less than the value of the shares of Maxwell common stock that
they otherwise would have received if they did not seek appraisal of their
dissenting Stock.
The cost of the appraisal proceeding may be determined by the Chancery
Court and taxed against the parties as the Chancery Court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the Chancery Court
may order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of
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all dissenting Stock entitled to appraisal. In the absence of such a
determination or assessment, each party bears his own expenses.
Any stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the consummation of the Merger, be entitled to vote
for any purpose the dissenting Stock subject to such demand or to receive
payment of dividends or other distributions on such Dissenting Stock, except for
dividends or distributions payable to stockholders of record at a date prior to
the consummation of the Merger.
At any time within 60 days after the consummation of the Merger, any
stockholder shall have the right to withdraw his or her demand for appraisal and
to accept the shares of Maxwell common stock in exchange for their shares of SEi
common stock; after this period, the stockholder may withdraw the demand for
appraisal only with the consent of SEi. If no petition for appraisal is filed
with the Chancery Court within 120 days after the consummation of the Merger,
stockholders' rights to appraisal shall cease, and all stockholders shall be
entitled to receive the shares of Maxwell common stock in exchange for their
shares of SEi common stock. Inasmuch as SEi has no obligation to file such a
petition, and has no present intention to do so, any stockholder who desires
such a petition to be filed is advised to file it on a timely basis. However, no
petition timely filed in the Chancery Court demanding appraisal shall be
dismissed as to any stockholder without the approval of the Chancery Court, and
such approval may be conditioned upon such terms as the Chancery Court deems
just.
DISSENTERS' RIGHTS UNDER CALIFORNIA LAW
The following discussion is not a complete statement of the law relating
to dissenters' rights and is qualified in its entirety by reference to Annex C,
which sets forth the full text of Sections 1300 through 1312 of the California
Corporations Code. As used in this summary and in Sections 1300 through 1312,
the term "dissenting stockholder" means the record holder of the dissenting
shares. A person having a beneficial interest in common stock which is held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record stockholder to timely and property follow the steps
summarized below to perfect whatever dissenter's rights the beneficial
stockholder may have.
Pursuant to Sections 1300 through 1312 of the California Corporations
Code, any stockholder of SEi entitled to vote at the Special Meeting may require
SEi to purchase his or her shares of SEi common stock for cash if they qualify
as dissenting shares under said Sections ("Dissenting Shares"). The purchase
price of Dissenting Shares purchased pursuant to said Sections is the fair
market value as of the day before the first announcement of the terms of the
Merger, excluding any appreciation or depreciation in contemplation of the
Merger.
A stockholder may not vote such shares in favor the Merger. Assuming
that the Merger is approved at the Special Meeting, SEi will, within 10 days
thereafter, mail a Notice of Approval by Stockholders to each stockholder whose
shares could qualify as Dissenting Shares. The Notice of Approval will state the
price determined by SEi as the fair market value and will constitute an offer to
purchase Dissenting Shares at that price. The stockholder must make a separate
written demand for purchase of such shares for cash at their fair market value
which must be received by SEi not later than 30 days after the Notice of
Approval. Any demand which is not timely received is not effective for any
purpose.
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The written demand must (1) state the number of shares which are held of
record by the stockholder which the stockholder demands that SEi purchase and
(2) state the amount which the stockholder claims to be the fair market value as
of November 8, 1998, the day before the first announcement of the terms of the
Merger. The claim as to fair market value constitutes an offer by the
stockholder to sell the shares at that price.
Certificates representing Dissenting Shares must be surrendered to SEi
within 30 days after the Notice of Approval by Stockholders is mailed by SEi.
Surrendered certificates will be stamped or endorsed with a statement that the
shares are Dissenting Shares, and returned to the dissenting stockholder.
If SEi and a stockholder agree that his shares qualify as Dissenting
Shares and agree on the price of the shares, payment for the Dissenting Shares
must be made by SEi within 30 days of such agreement upon surrender of the
certificates representing the Dissenting Shares. The purchase price will bear
interest from the date of agreement until paid at the legal rate on judgments.
If SEi and a stockholder do not agree either that such shares qualify as
Dissenting Shares, or on the purchase price, the stockholder may within six
months after SEi mails the Notice of Approval by Stockholders, file a complaint
in Superior Court to determine the issues. Two or more stockholders may join
together in any such action, or a stockholder may intervene in any pending
action on such issues.
The court will determine whether the shares which are the subject of the
complaint qualify as Dissenting Shares and will determine or appoint appraisers
to determine the fair market value of the shares. The court may award costs and
attorney's fees in such an action in the manner the court considers equitable.
If the price determined in the court action exceeds the price offered by SEi,
SEi will be required to pay costs and, if the appraisal price is more than 125%
of the price offered by SEi, the court may award attorneys fees and interest at
the legal rate on judgments. If the price determined in the court action is less
than the price offered by SEi, dissenting stockholders who joined in the court
action would receive the lower amount.
A dissenting stockholder may not withdraw a demand for payment without
the consent of SEi. Dissenting Shares may otherwise lose their status as
Dissenting Shares if the Merger is abandoned or, if SEi and the dissenting
stockholder disagree as to whether the shares qualify as Dissenting Shares or as
to the price, the dissenting stockholder does not file a complaint in Superior
Court or intervene in a pending action within six months of the date of the
mailing by SEi of the Notice of Approval by Stockholders.
No stockholder having a right to demand payment of the fair market value
of shares of SEi common stock has any right at law or in equity to attack the
Merger, except in an action to test whether the number of shares of common stock
required to approve the Merger has been legally voted in favor thereof.
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OPERATIONS AND MANAGEMENT OF THE COMBINED COMPANIES
AFTER THE MERGER
OPERATIONS
After consummation of the Merger, SEi will be a wholly-owned subsidiary
of Maxwell and operate under the name Space Electronics Inc. and will continue
to engage in its historical line of business. No material disposition or
restructuring of either Maxwell or SEi or any material part thereof is
contemplated as a result of the Merger.
MANAGEMENT
After the consummation of the Merger, Maxwell will be managed by the
same Board of Directors and executive officers as existed prior to the Merger.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Maxwell Technologies, Inc.
Pro Forma Condensed Consolidated Balance Sheet - unaudited
(in thousands)
<TABLE>
<CAPTION>
Maxwell Space Pro Forma
Technologies, Inc. Electronics, Inc. Adjustments(1) Total Pro Forma
------------------ ----------------- -------------- ---------------
July 31, 1998 June 30, 1998
------------- -------------
(Audited) (Unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,224 $ 15 $ 21,239
Accounts Receivable--net 36,062 3,397 39,459
Inventories 15,823 2,676 18,499
Prepaid expenses 2,016 192 2,208
Deferred income taxes 161 658 $ (658) (A) 161
--------- --------- --------- ---------
Total current assets 75,286 6,938 (658) 81,566
--------- --------- --------- ---------
Property, plant and equipment--net 23,276 1,823 25,099
Goodwill and other non-current assets 6,503 -- 6,503
--------- --------- --------- ---------
$ 105,065 $ 8,761 $ (658) $ 113,168
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,680 $ 3,241 $ 750 (B) $ 24,671
Accrued employee compensation 6,353 648 7,001
Current portion of long-term debt 121 858 979
--------- --------- --------- ---------
Total current liabilities 27,154 4,747 750 32,651
Long-term debt 361 725 1,086
Minority interest 1,712 -- 1,712
Stockholders' equity:
Common stock 838 89 (C) 927
Additional paid-in capital 70,926 957 (89) (C) 71,794
Deferred compensation (413) -- (413)
Retained earnings 4,487 2,332 (1,408) (A)(B) 5,411
--------- --------- --------- ---------
Total stockholders' equity 75,838 3,289 (1,408) 77,719
--------- --------- --------- ---------
$ 105,065 $ 8,761 $ (658) $ 113,168
--------- --------- --------- ---------
</TABLE>
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Maxwell Technologies, Inc.
Pro Forma Condensed Consolidated Statement of Operations - unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
Maxwell Space
Technologies, Inc. Electronics, Inc.
------------------ -----------------
Year Ended Year Ended Pro Forma Total
July 31, 1998 June 30, 1998 Adjustments Pro Forma
------------- ------------- ----------- ---------
(Audited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 125,308 $ 10,681 $ 135,989
Cost of sales 83,459 6,270 89,729
--------- --------- --------- ---------
Gross profit 41,849 4,411 $ 0 46,260
Operating expenses:
Research and development expenses 8,206 1,498 9,704
Selling general and administrative expenses 26,391 3,316 29,707
Acquired in-process technology and other special
charges 8,942 -- 8,942
--------- --------- --------- ---------
Total operating expenses 43,539 4,814 0 48,353
--------- --------- --------- ---------
Operating income (loss) (1,690) (403) 0 (2,093)
Interest expense 214 107 321
Interest income and other--net (1,441) (12) 0 (1,453)
--------- --------- --------- ---------
Income (loss) before minority interest and income taxes (463) (498) 0 (961)
--------- --------- --------- ---------
Minority interest in net income (loss) of
subsidiaries 80 -- 80
Income tax expense 226 (283) 283 (D) 226
--------- --------- --------- ---------
Net income (loss) $ (769) $ (215) $ 283 $ (1,267)
========= ========= ========= =========
Basic income (loss) per share $ (0.10) $ (0.15)
========= =========
Diluted income (loss) per share $ (0.10) $ (0.15)
========= =========
Weighted average number of shares used to calculate:
Basic income (loss) per share 7,677 8,570
========= =========
Diluted income (loss) per share 7,677 8,570
========= =========
</TABLE>
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DESCRIPTION
These unaudited pro forma condensed consolidated financial statements
may not be indicative of the results that actually would have occurred if the
combination had been in effect on the dates indicated or which may be obtained
in the future. The pro forma adjustments are based upon preliminary estimates,
available information and certain assumptions that management deemed
appropriate. The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the consolidated historical financial
statements and notes thereto, contained in Maxwell Technologies, Inc.'s Annual
Report on Form 10-K for the year ended July 31, 1998.
The unaudited pro forma condensed consolidated statement of operations
for the year ended July 31, 1998, includes the results of operations of SEi for
the twelve months ended June 30, 1998. These statements were prepared by taking
into consideration only those transactions known to be occurring, and having
continuing impact to operations as a result of the acquisition.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Maxwell anticipates acquiring all of the outstanding shares of common
stock of Space Electronics in exchange for approximately 893,000 shares of
Maxwell common stock except for fractional shares which will be acquired for
cash. The transaction will be accounted for as a pooling of interests;
accordingly, all of the assets and liabilities of Space Electronics will be
carried forward at their historical cost basis, and the operating results of
Space Electronics will be combined with those of Maxwell for all periods
presented.
(1) Pro Forma Adjustments:
(A) To reflect the decrease in deferred income taxes ($658,000) to
conform to amounts which would be appropriate under Statement of
Financial Accounting Standards No. 109 - Accounting for Income
Taxes if the Companies had been combined as of July 31, 1998.
(Maxwell has a valuation allowance against its deferred tax
assets.)
(B) To accrue estimated acquisition costs of $750,000. Such costs are
not reflected in the pro forma statement of operations as they
are not reflective of ongoing operations, but will be included in
Maxwell's consolidated statement of operations for the period in
which the merger is consummated.
(C) To record the issuance of approximately 893,000 shares of Maxwell
common stock in consideration of the acquisition of SEi.
(D) To reflect elimination of SEi's deferred tax benefit, which
would be offset on a combined basis by Maxwell's valuation
allowance.
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BUSINESS OF SEi
GENERAL
SEi is an employee-owned company that designs, manufactures and provides
electronic components and related services for space and other high reliability
applications. SEi provides low cost, space-ready and high reliability Commercial
Off The Shelf ("COTS") components and assemblies. SEi's core products consist
primarily of integrated circuits ("ICs") and boards designed and adapted for
space flight and high reliability applications as well as real-time graphics
accelerators for embedded computer systems. SEi also provides a wide variety of
microelectronics device testing and assembly services. SEi consists of three
business units: Space Products Group, Megatek Graphics and Hi-Rel
Microelectronics.
Revenues for SEi were $8.8 million, $11.1 million and $10.6 million for
the nine months ending September 30, 1998 and for the fiscal years ending
December 31, 1997 and 1996, respectively. SEi's percentage revenues by business
unit for the nine months ending September 30, 1998 and for the fiscal year
ending December 31, 1997 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DEC. 31, 1997 SEPT. 30, 1998
------------- --------------
<S> <C> <C>
Space Products............ 96% 92%
Megatek................... 2% 2%
Hi-Rel.................... 2% 6%
</TABLE>
As of September 30, 1998, SEi's backlog was $5.8 million, scheduled to
be shipped over the next four to five months. Approximately 89%, 1% and 10% of
SEi's backlog was derived from the Space Products Group, Megatek and Hi-Rel,
respectively.
SPACE PRODUCTS GROUP
The Space Products Group ("SPG") supplies the international space
community with high-quality microelectronics and board products by designing
semiconductors and boards and by applying its proprietary technologies to COTS
ICs. Such technologies include total dose improvement, latch-up protection
technology, field programmable gate array ("FPGA") conversions and custom IC
design and fabrication. To a lesser extent, the group engages in engineering
efforts as directed by the customer on a contracted rate, cost plus fixed fee or
fixed price basis. Approximately 35% of SPG's revenues are derived from
government contracts with the remaining 65% derived from commercial space
programs.
MEGATEK GRAPHICS
Megatek Graphics ("Megatek") uses COTS semiconductors and its
proprietary code base to create real-time operating system graphics
accelerators, video display controllers, video source controllers and multiple
display integration components to the market segment of the military, industrial
and medical industries. Embedded computers are used in many instances where
harsh conditions, high performance display requirements or special installation
requirements preclude the use of a typical
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desktop computer. Megatek is currently introducing several new products, which
bring state-of-the-art graphics and multiple display server architecture to the
embedded market. Approximately 80% and 20% of Megatek's sales were derived from
the military and industrial markets, respectively.
HI-REL MICROELECTRONICS
Hi-Rel Microelectronics ("Hi-Rel") provides high-reliability IC testing
and custom IC manufacturing, package design and assembly services for
manufacturers of electronic and other devices. In the second quarter of 1997,
Hi-Rel began developing and marketing semiconductor and board products designed
for mission critical hostile environments such as heat, cold, moisture,
radiation, mechanical shock and other stresses. Substantially all of Hi-Rel's
revenues are derived from the military.
AFFILIATION WITH SMALL BUSINESS INNOVATIVE RESEARCH PROGRAM
A government program called the Small Business Innovative Research
("SBIR") Program is available to companies with 500 or fewer employees. Under
the program, SEi has contracted with various agencies of the U.S. Government to
develop and commercialize certain technologies that are both strategic to SEi
and required by the U.S. Government. The SBIR Program funds up to 100% of the
total development cost of various products and technologies. SEi bears no
financial risk for technical success and retains all rights, free of charge, to
commercialize and profit from the development of these technologies.
Additionally, the majority of these contracting entities represent prospects for
potential sales of products incorporating the developed technologies. SEi's
management views this program as instrumental in the development of new
technologies such as RAD-COAT(TM), Latch-up Protection(TM) and Hermetic Plastic
IC Packaging. SEi will no longer qualify for the SBIR Program after the
Effective Time of the Merger since it will be part of a company with more than
500 employees.
AFFILIATION WITH FULL CIRCLE RESEARCH, INC.
Full Circle Research, Inc. ("FCR") is an applied research and
engineering firm. On November 11, 1995, SEi and FCR entered into a technology
sharing agreement (the "SEi-FCR Agreement"). The purpose of the strategic
alliance was to develop a relationship between the parties wherein FCR focused
on technology research and development and SEi focused on product development,
sales and marketing, manufacturing, testing and qualification. As part of the
SEi-FCR Agreement, upon the Effective Date of the Merger, SEi and FCR will each
become owners of the outstanding common stock of the other company in an amount
of shares that was equal to 10% of the total at the time the SEi-FCR agreement
became effective. The SEi-FCR Agreement will also terminate upon the Effective
Date of the Merger. SEi and FCR intend to hold discussions after the Merger is
completed to determine the future of their relationship.
INDUSTRY OVERVIEW
SPACE INDUSTRY
The space industry is currently growing at a rapid pace. According to
Business Week, the $11.5 billion satellite portion of the industry is expected
to grow 35% annually to $29 billion by the year 2000. Key demand drivers for the
industry are telecommunications, navigation, scientific research, global
monitoring and global positioning systems. Furthermore, the electronics segment
is
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expected to be one of the fastest growing segments of the satellite industry.
Like terrestrial information systems, space-based information systems are being
stressed to process increasing flows of data. Satellite designers are demanding
more processing speed, memory capacity and input/output (I/0) bandwidth.
According to Johari Associates, an industry statistical consulting firm, the
worldwide market for space integrated circuits, which was estimated at over $460
million in 1997, is expected grow 25% annually for the next 4 years to
approximately $1.1 billion in 2001.
Fundamental changes such as an increased focus on costs, outsourcing and
standardization are causing the space industry to reorganize. Long-time
suppliers with heavy overhead structures have competitive disadvantages. In
addition, the change in the industry paradigm from a military to a commercial
focus has created competitive pressures to force costs down and shorten program
delivery times. Examples of these fundamental changes in the space industry
include:
Decrease in Military Spending. This segment was at one time the primary
driver behind space programs. However, as military spending has decreased, the
influence exerted by this segment on the space industry has diminished. In the
past, military programs tended to be highly specialized and regulated and cost
concerns were secondary to technological feasibility. The reduction of this
segment's influence caused traditional space contractors such as LSI Logic and
Texas Instruments to leave the business or to drastically change their cost
structures to adapt to lower cost commercial space programs.
Increase in Commercial Off the Shelf Solutions. Mandates from the
Department of Defense have focused military and commercial space procurement
firms to move from radiation-hardened ("rad-hard") ICs toward COTS solutions
that are adapted for space use. The use of COTS reduces costs by using already
existing technology, which avoids design costs, and by enabling manufacturers to
standardize their parts, thus reducing assembly costs and lead times.
Increase in Commercial Ventures. Management believes commercial space
programs are the fastest growing component in the space industry. Fueled
primarily by the telecommunications boom, global satellite communications
systems with an aggregate cost of over $20 billion are currently being
implemented. The commercial sector of the market bases its purchasing decision
on low costs, short lead-times and standardized solutions.
EMBEDDED GRAPHICS ACCELERATOR INDUSTRY
The $20 million embedded graphics accelerator and multiple video display
market is expected to grow to $50 million over the next five years. Despite the
defense budget reductions, Department of Defense spending on display and
information systems is expected to increase as the battlefield environment
increasingly depends upon real-time data. Major retrofits of naval vessels
specify the need for multiple display architectures for embedded information
systems such as sonar, radar, and communications. Major AWACS and M-1 Abrahms
tank information system upgrade programs have also been approved. Commercially,
industrial, retail and entertainment applications are the main drivers for cost
effective multiple display systems. Opportunities include video on demand and
interactive entertainment in venues ranging from commercial aircraft to seats at
the local stadium.
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HI-RELIABILITY MICROELECTRONICS INDUSTRY
The past ten years have seen a major reduction in worldwide defense
budgets and a robust commercial market, resulting in the withdrawal of many
traditional embedded component suppliers. Meanwhile, product life cycles
continue to shrink and the Department of Defense continues to replace, add and
upgrade a tremendous amount of electronics contained in its existing equipment.
The $1.1 billion high-reliability component and $10 billion board markets are
expected to remain flat for the next five years. However, there is an increasing
use of COTS plastic components, assemblies and equipment adapted for harsh
environments.
In addition to military requirements, the demand for high-reliability
components is increasing in the aerospace, automotive, industrial and medical
markets. Embedded microelectronics in equipment such as telephony exchanges, CAT
scanners and many other products are expensive, yet availability is critical to
the owners of these assets. As industries continue to automate, electronics in
robotics will be one of the enabling technologies used in harsh environments.
SEi BUSINESS STRATEGY
SPACE BUSINESS STRATEGY
SEi's strategy for the Space Products Group is to develop a broad-based
line of electronic products designed for satellite space flight applications.
These products consist of radiation tolerant integrated circuits, multichip
modules, printed circuit boards and integrated satellite sub-systems. SEi plans
to develop new products by sourcing suitable commercially available
semiconductors and adapting them for space flight using SEi's existing and
developing intellectual property and proprietary technology. SEi is also working
to upgrade its products and services by leveraging Megatek's expertise and
reputation in boards. Furthermore, SEi intends to build market share by filling
the vacuum left by traditional suppliers who have shifted their focus from
military to commercial applications. By using its initial success with COTS
microelectronic products, the group plans to leverage its expertise and position
in the space industry to grow into a multi-dimensional supplier of electronic
components to the space industry.
MEGATEK BUSINESS STRATEGY
The SEi strategy for Megatek Graphics consists of developing video
display control systems for hi-reliability applications. Such applications
include military command and control, point of sale advertising, in-flight
entertainment, video-on-demand and real-time video training systems. Markets
identified for entry include defense, hospitality, broadcast/cable television,
airlines, retail, medical and gaming. Through development of products consisting
of video control and display printed circuit boards, and an Application
Programming Interface (API), Megatek will provide platforms which can be
adapted into an almost unlimited variety of multiple display applications.
Significant revenues and profits from this business unit have yet to be
realized.
HI-REL'S BUSINESS STRATEGY
SEi's Hi-Rel electronics strategy centers on growing an array of
products and services focused on adapting commercially available integrated
circuit technology into hi-reliability applications. SEi anticipates a growing
need for these products and services as mainstream I/C manufacturers focus their
efforts away from this market segment. Services consist of I/C testing and
screening and custom I/C assembly and packaging products consist of standard
raggedized I/C's incorporating I/C technologies under exclusive license from
their manufacturers.
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PRODUCTS AND SERVICES
SPACE PRODUCTS GROUP
SEi's philosophy is to provide a standard line of electronic component
ICs and printed circuit boards that can meet most electronics design needs for
space applications. Since its inception, the Space Products Group has developed
nearly 100 different products comprised of nearly all IC family types. Recently,
the Space Products Group has moved into board level products with the
introduction of its first single board computer for space applications. The
following is a description of SPG's current products.
CURRENT PRODUCTS
Space Integrated Circuits (ICs). SEi offers a wide variety of integrated
circuits (ICs) designed to meet almost any space based electronics design need.
This product line consists of the following IC types:
<TABLE>
<CAPTION>
NUMBER OF
PRODUCTS
IC TYPE OFFERED
- -------------------------------------- ---------
<S> <C>
Memory................................ 22
FIFO.................................. 5
Processors--CPUs, Coprocessors, DSPs.. 14
Analog Components..................... 28
Logic Devices......................... 17
Interface Devices--Fiber Channel...... 6
----
Total................................. 92
</TABLE>
RAD-PAK(R) Packaging Technology. SEi procures ICs in "die" form from
various manufacturers, and uses its proprietary RAD-PAK(R) technology to
"package" the die into a radiation-tolerant IC product ready for use by the
customer. RAD-PAK(R), the predominant technology used in SEi's current business
lines, is an IC packaging technology which embeds radiation shielding into the
IC package, making it possible to use advanced COTS ICs for space applications
at a fraction of the traditional cost and scheduling requirements.
Latch-up Protection Technology(TM) ("LPT(TM)") (patent pending). SEi
also incorporates its LPT(TM) technology to support its current IC product
lines. LPT(TM) protects the COTS ICs from severe "single event" radiation. While
RAD-PAK(R) uses shielding to protect the ICs from photon based radiation, it has
limited effectiveness against heavy particle based single event radiation.
LPT(TM) uses electrical power management to protect the ICs from the destructive
effects of heavy particle based, single event radiation.
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Engineering and Contract Services. SEi also provides engineering and
contract services whereby the customer provides the products they need SEi to
modify. In addition, SEi provides radiation testing and analysis services
including total dose, radiation modeling, single event testing and technical
application assistance.
MEGATEK GRAPHICS
SEi's philosophy for Megatek's products is to provide a line of
component board and software products which integrate seamlessly into flexible
and powerful video display platforms that can be used for many display
applications. These products are referred to as Multiple Display Server(TM)
("MDS(TM)").
CURRENT PRODUCTS
MDS(TM) Advanced Programming Interface ("API"). Megatek's MDS(TM)
product is a software based API which enables the customer to integrate the
various component boards discussed below into multiple display configurations
for many multiple display applications. SEi's management believes that the key
advantage to MDS(TM) is that it obviates the need for multiple clients to
control the displays. As a result, hardware and system maintenance costs are
reduced while system reliability is increased. Applications include
video-on-demand, multi-user training, air traffic control, point of sale/retail
information systems, in-flight entertainment and military command and control.
AuroraPMC. Introduced in January 1998, AuroraPMC is a graphics
accelerator for the industry's leading real-time operating systems: VxWorks and
LynxOS. AuroraPMC incorporates a state-of-the-art Alliance graphics generation
chip that is widely used in today's high-end desktop graphics applications. SEi
is currently negotiating OEM arrangements with two of the top five single board
computer manufacturers with respect to the AuroraPMC graphics accelerator.
AuroraPMC has already been designed into programs scheduled to begin production
in early 1999.
EclipsePMC. Introduced on July 1, 1998, EclipsePMC is SEi's new
high-performance PCI mezzanine card ("PMC") video display controller for VME and
Compact PCI ("CPCI") UltraSPARCIIi-based single board computers with PMC slots.
The product is the first video display controller capable of embracing both the
PMC hardware specifications and Solaris performance. The product supports Force
Computers', Sun Microsystems' and Themis Computer's CompactPCI single board
computers.
HI-RELIABILITY MICROELECTRONICS
SEi's philosophy for Hi-Rel's products is to provide a broad based
product offering which bridges state-of-the-art IC technology to companies which
require highly reliable electronic components capable of operating in
environmentally harsh conditions. This is accomplished by providing standard
products coupled with custom products and services as discussed below.
CURRENT PRODUCTS
Hi-Rel ICs. SEi secures proprietary IC technologies through exclusive
marketing agreements to develop its own line of proprietary ICs adapted from
COTS products. The initial products offered under these agreements represent a
line of analog-to-digital converters. Areas of focus include linear, analog,
mixed signal, MCM, memory and ASIC. SEi has signed agreements with several die
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manufacturers to incorporate their dies into a rugged and hermetically sealed
package, which will be marketed to the space, military and industrial markets.
Custom Turnkey ICs. SEi provides made-to-order ICs to various customers.
These products entail custom package and test design combined with material
procurement, device assembly and testing. The resulting product is a fully
certified device which meets exact customer specifications. SEi is capable of
delivering packaged and fully screened devices in monolithic (single IC), multi
chip module (multiple ICs) and Hybrid (ICs with other electronic components)
formats.
Custom IC Screening and Analysis Services. These services utilize the
full MIL-STD qualification of SEi's manufacturing facility to qualify devices
for use in military, industrial or space applications. In addition to
environmental testing, device reliability and endurance tests, the unit offers
IC electrical test and IC burn-in capabilities.
SALES AND MARKETING
SEi has eight inside sales engineers at its headquarters and two outside
sales people. SEi sells approximately 30% of its products direct and the
remaining 70% of its products through independent sales representatives who earn
5%-6% of gross revenues by contract.
SEi advertises and issues press releases regularly in key space industry
publications. Employees of the Space Products Group attend major industry trade
shows and expositions such as FSA Supplier Expo, IEEE/Rad-Effects Conference,
AIAA/USU Small Satellite, RHET, GOMAC, RADECS, NASA/GSFC Prog. Logic,
Commercialization of Military and SEi and IMAPS.
SEi is developing a network of independent sales representatives located
throughout the United States. SEi advertises and issues press releases regularly
in industry standard publications. The group also attends major industry trade
shows and conferences such as AFCEA TechNet International, Embedded Computing
Show, the monthly Real-Time Computing Show and the Miller Freeman Embedded
Systems Conference.
SEi generates business primarily through direct sales and personal
contact. The business is recurring in nature, so relationships are key to
sustaining profitability levels. These relationships also work within a tightly
knit engineering community to expand the unit's business activity through
referrals.
CUSTOMERS
SEi has approximately 150 active customers. SEi completed over 400 sales
purchase orders during the fiscal year ending December 31, 1997, with an average
order size of approximately $26,000. A substantial portion of SEi's customers
are from repeat business. Key customers include Lockheed Martin, Hughes Space,
Loral, Allied Signal, Fujitsu Electronics, MIT, Motorola, Westinghouse,
Honeywell, Rockwell, TRW, Jet Propulsion Laboratories and NASA.
Approximately 15% of SEi's revenues are derived from sales to foreign
customers. SEi conducts business in U.S. dollars only and extends undiscounted
30 day terms to all of its customers.
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Distributors such as Fuji Electronics and TRW Components International assume
the credit risk of their customers.
MANUFACTURING AND SUPPLIERS
SEi maintains a full "space level" integrated circuit packaging and
screening facility as well as a manufacturing facility qualified to MIL-STD-833.
The facility is in the process of obtaining QML certification per MIL-PRF-38535.
All assembly, board screening and quality inspection is performed in SEi's
manufacturing plant. SEi management believes that the manufacturing capacity of
SEi and its use of outside assembly contractors can accommodate a three-fold
increase in SEi production.
SEi has several suppliers for the semiconductor component of its Space
Group products. These suppliers include Atmel, Actel, Dense-Pac, Matra MHS,
Hitachi, Intel, Polese, Johnson Mathey, Chip Supply, Harris Semiconductor and
Cypress Semiconductor. Key radiation-shielding components for SEi's RAD-PAK(TM)
product are manufactured by NTK and Kyocera. On July 17, 1998, SEi announced a
strategic partnership with Mitsubishi Heavy Industries to jointly manufacture
and market RAD-PAK(R) products in Japan.
SEi has signed agreements for the exclusive rights to develop, produce
and sell hi-reliability versions of certain companies' ICs for space, military
and industrial applications. These types of exclusive agreements have been
signed with Alliance Semiconductor and Crystal Semiconductor.
PATENTS, TRADEMARKS AND SERVICEMARKS
SEi holds patents on its RAD-PAK(R) and PLAS-PAK(TM) technology. SEi has
filed applications to secure patents on its RAD-COAT(TM), LPT(TM) and MCM3D
technologies and products and to secure patents in Europe and Japan for its
RAD-PAK(R) technology.
COMPETITION
SPACE PRODUCTS GROUP
SEi competes with some of the largest semiconductor and
semiconductor-related companies in the world. There are four classes of
traditional competitors:
1. Radiation-hardened Suppliers: Harris, LMFS, Honeywell, etc.
2. Radiation-tolerant Suppliers: Intel, Cypress, IDT, etc.
3. Custom Fabless Suppliers: White, Austin, Teledyne, etc.
4. Government Agencies: MRC/AF Phillips, Sandia
In addition, there are small emerging suppliers (such as SAC-TEC Labs)
that perform similar assembly & screening, if such suppliers can identify the
die which is survivable for a particular application. Sophisticated customers
such as NASA might provide this information, and some of the
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larger customers such as Lockheed Martin Federal have in-house capability to
provide such information.
SEi competes with the above companies using its RAD-PAK(R) shielded ICs.
While RAD-PAK(R) does not provide the level of radiation resistance of custom
rad-hard ICs, SEi management believes RAD-PAK(R) provides superior performance
over most radiation-tolerant ("rad-tolerant") ICs. This enables SEi to position
its product line between traditional rad-hard suppliers and rad-tolerant
suppliers with respect to radiation shielding performance. SEi management
believes the low cost and shorter lead times of rad-tolerant suppliers versus
rad-hard suppliers enables SEi to effectively compete with rad-hard suppliers
where true rad-hard performance is not critical.
Since SEi has a diverse product mix in the industry, SEi competes with
different competitors, depending on the product in question. In general, SEi's
management believes that SEi has established a reputation for offering the best
"price/performance" in the market. The space market is also served by companies
whose primary interest is commercial products, but who historically sell several
million dollars to the space market.
MEGATEK GRAPHICS
The competitors for HI-Rel products are several manufacturers of
graphics enhancement boards such as Barco, Vigra and Integra. SEi's management
believes that SEi has positioned itself to capture a segment of the market that
values high-reliability over state-of-the-art technology. As such, the products
are priced in the upper range of the market. The majority of competitors in the
market consist of small, thinly capitalized and independently owned companies
with limited resources.
HI-REL MICROELECTRONICS
The competitors for SEi's Hi-Rel products are numerous, such as Austin
Semiconductor, Analog Devices, National Semiconductor, Harris, IDT, and others.
Although many other companies have withdrawn from this market, there continues
to be suppliers of "mil spec" and ruggedized components. In addition, many
military applications have begun use of commercial parts and systems, ignoring
ruggedization.
EMPLOYEES
As of October 31, 1998, SEi had 105 full-time employees. In addition,
SEi employed approximately 25 part-time employees. SEi's employees are not
represented by any collective bargaining unit, and SEi has never experienced a
work stoppage. SEi believes that its relationships with its employees are good.
FACILITIES
SEi leases 31,669 square feet of space in San Diego, California under a
lease that expires October 31, 2000. SEi also maintains a 1,210 square foot
facility in San Diego, California under a lease that expires September 30, 1999.
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REGULATORY, ENVIRONMENTAL AND LEGAL
As of November 24, 1998, there were no material legal proceedings to
which SEi or its properties is subject.
DIVIDEND POLICY OF SEi
SEi has not declared or paid any cash or stock dividends on its capital
stock during any period since its conversion from a S-Corporation to a
C-Corporation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SEi
The following discussion of the financial condition and results of
operations of SEi should be read in conjunction with SEi's financial statements
and the related notes thereto included herein. The discussion in this Proxy
Statement/Prospectus contains forward-looking statements that involve risks and
uncertainties. SEi's actual results may differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, without limitation, those discussed in
this section and the sections entitled "Risk Factors" and "SEi Business" as well
as those discussed elsewhere in this Proxy Statement/Prospectus.
OVERVIEW
SEi currently operates three Business units: Space Products Group,
Megatek Graphics, and Hi-Rel Microelectronics. The Space Products Group, which
designs, manufactures and sells ICs and printed circuit boards to the space
industry, provides approximately 92% of SEi's total revenue. Megatek Graphics,
which sells computer based video controllers and systems, provides approximately
2% of total revenues. Hi-Rel Microelectronics, which offers ruggedized/hi
reliability IC based products and services, provides approximately 6% of total
revenues.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues. Revenues of $8,806,000 were achieved for the nine months ended
September 30, 1998, a 2% increase over revenues of $8,602,000 for the nine
months ended September 30, 1997. While shipments only showed modest growth, new
orders increased from $9,426,000 to $10,894,000, an increase of 16%. SEi
management believes this growth shows continued market acceptance of SEi's
current and new products.
Gross Profit. Gross profit decreased 40% to $3,491,000 from $5,241,000
for the nine months ended September 30, 1998 and September 30, 1997,
respectively. Gross profit as a percentage of sales decreased over the
comparable period to 40% from 61%. There are two primary reasons for the
decrease in gross profit as a percentage of sales. First, a combination of end
of life and long term strategic inventory buys were required to support existing
programs and potential programs. Consistent with SEi's policy, SEi does not
value inventory quantities in excess of one year's anticipated demand. These
amounts were charged to cost of sales in 1998. Second, SEi experienced a shift
in the revenue mix from standard products toward lower margin cost plus fixed
fee contracts primarily with one customer for a Department of Defense space
project.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 13%, to $2,906,000 from $2,565,000 for the
nine months ended September 30, 1998 and September 30, 1997, respectively. The
increase was primarily due to investments in market development.
Research and Development Expenses. The increase in research and
development expenses, to $1,378,000 from $700,000 for the nine months ended
September 30, 1998 and September 30, 1997, respectively, reflects increased
activity on new product development efforts for space
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single board computers. In addition, SEi has recently invested significant
amounts of capital in its Research and Development group, which will result in
increased depreciation expense in the Research and Development category. For the
nine months ended September 30, 1998 and 1997, research and development expenses
as a percentage of revenues increased to 16% from 8%, respectively, primarily as
a result of the Company's commitment to new product development, as previously
discussed. During 1998, SEi significantly expanded its use of funded research
and development programs, including the U.S. Government's Small Business
Innovative Research (SBIR) program. The above expenditures on research and
development are shown net of funding received under such programs. Amounts
received under this program totaled $600,000 for the nine months ended September
30, 1998. SEi did not offset any research and development expenses with SBIR
funding during the nine months ended September 30, 1997.
Income Tax Benefit. The Tax Benefit Rate of 40% during the nine months
ended September 30, 1998, results from SEi's ability to carryback operating
losses sustained during the period to previous profitable periods.
Net Income (Loss). Primarily resulting from the factors discussed above,
net income decreased to a net loss of $553,000 from $1,151,000 for the nine
months ended September 30, 1998 and September 30, 1997, respectively,
representing a 148% decrease.
FISCAL YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1996
Revenues. Revenues of $11,121,000 were achieved for the year ended
December 31, 1997, compared to revenues of $10,598,000 for the year ended
December 31, 1996, representing revenue growth of 5% from 1996 to 1997. While
bookings continued to grow, 1996 shipments of delinquent orders booked in 1995
caused an unusual acceleration of 1996 shipments. This acceleration depressed
1997 revenue growth rates. Bookings of $11,900,000 for the year ended December
31, 1997 represented 26% growth over 1996 bookings of $9,500,000. SEi's
management believes that this growth stems from continued space industry
acceptance of SEi's RAD-PAK(R) line of radiation-hardened IC products. Backlog
decreased 3% to $4,400,000 from $4,500,000 as of December 31, 1997 and 1996,
respectively. Backlog level remained constant throughout 1997 and SEi's
management believes that customer service levels improved dramatically during
1997.
Gross Profit. Gross profit increased to $6,515,000 from $6,381,000, or
2%, for the years ended December 31, 1997 and 1996, respectively. Gross profit
as a percentage of sales remained steady with only a slight decrease to 59% in
1997 from 60% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 24%, to $3,452,000 from $2,777,000 for the
years ended December 31, 1997 and December 31, 1996, respectively. The increase
was primarily due to investments in market development and operations/financial
information systems.
Research and Development Expenses. Research and development expenses
also increased to $1,046,000 for the year ended December 31, 1997 from $488,000
for the year ended December 31, 1996. The increase reflects increased activity
in new product development for space component products and graphics products.
Income Taxes. Income tax expense was $741,000 in 1997 compared to
$1,144,000 in 1996. The corresponding tax rate for both years was 37%.
Net Income. Net income decreased to $1,267,000 from $1,957,000 for the
year ended December 31, 1997 as compared to the year ended December 31, 1996,
representing a 35% decrease. This decrease reflects the factors discussed above.
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FISCAL YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1995
Revenues. Revenues of $10,598,000 were achieved for the year ended December 31,
1996, compared to revenues of $3,750,000 for 1995. This represents revenue
growth of 183% over 1995. The reason for the growth was due to bookings of new
orders in 1996 coupled with a strong backlog position at the beginning of 1996
due to delinquent deliveries on orders which had been booked in 1995. Bookings
of $9,500,000 for the year ended December 31, 1996 represented growth over 1995
bookings ($6,200,000) of 53%. This growth stemmed from continued space industry
acceptance of the Company's Rad-Pak line of radiation hardened integrated
circuit products. Backlog was $4,300,000 and $7,200,000 as of December 31, 1996
and 1995 respectively. This represents a decrease of 42%. The reduction in
backlog is due primarily to improved manufacturing throughput and improved
lead-time to delivery of customer orders.
Gross Profit. Gross profit increased to $6,381,000 from $1,585,000, or 303% for
the years ended December 31, 1996 and 1995. Gross profit as a percentage of
sales for the same period increased to 60% from 42%. Dramatic improvement in
plant productivity was the main reason for the improvement.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2,777,000 from $1,052,000 or 164% from
1996 to 1995. The increase was primarily due to investments in market
development and operations/financial information systems. Additionally,
increases in sales commission expenses were incurred due to growth in sales.
Research and Development Expenses. Research and development expenses also
increased to $488,000 in 1996 from $166,000 in 1995. The increase reflects
increased in activity in new product development for space component products.
Income Taxes. Income tax expense was $1,144,000 for 1996. This reflects a change
in tax status (as defined by the Internal Revenue Service) at beginning of 1996
from a subchapter-S corporation to subchapter-C. Under the Internal Revenue
Code, subchapter-S corporations pay no federal income tax. The 1996 effective
tax rate of 37% differs from the federal statutory rate of 34% due to the
addition of state income tax expenses, offset by the reduction of tax due to
research and development tax credits.
Net Income. Net income increased to $1,957,000 for 1996 from $325,000 for 1995.
The increase was due to the factors discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
Cash balances as of September 30, 1998 were $214,000, compared to
$160,000 as of December 31, 1997. This increase was primarily due to positive
cash flows generated from operations during the nine months ended September 30,
1998. Working capital decreased to $2,140,000 as of September 30, 1998 from
$2,935,000 as of December 31, 1997 due primarily to the net loss. SEi invested
$732,000 in property and equipment during the first nine months of 1998.
Employee stock purchases of $403,000 were offset by SEi repurchases of $517,000
during the nine months ended September 30, 1998. Debt-equity ratio increased
from 0.9:1 as of December 31, 1997 to 1.9:1 as of September 30, 1998. In SEi
management's opinion, SEi's financial position as of September 30, 1998 was
sound, and SEi has cash or other resources sufficient so that SEi is currently
able to meet its financial and operating obligations.
SEi maintains a line of credit at Comerica Bank with a maximum
availability of $4,000,000. On September 30, 1998, a balance of $880,000 was
outstanding.
YEAR 2000 COMPLIANCE
A significant percentage of the software that runs most computers relies
on two digit date codes to perform a number of computation and decision making
functions. As the Year 2000 approaches, these computer programs may fail from an
inability to interpret data codes properly, misreading "00" for the year 1900
instead of 2000.
SEi has completed a survey of potential risks associated with Year 2000
compliance. This survey included all areas where, in SEi management's opinion, a
lack of compliance could have significant adverse effect on SEi's operations or
financial condition. The results of this survey indicated that there are no
significant areas of SEi's business operations, in management's opinion, where
lack of Year 2000 compliance would have significant adverse impact on SEi's
operations or financial condition.
However, SEi's customers or third-party suppliers and vendors may
experience business disruptions in connection with the Year 2000 software
problem. SEi's business, operating results and financial condition could be
materially adversely affected if any of these customers, vendors or other
third-party entities experience such a business disruption.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF SEi
The following table sets forth certain information regarding beneficial
ownership of SEi common stock and is based upon 1,771,797 shares of SEi common
stock outstanding (not including options to purchase 510,943 shares of common
stock) as of November 17, 1998, by: (i) each person known to SEi to beneficially
own more than 5% of SEi common stock, (ii) each of SEi's directors, (iii) each
of the officers of SEi, and (iv) all directors and officers of SEi as a group.
Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to all shares of SEi
common stock shown as beneficially owned by such person subject to community
property laws where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
SEi COMMON STOCK AS OF
NOVEMBER 17, 1998
----------------------------
NUMBER OF % OF
NAME AND ADDRESS OF STOCKHOLDER(1) SHARES OWNED TOTAL(2)
- ---------------------------------------------------- ------------ --------
<S> <C> <C>
David J. Strobel - Director and President 593,983(3) 26.1%
Robert M. Czajkowski - Director and Chief
Executive Officer 507,853(4) 22.3%
David Czajkowski - Manager, Sales & Marketing 197,197(5) 8.7%
James P. Spratt - Director 137,800(6) 6.0%
Paul Blevins - Chief Financial Officer 107,697(7) 4.7%
W. Lee Shevel - Director 50,000 2.8%
Lorenz A. Kull - Director 6,000 *
All directors and officers as a group (6 individuals) 1,403,333 61.9%
--------- ----
- ---------------------
* Less than 1%.
</TABLE>
(1) The business address of SEi's directors, officers and other principal
stockholders is Space Electronics, 4025 Sorrento Valley Boulevard,
San Diego, CA 92121.
(2) Based on 1,771,797 shares of SEi common stock outstanding on November
17, 1998.
(3) Includes 65,000 shares subject to stock options that are exercisable or
will become exercisable as a result of the Merger. All of the shares of
SEi common stock beneficially owned by Mr. Strobel are subject to the
terms of the Voting Agreement.
(4) Includes 80,000 shares subject to stock options that are exercisable or
will become exercisable as a result of the Merger. All of the shares of
SEi common stock beneficially owned by Mr. Czajkowski are subject to the
terms of the Voting Agreement.
(5) Includes 31,000 shares subject to stock options that are exercisable or
will become exercisable as a result of the Merger. All of the shares of
SEi common stock beneficially owned by Mr. Czajkowski are subject to the
terms of the Voting Agreement.
(6) Includes all 137,800 shares issued to Full Circle Research, Inc. under a
Technology Transfer Agreement effective January 1, 1996. Other than SEi,
Mr. Spratt and his spouse are the sole officers and shareholders of Full
Circle and transferred ownership of the shares to their name. Under the
Technology Transfer Agreement the shares issued to Full Circle, and
subsequently conveyed to Mr. and Mrs. Spratt, vest as a result of the
Merger. All of the shares beneficially owned by Mr. Spratt are subject
to the terms of the Voting Agreement.
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(7) Includes 45,000 shares subject to stock options that are exercisable or
will become exercisable as a result of the Merger. All of the shares of
SEi common stock beneficially owned by Mr. Blevins are subject to the
terms of the Voting Agreement.
COMPARISON OF RIGHTS OF SEi AND MAXWELL STOCKHOLDERS
Upon consummation of the Merger, the stockholders of SEi will become
stockholders of Maxwell, a Delaware corporation, and their rights will be
governed by Maxwell's Amended and Restated Certificate of Incorporation
("Maxwell Certificate") and Bylaws as amended ("Maxwell Bylaws"), which differ
in certain material respects from SEi's Amended and Restated Certificate of
Incorporation ("SEi Certificate"), and Bylaws, as amended ("SEi Bylaws"). As
stockholders of Maxwell, the rights of the former stockholders of SEi will
continue to be governed by the Delaware General Corporation Law ("DGCL").
The following comparison of the rights of stockholders under the Maxwell
Certificate and the Maxwell Bylaws, on the one hand and the SEi Certificate and
the SEi Bylaws, on the other, is not intended to be complete and is qualified in
its entirety by reference to the Maxwell Certificate, the Maxwell Bylaws, the
SEi Certificate and the SEi Bylaws. Copies of the Maxwell Certificate and the
Maxwell Bylaws are available for inspection at the offices of Maxwell, and
copies will be sent to the holders of SEi common stock upon respect. Copies of
the SEi Certificate and the SEi Bylaws are available for inspection at the
principal executive offices of SEi, and copies will be sent to holders of SEi
common stock upon request.
CLASSES AND SERIES OF CAPITAL STOCK
SEi. SEi is authorized by the SEi Certificate to issue up to 10,000,000
shares of common stock ("SEi common stock"), par value $0.01 per share, and
500,000 shares of preferred stock, par value $0.01 per share ("SEi Preferred
Stock").
Maxwell. Maxwell is authorized by the Maxwell Certificate to issue up to
40,000,000 shares of common stock ("Maxwell common stock"), par value $.10 per
share. There are no shares of preferred stock authorized under the Maxwell
Certificate.
PREFERRED STOCK
SEi. The SEi Certificate provides that the SEi Preferred Stock may have
such voting powers, preferences and other special rights (including, without
limitation, the right to convert such shares into shares of SEi common stock) as
determined by the SEi Board. If shares of SEi Preferred Stock were issued, they
would be entitled to preferential payments upon dissolution of SEi.
Maxwell. There are no shares of preferred stock authorized under the
Maxwell Certificate.
SIZE AND ELECTION OF THE BOARD OF DIRECTORS
SEi. The SEi Bylaws provide that the SEi Board shall consist of not less
than 3 nor more than 7 members. Within these limits, the number of directors may
be determined from time to time by resolution of the SEi Board or by a majority
of the outstanding shares of SEi common stock. Directors are elected through
cumulative voting at each annual meeting. In addition, the SEi Bylaws provide
that
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vacancies in the SEi Board may be filled by the vote of a majority of the
remaining members of the SEi Board, even though less than a quorum of the SEi
Board, or by a sole remaining director.
Maxwell. The Maxwell Bylaws provide that the Maxwell Board shall consist
of at least 3 directors and that the size of the Maxwell Board may be fixed by
resolution of the Maxwell Board. Directors are elected by a majority of the
votes cast by the Maxwell stockholders, at each annual meeting of stockholders.
In addition, the Maxwell Bylaws provide that the Maxwell Board is to be divided
into three classes. Each class consists, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors, with the terms of office of the directors of one class expiring each
year. Vacancies on the Board are filled by the affirmative vote of a majority of
the remaining directors then in office even if less than a quorum of the Maxwell
Board.
REMOVAL OF DIRECTORS
SEi. The SEi Bylaws provide that a director may be removed with or
without cause by a majority of the SEi stockholders entitled to vote at an
election of directors. If less than the entire board is to be removed, no one of
the directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors.
Maxwell. The Maxwell Certificate provides that a director may be removed
from office only for cause and only by the affirmative vote of the holders of
not less than 80% of the outstanding shares of common stock entitled to vote in
an election of directors. However, if a director's removal is approved by a
majority of the Maxwell Board in the manner set forth in the Maxwell
Certificate, a director can be removed by a majority of the Maxwell stockholders
entitled to vote at an election of directors.
OTHER VOTING RIGHTS
SEi. The holders of shares of SEi common stock are entitled to one vote
in person or by proxy for each share held, but in the election of directors,
shares are voted cumulatively except as otherwise required by law. The holders
of a majority of the stock issued and outstanding and entitled to vote, present
in person or represented by proxy, constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute. When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or by proxy decides
any question brought before the meeting, unless the question is one upon which a
different vote is required by law.
Maxwell. The voting rights of Maxwell common stock are substantially the
same.
SPECIAL MEETINGS OF STOCKHOLDERS; WRITTEN CONSENTS
SEi. The SEi Bylaws provide that special meetings of the SEi
stockholders unless otherwise prescribed by law, may be called for any purpose
or purposes upon written request by a majority of the SEi Board or by the
Chairman of the SEi Board, the Chief Executive Officer, the President, or by the
holders of SEi shares entitled to cast not less than 10% of the shares issued
and outstanding and entitled to vote. Such request shall specify the purpose or
purposes of the proposed meeting. Business transacted at any special meeting of
SEi stockholders shall be limited to the purposes stated in the notice.
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Unless otherwise provided in the SEi Certificate, any action required to
be taken at any annual or special meeting of SEi stockholders may be taken
without a meeting, without prior notice and without a vote, if a written consent
setting forth the action to be taken is signed by a number of stockholders
necessary to approve such action at a meeting where all shares entitled to vote
thereon were present and voted.
Maxwell. Maxwell's Certificate provides that special meetings of
stockholders may be called for any purpose upon written request by a majority of
Maxwell's Board, the Chairman of the Board or the President.
Any action required or permitted to be taken by the Maxwell stockholders
must be effected at a duly called annual or special meeting of Maxwell
stockholders, unless such action is approved by a majority of the disinterested
Maxwell directors, in which case such action may be approved by the written
consent of the number of stockholders necessary to approve such action at a
meeting where all shares entitled to vote thereon were present and voted.
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION AND BYLAWS.
SEi. The SEi stockholders have the right to amend the SEi Certificate by
a majority vote provided that such amendment is first approved by the SEi Board
and submitted to the SEi stockholders in accordance with the DGCL. The SEi Board
has the right to amend any provision of the SEi Certificate.
The SEi Bylaws may be amended by a majority vote of the SEi stockholders
or by the SEi Board of Directors.
Maxwell. The Maxwell stockholders have the right to amend the Maxwell
Certificate by a majority vote provided that such amendment is first approved by
the Maxwell Board and submitted to the Maxwell stockholders in accordance with
the DGCL. However, the affirmative vote of the holders of not less than 80% of
the outstanding shares of the Maxwell common stock is required to amend those
provisions of the Maxwell Certificate relating to (1) the Board of Directors' or
the stockholders' ability to amend the Maxwell Bylaws, (2) the Board of
Directors being divided into three classes, (3) the rights of stockholders to
remove directors, (4) the anti-takeover provisions which impose supermajority
stockholder vote or disinterested director approval requirements in connection
with certain business combinations, and (5) stockholders' appraisal rights
granted under the DGCL.
The Bylaws may be amended by the Maxwell stockholders, but only by the
affirmative vote of the holders of not less than 80% of the outstanding shares
of Maxwell common stock unless such action is approved by Maxwell's Board in the
manner set forth in the Maxwell Certificate. The Maxwell Bylaws may also be
amended by the Maxwell Board.
LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INDEMNIFICATION
SEi. The SEi Certificate provides that no SEi director shall be
personally liable, to the fullest extent permitted by the DGCL, to SEi or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (1) for any breach of the director's duty of
loyalty to SEi or its stockholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (3) in
respect of certain unlawful dividend payments or stock purchase or redemption,
or (4) for any transaction from which the director derived an improper
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personal benefit. The SEi Certificate provides that SEi shall indemnify its
officers, directors, employees and agents to the fullest extent permitted by the
DGCL, and that such right to indemnification shall continue as to a person who
has ceased to be a director or officer of SEi and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
for proceedings to enforce rights to indemnification, SEi shall not be obligated
to indemnify any director or officer (or his or her heirs, executors or
administrators) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the SEi Board.
Maxwell. The Maxwell Certificate contains similar indemnification
provisions. The effect of these provisions is to eliminate the rights of Maxwell
and its stockholders (through stockholders' derivative suits on behalf of
Maxwell) to recover monetary damages against a director for breach of fiduciary
duty as a director (including breaches resulting from grossly negligent
behavior), except in the situations described above. These provisions do not
limit the liability of directors under federal securities laws and do not affect
the availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care.
RESTRICTIONS ON COMMON STOCK
SEi. The SEi Certificate provides that if at any time a SEi stockholder
desires to sell any shares of SEi common stock, such stockholder shall first
give SEi the right to purchase the shares, in accordance with the terms and
conditions determined by the SEi Bylaws and the SEi Board. In addition, SEi has
the right to repurchase any SEi common stock held by an employee, officer or
director of, or a consultant to, SEi upon the termination of such individual's
affiliation with SEi. SEi's repurchase right extends to all shares which such
individual has the right to acquire subsequent to his affiliation pursuant to an
employee benefit plan, stock option, or contract. SEi may also purchase any
shares of SEi common stock divided among former spouses pursuant to a divorce,
subject to the SEi affiliate spouse's right to repurchase the shares. SEi's
right to repurchase upon termination of affiliation or divorce automatically
lapse if SEi makes an underwritten offering of its common stock, or applies to
have its common stock listed on a national securities exchange.
Maxwell. The Maxwell Certificate contains no similar restrictions.
MAXWELL COMMON STOCK
Maxwell's authorized capital stock consists of 40,000,000 shares of
common stock, $.10 par value. As of November 25, 1998 there were 8,466,446
shares of Common Stock outstanding, excluding shares issuable upon the exercise
of outstanding options to purchase, at July 31, 1998 an aggregate of 1,265,155
shares of Common Stock held by employees, management and directors and certain
shares issuable upon conversion of preferred interests in subsidiaries of
Maxwell. 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. 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.
74
<PAGE> 82
The transfer agent and registrar for Maxwell's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
STOCKHOLDER RIGHTS PLAN
SEi. SEi does not have a stockholder rights plan.
Maxwell. On June 20, 1989, the Maxwell Board declared a dividend
distribution of one Right for each outstanding share of Maxwell 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 Maxwell one-half of a
share of Maxwell 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 Maxwell 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 Maxwell
common stock. Once exercisable, each Right entitles its holder initially to
purchase from Maxwell one-half of a share of Maxwell 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 (1) 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 Maxwell common
stock (the "Stock Acquisition Date"), or (2) 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
Maxwell common stock. Upon the occurrence of certain other events related to
changes in the ownership of the Maxwell common stock, each holder of a Right
would be entitled to purchase shares of the Maxwell 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 Maxwell as set forth below.
The Rights expire at the close of business on June 20, 1999, unless
earlier redeemed by Maxwell. At any time until the close of business on the
tenth business day following the Stock Acquisition Date, Maxwell may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (payable in cash,
Maxwell common stock or other consideration deemed appropriate by the Maxwell
Board). After the redemption period has expired, Maxwell's right of redemption
may be reinstated if an Acquiring Person reduces his beneficial ownership to 10%
or less of the outstanding shares of Maxwell common stock in a transaction or
series of transactions not involving Maxwell. Immediately upon the action of the
Maxwell Board 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 Maxwell
common stock that attempts to acquire Maxwell on terms not approved by the
Maxwell Board.
ADDITIONAL ANTI-TAKEOVER PROVISIONS
The provisions of the Maxwell Certificate and Bylaws having possible
"anti-takeover" effects are those that: (1) form a classified Board of Directors
with staggered terms of office, eliminate cumulative voting and permit the
removal of directors only for cause; (2) impose supermajority
75
<PAGE> 83
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"); (3) eliminate the right of
stockholders to call special stockholders' meetings and limit their right to
take action without a meeting by written consent, and (4) impose supermajority
shareholder vote or disinterested director approval requirements for amendments
to a number of provisions in Maxwell's charter documents, including the
provisions described in clauses (1) through (3) above.
In general, the fair price provisions may have the effect of requiring
payment in cash for shares of Maxwell common stock by an acquiror having
accumulated 10% or more of the Maxwell common stock at a price no less than the
highest market price of the Maxwell 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
Maxwell and SEi are 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 (1) prior to the date at which the person becomes an
interested stockholder, the Board of Directors approves such transaction or
business combination; (2) 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 (3) the business combination is approved by the Maxwell
Board 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.
RESALES OF MAXWELL COMMON STOCK BY SEi SHAREHOLDERS
The shares of Maxwell common stock to be issued in the Merger have been
registered under the Securities Act by the Registration Statement and therefore
may be resold without restriction by all former shareholders of SEi who are not
deemed to be "affiliates" of either Maxwell or SEi. An affiliate of a specified
person is defined in the rules and regulations of the SEC as a person that,
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.
Affiliates of SEi who receive shares of Maxwell common stock in the
Merger would be unable to resell such shares in the absence of a registration
statement covering such resales under the Securities Act or the availability of
an exemption from such registration, such as the exemption provided by Rule 145
under the Securities Act. In general, under Rule 145, an affiliate of SEi,
together with certain members of his or her immediate family, would be entitled,
for a period of two years after the consummation of the Merger, to sell shares
of Maxwell common stock received in the Merger only through unsolicited
"brokers' transactions" or in transactions directly with a "market maker," as
such terms are defined in Rule 144 under the Securities Act. Additionally, the
number of such shares to be
76
<PAGE> 84
sold by such an affiliate within any three-month period during the two years may
not exceed the greater of 1% of the outstanding shares of Maxwell common stock
or the average weekly trading volume of such stock during the four calendar
weeks preceding such sale. The provisions of Rule 145 permitting such sales
would only be available to affiliates of SEi at a time when Maxwell has filed
with the SEC all periodic reports required to be filed by it under the Exchange
Act (e.g., Forms 10-K and 10-Q). Two years after the consummation of the Merger,
such persons who are not affiliates of the Maxwell would be able to sell such
Maxwell common stock freely, subject only to the above-mentioned periodic
reports requirement, which would apply until three years after the consummation
of the Merger, at which time former affiliates of SEi would be able to sell
Maxwell common stock without any restrictions.
The SEi Stockholders have not advised Maxwell of any specific plans for
the distribution of the above-listed shares, but it is anticipated that the
shares will be sold from time to time on the Nasdaq National Market or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The shares may be sold
(a) in block trades in which the broker or dealer so engaged would attempt to
sell the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (b) in purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Proxy Statement/Prospectus and (c) in ordinary brokerage transactions and
transactions in which the broker solicits purchases. Brokers or dealers will
receive commissions or discounts from SEi Stockholders selling their shares in
amounts to be negotiated immediately prior to the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Proxy Statement/Prospectus
that qualify for sale pursuant to Rule 145 under such Securities Act may be sold
under Rule 145 rather than pursuant to this Proxy Statement/Prospectus.
LEGAL MATTERS
Certain legal matters with respect to the legality of the shares of
Maxwell common stock offered hereby has been passed upon for Maxwell by Riordan
& McKinzie, a Professional Law Corporation, Los Angeles, California. A principal
of Riordan & McKinzie owns 6,625 shares of Maxwell common stock.
EXPERTS
The consolidated financial statements of Maxwell Technologies, Inc.
appearing in Maxwell Technologies, Inc.'s Annual Report (Form 10-K) for the year
ended July 31, 1998, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The audited financial statements of Space Electronics Inc. included in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
77
<PAGE> 85
WHERE YOU CAN FIND MORE INFORMATION
Maxwell files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information on file at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the SEC's
Public Reference Room. You may also find Maxwell's SEC filings on the SEC
Internet site at http://www.sec.gov. As permitted by the Rules and Regulations
of the SEC, this Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement, of which this Proxy
Statement/Prospectus is a part, which has been filed by Maxwell with the SEC to
register the Maxwell common stock issuable in connection with the Merger.
Maxwell has not authorized anyone to give any information regarding the
offer other than the information in this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus is not an offer to sell or a solicitation of an offer to
buy any securities other than the Maxwell common stock it describes, nor is it
an offer to or solicitation of anyone to whom it would be unlawful to make an
offer or solicitation. Neither the delivery of this Proxy Statement/Prospectus
nor the distribution of any of the securities to which this Proxy
Statement/Prospectus relates implies that the information is correct as of any
time after the date of this Proxy Statement/Prospectus.
The SEC allows Maxwell to "incorporate by reference" the information it
files with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Proxy Statement/Prospectus, and later information
filed with the SEC will update and supersede this information. The documents we
have listed below, and with respect to Maxwell any future filings made with the
SEC under Section 13(a), 13(c), 14 or (15(d) of the Securities and Exchange Act
of 1934 until the SEi Shareholder Meeting, comprise the incorporated documents:
Maxwell Documents:
(a) Annual Report on Form 10-K for the fiscal year ended
July 31, 1998;
(b) Registration Statement on Form 8-A declared effective by the
SEC on June 30, 1989, which contains a description of Maxwell's rights;
and
(c) Maxwell's Registration Statement on Form S-3, as amended,
declared effective by the SEC on November 17, 1998, containing a
description of Maxwell's common stock.
(d) Current Report on Form 8-K filed with the Securities
Exchange Commission on November 17, 1998.
(e) Maxwell's Proxy Statement on Schedule 14A for its 1998 Annual
Stockholder Meeting.
Upon request, Maxwell will provide, without charge, a copy of any or all
of their documents incorporated by reference in this document (other than
exhibits to such documents, unless the exhibits are specifically incorporated by
reference in such documents). You should direct requests for copies to Gary J.
Davidson, Chief Financial Officer, Maxwell Technologies, Inc., 9275 Sky Park
Court, San Diego, California 92123 (Telephone: 1-619-279-5100). In order to
ensure timely delivery of the documents, any request should be made at least
five business days prior to the date on which the
78
<PAGE> 86
financial investment decision must be made. Accordingly, please request any
information you may need on or before December 24, 1998.
The Agreement and Plan of Reorganization by and between Maxwell, MT
Acquisition Corporation and SEi dated as of November 25, 1998, which is attached
to this Proxy Statement/Prospectus as Annex A, is also incorporated by
reference herein.
79
<PAGE> 87
INDEX TO FINANCIAL STATEMENTS
SPACE ELECTRONICS INCORPORATED
Audited Financial Statements as of December 31, 1996 and 1997 and for Each of
the Three Years in the Period ended December 31, 1997
<TABLE>
<S> <C>
Report of Independent Public Accountants...................................................F-2
Balance Sheets as of December 31, 1996 and 1997............................................F-3
Statements of Income for Each of the Three Years in the Period ended December 31, 1997.....F-5
Statements of Stockholders' Equity for Each of the Three Years in the Period
ended December 31, 1997............................................................F-6
Statements of Cash Flows for Each of the Three Years in the Period ended
December 31, 1997..................................................................F-7
Notes to Consolidated Financial Statements.................................................F-8
Unaudited Financial Statements as of December 31, 1997 and September 30, 1998
and for the Nine Months ended September 30, 1997 and 1998
Balance Sheets as of December 31, 1997 and September 30, 1998.............................F-17
Statements of Income for the Nine Months ended September 30, 1997 and 1998................F-19
Statements of Cash Flows for the Nine Months ended September 30, 1997 and 1998............F-20
Notes to Financial Statements for the Nine Months ended September 30, 1997 and 1998.......F-21
</TABLE>
F-1
<PAGE> 88
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Space Electronics Inc.:
We have audited the accompanying balance sheets of Space Electronics Inc. (a
Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 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 financial position of Space Electronics Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
January 23, 1998
F-2
<PAGE> 89
SPACE ELECTRONICS INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,310,000 $ 160,000
Accounts receivable, less allowance for
doubtful accounts of $150,000 and
$238,000, respectively 1,594,000 2,029,000
Inventories 1,184,000 2,398,000
Other receivables 29,000 620,000
Deferred income taxes 347,000 312,000
Prepaid expenses and other current assets 43,000 235,000
----------- -----------
Total current assets 4,507,000 5,754,000
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 820,000 1,622,000
Furniture and fixtures 64,000 84,000
Tooling 319,000 441,000
Leasehold improvements 34,000 49,000
Construction-in-progress -- 84,000
----------- -----------
1,237,000 2,280,000
Less: accumulated depreciation and
amortization (397,000) (739,000)
----------- -----------
840,000 1,541,000
----------- -----------
Total assets $ 5,347,000 $ 7,295,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 90
SPACE ELECTRONICS INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ -- $ 500,000
Current portion of notes payable 112,000 289,000
Accounts payable 271,000 600,000
Accrued liabilities 1,681,000 1,325,000
Customer deposits 358,000 105,000
----------- -----------
Total current liabilities 2,422,000 2,819,000
----------- -----------
NOTES PAYABLE, net of current portion 437,000 636,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock; 2,000,000 and 10,000,000
shares authorized, at $.001 par value,
1,573,260 and 1,752,231 shares
outstanding, respectively 1,000 1,000
Additional paid in capital 623,000 959,000
Retained Earnings 1,945,000 2,880,000
Treasury Stock, at cost (81,000) --
----------- -----------
Total shareholders' equity 2,488,000 3,840,000
----------- -----------
Total liabilities and shareholders' equity $ 5,347,000 $ 7,295,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE> 91
SPACE ELECTRONICS INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 3,750,000 $ 10,598,000 $ 11,121,000
Cost of revenues 2,165,000 4,217,000 4,606,000
------------ ------------ ------------
Gross profit 1,585,000 6,381,000 6,515,000
Selling, general and administrative
expenses 1,052,000 2,777,000 3,452,000
Research and development expenses 166,000 488,000 1,046,000
------------ ------------ ------------
Income from operations 367,000 3,116,000 2,017,000
Other income (expense):
Interest, net (30,000) (8,000) 32,000
Other, net (12,000) (7,000) (41,000)
------------ ------------ ------------
Income before income taxes 325,000 3,101,000 2,008,000
Income tax provision -- 1,144,000 741,000
------------ ------------ ------------
Net income $ 325,000 $ 1,957,000 $ 1,267,000
============ ============ ============
Net income per share:
Basic $ .30 $ 1.35 $ .78
============ ============ ============
Diluted $ .30 $ 1.35 $ .67
============ ============ ============
Shares used in per share calculation:
Basic 1,077,613 1,447,665 1,634,761
============ ============ ============
Diluted 1,077,613 1,447,665 1,902,812
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 92
SPACE ELECTRONICS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock Total
-------------------- Paid in Retained --------------------- Shareholders'
Shares Amount Capital Earnings Shares Amount Equity
--------- -------- ---------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 927,400 $1,000 $ 309,000 $ (98,000) -- $ -- $ 212,000
Sales of common stock 457,610 -- 161,000 -- -- -- 161,000
Purchases of treasury stock -- -- -- -- (6,970) (3,000) (3,000)
Dividends -- -- -- (166,000) -- -- (166,000)
Net income -- -- -- 325,000 -- -- 325,000
--------- ------ --------- ---------- ------- --------- ----------
BALANCE, December 31, 1995 1,385,010 1,000 470,000 61,000 (6,970) (3,000) 529,000
Sales of common stock 188,250 -- 153,000 -- -- -- 153,000
Purchases of treasury stock -- -- -- -- (49,000) (78,000) (78,000)
Dividends -- -- -- (73,000) -- -- (73,000)
Net income -- -- -- 1,957,000 -- -- 1,957,000
--------- ------ --------- ---------- ------- --------- ----------
BALANCE, December 31, 1996 1,573,260 1,000 623,000 1,945,000 (55,970) (81,000) 2,488,000
Sales of common stock 321,586 -- 577,000 -- -- -- 577,000
Purchases of treasury stock -- -- -- -- (86,645) (492,000) (492,000)
Common stock retired (142,615) -- (241,000) (332,000) 142,615 573,000 --
Net income -- -- -- 1,267,000 -- -- 1,267,000
--------- ------ --------- ---------- ------- --------- ----------
BALANCE, December 31, 1997 1,752,231 $1,000 $ 959,000 $2,880,000 -- $ -- $3,840,000
========= ====== ========= ========== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 93
SPACE ELECTRONICS INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 325,000 $1,957,000 $ 1,267,000
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 42,000 210,000 342,000
Changes in assets and liabilities:
Accounts receivable (546,000) (722,000) (435,000)
Inventories (252,000) (384,000) (1,214,000)
Other receivables (11,000) 16,000 (591,000)
Deferred taxes -- (347,000) 35,000
Prepaid expenses and other assets -- (43,000) (192,000)
Accounts payable 184,000 (74,000) 329,000
Accrued liabilities 68,000 1,399,000 (356,000)
Customer deposits 162,000 102,000 (253,000)
--------- ---------- -----------
Net cash provided by (used in)
operating activities (28,000) 2,114,000 (1,068,000)
--------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (268,000) (680,000) (1,043,000)
--------- ---------- -----------
Net cash used in investing activities (268,000) (680,000) (1,043,000)
--------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit 104,000 (149,000) 500,000
Net borrowings under notes payable agreements 90,000 162,000 376,000
Repayments of related party notes payable -- (60,000) --
Sales of common stock 161,000 153,000 577,000
Purchases of treasury stock (3,000) (78,000) (492,000)
Dividend payments (52,000) (187,000) --
--------- ---------- -----------
Net cash provided by (used in)
financing activities 300,000 (159,000) 961,000
--------- ---------- -----------
NET (DECREASE) INCREASE IN CASH 4,000 1,275,000 (1,150,000)
CASH AND CASH EQUIVALENTS, Beginning of year 31,000 35,000 1,310,000
--------- ---------- -----------
CASH AND CASH EQUIVALENTS, End of year $ 35,000 $1,310,000 $ 160,000
========= ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE
YEAR FOR:
Interest $ 29,000 $ 27,000 $ 46,000
========= ========== ===========
Taxes $ -- $1,501,000 $ 857,000
========= ========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Inventory acquired through issuance of note $ -- $ 217,000 $ --
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 94
SPACE ELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. Organization and Significant Accounting Policies
Space Electronics Incorporated (the "Company") develops and markets
microelectronic components for space flight applications. The Company
manufactures, sells, and distributes such components to companies in the
space/telecommunications industry. Distribution of Company products is
primarily through direct sales.
Revenue Recognition
The Company records revenue from sales of microelectronic components at
the time they are shipped to the customer. A portion of the Company's
revenue is derived from services performed under cost-plus-fixed-fee
contracts. Revenue on cost-plus-fixed-fee contracts is recorded using
the percentage-of-completion method based on costs incurred to date in
relation to total estimated costs. Provisions for estimated losses on
contracts, if any, are recorded as such losses become known.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with
a maturity of three months and less when purchased.
Inventories
Inventories consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Raw Materials $ 765,000 $1,360,000
Work-in-Progress 248,000 571,000
Finished Goods 171,000 467,000
---------- ----------
$1,184,000 $2,398,000
========== ==========
</TABLE>
Inventories which include materials, direct labor and manufacturing
overhead are stated at lower of cost or market. Cost is determined using
the first-in, first-out method.
F-8
<PAGE> 95
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation and
amortization are provided using the straight-line method based on the
following estimated useful lives:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Machinery equipment 3 to 5
Furniture and Fixtures 5 to 7
Tooling 3
Leasehold improvements 4
</TABLE>
Repairs and maintenance are charged to expense as incurred.
Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Payroll and payroll related $ 941,000 $ 852,000
Accrued expenses - other 265,000 57,000
Income taxes payable 2,000 --
Accrued contract reserves 473,000 416,000
---------- ----------
$1,681,000 $1,325,000
========== ==========
</TABLE>
Concentration of Risk
Financial instruments that potentially subject the Company to
concentrations of risk consist primarily of accounts receivable
resulting from sales of its product primarily to commercial entities in
the space industry. The Company extends credit to customers based on its
evaluation of the customer's financial condition. Exposure to losses on
receivables is principally dependent on each customer's financial
condition but is reduced by mandatory deposits which are classified as
customer deposits in the accompanying balance sheets. The Company
monitors its exposure for credit losses and maintains allowances for
anticipated losses.
Sales to one customer accounted for approximately 7.5 percent, 14.0
percent and 30.3 percent of the Company's total revenue for the year
ended December 31, 1995, 1996 and 1997.
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,
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period, particularly recognition of
revenue and related costs accounted for under the
percentage-of-completion method as described above. Actual results could
differ from those estimates.
F-9
<PAGE> 96
Net Income Per Share
In fiscal year 1998, the Company adopted Statement of Financial
Standards No. 128, "Earnings Per Share" (SFAS 128). Under the provisions
of SFAS 128, basic earnings per share is calculated based on the
weighted average number of common shares outstanding during the period.
Diluted earnings per share also gives effect to the dilutive effect of
stock options (calculated based on the treasury stock method). All prior
periods have been restated. A reconciliation of shares used in the per
share calculation is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Basic:
Weighted average
common shares
outstanding 1,077,613 1,447,665 1,634,761
========= ========= =========
Diluted:
Weighted average
common shares 1,077,613 1,447,665 1,634,761
Dilutive effect of
stock options -- -- 268,051
--------- --------- ---------
Weighted average common
shares outstanding 1,077,613 1,447,665 1,902,812
========= ========= =========
</TABLE>
Recent Accounting Pronouncements
In December 1997, the Company adopted SFAS No. 129, "Disclosure of
Information about Capital Structure." This Statement establishes
standards for disclosing information about an entity's capital
structure. This Statement is effective for financial statements for
periods ending after December 15, 1997. The adoption of SFAS No. 129
did not have an effect on the Company's results of operations or
financial position.
During July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display
of comprehensive income and its components in a full set of general
purpose financial statements. The objective of the Statement is to
report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners ("comprehensive income"). Comprehensive income
is the total of net income and all other nonowner changes in equity.
SFAS No. 130 is effective for fiscal years beginning after December 15,
1997, with earlier application permitted. The Company's comprehensive
income would not differ from net income for the years ended December 31,
1997 and 1996.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1: "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which will be
effective for fiscal years beginning after December 31, 1998. The
Company has reviewed the statement of position and believes its adoption
will not have a material effect on the Company's financial position or
results of operations.
F-10
<PAGE> 97
2. Line of Credit
Line of credit consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
Revolving line of credit with a bank, variable interest at the bank's
prime rate plus 0.25% (8.75% at December 31, 1997) maturing May 1,
1998, secured by accounts receivable, inventory and equipment.
Borrowing limit is the lesser of $3,000,000 or 80% of eligible
trade accounts receivable.
$500,000
--------
$500,000
========
</TABLE>
As of December 31, 1997, the Company was either in compliance with
covenant requirements of the revolving line of credit agreement or had
obtained appropriate waivers from the bank.
Interest expense under the line of credit was $4,000 and $2,000 in 1995
and 1997, respectively. There were no borrowings under the line of
credit during 1996.
3. Notes Payable
Notes payable consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Notes payable to a bank, variable interest at the bank's prime rate
plus 1%, 9.5% at December 31, 1997, maturing at various times
from 2001 to 2002 $332,000 $408,000
Equipment note to a bank, variable interest at the bank's prime
rate plus 0.50% (9% at December 31, 1997) maturing May 1, 2002,
secured by the Company's accounts with the bank and assets
purchased with proceeds from the note -- 298,000
Other note payable 217,000 219,000
-------- --------
549,000 925,000
Less: installments due within one year 112,000 289,000
-------- --------
$437,000 $636,000
======== ========
</TABLE>
F-11
<PAGE> 98
The other note payable represents amounts due under an asset purchase
agreement entered into in connection with the Company's purchase of its
MAXIUM and ESPRIX product lines. In connection therewith, the Company
also agreed to pay quarterly royalties based on sales of these product
lines. Payments on the note will be reduced by future royalty payments.
Cumulative royalty payments are limited to the maximum amount of the
note payable.
Aggregate installments due over the next five years as follows:
<TABLE>
<CAPTION>
Year Ending December 31:
------------------------
<S> <C>
1998 $289,000
1999 248,000
2000 159,000
2001 140,000
2002 89,000
--------
$925,000
========
</TABLE>
Interest expense on notes payable was $21,000, $27,200 and $57,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
4. Commitments and Contingencies
Leases
The Company leases its manufacturing facilities and offices under a
non-cancelable operating lease which expires on October 31, 2001. Rent
expense was $76,000, $132,000 and $211,000 in 1995, 1996 and 1997,
respectively. As of December 31, 1997, future minimum lease payments
under this lease are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 $ 290,000
1999 319,000
2000 354,000
2001 307,000
----------
$1,270,000
==========
</TABLE>
Litigation
In the ordinary course of business, the Company is subject to claims
and, from time to time, is named in various legal proceedings. In the
opinion of management, the amount of ultimate liability, if any, with
respect to any pending actions will not materially affect the financial
position or results of operations of the Company.
5. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," which requires the use of the liability method of accounting for
deferred income taxes. Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years of temporary
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end. If it is more likely than
not that
F-12
<PAGE> 99
some portion or all of the deferred tax asset will not be realized, a
valuation allowance is recognized.
On January 1, 1996, the Company changed its tax status from an
S-Corporation to a C-Corporation for federal and state income tax
purposes. The prospective effect of this change on the financial
statements was for the Company to begin recording a federal and state
income tax provision and related assets and liabilities as these income
taxes were the liability of the shareholders in prior years. In
addition, the Company was required to reinstate deferred taxes for
assets and liabilities from prior periods with an offsetting credit to
earnings.
The components of the provision (benefit) for income taxes for the
period ending December 31, is as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Current:
Federal $ 1,175,000 $ 533,000
State 316,000 173,000
Deferred:
Federal (295,000) 16,000
State (52,000) 19,000
----------- -----------
Tax provision $ 1,144,000 $ 741,000
=========== ===========
</TABLE>
The components of the net deferred tax asset, at December 31, were as
follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
State taxes $ 107,000 $ 57,000
Amortization/depreciation (14,000) 21,000
Deferred compensation 93,000 --
Reserves and accrued liabilities 161,000 234,000
--------- ---------
Total $ 347,000 $ 312,000
========= =========
</TABLE>
Rate reconciliation for the period ending December 31, is as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Federal income tax $ 1,054,000 $ 624,000
State income tax 186,000 110,000
R&D (20,000) 6,000
Other (11,000) 1,000
Reinstatement of deferred tax asset (65,000) --
----------- -----------
Tax provision $ 1,144,000 $ 741,000
=========== ===========
</TABLE>
The Company was responsible for state taxes of 1.5% of income in 1995.
For the year ended December 31, 1995, approximately $10,000 of state
taxes is included in selling, general and administrative expenses.
F-13
<PAGE> 100
6. Benefit Plans
Retirement and Savings Plan
On January 1, 1996, the Company established a Retirement and Savings
Plan (the "Plan") in accordance with the provisions of Section 401(k) of
the Internal Revenue Code. The Plan provides for the Company to make
matching contributions equal to 25% of participants' contributions, up
to a total of 6% of participants' earnings (a maximum Company
contribution of 1.5%). Annual aggregate Company contributions are
further limited in total to 15% of the Company's after tax profits. The
Plan may be terminated at any time at the option of the Company.
Employee Stock Purchase Plan
The Company maintains an employee stock purchase plan whereunder
employees may purchase shares of the Company through payroll deductions
(not to exceed the lesser of $8,000 or 10% of the employees' base
compensation) to accrue for semi-annual offerings. The price at which
shares are purchased by employees is determined semi-annually by the
Company's Board of Directors based on a formula which considers the fair
market value (FMV) of the stock and financial information of companies
in the same line of business. Total shares purchased by employees under
this plan were approximately 458,000, 188,000 and 322,000 shares in
1995, 1996 and 1997, respectively.
Stock Option Plan
In 1996, the board of directors adopted the "Second 1996 Stock Option
Plan" where up to 500,000 shares of common stock can be granted under
this plan. The selection of recipients of options is within the absolute
discretion of a senior management committee. Generally, all directors,
officers, employees and certain persons rendering services to the
Company relative to its management, operations or development are
eligible to receive options under the Plan. The term of the options is
10 years. However, the granting of options shall not impose any
obligation upon the optionee to exercise such option. The FMV of the
options at the grant date is determined using the same formula as
discussed under the Employee Stock Purchase Plan footnote.
F-14
<PAGE> 101
Stock Option Plan Activity
The following table summarizes stock option plan activity for the year
ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1997
------------------------ -------------------------
Weighted Weighted
Average Average
Options Exercise Options Exercise
Activity Price Activity Price
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year -- $ -- 363,000 $ 1.85
Granted 363,000 1.85 123,250 5.83
Exercised -- -- -- --
Canceled -- -- (15,500) 3.62
-------- --------
Outstanding at end
of year 363,000 $ 1.85 470,750 $ 3.00
======== ======== ======== ========
Weighted average fair
value of options
granted during the
period $ 1.60 $ 1.67
======== ========
</TABLE>
Exercise price of options outstanding and options exercisable were as
follows:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-------------------------------------------------
Weighted
Number Weighted Average
of Average Remaining Exercise
Options Contractual Life Price
---------- ----------------- ----------
<S> <C> <C> <C>
Range of exercise prices
$0.50 - $1.41 192,500 8.00 $ 0.50
$3.62 145,500 8.92 3.62
$5.55 - $6.37 132,500 10.00 6.92
----------
470,500 8.45 $ 1.88
========== ========= ==========
</TABLE>
As permitted, the Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation" effective January 1, 1996. Accordingly, no
compensation expense has been recognized for the stock option plan. Had
compensation expense for the Company's stock option plan been
determined based on the fair value at the date of grant for 1996 and
1997 awards, pro-forma net income would reflect an additional charge of
approximately $11,000 and $58,000, respectively.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1997: risk free interest rate of
5.35%, expected option life of 6 years, expected volatility of zero
percent and a dividend rate of zero.
F-15
<PAGE> 102
7. Strategic Alliance
On January 1, 1996 the Company entered into a strategic alliance with
another company. Under the terms of the alliance, the Company committed
to issue 137,800 new shares of common stock in exchange for 12,220
common shares of the other company. These shares will vest at the rate
of 20% of the total commitment over each of the next five years. Other
terms of the agreement provide that the Company may fund certain
research and development project costs incurred by the other company in
exchange for rights to use the technology developed. Any such project
costs will be funded at the sole discretion of the Company's management
and the Company is under no obligation to fund any such projects.
F-16
<PAGE> 103
SPACE ELECTRONICS INC.
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
----------- -----------
(Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 160,000 $ 214,000
Accounts receivable, less allowance for
doubtful accounts of $238,000 and
$200,000, respectively 2,029,000 3,103,000
Inventories 2,398,000 2,493,000
Other receivables 620,000 511,000
Deferred income tax 312,000 752,000
Prepaid expenses and other current assets 235,000 172,000
----------- -----------
Total current assets 5,754,000 7,245,000
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 1,622,000 2,208,000
Furniture and fixtures 84,000 97,000
Tooling 441,000 590,000
Leasehold improvements 49,000 103,000
Construction-in-progress 84,000 14,000
----------- -----------
2,280,000 3,012,000
Less: accumulated depreciation and
amortization (739,000) (1,130,000)
----------- -----------
1,541,000 1,882,000
----------- -----------
Total assets $ 7,295,000 $ 9,127,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-17
<PAGE> 104
SPACE ELECTRONICS INC.
BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---------- ----------
(Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 500,000 $ 880,000
Current portion of notes payable 289,000 300,000
Accounts payable 600,000 355,000
Accrued liabilities 1,325,000 2,380,000
Customer deposits 105,000 1,190,000
---------- ----------
Total current liabilities 2,819,000 5,105,000
---------- ----------
NOTES PAYABLE, net of current portion 636,000 849,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock; 10,000,000 shares authorized,
at $.001 par value, 1,752,231 and
1,735,271 shares outstanding, respectively 1,000 1,000
Additional paid in capital 959,000 1,113,000
Retained Earnings 2,880,000 2,059,000
---------- ----------
Total shareholders' equity 3,840,000 3,173,000
---------- ----------
Total liabilities and shareholders' equity $7,295,000 $9,127,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-18
<PAGE> 105
SPACE ELECTRONICS INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenues $ 8,602,000 $ 8,806,000
Cost of revenues 3,361,000 5,315,000
----------- -----------
Gross profit 5,241,000 3,491,000
Selling, general and administrative expenses 2,565,000 2,906,000
Research and development expenses 700,000 1,378,000
----------- -----------
Income/(Loss) from operations 1,976,000 (793,000)
INTEREST AND OTHER INCOME (EXPENSES), net 9,000 (129,000)
----------- -----------
Income/(Loss) before income taxes 1,985,000 (922,000)
Income tax/(Benefit) provision 834,000 (369,000)
----------- -----------
Net income/(Loss) $ 1,151,000 $ (553,000)
=========== ===========
Net income/(Loss) per share:
Basic $ .68 $ (.32)
=========== ===========
Diluted $ .60 $ (.29)
=========== ===========
Shares used in per share calculation:
Basic 1,692,398 1,746,634
=========== ===========
Diluted 1,925,622 1,940,212
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 106
SPACE ELECTRONICS INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ 1,151,000 $ (553,000)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and Amortization 259,000 391,000
Changes in assets and liabilities:
Accounts receivable (599,000) (1,074,000)
Inventories (758,000) (95,000)
Other receivables (301,000) 109,000
Deferred income tax -- (440,000)
Prepaid expenses and other assets (8,000) 63,000
Accounts payable 348,000 (245,000)
Accrued liabilities (545,000) 1,055,000
Customer deposits (79,000) 1,085,000
----------- -----------
Net cash provided by (used in)
operating activities (532,000) 296,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (765,000) (732,000)
----------- -----------
Net cash used in investing activities (765,000) (732,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit -- 380,000
Net borrowings under notes payable agreements 217,000 224,000
Sales of common stock 528,000 403,000
Purchases of treasury stock (352,000) (517,000)
----------- -----------
Net cash provided by
financing activities 393,000 490,000
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (904,000) 54,000
CASH AND CASH EQUIVALENTS, Beginning of period 1,310,000 160,000
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 406,000 $ 214,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE
YEAR FOR:
Interest $ 28,000 $ 116,000
=========== ===========
Taxes $ 832,000 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 107
SPACE ELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1998
Basis of Presentation
The information at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 is unaudited, but includes all adjustments,
consisting only of normal recurring adjustments, which the management of
Space Electronics, Inc. (the "Company") considers necessary for a fair
presentation of the Company's financial position, results of operations
and cash flows for the periods presented. The results of the interim
periods are not necessarily indicative of results for the full year.
The financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1997.
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 recorded in the financial
statements and accompanying notes. Actual results may differ from those
recorded using such estimates.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure
about Segments of an Enterprise and Related Information" is effective
for fiscal years beginning after December 15, 1997. SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS
131 also establishes standards for related disclosures about products
and services, major customers, and material countries in which the
entity holds assets and reports revenue. The adoption of SFAS No. 131
will not affect the results of operations or financial position of the
Company, but may require the Company to disclose segment information in
its financial statements for the year ending December 31, 1998.
Statement of Financial Accounting Standards (SFAS) No. 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits" is
effective for fiscal years beginning after December 15, 1997. SFAS No.
132 established standards for employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement
or recognition of those plans. The adoption of SFAS No. 132 had no
material impact on the Company's financial statements or related
disclosures thereto.
F-21
<PAGE> 108
In April 1998, the AcSEC issued AICPA SOP 98-5, "Reporting on the Costs
of Start-Up Activities." This statement provides guidance on the
financial reporting of start-up costs and organization costs and
requires that such costs of start-up activities be expensed as incurred.
SOP 98-5 is effective for fiscal years beginning after December 15,
1998, with earlier application permitted. The Company anticipates that
the adoption of SOP 98-5 will not have a material impact on the
Company's financial position or results of operations.
Net Income Per Share
In fiscal year 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Under the
provisions of SFAS 128, basic earnings per share is calculated based on
the weighted average number of common shares outstanding during the
period. Diluted earnings per share also gives effect to the dilutive
effect of stock options (calculated based on the treasury stock method).
All prior periods have been restated. A reconciliation of shares used in
the per share calculation is as follows:
<TABLE>
<CAPTION>
September 30,
--------------------------
1997 1998
--------- ---------
<S> <C> <C>
Basic:
Weighted average common shares
Outstanding 1,692,398 1,746,634
========= =========
Diluted:
Weighted average common shares 1,692,398 1,746,634
Dilutive effect of stock options 233,224 193,578
--------- ---------
Weighted average shares
outstanding 1,925,622 1,940,212
========= =========
</TABLE>
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and include material, labor and related overhead. Inventories
consisted of the following costs not yet charged to contracts (in
thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---------- ----------
<S> <C> <C>
Raw materials $1,360,000 $1,491,000
Work-in-progress 571,000 549,000
Finished goods 467,000 453,000
---------- ----------
$2,398,000 $2,493,000
========== ==========
</TABLE>
F-22
<PAGE> 109
Taxation
The estimated annual effective tax rate for 1998 is 40%. The difference
between the federal statutory rate and the estimated annual effective
rate is primarily attributable to state taxes and other nondeductible
items.
Merger with Maxwell Technologies, Inc.
On November 25, 1998, the Company entered into a definitive Merger
agreement with Maxwell Technologies, Inc. ("Maxwell"), a public company.
If approved by the stockholders of the Company and consummated, the
Company will become a wholly-owned subsidiary of Maxwell and
stockholders of the Company will receive shares of Maxwell in exchange
for their shares in the Company.
F-23
<PAGE> 110
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
SPACE ELECTRONICS INCORPORATED
(THE "COMPANY")
CERTAIN SHAREHOLDERS OF THE COMPANY,
MT ACQUISITION CORPORATION
AND
MAXWELL TECHNOLOGIES, INC.
DATED AS OF
NOVEMBER 25, 1998
<PAGE> 111
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 TERMS OF MERGER...............................................................1
1.1 The Merger....................................................................1
1.2 Closing Date of the Merger....................................................2
1.3 Certificate of Incorporation of the Surviving Corporation.....................2
1.4 Bylaws of the Surviving Corporation...........................................2
1.5 Board of Directors and Officers of the Surviving Corporation..................2
1.6 Consideration; Cancellation of Company Common Stock...........................2
1.7 Adjustments to Exchange Ratio.................................................4
1.8 Conversion of Newco Common Stock..............................................5
1.9 No Fractional Shares..........................................................5
1.10 Escrow........................................................................5
1.11 Exchange of Shares; Stock Transfer Books......................................6
1.12 Treasury and Other Stock......................................................6
1.13 Dissenting Shares.............................................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF
THE COMPANY, SHAREHOLDERS AND PRINCIPAL SHAREHOLDERS..........................7
2.1 Organization and Good Standing................................................7
2.2 Subsidiaries..................................................................7
2.3 Capital Structure of the Company..............................................7
2.4 Authorization and Approvals...................................................8
2.5 No Violations.................................................................8
2.6 Taxes.........................................................................9
2.7 Transactions with Affiliates.................................................10
2.8 Financial Statements.........................................................11
2.9 Title to Properties..........................................................11
2.10 Real Property................................................................11
2.11 Leases.......................................................................12
2.12 Fixed Assets.................................................................12
2.13 Intellectual Property........................................................12
2.14 Accounts Receivable..........................................................14
2.15 Licenses and Permits.........................................................15
2.16 Insurance....................................................................15
2.17 Absence of Certain Changes...................................................15
2.18 Contracts....................................................................17
2.19 Client and Supplier Relationships............................................19
2.20 Compliance With Laws.........................................................19
2.21 No Undisclosed Liabilities...................................................19
</TABLE>
-i-
<PAGE> 112
TABLE OF CONTENTS (Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
2.22 Employees....................................................................19
2.23 Litigation...................................................................20
2.24 Environmental Matters........................................................21
2.25 Employee Benefits............................................................23
2.26 Bank Accounts................................................................25
2.27 Corporate Records............................................................25
2.28 Accounting Records...........................................................25
2.29 Omitted. ....................................................................25
2.30 Affiliates...................................................................25
2.31 Brokers and Finders..........................................................25
2.32 Inventory....................................................................25
2.33 Year 2000 Compliance.........................................................25
2.34 Government Contracts.........................................................26
2.35 Product Liability and Warranties.............................................26
2.36 Absence of Certain Payments..................................................26
2.37 Registration Statement; Proxy Statement......................................27
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EACH PRINCIPAL
SHAREHOLDER..................................................................28
3.1 Title to Shares..............................................................28
3.2 Authorization and Approvals..................................................28
3.3 No Violations................................................................28
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF
MAXWELL AND NEWCO............................................................29
4.1 Organization and Power; Foreign Qualification................................29
4.2 Capital Structure of Maxwell and Newco.......................................29
4.3 Authorization and Enforceability of Agreements...............................29
4.4 No Conflicts.................................................................30
4.5 Financial Statements and Commission Reports..................................30
4.6 Brokers and Finders..........................................................30
4.7 Exchange Shares..............................................................31
4.8 No Material Adverse Changes..................................................31
4.9 Registration Statement; Proxy Statement/Prospectus...........................31
4.10 Affiliates...................................................................31
ARTICLE 5 COVENANTS OF THE COMPANY AND PRINCIPAL SHAREHOLDERS..........................32
</TABLE>
-ii-
<PAGE> 113
TABLE OF CONTENTS (Continued)
<TABLE>
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5.1 Covenants Pending Closing....................................................32
5.2 Consents and Approvals; Fulfillment of Conditions............................34
5.3 Acquisition Proposals........................................................34
5.4 Notice.......................................................................35
5.5 Access.......................................................................35
5.6 Affiliates; Accounting and Tax Treatment.....................................36
5.7 Publicity....................................................................36
5.8 Distribution of Proxy Statement/Prospectus; Shareholders' Approval...........36
ARTICLE 6 COVENANTS OF MAXWELL AND NEWCO...............................................37
6.1 Consents and Approvals; Fulfillment of Conditions............................37
6.2 Notice.......................................................................37
6.3 Publicity....................................................................37
ARTICLE 7 ADDITIONAL PRE-CLOSING COVENANTS OF THE PARTIES..............................37
7.1 Preparation of Registration Statement........................................37
7.2 HSR Act......................................................................37
7.3 Disclosure Schedules.........................................................38
ARTICLE 8 CONDITIONS TO CLOSING BY MAXWELL AND NEWCO...................................38
8.1 Accuracy of Representations and Warranties; Performance of Covenants.........39
8.2 Consents.....................................................................39
8.3 Shareholder Approval.........................................................39
8.4 No Litigation................................................................39
8.5 Corporate Resolutions........................................................39
8.6 Adverse Changes..............................................................39
8.7 Opinion of Counsel...........................................................39
8.8 Legislation..................................................................39
8.9 Employment and Noncompetition and Nondisclosure Agreements...................40
8.10 Investment Letter............................................................40
8.11 Pooling Opinion..............................................................40
8.12 Escrow Agreement.............................................................40
8.13 Dissenting Shares............................................................40
8.14 Securities Law...............................................................40
8.15 Nasdaq Listing...............................................................40
8.16 HSR Act......................................................................40
8.17 Technology Transfer Agreement with Full Circle Research......................40
</TABLE>
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TABLE OF CONTENTS (Continued)
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<S> <C> <C>
ARTICLE 9 CONDITIONS TO CLOSING BY THE COMPANY.........................................41
9.1 Accuracy of Representations and Warranties; Performance of Covenants by
Maxwell and Newco............................................................41
9.2 Consents and Approvals.......................................................41
9.3 No Litigation................................................................41
9.4 Corporate Resolutions........................................................41
9.5 Adverse Changes..............................................................41
9.6 Legislation..................................................................42
9.7 Opinion of Counsel...........................................................42
9.8 Employment, Noncompetition and Non-Solicitation Agreements...................42
9.9 Escrow Agreement.............................................................42
9.10 Securities Law...............................................................42
9.11 Nasdaq Listing...............................................................42
9.12 HSR Act......................................................................42
ARTICLE 10 TERMINATION OF AGREEMENT.....................................................42
10.1 Termination..................................................................42
10.2 Effect of Termination........................................................43
10.3 Costs and Expenses...........................................................43
ARTICLE 11 CLOSING......................................................................44
11.1 The Closing..................................................................44
11.2 Further Acts.................................................................44
ARTICLE 12 SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND RELATED AGREEMENTS; INDEMNIFICATION............................44
12.1 General Liability Period.....................................................44
12.2 Tax Liability Period.........................................................45
12.3 Indemnity by the Shareholders................................................45
12.4 Tax Indemnity................................................................45
12.5 Indemnity by Maxwell.........................................................47
12.6 Limitations on Recoverable Losses............................................47
12.7 Claims for Indemnification; Disputes.........................................48
12.8 Indemnity as Exclusive Remedy................................................50
ARTICLE 13 POST-CLOSING COVENANTS.......................................................50
</TABLE>
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TABLE OF CONTENTS (Continued)
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13.1 Resale.......................................................................50
13.2 Surviving Corporation Option Plan............................................51
13.3 Surviving Corporation Board of Advisors......................................51
13.4 Organization.................................................................51
ARTICLE 14 SHAREHOLDER REPRESENTATIVES..................................................51
14.1 Appointment..................................................................51
14.2 Appointment Irrevocable......................................................52
14.3 Shareholder Representatives Held Harmless....................................52
14.4 Duration; Succession.........................................................53
ARTICLE 15 GENERAL PROVISIONS...........................................................53
15.1 Entire Agreement; Modifications; Waiver......................................53
15.2 Severability.................................................................53
15.3 Successors and Assigns.......................................................53
15.4 Counterparts.................................................................53
15.5 Governing Law................................................................53
15.6 Notices......................................................................54
15.7 Expenses.....................................................................55
15.8 Recovery of Litigation Costs.................................................55
15.9 Confidentiality..............................................................55
15.10 No Third Parties Benefitted..................................................56
15.11 Recitals, Schedules and Exhibits.............................................56
15.12 Section Headings.............................................................56
</TABLE>
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EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit A Escrow Agreement
Exhibit B Investment Letter
Exhibit C Form of Employment Agreement
Exhibit D Form of Noncompetition Agreements
</TABLE>
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SCHEDULE INDEX
<TABLE>
<S> <C>
Schedule 2.1 Foreign Qualification
Schedule 2.2 Subsidiaries
Schedule 2.3 Shareholders
Schedule 2.4 Authorizations and Approvals
Schedule 2.5 Violations
Schedule 2.6 Tax Matters
Schedule 2.7 Affiliate Transactions
Schedule 2.8 Financial Statements
Schedule 2.9 Liens
Schedule 2.10 Real Property
Schedule 2.11 Leases
Schedule 2.12 Fixed Assets
Schedule 2.13(a) Trademarks
Schedule 2.13(b) Patents
Schedule 2.13(c) Copyrights
Schedule 2.13(d) Proprietary Rights Agreements
Schedule 2.13(g) Computer Software and Hardware
Schedule 2.14 Accounts Receivable
Schedule 2.15 Licenses and Permits
Schedule 2.16 Insurance
Schedule 2.17 Changes
Schedule 2.18(a) Contracts
Schedule 2.18(b) Fixed Price Client Contracts
Schedule 2.20 Compliance with Laws
Schedule 2.21 Liabilities
Schedule 2.22 Employees and Bonuses
Schedule 2.23 Litigation
</TABLE>
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<TABLE>
<S> <C>
Schedule 2.24 Environmental Compliance
Schedule 2.25 Employee Benefits
Schedule 2.26 Bank Accounts
Schedule 2.30 Affiliates; Accounting and Tax Treatment
Schedule 2.31 Engagement Letter
Schedule 2.33 Year 2000 Compliance
Schedule 8.9 Employment Agreements
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered
into as of November 25, 1998, by and among Space Electronics Incorporated, a
Delaware corporation (the "Company"), the shareholders of the Company listed on
the signature page hereto (the "Principal Shareholders"), MT Acquisition
Corporation, a Delaware corporation ("Newco"), and Maxwell Technologies, Inc., a
Delaware corporation ("Maxwell").
R E C I T A L S
WHEREAS, Maxwell owns all of the issued and outstanding shares of the
common stock of Newco; and
WHEREAS, the parties intend that, subject to the terms and conditions
hereinafter set forth, Newco be merged with and into the Company pursuant to
this Agreement, with the Company as the surviving corporation; and
WHEREAS, upon the Merger, the shares outstanding of the Common Stock of
the Company, par value $0.001 per share ("Company Common Stock") will be
converted into the right to receive an aggregate of 893,617 shares of the Common
Stock of Maxwell, par value $0.10 per share ("Maxwell Common Stock"); and
WHEREAS, the parties hereto intend that this Agreement constitutes a
Plan of Reorganization and the Merger hereunder qualifies under Section
368(a)(1)(A) and Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended (the "Code"); and
WHEREAS, the respective Boards of Directors of the Company, Newco and
Maxwell have approved the Merger pursuant to this Agreement and the Agreement of
Merger; and
WHEREAS, the Principal Shareholders have entered into Voting Agreements
with Maxwell dated the date hereof, pursuant to which they have agreed to vote
their shares in favor of the Merger; and
NOW, THEREFORE, in order to consummate the Merger and in consideration
of the mutual representations, warranties and agreements contained herein, the
parties hereto agree as follows:
ARTICLE 1
TERMS OF MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement
and the laws of the State of Delaware on the Closing Date (as defined in Section
11.1), Newco shall be merged with and into the Company. Following the Merger,
the separate corporate existence of Newco shall cease,
<PAGE> 120
and the Company, under the name "Space Electronics Incorporated" shall continue
as the surviving corporation (the "Surviving Corporation") and shall be governed
by the laws of the State of Delaware. Newco and the Company are sometimes
collectively referred to as the "Constituent Corporations."
1.2 Closing Date of the Merger. The Merger shall become effective at the
close of business on the Closing Date, or at such other time on such date the
parties may agree, on which date a Certificate of Merger shall be duly executed,
acknowledged or verified and filed with the Delaware Secretary of State in
accordance with the Delaware General Corporation Law. The time the Merger
becomes effective in accordance with the Delaware General Corporation Law is the
"Effective Time."
1.3 Certificate of Incorporation of the Surviving Corporation. At the
Closing Date and without any further action on the part of the parties, the
Certificate of Incorporation of Newco shall be and remain the Certificate of
Incorporation of the Surviving Corporation. Such Certificate of Incorporation
may thereafter be altered, amended or repealed in accordance with the provisions
thereof or applicable law.
1.4 Bylaws of the Surviving Corporation. At the Closing Date and without
any further action on the part of the parties, the Bylaws of Newco shall be and
remain the Bylaws of the Surviving Corporation, until altered, repealed or
amended in accordance with the provisions thereof and applicable law.
1.5 Board of Directors and Officers of the Surviving Corporation. At the
Closing Date, the officers and directors of Newco as of such date shall be the
officers and directors of the Surviving Corporation, each of such persons to
hold office, subject to the applicable provisions of the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and applicable law, until
a successor is duly elected or qualified.
1.6 Consideration; Cancellation of Company Common Stock.
(a) The aggregate consideration to be received by all of the
Company's holders of common stock and stock option holders ("Option Holders,"
and collectively with the holders of Company Common Stock, the "Shareholders")
in connection with the Merger shall be 893,617 shares of Maxwell Common Stock,
unless adjusted as set forth in Section 1.7.
(b) An aggregate of 89,362 shares of Maxwell Common Stock shall
be deposited in escrow in accordance with Section 1.10 in order to satisfy
certain indemnity obligations of the Shareholders to Maxwell, unless the number
is adjusted as set forth in Section 1.7.
(c) By virtue of the Merger and without any action on the part of
the holder thereof, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be cancelled and all rights in
respect thereof shall cease to be outstanding,
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excepting the right to be converted into 0.42258 shares of Maxwell Common Stock
("Exchange Shares"), unless adjusted pursuant to Section 1.7, upon surrender of
certificates representing such shares to the Surviving Corporation, less any
Escrowed Shares, or rights in respect of dissenting shares in accordance with
Section 1.13.
(d) By virtue of the Merger and without any action on the part of
the holder thereof, each option to purchase a share of Company Common Stock
("Options") held immediately prior to the Effective Time shall (i) if unvested,
have vesting accelerated in accordance with the terms of stock option plans and
stock option agreements (collectively, "Option Agreements") between the Company
and persons holding Options, and (ii) be canceled and all rights thereof shall
cease to be existing, excepting the right to be converted into Exchange Shares
as follows:
<TABLE>
<CAPTION>
OPTION EXERCISE PRICE NUMBER OF EXCHANGE
PER COMPANY COMMON SHARES ISSUED IN
SHARE MERGER PER OPTION
--------------------- ------------------
<S> <C>
$0.51 0.40113
$1.41 0.36262
$3.62 0.26853
$5.55 0.18641
$6.37 0.15151
</TABLE>
Any conversion shall be effective upon surrender for cancellation of an
Option Agreement, but 10% of the Exchange Shares otherwise issuable upon the
surrender shall be included in the total number of Escrowed Shares. The number
of Exchange Shares issuable may be adjusted as required by Section 1.7.
(e) The consideration shall be delivered to the Shareholders
promptly upon receipt by the Surviving Corporation of a certificate evidencing
ownership of Company Common Stock or an Option Agreement, accompanied by a
letter of transmittal in a form acceptable to Maxwell and its transfer agent,
provided that the Exchange Shares issued upon surrender of the certificate or
agreement shall not include those shares subject to the Escrow. Maxwell shall
use reasonable best efforts to cause all Exchange Shares (excluding Escrow
Shares) to be available for issuance immediately following the Effective Time.
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<PAGE> 122
1.7 Adjustments to Exchange Ratio.
(a) Definitions. For purposes of this Section 1.7:
"Designated Maxwell Stock Price" shall mean the average of the closing
sale prices (last trade) of Maxwell Common Stock on the Nasdaq National Market
on the twenty (20) trading days ending with the trading day immediately
preceding the Closing Date.
"Upper Value" means (i) if the Merger occurs on or prior to February 28,
1999, $29.00 per share or (ii) if the Merger occurs after February 28, 1999,
$35.00 per share.
"Lower Value" means (i) if the Merger occurs on or prior to February 28,
1999, $22.50 per share or (ii) if the Merger occurs after February 28, 1999,
$20.00 per share.
A "Class" of Company Options is that group of Options having the same
exercise price.
(b) Adjustments.
(i) No adjustment shall be made unless the Designated
Maxwell Stock Price is either (x) greater than the Upper Value or (y)
less than the Lower Value.
(ii) An adjustment in the aggregate number of Exchange
Shares to be issued by Maxwell in connection with the Merger pursuant to
Section 1.6(a), and a corresponding adjustment to the number of Escrowed
Shares under Section 1.6(b), shall be made if the Designated Maxwell
Stock Price exceeds the Upper Value or is less than the Lower Value.
The adjustment shall be computed as follows:
A. The total number of Exchange Shares ("Adjusted Exchange Shares")
issued in connection with the Merger shall be determined by multiplying 893,617
by the Upper Value (if the Designated Maxwell Stock Price exceeds the Upper
Value), or by the Lower Value (if the Designated Maxwell Stock Price is less
than the Lower Value) and dividing the product so obtained (the "Adjusted Total
Transaction Value") by the Designated Maxwell Stock Price (rounded to the
nearest whole share).
B. The number of Adjusted Exchange Shares issuable to holders of Options
shall be computed as follows: $1,668,664 (representing the aggregate exercise
price of all Options) shall be added to the Adjusted Total Transaction Value and
the sum obtained shall then be divided by 2,282,740 (the total number of Company
Common Shares and Options). The quotient obtained ("Adjusted SEi Price Per
Share") shall be used to compute the "Adjusted Net Security Value" of each Class
of SEi Options, which for each class, shall equal the Adjusted SEi Price Per
Share multiplied by the number of Options in that Class, subtracting from the
product obtained the aggregate exercise
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price of all Options in that Class. The number of Adjusted Exchange Shares
issued in respect of that Class of Options shall be determined by taking the
percentage obtained by dividing the Adjusted Net Security Value for that Class
into the Adjusted Total Transaction Value, and multiplying the total number of
Adjusted Exchange Shares by that percentage. The exchange ratio for the Class
shall be the quotient obtained by dividing the number of Options in that Class
into the number of Adjusted Exchange Shares to be issued in respect of that
Class.
C. The number of Adjusted Exchange Shares issuable to holders of Company
Common Stock shall be the total number of Adjusted Exchange Shares less the
Adjusted Exchange Shares issuable in respect of all five Classes of Options, and
the exchange ratio for holders of Company Common Stock would thereupon be equal
to the quotient obtained by dividing the number of Adjusted Exchange Shares
issuable to holders of Company Common Stock into 1,771,797.
D. The number of Escrowed Shares shall be 10% of the number of Adjusted
Exchange Shares (rounded to the nearest whole share).
E. Cash in lieu of fractional shares shall be paid based on the
Designated Maxwell Stock Price.
1.8 Conversion of Newco Common Stock. The shares of common stock of
Newco, par value $0.01 per share ("Newco Common Stock"), outstanding immediately
prior to the Merger shall, by virtue of the Merger and without any further
action on the part of the holder thereof, automatically be converted into and
thereafter represent 5,000,000 validly issued, fully paid and non-assessable
shares of Surviving Corporation Common Stock.
1.9 No Fractional Shares. No fractional share of Maxwell Common Stock
will be issued in the Merger, but, in lieu thereof, each holder of Company
Common Stock who would otherwise be entitled to a fraction of a share of Maxwell
Common Stock (after aggregating all fractional shares of Maxwell Common Stock to
be received by such holder) will be entitled to receive from Maxwell an amount
of cash (rounded to the nearest whole cent) equal to the product of (a) the
fraction multiplied by (b) $23.50 (unless adjusted to be equal to the Designated
Maxwell Stock Price pursuant to Section 1.7.)
1.10 Escrow.
(a) Prior to the Closing Date, Maxwell, the Company, and the
Shareholder Representatives shall enter into an agreement with Zapp National
Bank, as escrow agent (the "Escrow Agent") substantially in the form of Exhibit
A hereto (the "Escrow Agreement"). At the Closing Date or as soon as practicable
thereafter, Maxwell shall deposit in escrow an aggregate of 89,362 shares of
Maxwell Common Stock (the "Escrow"), representing a portion of the Merger
consideration issuable to the Shareholders. In the event the Shareholders are
required to indemnify Maxwell, Newco or their affiliates for breaches of
representations, warranties or covenants set forth in the definitive agreement,
Maxwell may claim the Escrow from the Escrow Agent in accordance
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with the terms of the Escrow Agreement. The Escrow shall be released 12 months
after the Closing Date.
(b) Upon the approval by the Shareholders of the Company of the
Merger Agreement and the Merger, all Shareholders shall be deemed to have
irrevocably appointed each of Robert Czajkowski and David Strobel (the
"Shareholder Representatives") to act as their attorney-in-fact on behalf of
such Shareholders to consent to, contest, settle, compromise or otherwise
dispose of any claim made by Maxwell or any person affiliated with Maxwell in
accordance with Section 1.10(a) and the Escrow Agreement. No further
documentation shall be required to evidence such appointment, and such power of
attorney shall be coupled with an interest, thereby confirming such appointment
as irrevocable. Each Shareholder Representative shall be empowered to act, with
or without the consent of the other, with respect to all matters arising under
Section 1.10(a) and the Escrow Agreement. If any Shareholder Representative
shall die, become disabled or otherwise be unable or unwilling to fulfill his
responsibilities hereunder, a replacement shall be selected as set forth in
Section 14.4.
1.11 Exchange of Shares; Stock Transfer Books. On the Closing Date of
the Merger, each holder of an outstanding certificate or certificates
theretofore representing shares of Company Common Stock (other than dissenting
shares, if any) shall be entitled, upon surrender of such certificate or
certificates to the Surviving Corporation, to receive as a distribution in
respect of each share represented by such certificate or certificates, Exchange
Shares and cash in lieu of fractional shares in accordance with Sections 1.6 and
1.9. The cash payment shall be made by corporate check of Maxwell made payable
to the holder of record of Company Common Stock or the Option Holder. At the
Closing Date of the Merger there shall be no further registry of transfers on
the records in respect of Company Common Stock outstanding immediately prior to
the Closing Date of the Merger. If any payment of cash in lieu of fractional
shares is to be made in the form of a check payable to a name other than that in
which the certificate for Company Common Stock surrendered is registered, or if
Exchange Shares are to be issued in a name other than that in which the
certificate for Company Common Stock surrendered is registered, it shall be a
condition of such distribution that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such payment or Exchange Shares shall pay to the Surviving
Corporation any transfer or other taxes required, or shall establish to the
satisfaction of the Surviving Corporation that such taxes have been paid or are
not applicable. If, after the Closing Date of the Merger, certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for Exchange Shares or cash in lieu of fractional shares as provided herein.
1.12 Treasury and Other Stock. All shares of Company Common Stock which
are held by the Company as treasury shares (if any) shall cease to exist as of
the Closing Date, without any conversion thereof or exchange with respect
thereto.
1.13 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Shareholders who have properly exercised, perfected and not
subsequently withdrawn or lost their appraisal rights with respect thereto in
accordance with Section 262 of the Delaware General
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<PAGE> 125
Corporation Law or, as the case may be, Section 1300 et seq. of the California
Corporations Code, (the "Dissenting Shares") shall not have any of such shares
converted into the right to receive, or become exchangeable for, their
applicable portion of the Maxwell Common Stock. The holders of such shares shall
be entitled to receive payment of the fair value or fair market value, as the
case may be, of such shares in accordance with the provisions of the applicable
Section unless and until such holders fail to perfect or shall have effectively
withdrawn or lost their dissenters' rights. If, after the Closing Date, any such
holder fails to perfect or shall have effectively withdrawn or lost such right,
each of such Shareholder's shares shall thereupon be treated as if it had been
converted into the right to receive, and become exchangeable for, at the Closing
Date, the applicable portion of the Maxwell Common Stock, without interest
thereon, as provided in Section 1.6, plus cash in lieu of fractional shares, as
provided in Section 1.9.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY, SHAREHOLDERS AND PRINCIPAL SHAREHOLDERS
The Company, the Shareholders (other than the Principal Shareholders),
severally (and not jointly and severally), and the Principal Shareholders,
jointly and severally, represent and warrant to Maxwell and Newco as follows:
2.1 Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Except as set forth on Schedule 2.1, the
Company is duly qualified to transact business and is in good standing in the
State of California and in every other jurisdiction in which the character of
its business makes such qualification necessary, except for where the failure to
be so qualified would not have a material adverse effect on the Company or its
business, assets, properties, prospects, financial condition or results of
operations (a "Material Adverse Effect"), all of which jurisdictions are listed
on Schedule 2.1 attached hereto. Except as set forth on Schedule 2.1, the
Company has all necessary corporate power and authority, including all necessary
licenses and permits, to carry on its business as it is now being conducted, and
to own or lease and operate its properties and assets. Complete, current and
correct copies of the charter and Bylaws of the Company, all as amended to date,
stock ledgers, minute books and all other organizational documents of the
Company have been made available to Maxwell and, as updated, will be made
available to Maxwell prior to the Closing Date. The Company is not in violation
of any provision of its charter or Bylaws.
2.2 Subsidiaries. Except as set forth on Schedule 2.2, The Company does
not, directly or indirectly, own or control any interest or investment (whether
equity or debt) in any corporation, partnership, limited liability company,
joint venture, business organization, trust or other entity.
2.3 Capital Structure of the Company. The authorized capital stock of
the Company consists of 10,000,000 shares of common stock, $0.001 par value
("Company Common Stock"), of
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which 1,771,797 shares are issued and outstanding, and all of such shares are
owned of record and beneficially as set forth on Schedule 2.3. There are 510,
943 outstanding options to purchase Company Common Stock, held by the persons
and in the amounts shown on Schedule 2.3. Except for any of the transactions
contemplated pursuant to this Agreement and as set forth on Schedule 2.3, there
are no warrants, convertible debt or securities, calls, agreements,
arrangements, commitments, understandings or other rights to purchase any of the
Company's capital stock or securities convertible into or exchangeable for any
such capital stock. All of such shares have been issued in transactions exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), and the Company has not violated the Securities Act or any state
securities or Blue Sky laws in connection with the issuance of any such shares.
All of the outstanding shares of capital stock of the Company have been duly
authorized, validly issued and are fully paid and nonassessable.
2.4 Authorization and Approvals. The Company has all requisite corporate
power and corporate authority to enter into this Agreement and to perform its
obligations hereunder. This Agreement has been, or will be prior to the Closing
Date, duly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except as may be limited by bankruptcy, reorganization, insolvency,
moratorium or other laws relating to or affecting the enforcement of creditors'
rights and remedies generally; and except as enforcement may be limited by
general principles of equity. This Agreement has been duly and validly
authorized by and approved by all requisite corporate action on the part of the
Company's Board of Directors. Except as set forth in Schedule 2.4 hereto, no
further approvals or consents by, or filings with, any federal, state,
municipal, foreign or other court or governmental or administrative body, agency
or other third party is required in connection with the execution and delivery
by the Company of this Agreement, or the consummation by the Company of the
transactions contemplated hereby, except for filing the Certificate of Merger
with the Delaware Secretary of State and compliance with the Notification
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR Act") and except for those which, if not obtained, would not have
a material adverse impact on the ability of the Company to perform its business
as currently conducted or the ability of the Company to execute and deliver this
Agreement or to consummate the transactions contemplated hereby.
2.5 No Violations. Except as set forth on Schedule 2.5 attached hereto,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (a) violate any provision of the
Certificate of Incorporation or the Bylaws of the Company, (b) violate, or be in
conflict with, or constitute a default (or other event which, with the giving of
notice or lapse of time or both, would constitute a default) under, or give rise
to any right of termination, cancellation or acceleration under any of the
terms, conditions or provisions of any material lease, license, promissory note,
contract, agreement, mortgage, deed of trust or other instrument or document to
which the Company is a party or by which the Company or any of its respective
properties or assets may be bound, (c) violate any order, writ, injunction,
decree, law, statute, rule or regulation of any court or governmental authority
applicable to the Company or any of its respective properties or assets or (d)
give rise to a declaration or imposition of any claim, lien,
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<PAGE> 127
charge, security interest or encumbrance of any nature whatsoever upon any of
the assets of the Company.
2.6 Taxes.
(a) The Company has timely filed or been included in all Tax
Returns (as defined in Section 12.4) that are required to be filed by the
Company with respect to the activities of the Company, or in which the Company
is required to be included for any period ending on or before the Closing Date,
which Tax Returns are true, correct and complete in all material respects, and
the Company has paid all Taxes (as defined in Section 12.4) shown thereon to be
due.
(b) The Company has paid or caused to be paid within the time and
in the manner prescribed by law all Taxes payable or due from and owed by the
Company for all periods ending on or prior to the date hereof except for taxes
which are accrued but not yet due and payable. All Taxes attributable to all
taxable periods ending on or before the Closing Date, to the extent not required
to be previously paid, have been fully and adequately reserved for (as taxes
payable or as accrued taxes) on the Financial Statements (as defined below) and
the Company will not accrue a Tax liability from the date of the Financial
Statements up to and including the Closing Date other than a Tax liability
accrued in the ordinary course of business.
(c) The Company has not taken any action that would require an
adjustment pursuant to Section 481 of the Code, by reason of a change in
accounting method or otherwise. The Company has not filed a Consent under
Section 341(f)(1) of the Code or agreed to have the provisions of Section
341(f)(2) of the Code apply to any disposition of "subsection (f) assets" as
such term is defined in Section 341(f)(4) of the Code.
(d) No Tax assessment or deficiency which has not been paid or
for which an adequate reserve has not been set aside, has been made or proposed
against the Company, nor are any of the Tax Returns now being or, to the best
knowledge of the Company and the Principal Shareholders, threatened to be
examined or audited, and no consents waiving or extending any applicable
statutes of limitations for the Tax Returns, or any Taxes required to be paid
thereunder, have been filed. The Company shall promptly notify Maxwell of any
notice of pending action or proceeding involving Taxes relating to the Company
between the date of this Agreement and the Closing Date. All Tax deficiencies
determined as a result of any past completed audit have been satisfied. The
Company has delivered to Maxwell complete and correct copies of all audit
reports and statements of deficiencies with respect to any tax assessed against
or agreed to by the Company for the five most recent taxable periods for which
such audit reports and statements of deficiencies have been received by the
Company.
(e) Prior to the date hereof, the Company has made available to
Maxwell complete, current and correct copies of the Tax Returns for the years
ended in 1994, 1995, 1996 and 1997. From March 2, 1992 to December 31, 1995, the
Company was duly qualified as an "S" corporation as defined in the Code and
thereafter has been treated as a "C" corporation under the
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Code. Effective March 2, 1992, the Company duly and timely filed an election,
executed by all persons whose signatures were required on such election, to be
treated as an "S" corporation on IRS Form 2553 in accordance with the
instructions on that form. Schedule 2.6 attached hereto contains a true and
complete list of those states in which the Company was an "S" corporation for
applicable state income tax purposes.
(f) The Company has collected all sales, use and value added
Taxes required to be collected, and has remitted, or will remit on a timely
basis, such amounts to the appropriate governmental authorities and has
furnished properly completed exemption certificates for all exempt transactions.
(g) The Company has properly withheld income and social security
or other similar Taxes and paid payroll Taxes with respect to all persons
properly characterized as employees for federal, state or local Tax purposes.
None of the assets of the Company are subject to any liens in respect of Taxes
(other than for current taxes not yet due and payable).
(h) The Company is not a party to or bound by any Tax sharing,
Tax indemnity or Tax allocation agreement or other similar arrangement.
(i) The Company has not made any payments, is not obligated to
make any payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Section 280G of the Code.
(j) The Company has delivered to Maxwell complete and correct
copies of all state, local and foreign income or franchise Tax Returns filed by
the Company for the three most recent taxable years for which such Tax Returns
have been filed immediately preceding the date of this Agreement. Other than
with respect to taxes shown on Tax Returns described in this clause, the Company
is not subject to any tax imposed on net income in any jurisdiction or by any
taxing authority.
(k) The Company has not executed or entered into any closing
agreement pursuant to Section 7121 of the Code, or any predecessor provisions
thereof or any similar provision of state or other law.
2.7 Transactions with Affiliates. Except as set forth on Schedule 2.7
attached hereto, neither the Shareholders nor any of their Affiliates (as
defined in Section 2.30 below), has any interest, directly or indirectly, in any
lease, lien, contract, license, encumbrance, loan or other agreement to which
the Company is a party, any interest (other than as a shareholder) in any
properties or assets of the Company or any interest in any competitor, supplier
or customer of the Company. Each transaction set forth on Schedule 2.7 was on
terms comparable to those that would be obtained from a third party on an
arm's-length basis.
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2.8 Financial Statements.
(a) The Company has delivered to Maxwell prior to the date
hereof, true and complete copies of (i) the unaudited balance sheet of the
Company as of September 30, 1998 (the "Company Balance Sheet"), and the related
consolidated statement of income, consolidated statement of shareholders' equity
and consolidated statement of cash flows for the three and nine months then
ended (collectively, the "Interim Financial Statements") and (ii) the audited
financial statements of the Company as of and for the fiscal years ended
December 31, 1995, 1996 and 1997 (including, without limitation, the related
consolidated balance sheets, consolidated statements of income, consolidated
statements of shareholders' equity, consolidated statements of cash flows and
all notes, schedules and exhibits thereto), accompanied by an opinion of Arthur
Andersen L.L.P. (collectively with the Interim Financial Statements, the
"Financial Statements"), and no changes have been made thereto since the date of
delivery. Except as expressly set forth or disclosed in the notes, exhibits or
schedules thereto or in Schedule 2.8 hereto, the Financial Statements (i)
present fairly in all material respects the financial position, results of
operations and cash flows of the Company as of and for the periods then ended,
(ii) were prepared in accordance with generally accepted accounting principles
("GAAP") (except, in the case of the Interim Financial Statements, for the lack
of footnote disclosure and normal year-end adjustments which, in the aggregate,
will not be material), (iii) disclose all liabilities, including contingent
and/or unmatured liabilities as of the dates thereof, which are required by GAAP
to be disclosed thereon.
(b) The Financial Statements reflect that the Company has set
aside adequate reserves (i) with respect to inventory, for all inventory
reasonably anticipated to be or become excess or obsolete, or have no value,
based on facts and circumstances existing as of the date hereof and as of the
Closing Date, as the case may be; and (ii) for all reasonably anticipated audit
adjustments as a result of the DCAA audit of the SDL Contract.
2.9 Title to Properties. The Company has good, valid and marketable
title to all of the material properties and assets which it purports to own
(personal and mixed, tangible and intangible), including, without limitation,
all the properties and assets listed on Schedules 2.12 and 2.13 attached hereto
which it purports to own. Except as set forth on Schedule 2.9, all such
properties and assets are free and clear of all title defects or objections,
liens, claims, charges, pledges, security interests, easements, title retention
agreements or other encumbrances of any kind or nature whatsoever.
2.10 Real Property. The Company does not own any real property, in whole
or in part, and does not have any contractual obligation to purchase or acquire
any interest in real property. Except as set forth on Schedule 2.10, (a) all of
the buildings, structures and appurtenances situated in whole or in part on any
of the Leased Property are in reasonable operating condition and in a state of
reasonable maintenance and repair in all material respects, are adequate and
suitable for the purposes for which they are presently being used and, with
respect to each, the Company has adequate rights of ingress and egress for
operation of the business in the ordinary course and consistent with past
practice; (b) to the knowledge of the Company and the Principal Shareholders,
none of such buildings, structures or appurtenances (or any equipment therein),
nor the operation or maintenance
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thereof, violates any restrictive covenant or any provision of any federal,
state or local law, ordinance, rule or regulation, or encroaches on any property
owned by others in any way except for such violations that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company; (c) no condemnation proceeding or other
litigation is pending or, to the best knowledge of the Company on the Principal
Shareholders, threatened which would preclude or impair the use of any Leased
Property by the Company for the purposes for which it is currently used; and (d)
to the knowledge of the Company and the Principal Shareholders, the Company has
not violated or failed to hold any valid and effective certificates of
occupancy, or certificates relating to electrical work, zoning, other permits
and licenses (including building, housing, safety, fire, health and similar
permits and approvals) required by applicable law with respect to any Leased
Property or the business conducted thereat, except for certificates of occupancy
or other certificates that are not material to the business of the Company.
2.11 Leases. Schedule 2.11 attached hereto contains a complete, current
and correct list of all leases pursuant to which the Company leases real or
personal property, including all amendments thereto (collectively, the
"Leases"). Prior to the date hereof, the Company has delivered to Maxwell
complete, current and correct copies of the Leases, and no changes have been
made thereto since the date of delivery. Each of the Leases is valid, binding
and enforceable in accordance with its terms, subject to judicial discretion
regarding specific performance or other equitable remedies, and except as may be
limited by bankruptcy, reorganization, insolvency, moratorium or other laws
relating to or affecting the enforcement of creditors' rights and remedies
generally. Except as set forth on Schedule 2.11, there are no existing defaults
by the Company under any of the Leases and no event has occurred which would
constitute a default (or any event which, with the giving of notice or lapse of
time or both, would constitute a default) thereunder by the Company, and except
for defaults (other than payment defaults) that could not reasonably be expected
to have a Material Adverse Effect on the Company.
2.12 Fixed Assets. Schedule 2.12 attached hereto contains a complete,
current and correct list, in all material respects, of all fixtures, furniture,
equipment and machinery owned, leased or used by the Company having or an
original cost of $10,000 or more. The material fixed assets of the Company
("Fixed Assets") are in good operating condition and repair, normal wear and
tear excepted, and are adequate for the uses to which they are being put. None
of the Fixed Assets are in need of maintenance or repairs, except for ordinary,
routine maintenance and repairs.
2.13 Intellectual Property.
(a) Schedule 2.13(a) hereto sets forth a complete list of all
registered (and material unregistered) trademarks, trade names, product
identifiers and/or trade dresses of any type whatsoever which is, has been or is
presently planned to be used in the business of the Company (the "Trademarks").
Except as set forth on Schedule 2.13(a), (i) each of the Trademarks is valid and
registered in the name of the Company on the Principal Register of the United
States Patent and Trademark Office and in the foreign countries indicated
thereon, (ii) the Company and the Principal Shareholders have no knowledge of
any infringement of the Trademarks by others, (iii) the
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continued use of the Trademarks in the business of the Company (as the business
has heretofore been conducted and as currently planned by the Company) will not
result in any infringement of the rights of others in the United States, and
neither the Company nor the Principal Shareholders have any knowledge of any
such claim as to any Trademarks registered in the foreign countries identified
on Schedule 2.13(a), (iv) the Company is the sole and legal owner of the
Trademarks in the countries indicated on Schedule 2.13(a) and in all other
jurisdictions in which the Company uses, has used or plans to use any Trademark
and, as of the date hereof, neither the Company nor the Principal Shareholders
has knowledge of any claim by any other person that such other person is the
legal owner of such Trademarks, (v) the Company has not granted any license or
right to use any Trademark to any other person, and (vi) each of the Trademarks
registered in the United States is and has been in use in interstate commerce
since the date of first use in the application or any non-use of such trademark
is excused under applicable law except, in the case of any of the foregoing, for
facts or circumstances which could not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect on the Company.
(b) Schedule 2.13(b) hereto sets forth a complete list of all
patents, patent applications, inventions, invention disclosures of any type
whatsoever which is, has been or is presently planned to be used by the Company,
(the "Patents"). Except as set forth on Schedule 2.13(b), (i) each of the
Patents is valid and registered in the name of the Company in the United States
Patent and Trademark Office and in the foreign countries indicated thereon, (ii)
neither the Company nor the Principal Shareholders have knowledge of any
infringement of the Patents by others, (iii) the continued use of the Patents by
the Company (as the business of the Company has heretofore been conducted and as
currently planned by the Company) will not result in any infringement of the
rights of others in the United States, and the Company and the Principal
Shareholders have no knowledge of any such claim as to any Patents registered in
the foreign countries identified on Schedule 2.13(b), (iv) the Company is the
sole and legal owner of the Patents in the countries indicated on Schedule
2.13(b) and in all other jurisdictions in which the Company uses, has used or
plans to use any Patent and, as of the date hereof, neither the Company nor the
Principal Shareholders have knowledge of any claim by any other person or entity
that such other person or entity is the legal owner of such Patents, except, in
the case of any of (i)-(iv) above, for facts and circumstances which could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on the Company, and (v) the Company has not granted any license
or right to use any Patent to any other person.
(c) Schedule 2.13(c) hereto sets forth a complete list of all
registered (and material unregistered) copyrights of any type whatsoever which
is, has been or is presently planned to be used in the business of the Company
(the "Copyrights"). Except as set forth on Schedule 2.13(c), (i) each of the
Copyrights is valid and registered in the name of the Company in the United
States Copyright Office and in the foreign countries indicated thereon, (ii) as
of the date hereof, the Company has no knowledge of any infringement of the
Copyrights by others, (iii) the continued use of the Copyrights in the business
of the Company (as the business has heretofore been conducted and as currently
planned by the Company) will not result in any infringement of the rights of
others in the United States, and the Company has no knowledge of any such claim
as to any Copyrights
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registered in the foreign countries identified on Schedule 2.13(c), (iv) the
Company is the sole and legal owner of the Copyrights in the countries indicated
on Schedule 2.13(c) and in all other jurisdictions in which the Company uses,
has used or plans to use any Copyright and, as of the date hereof, has no
knowledge of any claim by any other person that such other person is the legal
owner of such Copyrights, and (v) the Company has not granted any license or
right to use any Copyright to any other person except, in the case of any of the
foregoing, for facts or circumstances which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
(d) Except as set forth on Schedule 2.13(d) hereto, the Company
has valid and enforceable contracts with each and every employee, consultant
and/or contractor of the Company which vests with the Company all rights in any
invention, copyright and/or trade secret which relates to the business of the
Company to the fullest extent permitted by law and also protects the trade
secrets and/or proprietary information of the Company to the fullest extent
permitted by law.
(e) No infringement, illicit copying, misappropriation or
violation of any third party intellectual property rights has or would
reasonably be expected to occur with respect to the Company's use of the
intellectual property rights embodied in the intellectual property set forth on
Schedules 2.13(a), 2.13(b) and 2.13(c), as currently being used by the Company.
(f) Except for licenses to use software disclosed as Contracts on
Schedule 2.18(a), there are no other material agreements requiring the Company
to make payments or provide any consideration for, or restricting the Company's
right to use, any intellectual property rights of third parties.
(g) Except as set forth on Schedule 2.13(g), the software and
hardware products of the Company; (i) meet in all material respects all the
functional specifications for which they were designed or programmed; (ii) to
the best knowledge of the Company, are free from significant bugs, defects or
errors, viruses, worms, bombs, traps or other code designed to or having the
effect of interrupting normal processing, corrupt data or render the software or
hardware products unusable (collectively "Viruses"); and (iii) in the case of
software, have been maintained on media and hardware that are free from material
defects.
(h) The Company performs on a regular and professional basis
checks and procedures to determine the presence of Viruses in or on its software
or hardware.
2.14 Accounts Receivable. A complete, current and correct list of all
accounts receivable of the Company as of October 31, 1998 ("Accounts
Receivable") has been delivered to Maxwell prior to the date hereof, and sets
forth the aging of such Accounts Receivable. The Accounts Receivable represent
bona fide sales actually made or services actually performed on or prior to such
date in the ordinary course of business of the Company and consistent with past
practices. Except as set forth on Schedule 2.14 attached hereto, to the best
knowledge of the Company and the Principal Shareholders, there is no contest,
claim or right of set-off contained in any oral or written
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agreement with any account debtor relating to the amount or validity of any
Account Receivable, or any other account receivable created after October 31,
1998. The Accounts Receivable (net of any reserves reflected in the Financial
Statements) are valid and collectible in the ordinary course of business of the
Company. The reserves for uncollectible accounts receivable reflected in the
Financial Statements have been established in the ordinary course of business,
in accordance with GAAP, and are consistent with past practices.
2.15 Licenses and Permits. Schedule 2.15 attached hereto contains a
complete, current and correct list of all governmental licenses, permits,
franchises, rights and privileges necessary for or material to the present
conduct of the Company's business (the "Licenses"). Except as set forth in
Schedule 2.15, the Company possesses all such Licenses. Each of the Licenses is
in full force and effect, and there are no pending or, to the best knowledge of
the Company and the Principal Shareholders, threatened claims or proceedings
challenging the validity of or seeking to revoke or discontinue, any of the
Licenses. Prior to the date hereof, the Company shall have delivered to Maxwell
a complete, current and correct copy of each of the Licenses.
2.16 Insurance. Schedule 2.16 attached hereto contains a complete,
current and correct description of all existing policies of fire, liability,
workers' compensation and all other forms of insurance maintained by the
Company. Except as set forth on Schedule 2.16, all such policies are in full
force and effect, all premiums with respect thereto covering all periods up to
and including the date hereof have been paid, and no notice of cancellation,
termination or denial of coverage has been received with respect to any such
policy. Such policies (a) are adequate for compliance with all agreements or
instruments to which the Company is a party, or pursuant to which any of its
businesses, properties or assets may be subject, (b) are valid, outstanding and
enforceable policies, (c) provide insurance coverage in the amounts indicated in
such policies for the Company's business, properties, assets and operations of
the Company as presently conducted and (d) will remain in full force and effect
through the respective dates set forth on Schedule 2.16, without the payment of
additional premiums. Schedule 2.16 also describes all claims of the Company
which are pending under such insurance policies or have been paid to the Company
since January 1, 1995. Since January 1, 1995, the Company has not been refused
coverage by any insurance carrier with respect to its properties, assets or
operations, nor has its coverage been limited, by any insurance carrier to which
it has applied for any such insurance or with which it has carried insurance.
Prior to the date hereof, the Company has delivered to Maxwell complete, current
and correct copies of all of the policies of insurance which are maintained by
the Company.
2.17 Absence of Certain Changes. Except as set forth in Schedule 2.17
attached hereto, and except for the transactions specifically contemplated under
this Agreement, since December 31, 1997 or other date as specified, the Company
has conducted its business in the ordinary course consistent with past practice,
and there has not been:
(a) Any declaration, setting aside or payment of any dividend or
other distribution or payment (whether in cash, stock or property) with respect
to the capital stock of the Company,
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or any redemption, purchase or other acquisition of any of the securities of the
Company, or any other payment to any stockholder of the Company in its capacity
as a stockholder;
(b) Any transaction involving the Company not in the ordinary
course of business, including any sale of material properties or assets (other
than inventory in the ordinary course);
(c) Any material adverse change in the prospects, results of the
operations, liabilities, financial condition or business of the Company;
(d) Any loan or advance by the Company to any person, except
normal travel advances or other reasonable expense advances to officers or
employees of the Company and normal trade terms extended to customers;
(e) Any indebtedness for borrowed money incurred by the Company
or any commitment to incur indebtedness for borrowed money entered into by the
Company, or any loans made or agreed to be made by the Company other than
pursuant to commitments or credit facilities existing on December 31, 1997 and
set forth on Schedule 2.17;
(f) Any capital expenditures or commitments to make capital
expenditures materially in excess of the amount budgeted for 1998, and a copy of
such budget has been made available to Maxwell;
(g) Any material change in the Company's lines of business or
management practices and procedures;
(h) Any damage, destruction or loss, whether or not covered by
insurance, which has had or may have a Material Adverse Effect on the Company;
(i) Except in the ordinary course of business of the Company and
consistent with past practices, any payment, satisfaction, discharge or
cancellation of any debts or claims of the Company;
(j) Any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind on any of the Company's properties or assets, or any
assumption of, or taking any properties or assets subject to, any liability;
(k) Any cancellation of any indebtedness owed to the Company in
an aggregate amount greater than $2,500 or waiver of any rights of similar value
to the Company relating to any of its business activities or properties, other
than in the ordinary course of business;
(l) Any failure to repay any obligation of the Company;
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(m) Any amendment, modification or termination of any material
contract or agreement to which the Company is a party or pursuant to which its
properties or assets may be bound;
(n) Any sale or granting to any party or parties of any license,
franchise, option or other right of any nature whatsoever with respect to the
Company's business or termination of any such rights;
(o) Except as set forth on Schedule 2.17, since March 31, 1998,
any increase in, or commitment to increase, the direct or indirect compensation
payable or to become payable to any officer or director of the Company, its
employees, or to any of its Affiliates (as that term is defined in Section
2.30), or any commitment to make severance, bonus or special payments to any of
such parties, upon a change in ownership or management of the Company or upon
termination of such parties;
(p) Since October 31, 1996, any issuance by the Company of, or
commitment by it to issue, any capital stock or other equity securities or
obligations or any securities convertible into or exchangeable or exercisable
for capital stock or other equity interests;
(q) Any adoption by the Company of any new Benefit Plan (as that
term is defined in Section 2.25), or amendment to any Benefit Plan to provide
any new or additional plans, programs, contracts, benefits or arrangements
involving direct or indirect compensation to any officer, director, employee,
former employee, or their dependents or beneficiaries, of the Company;
(r) Any settlement of any material litigation or entry of any
judgment against the Company with a value of $50,000 or more (which judgment has
not been stayed or satisfied);
(s) Any alteration in the manner of keeping the books, accounts
or records of the Company or in the manner of preparing the Financial
Statements, or in the accounting practices of the Company, except as may be
required by any modification or change in GAAP;
(t) Any revaluation by the Company of any of its assets,
including without limitation, any write-offs, increases in any reserves except
in the ordinary course of business consistent with past practice or any write-up
or write-down of the value of inventory, property, plant, equipment or any other
asset;
(u) The occurrence of any other event or the development of any
other condition which has had or is reasonably likely to have a Material Adverse
Effect on the Company.
2.18 Contracts.
(a) Schedule 2.18(a) attached hereto contains a complete, current
and correct list of all contracts, commitments, obligations or agreements of the
Company, whether written or oral,
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formal or informal (the "Contracts"): (i) pursuant to which the Company will
make or receive payments in excess of $50,000 per annum; (ii) regarding
financing for the Company; (iii) with Affiliates; (iv) with employees,
consultants or independent contractors; (v) constituting Client Contracts (as
defined below); (vi) resulting in the creation of any lien or security interest
(including lease notifications); or (vii) otherwise material to the business of
the Company. Other than as set forth on Schedule 2.18(a), to the knowledge of
the Company and the Principal Shareholders, no event has occurred which would
constitute a default (or any event which, with the giving of notice or lapse of
time or both, would constitute a default) under any term or provision of any of
the Contracts and thereby allow a party thereto to terminate and/or claim
damages therefor. Each of the Contracts is in full force and effect and is the
legal, valid and binding obligation of the Company and, to the knowledge of the
Company and the Principal Shareholders, of the other parties thereto,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, reorganization, insolvency, moratorium or other laws relating to or
affecting the enforcement of creditors' rights and remedies generally and except
as enforcement may be limited by general principles of equity. The Company is
not a party to any Contract that restricts it from carrying on its business or
any part thereof, or from competing in any line of business with any person,
corporation or entity. Prior to the date hereof, the Company has made available
to Maxwell a complete, current and correct copy of each of the written
Contracts, as well as a written summary of each of the oral Contracts, including
all amendments and modifications thereto.
(b) Schedule 2.18(b) attached hereto identifies those Contracts
for work to be performed by the Company that are partially performed at the date
hereof (as updated to the Closing Date) or on which services have not commenced
on the date hereof (or as updated to the Closing Date) consisting of all Fixed
Price Contracts (as defined below) and those cost plus fixed fee Contracts with
a value of $50,000 or more (collectively "Client Contracts"). Schedule 2.18(b)
(i) identifies each Client Contract which is subject to a maximum cost, a fixed
fee or a lump sum ("Fixed Price Client Contracts") and (ii) states the estimated
percentage of completion for each Fixed Price Client Contract (other than a
purchase order) listed thereon and the estimated costs and expense required to
complete the Fixed Price Client Contract. With respect to the Fixed Price Client
Contracts, the Company will not incur any loss or diminution of profit thereon
except to the extent reserved on the Interim Financial Statements, or set forth
on Schedule 2.18(b). With respect to each other Client Contract, except as
described on Schedule 2.18(b) attached hereto and except to the extent caused
solely by occurrences or agreements subsequent to the Closing Date or by the
acts or omissions of Maxwell, all services that are performed after the Closing
Date by the Surviving Corporation on Client Contracts will be fully billable by
the Surviving Corporation at no less than the rates that are shown on such
Client Contracts and neither Maxwell nor the Surviving Corporation will be
required to provide any time reductions, unbilled services, discounted services
or other discounts on the Client Contracts unless Maxwell voluntarily agrees to
such reductions, services or discounts. After the date hereof, the Company and
Maxwell shall cooperate to secure any amendments to Contracts shown on Schedule
2.18(b) required to permit the Surviving Corporation to bill the other party to
each Contract shown on Schedule 2.18(b) for all services performed after the
Closing Date on each such Contract at the rates stated in each such Contract.
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2.19 Client and Supplier Relationships. The Company and the Principal
Shareholders have not received any notice and are not in possession of any
actual knowledge which might reasonably indicate that any of its current
clients, customers, subcontractors or suppliers intends to cease retaining,
purchasing from, selling to or dealing with the Company in the manner in which
such transactions have previously occurred, nor has the Company received any
notice or is in possession of any actual knowledge which might reasonably lead
it to believe that any current client, customer, subcontractor or supplier
intends to alter in any respect the amount of such retention, purchases or sales
or the extent of dealings with the Company or would alter in any respect any
such retention, purchases, sales or dealings in the event of the consummation of
the transactions contemplated hereby. The Company is current and in full
compliance with respect to all of its obligations to its suppliers and
subcontractors.
2.20 Compliance With Laws. Except as disclosed on Schedule 2.20, the
Company's business has been conducted in compliance with all, and is not in
violation of, applicable laws, statutes, ordinances, rules, regulations, orders
and other requirements of all national governmental authorities, and of all
territories, states, municipalities and other political subdivisions and
agencies thereof, having jurisdiction over the Company and its business,
including without limitation all such laws, regulations, ordinances and
requirements relating to insurance, environmental, antitrust, consumer
protection, labor and employment, zoning and land use, immigration, health,
occupational safety, pension and securities matters, except where the failure to
be in compliance would not have a Material Adverse Effect on the Company. The
Company has not received any written notification of any asserted present or
past failure by the Company to comply with such laws, statutes, ordinances,
rules, regulations, orders or other requirements.
2.21 No Undisclosed Liabilities. Except as disclosed in the Interim
Financial Statements or on Schedule 2.21 attached hereto, the Company has no
material liabilities, whether known or unknown, absolute, accrued, contingent or
otherwise, except liabilities incurred after September 30, 1998 in the ordinary
course of business consistent with past practice and not prohibited by this
Agreement. The Company has (x) with respect to contracts between the Company and
the U.S. Government, no liabilities of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, for defective pricing,
post-contract adjustment due to contract close-out, or mischarging, other than
liabilities stated or adequately reserved in the Interim Financial Statements,
or (y) with respect to all Client Contracts, no liabilities for loss contracts,
other than liabilities (i) stated or adequately reserved in the Interim
Financial Statements or reflected in the footnotes thereto, or (ii) reflected in
Schedule 2.21, which, in the case of (x) or (y), individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Company.
2.22 Employees. Schedule 2.22 attached hereto contains a complete,
current and correct list of all of the Company's employees ("Employees"), which
includes the job position and compensation payable to each (excluding bonuses)
of the Employees. Except to the extent set forth in Schedule 2.22:
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(a) The Company is in compliance with all laws, statutes,
ordinances, rules, regulations, orders and other requirements relating to the
employment of labor, including without limitation Title VII of the federal Civil
Rights Act of 1964, the federal Age Discrimination in Employment Act of 1967,
the federal Americans with Disabilities Act, the federal Employee Retirement
Income Security Act of 1974 ("ERISA"), and any and all provisions thereof
relating to wages, hours, collective bargaining and the payment of social
security and similar Taxes, except where the failure to be in compliance would
not have a Material Adverse Effect;
(b) There is no pending or, to the best knowledge of the Company
and the Principal Shareholders, threatened charge, complaint, allegation,
application or other process or claim against the Company before any federal,
territorial, state or local or other governmental or administrative agency or
other entity relating to employment matters;
(c) No employees of the Company are covered by any collective
bargaining agreement, nor, to the best knowledge of the Company and the
Principal Shareholders, is there any effort being made by any union to organize
the Company's employees; and
(d) The Company has paid and performed in all material respects
all obligations when due with respect to its employees, consultants, independent
contractors, agents, officers and directors, including without limitation the
payment of any accrued and payable wages, severance pay, vacation pay, benefits
and commissions, except those obligations which are in good faith being
challenged by the Company as not valid obligations of the Company as more fully
described on Schedule 2.22.
2.23 Litigation. Except as set forth in Schedule 2.23 attached hereto:
(a) There is no pending or, to the best knowledge of the Company
and the Principal Shareholders, threatened action, suit, arbitration proceeding,
investigation or inquiry before any court or governmental or administrative body
or agency, or any private arbitration tribunal, against, relating to or
affecting the Company or any director, officer or employee of the Company in his
or her capacity as such, or the assets, properties or business of the Company,
or the transactions contemplated by this Agreement, nor to the best knowledge of
the Company and the Principal Shareholders, are there any facts or circumstances
which could reasonably lead to or provide the basis for any such threatened
action, suit, arbitration proceeding, investigation or inquiry.
(b) There is not in effect any order, judgment or decree of any
court or governmental or administrative body or agency enjoining, barring,
suspending, prohibiting or otherwise limiting the Company or any officer,
director or employee of the Company from conducting or engaging in any aspect of
the Company's business, or requiring the Company or any officer, director or
employee of the Company to take certain action with respect to any aspect of the
Company's business.
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(c) The Company is not in violation of or in default under any
order, judgment, writ, injunction or decree of any court or governmental or
administrative body or agency.
(d) The matters set forth on Schedule 2.23 could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
2.24 Environmental Matters.
(a) Definitions. The following terms, when used in this Section
2.24 shall have the following meanings:
(i) "Company" for purposes of this Section 2.24 includes
(A) all Affiliates of the Company (B) all partnerships, joint ventures
and other entities or organizations in which the Company was at anytime
or is a partner, joint venturer, member or participant, and (C) all
predecessor or former corporations, partnerships, joint ventures,
organizations, businesses or other entities, whether in existence as of
the date hereof or at any time prior to the date hereof, the assets or
obligations of which have been acquired or assumed by the Company or to
which the Company has succeeded.
(ii) "Release" means any release, threatened release,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the environment
or the workplace of any Hazardous Substance, and otherwise as defined in
any Environmental Law.
(iii) "Hazardous Substance" means any pollutants,
contaminants, chemicals, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical
compound or hazardous substance, material or waste, whether solid,
liquid or gas, including any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance, waste waters, sludges, slag and any other
substance, material or waste that is subject to regulation, control or
remediation under any Environmental Law.
(iv) "Environmental Laws" mean all laws which regulate or
relate to (A) the protection or clean-up of the environment, (B) the
use, treatment, storage, transportation, generation, manufacture,
processing, distribution, handling, or Release of Hazardous Substances,
(C) the preservation or protection of waterways, groundwater, drinking
water, air, wildlife, plants or other natural resources, or (D) the
health and safety of persons or property, including, without limitation,
protection of the health and safety of employees. Environmental Laws
include, without limitation, the Federal Water Pollution Control Act,
Resource Conservation & Recovery Act, Clean Water Act, Safe Drinking
Water Act, Atomic Energy Act, Occupational Safety and Health Act, Toxic
Substances Control Act, Clean Air Act, Comprehensive Environmental
Response, Compensation and
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Liability Act, Hazardous Materials Transportation Act and all analogous
or related foreign, federal, state or local law.
(v) "Environmental Conditions" mean the Release of any
Hazardous Substance (whether or not such Release constituted at the time
thereof a violation of any Environmental Law) as a result of which the
Company has or may become liable to any person or entity or by reason of
which the business of the Company or any of its Assets may suffer or be
subjected to any lien, encumbrance or liability.
(vi) "Site" means any real property now or previously
owned or operated by the Company.
(b) Compliance and Liability. The Company and, to the knowledge
of the Company and the Principal Shareholders, each Site, is in compliance with
all, and the Company has no liability under any, Environmental Laws, except
where the failure to comply or liability would not reasonably be expected to
have a Material Adverse Effect on the Company;
(c) Releases and Environmental Conditions. The Company has not
made, caused or permitted any Release at any Site, and to the knowledge of the
Company and the Principal Shareholders, no Release has occurred at any Site and
there are no present or past Environmental Conditions in any way relating to the
Company or, to the knowledge of the Company and the Principal Shareholders, any
Site, except for any Release or Environmental Conditions which would not
reasonably be expected to have a Material Adverse Effect on the Company;
(d) Environmental Audits. The Company has delivered to Maxwell
copies of all environmental audits or other studies or reports relating to any
Environmental Condition or relating to the Company or any Site;
(e) Potentially Responsible Party. The Company is not a
potentially responsible party with respect to any foreign, federal, state, or
local environmental clean-up site or with respect to investigations or
corrective actions under any Environmental Law;
(f) Notice of Violation. The Company has not received notice of
any alleged, actual or potential responsibility, inquiry, investigation or
administrative or judicial proceeding regarding (x) any Release by the Company
at any Site or other location, or (y) any violation of or non-compliance by the
Company with the conditions of any permit required under any Environmental Law
or the provisions of any Environmental Law. The Company has not received any
notice of any other claim, demand or action by any person or entity alleging any
actual or threatened injury or damage to any person, entity, property, natural
resource or the environment arising from or relating to any Release,
transportation or disposal of any Hazardous Substances.
(g) Notices, Warnings and Records. The Company has given all
notices and warnings, made all reports, and has kept and maintained all records
required by, and in compliance
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with, all Environmental Laws, including, without limitation any notices and
consents required under any Environmental Laws in connection with the
consummation of the transactions contemplated by this Agreement, except where
the failure to do any of the foregoing would not reasonably be expected to have
a Material Adverse Effect.
2.25 Employee Benefits.
(a) Schedule 2.25 sets forth a true and complete list of (i) all
employee benefit plans, as defined in Section 3(3) of ERISA and (ii) all other
profit-sharing, deferred compensation, bonus, stock option, stock purchase,
stock bonus, vacation pay, holiday pay, severance, dependent care assistance,
excess benefit, incentive compensation, salary continuation, medical, life or
other insurance, supplemental unemployment and other compensation or employee
benefit plans, programs, agreements or arrangements, maintained or contributed
to by the Company for the benefit of its employees (or former employees) and/or
their beneficiaries. All of these types of plans shall be collectively referred
to as "Benefit Plans." An arrangement will not fail to be a Benefit Plan simply
because it only covers one individual, or because the Company's obligations
under the plan arise by reason of its being a "successor employer" under
applicable law. Except as set forth on Schedule 2.25, the Company does not have
any material unwritten compensation arrangements which, if put into writing,
would constitute a Benefit Plan.
(b) The Company has delivered or made available to Maxwell a true
and complete copy of:
(i) Each Benefit Plan and any related funding agreements
(e.g., trust agreements or insurance contracts), including all
amendments (and Schedule 2.25 includes a description of any such
amendment that is not in writing);
(ii) The current draft of the Summary Plan Description of
each Benefit Plan (if applicable);
(iii) The most recent Internal Revenue Service
determination letter (if applicable) for each Benefit Plan, which
determination letter, except as set forth on Schedule 2.25, reflects all
amendments that have been made to the Benefit Plan.
(iv) The two most recent Form 5500s that were filed on
behalf of each Benefit Plan.
(c) All Benefit Plans maintained by the Company, or to which the
Company contributes or is required to contribute, to the extent required, comply
with the provisions of and have been administered and maintained in compliance
with the provisions of ERISA, the Code, and all other applicable laws in all
material respects. The Company does not currently maintain any, and in the past
has never maintained any, "Defined Benefit Plan" within the meaning of Section
414(j) of
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ERISA and the Company does not currently contribute to, and in the past has
never contributed to, any Defined Benefit Plan.
(d) Except as set forth on Schedule 2.25, the Company does not
maintain any plan that provides (or will provide) medical or death benefits to
one or more former employees (including retirees) beyond their retirement or
other termination of service, other than benefits that are required to be
provided pursuant to Section 4980B of the Code or state law continuation
coverage or conversion rights.
(e) None of the persons performing services for the Company have
been improperly classified as independent contractors, leased employees (within
the meaning of Section 414(n) of the Code) or as being exempt from the payment
of wages for overtime.
(f) All costs of administering and contributions required to be
made to each Benefit Plan under the terms of that Benefit Plan, ERISA, the Code
or any other applicable law have been timely made, and are fully deductible in
the year for which they were paid. All unpaid liabilities of the Company with
respect to, and all unfunded benefits (whether vested or not) under, each
Benefit Plan have been calculated and are reflected in the Company's financial
statements in accordance with GAAP, and any such liabilities incurred after the
date of such financial statements will be incurred in the ordinary course of
business, determined in a manner substantially similar to that used in such
financial statements.
(g) There are no investigations, proceedings, or lawsuits, either
currently in progress or expected to be instituted in the future, relating to
any Benefit Plan, by any administrative agency, whether local, state, or
federal.
(h) There are no pending or, to the best knowledge of the Company
or the Principal Shareholders, threatened lawsuits or other claims (other than
routine claims for benefits under the plan and qualified domestic relations
orders) against or involving (i) any Benefit Plan, or (ii) any Fiduciary of such
plan (within the meaning of Section 3(21)(A) of ERISA) brought on behalf of any
participant, beneficiary, or Fiduciary thereunder, nor is there any reasonable
basis for any such claim.
(i) The Company has no intention or commitment, whether legally
binding or not, to create any additional Benefit Plan, or to modify or change
any existing Benefit Plan so as to materially increase benefits to participants
or the cost of maintaining the plan. The benefits under all Benefit Plans are as
represented, and have not been, and will not be materially increased subsequent
to the date documents are provided to Maxwell.
(j) Except as provided in the Schedule 2.25, none of the Benefit
Plans or employment contracts with the Company provide any benefits that become
payable solely as a result of the consummation of this transaction.
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2.26 Bank Accounts. Schedule 2.26 sets forth the names and locations of
all banks, trust companies, savings and loan associations and other financial
institutions at which the Company maintains safe deposit boxes or accounts of
any nature.
2.27 Corporate Records. The minute books of the Company reflect material
actions taken to this date by the shareholders, board of directors and
committees of the board of directors of the Company, and contain true and
complete copies of their respective charters, Bylaws and all amendments thereto.
2.28 Accounting Records. The Company maintains accounting records which
fairly and validly reflect its transactions and maintains accounting controls
sufficient to provide reasonable assurances that such transactions are, in all
material respects, (i) executed in accordance with management's general or
specific authorization, and (ii) recorded as necessary to permit the preparation
of financial statements in conformity with GAAP.
2.29 Omitted.
2.30 Affiliates. Schedule 2.30 hereto sets forth all persons who, as of
the date of this Agreement, may be deemed to be affiliates of the Company under
Rule 145 of the Securities Act, or otherwise under applicable Securities and
Exchange Commission ("Commission") accounting releases with respect to
pooling-of-interests accounting treatment ("Affiliates").
2.31 Brokers and Finders. Except for Arthur Andersen L.L.P. who will
receive no more than $370,000 in total compensation, neither the Shareholders
nor the Company has engaged or authorized any broker, finder, investment banker
or other third party to act on behalf of the Shareholders or the Company,
directly or indirectly, as a broker, finder, investment banker or in any other
like capacity in connection with this Agreement or the transactions contemplated
hereby, or has consented to or acquiesced in anyone so acting, and neither the
Shareholders nor the Company knows of any claim for compensation from any such
broker, finder, investment banker or other third party for so acting on behalf
of the Company or the Shareholders or of any basis for such a claim. A copy of
the Arthur Andersen L.L.P. engagement letter is attached as Schedule 2.31.
2.32 Inventory. All inventories reflected in the Financial Statements
are stated at the lower of cost (first-in, first-out method) or market, and, as
so stated, are in good condition and are currently usable or salable in the
category in which they are inventoried, in the ordinary course of business of
the Company, without discounts other than normal trade discounts regularly
offered by the Company for prompt payment or quantity purchase, net of reserves
shown on the balance sheet of the Company.
2.33 Year 2000 Compliance. The Company does not sell, nor has it sold,
any application programs, databases, software or hardware (including distributed
systems and embedded chips), the performance of which will be adversely affected
by dates after the commencement of the year 2000 ("Year 2000 Matters") except to
the extent such adverse effects would not have a Material Adverse
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Effect on the Company. To the knowledge of the Company and the Principal
Shareholders, none of the application programs, databases, software or hardware
owned or licensed by the Company or used in its business will be adversely
affected in performance by Year 2000 Matters. To the knowledge of the Company
and the Principal Shareholders, based solely on communications with customers
and suppliers through the date of this Agreement or the Closing Date, as the
case may be, no customer or supplier of the Company will fail to complete any
material transaction with the Company, nor will the Company experience material
interruptions in supply or delays in sales, as a result of Year 2000 Matters.
Set forth in Schedule 2.33 is a description of the Company's compliance program
with respect to Year 2000 Matters and a statement as to its progress in meeting
such program's compliance schedule and goals as of the date hereof.
2.34 Government Contracts. To the knowledge of the Company and the
Principal Shareholders, the Company has not been suspended or debarred from
bidding on contracts or subcontracts with any governmental entity and no such
suspension or debarment has been initiated or threatened. The consummation of
the transactions contemplated by this Agreement will not result in any such
suspension or debarment. The Company has not been audited or investigated and is
not now being audited or investigated by the U.S. Government Accounting Office,
the U.S. Department of Defense or any of its agencies, the Defense Contract
Audit Agency, the U.S. Department of Justice, the Inspector General of any U.S.
governmental entity, any similar agencies or instrumentalities of any foreign
governmental entity, or any prime contractor with a governmental entity nor, to
the Company's knowledge, has any such audit or investigation been threatened. To
the Company's or the Principal Shareholders' knowledge, there is no valid basis
for (a) the suspension or debarment of the Company from bidding on contracts or
subcontracts with any governmental entity or (b) any claim pursuant to an audit
or investigation by any of the entities named in the foregoing sentence. The
Company has no agreements, contracts or commitments which require it to obtain
or maintain a security clearance with any governmental entity.
2.35 Product Liability and Warranties. Each product designed,
manufactured, sold, leased, or delivered by the Company has been in conformity
in all material respects with all applicable contractual commitments and all
express and implied warranties, and the Company does not have any liability
(and, to the knowledge of the Company and the Principal Shareholders, there is
no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any liability) for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product warranty claims in
the Interim Financial Statements as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company. No
product or service designed, manufactured, sold, leased, or delivered by the
Company is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. Schedule 2.35
includes copies of the standard terms and conditions of sale or lease for the
Company (containing applicable guaranty, warranty, and indemnity provisions).
2.36 Absence of Certain Payments. The Company, nor any of its officers,
directors, employees or agents or other people acting on behalf of any of them
have (i) engaged in any activity
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prohibited by the United States Foreign Corrupt Practices Act of 1977 or any
other similar law, regulation, decree, directive or order of any other country
which could result in a material liability to the Company and, without limiting
the generality of the preceding clause, (ii) used any corporate or other funds
for unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activity to government officials or
others which could result in a material liability to the Company. None of the
Company or any of its directors, officers, employees or agents or other people
acting on their behalf has accepted or received any unlawful contributions,
payments, gifts or expenditures which could result in a material liability to
the Company.
2.37 Registration Statement; Proxy Statement.
(a) None of the information supplied or to be supplied by or on
behalf of the Company for inclusion or incorporation by reference in (i) the
Registration Statement on Form S-4 to be filed with the Commission by Maxwell in
connection with the submission of this Agreement to the Shareholders and the
issuance of Exchange Shares in the Merger (together with any amendments or
supplements thereto, the "S-4 Registration Statement") or (ii) the proxy
statement relating to the meeting of the Shareholders (the "Shareholder
Meeting") to be held in connection with the Merger (the "Proxy Statement" and,
together with the prospectus contained in the S-4 Registration Statement, the
"Proxy Statement/Prospectus") will, at the respective times filed with the
Commission and, in addition (A) in the case of the Proxy Statement/Prospectus,
at the date it or any amendments or supplements thereto are mailed to
stockholders, at the time of the Shareholder Meeting and at the Effective Time,
and (B) in the case of the Registration Statement, when it becomes effective
under the Securities Act and the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
Prospectus will comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder. If at
any time prior to the Effective Time any event relating to the Company or any of
its respective Affiliates, officers or directors should be discovered by the
Company which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement/Prospectus, the Company shall promptly
inform Maxwell. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Maxwell
or Newco which is contained in or incorporated by reference in any of the
foregoing documents.
(b) The Company has not taken any action that constitutes an
"offer", "offer to sell", "offer for sale" or "sale" of Maxwell Common Stock
within the meaning of Rule 145 under the Securities Act.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF EACH PRINCIPAL SHAREHOLDER
Each Principal Shareholder, severally and not jointly, represents and
warrants to Maxwell and Newco as follows:
3.1 Title to Shares. The Principal Shareholder is the record and
beneficial owner of the shares of Company Common Stock set forth opposite such
Principal Shareholder's name on Schedule 2.3 hereto, free and clear of any
liens, encumbrances, security interests, restrictions or claims whatsoever, with
full power and authority to convey such shares in accordance with the terms of
this Agreement.
3.2 Authorization and Approvals. The Principal Shareholder has all
requisite legal power and authority to enter into this Agreement and to perform
his, her or its obligations hereunder and thereunder. This Agreement and the
Escrow Agreement have been, or will be prior to the Closing Date, duly executed
and delivered by the Principal Shareholder and constitute the legal, valid and
binding obligations of the Principal Shareholder, enforceable in accordance with
their terms, subject to judicial discretion regarding specific performance or
other equitable remedies, and except as may be limited by bankruptcy,
reorganization, insolvency, moratorium or other laws relating to or affecting
the enforcement of creditors' rights and remedies generally.
3.3 No Violations. Neither the execution and delivery of this Agreement
or the Escrow Agreement nor the consummation of the transactions contemplated
hereby and thereby will (a) violate, or be in conflict with, or constitute a
default (or other event which, with the giving of notice or lapse of time or
both, would constitute a default) under, or give rise to any right of
termination, cancellation or acceleration under any of the terms, conditions or
provisions of any lease, license, promissory note, contract, agreement,
mortgage, deed of trust or other instrument or document to which the Principal
Shareholder is a party or by which the Principal Shareholder or any of his
properties or assets may be bound, other than obligations to be discharged on or
immediately after Closing, (b) violate any order, writ, injunction, decree, law,
statute, rule or regulation of any court or governmental authority applicable to
the Principal Shareholder or any of his properties or assets or (c) give rise to
a declaration or imposition of any claim, lien, charge, security interest or
encumbrance of any nature whatsoever upon the shares of Company Common Stock
held by the Principal Shareholder or upon any of the assets of the Company.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
MAXWELL AND NEWCO
Maxwell and Newco, jointly and severally, represent and warrant to the
Company and the Shareholders as follows:
4.1 Organization and Power; Foreign Qualification. Maxwell and Newco are
each corporations duly organized, validly existing and in good standing under
the laws of the State of Delaware, and have all requisite corporate power and
authority to own, lease and operate their properties, and to carry on their
businesses, as such are now being conducted. Maxwell and Newco are duly
qualified to transact business and are in good standing in every jurisdiction in
which the character of their business makes such qualification necessary, except
for such jurisdictions where the failure to so qualify would not have a material
adverse effect on the assets, properties, financial condition, results of
operation, prospects or business of either such corporation.
4.2 Capital Structure of Maxwell and Newco.
(a) The authorized capital stock of Maxwell consists of
40,000,000 shares of common stock, $.10 par value, of which 8,452,636 shares
were issued and outstanding as of November 6, 1998. Except for any of the
transactions contemplated pursuant to this Agreement, as set forth on Schedule
4.2, and for outstanding stock options granted to Maxwell's officers, directors,
employees and advisors, there are no outstanding options, warrants, convertible
debt or securities, calls, agreements, arrangements, commitments, understandings
or other rights to purchase any of Maxwell's capital stock, or securities
convertible into or exchangeable for any such capital stock. All of the
outstanding shares of capital stock of Maxwell have been duly authorized,
validly issued and are fully paid and nonassessable.
(b) The authorized capital stock of Newco consists of 1,000
shares of Common Stock, $0.01 par value, of which 100 shares are issued and
outstanding, and all of the outstanding shares are owned by Maxwell.
4.3 Authorization and Enforceability of Agreements. Each of Maxwell and
Newco has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. This Agreement has been duly
executed and delivered by each of Maxwell and Newco and constitutes the legal,
valid and binding obligations of Maxwell and Newco, enforceable in accordance
with its terms, except as may be limited by bankruptcy, reorganization,
insolvency, moratorium or other laws relating to or affecting the enforcement of
creditors' rights and remedies generally and except as enforcement may be
limited by general principles of equity. This Agreement, and all ancillary
agreements hereto at the time they are entered into ("Ancillary Agreements"),
have been duly and validly authorized by and approved by all requisite corporate
action on the part of Maxwell and Newco. No further approvals or consents by, or
filings with, any
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federal, state, municipal, foreign or other court or governmental or
administrative body, agency or other third party is required in connection with
the execution and delivery by Maxwell and Newco of this Agreement or the
consummation by Maxwell and Newco of the transactions contemplated hereby,
except for (i) the effectiveness of the S-4 Registration Statement under the
Securities Act and (ii) the expiration or termination of the waiting period
under the HSR Act and except for those which, if not obtained, would not have a
material adverse impact on the ability of Maxwell and Newco to perform their
businesses as currently conducted or the ability of Maxwell and Newco to execute
and deliver this Agreement, or to consummate the transactions contemplated
hereby.
4.4 No Conflicts. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby will (a) violate
any provisions of the respective charter or Bylaws of Maxwell or Newco, (b)
violate, or be in conflict with, or constitute a default (or other event which,
with the giving of notice or lapse of time or both, would constitute a default)
under, or give rise to any right of termination, cancellation or acceleration
under any of the terms, conditions or provisions of any material lease, license,
promissory note, contract, agreement, mortgage, deed of trust or other
instrument or document to which Maxwell or Newco is a party or by which Maxwell
or Newco or any of their respective properties or assets may be bound, (c)
violate any order, writ, injunction, decree, law, statute, rule or regulation of
any court or governmental authority applicable to Maxwell or Newco or any of
their respective properties or assets or (d) give rise to a declaration or
imposition of any claim, lien, charge, security interest or encumbrance of any
nature whatsoever upon any of the assets of Maxwell's or Newco's respective
businesses.
4.5 Financial Statements and Commission Reports. Maxwell has timely
filed all required forms, reports, statements and documents with the Commission
since January 1, 1996, all of which have complied in all material respects with
all applicable requirements of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Maxwell will deliver or make available
to the Company and the Shareholders true and complete copies of (i) its Annual
Report on Form 10-K for the fiscal year ended July 31, 1998, and (ii) all other
reports, statements and registration statements filed or required to be filed by
it with the Commission since July 31, 1998 (the documents referred to in clauses
(i) and (ii) being hereinafter referred to as the "Maxwell SEC Reports"). As of
their respective dates, the Maxwell Commission Reports did not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The financial statements (including
any related notes) of Maxwell included in the Maxwell SEC Reports were prepared
in conformity with GAAP applied on a consistent basis, and present fairly in all
material respects the consolidated financial position, results of operations and
cash flows of Maxwell and its consolidated subsidiaries as of the date and for
the periods indicated, subject, in the case of unaudited interim consolidated
financial statements, to condensation, the absence of certain notes thereto and
normal year-end adjustments.
4.6 Brokers and Finders. Neither Maxwell nor Newco has engaged or
authorized any broker, finder, investment banker or other third party to act on
behalf of Maxwell or Newco, directly
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or indirectly, as a broker, finder, investment banker or in any other like
capacity in connection with this Agreement or the transactions contemplated
hereby, or has consented to or acquiesced in anyone so acting, and neither
Maxwell nor Newco knows of any claim for compensation from any such broker,
finder, investment banker or other third party for so acting on behalf of
Maxwell or Newco or of any basis for such a claim.
4.7 Exchange Shares. The Exchange Shares to be issued and delivered
pursuant to this Agreement and the Agreement of Merger will, on delivery of
certificates therefor in accordance with the terms hereof, be duly authorized,
fully paid and nonassessable shares, validly issued and outstanding. Maxwell is
not aware of any facts or circumstances that would prevent it from satisfying
its obligation to cause the S-4 Registration Statement to become and remain
effective in accordance with the terms of this Agreement or from satisfying its
obligation to cause the Exchange Shares to be designated for listing on the
Nasdaq National Market.
4.8 No Material Adverse Changes. Since July 31, 1998, there has not
occurred any event, nor has there been the development of any condition, which
has had or is reasonably likely to have a material adverse effect on the results
of operations, financial condition, prospects or business of Maxwell and its
subsidiaries, taken as a whole.
4.9 Registration Statement; Proxy Statement/Prospectus. Subject to the
accuracy of the representations of the Company in Section 2.37(a), the S-4
Registration Statement shall not, at the time it is declared effective by the
Commission and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements included therein, in light of the
circumstances under which they were made, not misleading. Subject to the
accuracy of the representations of the Company in Section 2.37(a), the Proxy
Statement/Prospectus will not, at the date it or any amendments or supplements
thereto are mailed to shareholders, at the time of the Shareholder Meeting and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. If at any time prior to the Effective Time any event
relating to Maxwell, Newco, or any of their respective Affiliates, officers or
directors should be discovered by Maxwell which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Maxwell will promptly inform the Company. Notwithstanding
the foregoing, Maxwell makes no representation or warranty with respect to any
information supplied by or on behalf of the Company which is contained in, or
furnished in connection with the preparation of, the Registration Statement or
the Proxy Statement/Prospectus.
4.10 Affiliates. Based on information supplied to Maxwell by the Company
and to Maxwell's knowledge, as of the date of this Agreement, none of the
Principal Shareholders would, after the Effective Time, be deemed to be
affiliates of Maxwell under Rule 145 of the Securities Act, or otherwise under
applicable Securities and Exchange Commission ("Commission") accounting releases
with respect to pooling-of-interests accounting treatment.
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4.11 Representations Required for Tax-Free Reorganization. Prior to and
as of the Closing Date, Maxwell shall be in control of Newco within the meaning
of Section 368(c)(1) of the Code. Maxwell does not plan nor does it intend for
the Company to issue additional shares of the Company Common Stock that would
result in Maxwell losing control of the Company within the meaning of Section
368(c)(1) of the Code. Maxwell has no plan or intention to reacquire any of its
Common Stock issued in the Merger, other than purchases that may occur in the
ordinary course of Maxwell's stock buyback plan. Maxwell has no plan or
intention to liquidate the Company, to merge the Company with or into another
corporation, to sell or other wise dispose of the Common Stock of the Company
except for transfers of stock to corporations controlled by Maxwell, or to cause
the Company to sell or otherwise dispose of any of its assets or of any of the
assets acquired from Newco, except for dispositions made in the ordinary course
of business or transfers of assets to a corporation controlled by the Company.
Newco will have no liabilities assumed by the Company, nor will it transfer to
the Company any assets subject to liabilities in the Merger. Following the
Merger, Maxwell intends to continue the Company's historic business or use a
significant portion of the Company's historic business assets in a business.
Maxwell does not own, nor has it owned during the past five years, any shares of
the Common Stock of the Company. Maxwell is not an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
ARTICLE 5
COVENANTS OF THE COMPANY AND PRINCIPAL SHAREHOLDERS
5.1 Covenants Pending Closing. Each of the Company and the Principal
Shareholders jointly and severally agree that from the date hereof to the
Closing Date the Company will, except in the ordinary course of business or to
the extent that Maxwell shall otherwise give its written consent, which shall
not be unreasonably withheld or delayed:
(a) Operate its business (including collection of the accounts
receivable and payment of accounts payable) substantially as now operated and
only in the ordinary course and, to the extent of and consistent with such
operation, use its best efforts to preserve intact its present business
organization and preserve its relationships with persons having business
dealings with it;
(b) Maintain all of the assets and properties related to its
business in customary repair, order and condition, reasonable wear and tear and
damage by unavoidable casualty excepted, and take all steps reasonably necessary
to maintain its intangible assets, including, without limitation, its patents,
trademarks, trade names and copyrights and any pending applications therefor;
(c) Maintain its books, accounts and records, in the usual,
regular and ordinary manner and in accordance with generally accepted accounting
principles applied on a consistent basis and consistent with past practice;
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(d) Except for Taxes contested in good faith, pay all Taxes upon
its properties, business and income as they become due;
(e) Refrain from disposing of or encumbering any of its
properties and assets;
(f) Maintain insurance upon its business and related assets and
properties in respect of the kinds of risks customarily insured against, in
accordance with its current practices;
(g) Not do any act which would cause a breach of or default under
any Client Contract or other material contract, commitment or obligation of it;
(h) Not declare or pay any dividends on or declare or make any
other distribution, direct or indirect, on account of any shares of its capital
stock, or redeem, retire, purchase or otherwise acquire, directly or indirectly,
any shares of the Company Common Stock;
(i) Not borrow any money, or incur, assume or guaranty or
otherwise become directly or indirectly responsible for the payment of any
indebtedness or obligation of any officer, director, employee or agent or of any
other person (other than the endorsement of negotiable instruments for deposit
or collection or any other transactions in the ordinary course of business and
consistent with past practice under credit facilities existing on the date
hereof);
(j) Not fail to repay any obligation of the Company;
(k) Not mortgage, pledge or subject to lien, charge or
encumbrance of any kind, any of the Company's properties or assets, or assume to
take any properties or assets subject to any liability;
(l) Not settle any material litigation or consent to the entry of
a judgment against the Company in the amount of $50,000 or more;
(m) Not amend the Company's charter or bylaws;
(n) Not amend or modify in a manner materially adverse to the
Company, or terminate, any Contract to which the Company is a party or pursuant
to which the Company's assets may be bound;
(o) Except as described on Schedule 2.17, not increase, or commit
to increase, the direct or indirect compensation payable or to become payable to
its officers or directors, or to any of its employees or Affiliates, or commit
to make severance, bonus or special payments to any of such parties, upon a
change in ownership or management or upon termination of such parties;
(p) Not commit to make capital expenditures materially in excess
of the Company's 1998 budget for capital expenditures, or make such
expenditures;
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(q) Not amend, terminate or waive any material right with respect
to its business;
(r) Not adopt any new Benefit Plan or any amendment to any
Benefit Plan to provide any new or additional plan, programs, contracts or
arrangements involving direct or indirect compensation to any of its officers,
directors, employees, former employees, or any of their dependents or
beneficiaries;
(s) Not alter its operating policies and procedures;
(t) Promptly advise Maxwell in writing of any material adverse
change in its condition (financial or otherwise), assets, liabilities, earnings,
business or prospects, and provide Maxwell with all current financial data;
(u) Promptly advise Maxwell in writing of the termination or
threatened termination of any key employee of the Company;
(v) Promptly advise Maxwell of the commencement or threat of any
suit, claim, action or litigation, or any administrative, arbitration or other
proceedings or governmental investigations or inquiries;
(w) Duly comply with all laws applicable to it and to the
conduct of its business; and
(x) Not take, or commit to take, any action or fail to take or
commit to refrain from taking any action that would as of the date hereof be in
breach of, or cause a revision to the schedule provided for in Section 2.17
hereof.
5.2 Consents and Approvals; Fulfillment of Conditions. The Company and
the Shareholders will use their reasonable best efforts to (i) obtain all
necessary consents and approvals of other persons and governmental and
regulatory authorities to the consummation of the transactions contemplated by
this Agreement, (ii) to obtain all governmental consents and novations necessary
in connection with the transactions contemplated by this Agreement with respect
to the Client Contracts, and (iii) perform, comply with and fulfill all
obligations, covenants and conditions required by this Agreement to be
performed, complied with and fulfilled by them prior to or at the Closing Date.
5.3 Acquisition Proposals. Until the earlier of (i) January 31, 1999
(provided, however, that such date shall be extended to the later of (x) the
date that is 30 business days after the Proxy Statement/Prospectus is mailed to
the Shareholders, so long as the S-4 Registration Statement was filed with the
Commission by Maxwell prior to December 31, 1998 or (y) five business days after
the waiting period under the HSR Act has expired or been terminated, or (ii) the
date Maxwell has notified the Company that Maxwell no longer intends to pursue
the Merger, neither the Company
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nor any Principal Shareholder or any of their officers, directors, agents,
representatives or affiliates will directly or indirectly communicate, solicit,
encourage or engage in any discussion or negotiation with another person
(including, without limitation, providing information concerning the Company's
business, properties, assets or financial condition) with respect to the sale of
the Company, sale of any capital stock of the Company, or sale of any material
portion of its assets or any merger or other business combination involving the
Company (an "Alternative Transaction"). If the Company or any Principal
Shareholder or any of their officers, directors, agents, representatives or
affiliates or officers, directors, agents or representatives of such affiliates
receives any proposal for an Alternative Transaction, the Company will promptly
notify Maxwell of the terms of such proposal and the identity of the party
making such proposal. In the event (i) the Company or any Principal Shareholder
or any of their officers, directors, agents, representatives or affiliates do
not comply with the agreement in this paragraph, (ii) the transaction
contemplated hereby is not consummated, and (iii) the Company or its
shareholders enter into or agree to enter into an Alternative Transaction prior
to October 31, 1999, then Maxwell may pursue all available remedies at law or in
equity, and in the event the Merger contemplated hereby is not consummated, the
Company shall pay Maxwell $500,000 in view of Maxwell's substantial efforts and
expense in conducting its due diligence review and its efforts and expense in
negotiating and attempting to consummate the Merger.
5.4 Notice. The Company and the Principal Shareholders will give prompt
notice to Maxwell of the occurrence, or failure to occur, of any event of which
they have knowledge and which they determine would cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any respect
at any time from the date hereof to and including the Closing Date.
5.5 Access. Maxwell may, prior to the Closing Date, through its
employees, agents and representatives (including accountants and attorneys),
make or cause to be made such reasonable investigation as it deems necessary or
advisable of the assets, properties and business of the Company, but such
investigation shall not affect the representations and warranties of the Company
and the Principal Shareholders hereunder or the right of Maxwell to terminate
this Agreement as provided in Article 10 hereof. The Company and the Principal
Shareholders agree to permit Maxwell and its employees, agents and
representatives to have complete access to the properties, books and records,
contracts and other documents of the Company, during regular business hours and
at such other times agreeable to the Company and to Maxwell. The Company and the
Principal Shareholders shall furnish to Maxwell such financial and operating
data and other information with respect to the Company's business as Maxwell
shall from time to time reasonably request (including without limitation true
and correct copies of all financial statements and tax returns of the Company
for all periods within the last five years, and copies of all documents and
correspondence relating to any audit or investigation of the Company by the
Internal Revenue Service or any other taxing authority presently being conducted
or at any time conducted during the last five years) and to authorize the key
employees and expressly authorized representatives of the Company to discuss the
affairs of the Company with the employees, agents and representatives of
Maxwell. Maxwell's representatives shall also be permitted to contact the
customers and clients of the Company to discuss their respective businesses,
after the customer has been contacted by the responsible
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employee of the Company. The Company and the Principal Shareholders will fully
cooperate with Maxwell and its counsel in connection with any steps reasonably
required to be taken as part of its obligations under this Agreement.
5.6 Affiliates; Accounting and Tax Treatment. Prior to the Closing Date,
the Company shall obtain from each Principal Shareholder and each other person
listed in Schedule 2.30 and any person who may be deemed to have become an
affiliate of the Company (under Rule 145 of the Securities Act or otherwise
under applicable Commission accounting releases with respect to
pooling-of-interests accounting treatment) after the date of this Agreement and
on or prior to the Closing Date an Investment Letter substantially in the form
of Exhibit B hereto (the "Investment Letter"); provided, however, that the
Company shall use its best efforts to obtain such a written agreement from each
such person as soon as practicable after the date of this Agreement or the date
on which such person attains such status, as the case may be. Each Principal
Shareholder voting in favor of the Merger has delivered, or agrees to deliver to
Maxwell at or prior to the Closing Date, an Investment Letter. Each party hereto
shall use its best efforts to cause the Merger to qualify, and shall not take
any actions which could prevent the Merger from qualifying for
pooling-of-interests accounting treatment and as a reorganization qualifying
under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
5.7 Publicity. Neither the Company nor the Shareholders, nor any of
their agents or affiliates, shall either directly or indirectly make any press
release or other public communication with respect to the transaction
contemplated hereby without the prior written consent of Maxwell, unless
required by applicable law or the regulations of any securities exchange to make
such a communication.
5.8 Distribution of Proxy Statement/Prospectus; Shareholders' Approval.
The Company shall take all action necessary in accordance with applicable law to
convene the Shareholder Meeting at the earliest possible time after the
Registration Statement is declared effective (and no later than 21 business days
thereafter or the next business day following) for the purpose of approving the
Merger. The Company shall submit the Proxy Statement/Prospectus to its
shareholders, and its Board of Directors shall recommend to the shareholders,
and continue to recommend until the completion of the Shareholder Meeting, the
adoption of this Agreement and the approval of the Merger. The Company shall use
all reasonable efforts to solicit proxies from its shareholders and otherwise to
obtain all votes and approvals of the shareholders necessary for the approval
and adoption of the Merger under the Delaware General Corporation Law and its
Certificate of Incorporation and Bylaws.
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ARTICLE 6
COVENANTS OF MAXWELL AND NEWCO
6.1 Consents and Approvals; Fulfillment of Conditions. Maxwell and Newco
will use their reasonable best efforts to (i) obtain all necessary consents and
approvals of other persons and governmental and regulatory authorities to the
consummation of the transactions contemplated by this Agreement and (ii)
perform, comply with and fulfill all obligations, covenants and conditions
required by this Agreement to be performed, complied with and fulfilled by them
prior to or at the Closing Date.
6.2 Notice. Maxwell and Newco shall give prompt notice to the Company
and the Shareholders of the occurrence, or failure to occur, of any event of
which they have knowledge and which they determine would cause any
representation or warranty of Maxwell and Newco contained in this Agreement to
be untrue or inaccurate in any respect at any time from the date hereof up to
the Closing Date.
6.3 Publicity. Neither Maxwell nor Newco, nor any of their agents or
affiliates, shall either directly or indirectly make any press release or other
public communication with respect to the transaction contemplated hereby without
the consent of the Company or the Shareholder Representatives, unless required
by applicable law or Nasdaq National Market regulation to make such a
communication.
ARTICLE 7
ADDITIONAL PRE-CLOSING COVENANTS OF THE PARTIES
7.1 Preparation of Registration Statement. The Company and Maxwell shall
cooperate to prepare and file the Registration Statement as soon as practicable
after the execution hereof. The Company and Maxwell shall use their respective
reasonable best efforts to respond promptly to any comments of the Commission
with respect to the Registration Statement and to cause the Registration
Statement to become effective as promptly as practicable.
7.2 HSR Act. Each of the Company and Maxwell has filed the Notification
and Report Forms and related material required to be filed with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice under the HSR Act, and each shall use its reasonable best efforts to
obtain an early termination of the applicable waiting period, and shall make any
further filings or information submissions pursuant thereto that may be
necessary, proper or advisable; provided, however, that Maxwell shall not be
obligated to respond to formal requests for additional information or
documentary material pursuant to 16 C.F.R. 803.20 under the HSR Act except to
the extent it elects to do so in its sole discretion.
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7.3 Disclosure Schedules.
(a) The Disclosure Schedule. Concurrently with the execution of
this Agreement, each party has delivered to the other its Disclosure Schedules.
The Disclosure Schedules shall: (i) contain accurate, true, correct and complete
information and data; (ii) be delivered by the parties and dated the date of
this Agreement; (iii) be deemed to provide exceptions or qualifications to the
representations, warranties and obligations of the parties made pursuant to
Articles 2, 3 and 4 of this Agreement, and as expressly contemplated herein and
therein; and (iv) be updated, amended and supplemented, as appropriate through
Supplemental Disclosure Schedules. Terms used and defined in this Agreement
shall have the same definition when used in the Disclosure Schedules.
(b) The Supplemental Disclosure Schedules. The parties shall
update their Disclosure Schedules to include all information relevant to the
disclosures therein which relates to events which have occurred after the date
hereof and until the date five (5) business days prior to the Closing Date and
to amend, modify or correct the disclosures made therein. Each party shall
deliver a draft of such updated information to the others ten (10) days prior to
the Closing Date, and shall deliver the final updated information (the
"Supplemental Disclosure Schedule") to Maxwell on the date four (4) business
days prior to the Closing Date. The Supplemental Disclosure Schedule shall
contain accurate, true, correct and complete information and data. The Company's
Supplemental Disclosure Schedule shall identify each exception or qualification
on the Schedule that, if Maxwell were not to accept the exception or
qualification as provided in Section 8.18 of this Agreement, would cause a
representation or warranty of the Company and the Principal Shareholders to not
be true and correct in any material respects at and as of the Closing Date.
7.4 Pooling of Interests. Neither the Company nor Maxwell, nor any
person who may be deemed to be an affiliate of the Company or Maxwell under Rule
145 of the Securities Act, or otherwise under applicable Commission releases
with respect to pooling-of-interests accounting treatment, shall or shall agree
to, take any action that individually or in conjunction with any actions taken
by others, would prevent the Merger from being accounted for as a
pooling-of-interests, including the failure to satisfy any of the conditions set
forth in Paragraph 45 et seq. of APB Opinion No. 16 "Business Combinations."
ARTICLE 8
CONDITIONS TO CLOSING BY MAXWELL AND NEWCO
The obligations of Maxwell and Newco to consummate and effect the Merger
and transactions contemplated by this Agreement on the Closing Date are subject
to the satisfaction in all material respects, on or before the Closing Date, of
the following conditions (unless waived in writing by Maxwell and Newco):
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8.1 Accuracy of Representations and Warranties; Performance of
Covenants. The representations and warranties of the Company and the Principal
Shareholders set forth herein shall be true and accurate in all material
respects on and as of the date hereof and on and as of the Closing Date (as
though made on and as of the Closing Date) and the Company and the Principal
Shareholders shall have each, in all material respects, performed all
obligations and complied with all covenants required to be performed or to be
complied with by them under this Agreement prior to the Closing Date, and
Maxwell and Newco shall have received a certificate, dated the Closing Date,
signed on behalf of the Company by a duly authorized officer to all such
effects, and signed by the Shareholder Representatives to all such effects.
8.2 Consents. The Company shall have obtained all consents or approvals
of any governmental authority or of any person in any contractual relationship
with the Company necessary for the consummation of the transactions contemplated
hereby.
8.3 Shareholder Approval. At the Special Meeting, ninety percent (90%)
of the shares of the Company's common stock voting, in person or by proxy, shall
have been voted in favor of this Agreement.
8.4 No Litigation. No legal action or other proceedings brought by third
parties to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or to obtain other relief in connection with
this Agreement or the transactions contemplated hereby or thereby, or that, if
determined adversely, would have a Material Adverse Effect on the Company, shall
be pending or threatened.
8.5 Corporate Resolutions. The Company shall have delivered to Maxwell a
certified copy of the resolutions adopted by the Company's Board of Directors
authorizing and approving this Agreement and the transactions contemplated
herein and therein.
8.6 Adverse Changes. There shall not have occurred any loss or
destruction of any material part of the assets of the Company, or any material
adverse change in the assets, properties, financial condition, business,
prospects or results of operations of the Company.
8.7 Opinion of Counsel. On the Closing Date, Maxwell shall have been
furnished with an opinion of Luce, Forward, Hamilton and Scripps LLP, counsel
for the Company and the Principal Shareholders, dated the Closing Date and
addressed to Maxwell, in a form acceptable to Maxwell.
8.8 Legislation. No statute, rule, regulation or order shall have been
enacted, entered into or deemed applicable by any domestic or foreign
government, governmental or administrative agency or court which would make the
transactions contemplated by this Agreement illegal or otherwise prevent the
consummation thereof or that upon implementation would have a Material Adverse
Effect on the Company.
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8.9 Employment and Noncompetition and Nondisclosure Agreements. On the
Closing Date, Maxwell shall have received from each of the employees of the
Company listed on Schedule 8.9 an executed Employment Agreement in the form
attached as Exhibit C, from each person listed on Schedule 8.9 an executed
Noncompetition Agreement in the form attached as Exhibit D-1, and from each
Principal Shareholder who is not listed on Schedule 8.9 an executed
Noncompetition Agreement in the form of Exhibit D-2 (each a "Noncompetition
Agreement"). For each such person, the appropriate agreement shall contain a
general release of the Surviving Corporation for any liabilities it may have
(other than ordinary payroll liabilities) to such Principal Shareholder or
employee as of the Closing Date.
8.10 Investment Letter. Maxwell shall have received from each Principal
Shareholder and any other person who may be deemed to have become a shareholder
or an affiliate of the Company (under Rule 145 of the Securities Act or
otherwise under applicable Commission accounting releases with respect to
pooling-of-interests accounting treatment) after the date of this Agreement and
on or prior to the Closing Date a signed Investment Letter.
8.11 Pooling Opinion. Maxwell shall have received the opinion of Ernst &
Young LLP or other advice satisfactory to it, to the effect that the Merger
qualifies for pooling-of-interests accounting treatment if consummated in
accordance with this Agreement. Arthur Andersen L.L.P. shall have delivered an
opinion to Ernst & Young that the Company qualifies for a pooling-of-interests
business combination, at no additional cost to the Company.
8.12 Escrow Agreement. The Shareholder Representatives shall have
executed and delivered the Escrow Agreement.
8.13 Dissenting Shares. The holders of not more than 5% of the issued
and outstanding shares of the Company Common Stock shall have informed the
Company that they intend to exercise their appraisal rights.
8.14 Securities Law. The S-4 Registration Statement shall have become
effective and no stop order suspending the effectiveness of the S-4 Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or threatened by the Commission.
8.15 Nasdaq Listing. The Exchange Shares shall have been authorized for
listing on the Nasdaq National Market.
8.16 HSR Act. The waiting period under the HSR Act shall have expired or
been terminated.
8.17 Technology Transfer Agreement with Full Circle Research. The
technology transfer agreement with Full Circle Research shall have been
terminated or renegotiated, and such termination or new terms would not
reasonably be expected to have a Material Adverse Effect on the Company.
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8.18 Approval of Supplemental Disclosure Schedule. Maxwell, in its sole
discretion, shall have approved and accepted each exception and qualification
set forth in the Company's Supplemental Disclosure Schedule as to which the
Company has informed Maxwell that, if Maxwell refuses to accept such exception
or qualification, a representation or warranty of the Company and the Principal
Shareholders would not be true and correct in all material respects as of the
Closing Date.
ARTICLE 9
CONDITIONS TO CLOSING BY THE COMPANY
The obligations of the Company to consummate and effect the Merger and
transactions contemplated by this Agreement on the Closing Date are subject to
the satisfaction in all material respects, on or before the Closing Date, of the
following conditions (unless waived in writing by the Company):
9.1 Accuracy of Representations and Warranties; Performance of Covenants
by Maxwell and Newco. The representations and warranties of Maxwell and Newco
set forth herein shall be accurate in all material respects on and as of the
date hereof and the Closing Date (as though made on and as of the Closing Date)
and Maxwell and Newco shall have, in all material respects, performed all
obligations and complied with all covenants required to be performed or to be
complied with by them under this Agreement prior to the Closing Date, and the
Company and the Shareholders shall have received a certificate from each of
Maxwell and Newco, dated the Closing Date, signed on behalf of Maxwell and Newco
by a duly authorized officer to all such effects.
9.2 Consents and Approvals. Maxwell and Newco shall have obtained all
consents or approvals of any governmental authority or third party necessary for
the consummation of the transactions contemplated hereby.
9.3 No Litigation. No legal action or other proceedings brought by third
parties to restrain or prohibit the consummation of the transactions
contemplated by this Agreement shall be pending or threatened.
9.4 Corporate Resolutions. Maxwell and Newco shall have delivered to the
Company a certified copy of the resolutions adopted by the Board of Directors of
Maxwell and the Board of Directors and sole common shareholder of Newco
authorizing and approving this Agreement and the transactions contemplated
herein.
9.5 Adverse Changes. There shall not have occurred any loss or
destruction of any material part of the assets of Maxwell's and its
subsidiaries' business taken as a whole, or any
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material adverse change in the financial condition, business, prospects or
operations of Maxwell and its subsidiaries, taken as a whole.
9.6 Legislation. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any domestic or foreign government or
governmental or administrative agency or court which would make the transaction
contemplated by this Agreement illegal or otherwise prevent the consummation
thereof.
9.7 Opinion of Counsel. On the Closing Date, the Company shall have been
furnished with an opinions of Riordan & McKinzie, counsel for Maxwell, and
Donald M. Roberts, General Counsel for Maxwell and Newco, dated the Closing Date
and addressed to the Company, in forms acceptable to the Company.
9.8 Employment, Noncompetition and Non-Solicitation Agreements. Maxwell
or the Surviving Corporation shall have entered into the Employment and
Noncompetition Agreements.
9.9 Escrow Agreement. Maxwell shall have duly executed and delivered the
Escrow Agreement.
9.10 Securities Law. The S-4 Registration Statement shall have become
effective and no stop order suspending the effectiveness of the S-4 Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or threatened by the Commission.
9.11 Nasdaq Listing. The Exchange Shares shall have been authorized for
listing on the Nasdaq National Market.
9.12 HSR Act. The waiting period under the HSR Act shall have expired or
been terminated.
9.13 Approval of Supplemental Disclosure Schedule. The Company and the
Principal Shareholders, in their sole discretion, shall have approved and
accepted each exception and qualification set forth in Maxwell's Supplemental
Disclosure Schedule as to which Maxwell has informed the Company and the
Principal Shareholders that, if the Company and the Principal Shareholders
refuses to accept such exception or qualification, a representation or warranty
of Maxwell and Newco would not be true and correct in all material respects as
of the Closing Date.
ARTICLE 10
TERMINATION OF AGREEMENT
10.1 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, as follows, and in no other
manner:
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(a) By agreement of Maxwell and Newco on the one hand, and the
Company and the Principal Shareholders, on the other hand, approved by the
respective Boards of Directors of Maxwell and the Company;
(b) By Maxwell in writing, if (i) at any time Maxwell has
reasonable grounds to believe, and does believe, that there has been a material
misrepresentation, breach of warranty or breach of covenant on the part of the
Company and the Principal Shareholders in any of the representations, warranties
or covenants under this Agreement which breach is not curable, or, if curable,
is not cured within ten days after written notice of such breach is given to the
Shareholder Representatives and the Company; or (ii) any of the conditions set
forth in Article 8 hereof shall not have been met in all material respects prior
to the later of (x) January 31, 1999, (y) 30 business days after the date the
Proxy Statement/Prospectus has been mailed to the Shareholders (but only if the
S-4 Registration Statement is filed with the Commission prior to December 31,
1998) or (z) five business days after the termination or expiration of the
waiting period under the HSR Act;
(c) By the Company and the Principal Shareholders, in writing, if
(i) at any time the Company and the Principal Shareholders have reasonable
grounds to believe, and do believe, that there has been a material
misrepresentation, breach of warranty or breach of covenant on the part of
Maxwell and Newco in any of the representations, warranties or covenants under
this Agreement which breach is not curable, or if curable, is not cured within
ten days after written notice of such breach is given to Maxwell and Newco, or
(ii) any of the conditions set forth in Article 9 hereof shall not have been met
in all material respects prior to the later of (x) January 31, 1999, (y) 30
business days after the date the Proxy Statement/Prospectus has been mailed to
the Shareholders (but only if the S-4 Registration Statement is filed with the
Commission prior to December 31, 1998) or (z) five business days after the
termination or expiration of the waiting period under the HSR Act; or
(d) By Maxwell or the Company, in writing, on or before December
4, 1998, if it is not satisfied in its sole discretion with the results of its
due diligence investigation of the Company or Maxwell, as the case may be, and
such period shall end prior to December 4, 1998, if necessary to mail the Proxy
Statement/Prospectus in a timely manner to hold the Shareholder meeting on or
before December 31, 1998.
10.2 Effect of Termination. In the event that this Agreement shall be
terminated pursuant to Section 10.1, all further obligations of the parties
hereto under this Agreement shall terminate without further liability or
obligation of either party; provided, however, that Section 5.3 and Section 15.9
shall survive the termination of this Agreement and no party shall be relieved
of its liability for damages caused to another party for breach of this
Agreement.
10.3 Costs and Expenses. Upon termination of this Agreement, all
expenses incurred in connection with the transactions contemplated herein,
including but not limited to legal and accounting expenses, shall be borne by
the respective party incurring such expenses, except as
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provided in Section 5.3, and except that if Maxwell fails to consummate the
Merger (other than under the circumstances contemplated by Sections 10.1(a) or
(b), due to any material fact discovered in Maxwell's due diligence of the
Company, due to a material adverse change in the Company's business, assets,
properties or results of operations, or due to the failure by the Company and
the Principal Shareholders to satisfy all of the conditions to Closing by
Maxwell set forth in Article 8 before the later of 30 business days after the
effectiveness of the S-4 Registration Statement or January 31, 1999), then
Maxwell shall reimburse the Company for its reasonable, out-of-pocket expenses
incurred in connection with the Company's attempts to consummate the Merger.
ARTICLE 11
CLOSING
11.1 The Closing. The parties hereto shall use their best efforts to
cause the Closing of the Merger to occur on or before January 31, 1999 (the
"Closing Date") or as soon after the effectiveness of the S-4 Registration
Statement as reasonably practicable. The Closing shall occur at the offices of
Luce, Forward, Hamilton & Scripps LLP, 600 West Broadway, Suite 2600, San Diego,
California 92101, or at such other place mutually agreed to by the parties
hereto. At the Closing, each of the parties shall take all such action and
deliver all such documents, instruments, certificates and other items as may be
required, under this Agreement or otherwise, in order to perform or fulfill all
covenants, conditions and agreements on its part to be performed or fulfilled at
or prior to the Effective Time and to cause all conditions precedent to the
other parties' obligations under this Agreement to be satisfied in full.
11.2 Further Acts. If, at any time after the Closing, any further action
by any of the parties to this Agreement is necessary or desirable to carry out
the purposes of this Agreement and/or to vest in the Surviving Corporation's
full title to all properties, assets and rights of the Company, such parties
shall take all such necessary or desirable action or use such parties'
reasonable best efforts to cause such action to be taken.
ARTICLE 12
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND RELATED AGREEMENTS; INDEMNIFICATION
12.1 General Liability Period. Except as set forth in Section 12.4, the
covenants, warranties, representations and agreements made by the Company, the
Shareholders and the Principal Shareholders on the one hand, or by Maxwell and
Newco, on the other hand, in this Agreement, or in any document, certificate,
schedule or instrument delivered in connection herewith, shall survive the
Closing and shall continue in effect, notwithstanding any investigation by or on
behalf of Maxwell or the Principal Shareholders, for 18 months following the
Closing Date, except
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that representations and warranties set forth in Sections 2.1-2.4, 2.9, 4.1, 4.2
and 4.3 and Article 3 shall survive the Closing indefinitely, that the
representations and warranties set forth in Sections 2.24 (Environmental
Matters) and 2.25 (Benefits) shall survive the Closing until expiration of the
applicable statute of limitations (or any extension thereof) and that the
representation and warranty set forth in Section 2.8(b)(ii) shall survive the
Closing until the date that is four (4) years after the Closing Date (the
"General Liability Period").
12.2 Tax Liability Period. The Tax Liability Period shall be as
described in Section 12.4(c) hereof.
12.3 Indemnity by the Shareholders.
(a) The Shareholders, jointly and severally, shall indemnify and
hold harmless Maxwell and the Surviving Corporation and the officers, directors,
employees, agents, affiliates and representatives of Maxwell and the Surviving
Corporation or any of them (the "Maxwell Indemnitees") from and against, and
shall reimburse the Maxwell Indemnitees on demand for any loss, liability,
damage or expense that the Maxwell Indemnitees shall incur or suffer, but
subject at all times to Section 12.6 hereof (collectively, "Maxwell Recoverable
Losses"), arising out of or resulting from any misrepresentation by the Company
or the Principal Shareholders or breach by the Company or the Shareholders or
the Principal Shareholders of any (i) representation or warranty contained in
Article 2 hereof; (ii) agreement or covenant under or pursuant to this
Agreement; or (iii) document, certificate, schedule or instrument delivered by
or on behalf of the Company or the Principal Shareholders pursuant hereto.
(b) Each Principal Shareholder, severally, and not jointly and
severally, agrees to indemnify and hold harmless the Maxwell Indemnitees from
and against Maxwell Recoverable Losses arising out of or resulting from a breach
by such Principal Shareholder of the representations and warranties set forth in
Article 3.
(c) Nothing in this Section 12.3 shall be interpreted as giving
the Maxwell Indemnitees the right to recover an amount in excess of their
Maxwell Recoverable Losses, notwithstanding their right to elect remedies under
this Section 12.3.
12.4 Tax Indemnity.
(a) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Taxes" means any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, real property, personal property,
or windfall profit tax, custom duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, addition to tax
or additional amount imposed
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by any governmental (whether federal, state, local or foreign) authority
(a "Taxing Authority") responsible for the imposition of any such tax
(domestic or foreign), but only if and to the extent attributable to
periods (or partial periods) prior to and including the Closing Date,
together with any interest and any penalty thereon.
(ii) "Tax Return" means any return, report, information
return, registration form or other document (including any related or
supporting information) filed or required to be filed with any Taxing
Authority in connection with the determination of any Tax or the
administration of any laws, regulations or administrative requirements
relating to any Tax.
(b) Subject to Sections 12.6 and 12.7, the Shareholders shall,
jointly and severally, indemnify and hold harmless Maxwell and the Company for
all Taxes and expenses (including reasonable accounting and legal fees and the
costs and expenses of enforcing such indemnification against the Shareholders)
in connection with any tax audit or proceeding, with respect to the operations
of the Company for all periods (or partial periods) prior to and including the
Closing Date, but not including those in connection with the transactions
contemplated by this Agreement.
(c) The covenants and agreements contained in this Section 12.4
and all of the terms, covenants, warranties, representations and agreements
hereunder of the Company and the Shareholders related to federal and state taxes
shall survive the Closing until the expiration of the applicable statutory
period of limitation for the payment of such taxes, giving effect to any waiver,
mitigation or extension thereof (the "Tax Liability Period").
(d) Maxwell agrees that in the event it receives notice, whether
orally or in writing, of any federal, state or local examination, claim,
proposed adjustment or related matter with respect to any Tax Return for Taxes
covered by the Shareholders' indemnity in Section 12.4(b) (the "Tax
Controversies"), Maxwell shall timely notify the Shareholder Representatives.
Failure of Maxwell to timely notify the Shareholder Representatives of any Tax
Controversies shall not constitute a waiver of any rights of Maxwell with
respect to the indemnification thereof by the Shareholders, but shall relieve
the Shareholders of their indemnity obligation to the extent that such
obligation is increased as the result of Maxwell's failure to give timely
notice. Any claim under this Section 12.4 shall be treated similarly to a Third
Party Claim under Section 12.7 hereof.
(e) After the Closing Date, each of the Principal Shareholders
shall:
(i) assist the Surviving Corporation in preparing any Tax
Returns for the Company for periods prior to the Closing Date;
(ii) cooperate fully in preparing for any audits of, or
disputes, contests or proceedings with, taxing authorities regarding any
Tax Returns which relate to the Company for periods prior to the Closing
Date;
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(iii) make available to the Surviving Corporation and to
any taxing authority as reasonably requested all information, records
and documents relating to tax liabilities which are attributable to the
Company's business or the Company relating to periods beginning prior to
the Closing Date.
(iv) convey to Maxwell all relevant information, records
and documents;
(v) make him or herself available, without charge, to the
Surviving Corporation, as reasonably requested, in connection with tax
disputes related to periods prior to the Closing Date; and
(vi) keep confidential any Tax information except as may
otherwise be necessary in connection with the filing of returns or
claims for refund or in conducting any audit or other Tax proceeding.
(f) The Company shall be liable for and shall pay all excise,
sales, use, transfer (including real property transfer or gains), stamp,
documentary, filing, recordation and other similar taxes which may be imposed in
connection with the transactions contemplated by this Agreement, together with
any interest, additions or penalties with respect thereto ("Transfer Taxes"). No
Shareholder shall have any indemnity or other payment obligation with respect to
the Transfer Taxes. Each party hereto hereby agrees to file all necessary
documentation in connection with the payment and reporting of Transfer Taxes.
12.5 Indemnity by Maxwell. Maxwell shall indemnify and hold harmless the
Company's Shareholders from and against, and shall reimburse the Shareholders
for any loss, liability, damage or expense, including reasonable attorneys' fees
and cost of investigation incurred as a result thereof, that the Shareholders
shall incur or suffer (collectively, the "Shareholders Recoverable Losses")
resulting from any misrepresentation by Maxwell or Newco or breach by Maxwell or
Newco of any (i) representation or warranty contained in Article 4 hereof, (ii)
agreement or covenant under or pursuant to this Agreement or (iii) document,
certificate, schedule or instrument delivered by or on behalf of Maxwell or
Newco in connection herewith. Notwithstanding the foregoing, it is specifically
agreed that Maxwell shall not be responsible for any Shareholder Recoverable
Losses attributable to the failure of the Merger to qualify as a tax-free
reorganization under Section 368(a) of the Code, if such failure, directly or
indirectly, arises out of, relates to, or is caused by, any act or omission of
the Company (prior to the Effective Date) or any act or omission of any of the
Shareholders.
12.6 Limitations on Recoverable Losses. Notwithstanding anything to the
contrary, express or implied, set forth herein, claims for payment of Maxwell
Recoverable Losses under Section 12.3 may be made only with respect to claims
arising during the General Liability Period or the Tax Liability Period, as
applicable; (b) must be made, if at all, by giving the written Claim Notice (as
defined in Section 12.7(a) hereof) to the Shareholders during the General
Liability Period
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or the Tax Liability Period, as applicable, with respect to such claim; (c)
except for losses covered by Section 12.4, or for breaches by the Principal
Shareholders of the representations and warranties set forth in Article 3, a
breach by the Company, the Shareholders or the Principal Shareholders of the
representation and warranty set forth in Section 2.3, or a breach by the Company
or the Principal Shareholders of the covenants set forth in Article 5 and
Article 7, may be made only to the extent that the aggregate amount of Maxwell
Recoverable Losses exceeds $100,000, in which case all Maxwell Recoverable
Losses in excess of $100,000 shall be paid by the Shareholders or the Principal
Shareholders; and (d) except for fraud, shall not exceed in the aggregate the
value of the Exchange Shares received by the Shareholders (deemed by the parties
to be $21,000,000). Notwithstanding anything to the contrary, express or
implied, set forth herein, claims for payment of the Shareholders Recoverable
Losses under Section 12.5 (a) may be made only with respect to claims arising
during the General Liability Period; (b) must be made, if at all, by giving a
written Claim Notice to Maxwell during the General Liability Period with respect
to such claim; (c) except for breaches of the covenants set forth in Article 6,
Article 7 or Article 13, may be made only to the extent that the aggregate
amount of Shareholders Recoverable Losses exceed $100,000, in which case all
Shareholders Recoverable Losses in excess of $100,000 shall be paid by Maxwell;
and (d) except fraud, shall not exceed $21,000,000. Any indemnification payment
hereunder shall be net of any tax benefit or insurance proceeds actually
realized by the Indemnitee. The liability under this Section 12 of any
Shareholder, other than a Principal Shareholder, shall be limited to his or her
proportionate share of the Maxwell Recoverable Losses. In no event shall the
liabilities under this Section 12 of any Shareholder, other than a Principal
Shareholder, exceed the amount attributable to such Shareholder's deposit into
the Escrow. Notwithstanding anything in this Section 12 to the contrary, any
Maxwell Recoverable Losses payable under this Section 12 shall be paid first
from the Escrowed Shares (and any proceeds from the sale of such Escrowed
Shares) until such Escrowed Shares (and any proceeds) have been exhausted or the
Escrow has been terminated. Once such Escrowed Shares (and any proceeds) have
been exhausted, or the Escrow has been terminated, then and only then, the
Principal Shareholders who are obligated to pay any unpaid Maxwell Recoverable
Losses pursuant to the terms of this Section 12 shall pay such amounts from
sources outside of Escrow. Nothing in this Section 12 shall prevent any or all
of the Principal Shareholder from seeking contribution from the other
Shareholders for joint and several obligations of such Shareholders under
Sections 12.3 and 12.4 (as further limited by Section 12.6) for claims made
after the Escrow Agreement has been terminated. Any claim for indemnification
under this Section 12 shall be made prior to the expiration of the General
Liability Period or the Tax Liability Period, as appropriate.
12.7 Claims for Indemnification; Disputes.
(a) Claims for Indemnification. Any party hereto (individually or
with others, collectively, the "Indemnitee") shall give the Shareholder
Representatives or Maxwell, as the case may be (the "Indemnitor"), written
notice (the "Claim Notice") of any claim (including the receipt of any demand)
or the commencement of any action with respect to which indemnity may be sought
by the Indemnitee (individually, a "Claim" and collectively, the "Claims");
provided, however, that the failure to give a Claim Notice shall not constitute
a waiver of any rights of the Indemnitee with
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respect to indemnification by the Indemnitor, but shall relieve the Indemnitor
of its indemnity obligation to the extent that such obligation is increased as a
result of the Indemnitee's failure to give timely notice; provided, further,
however, that if the Indemnitee fails to give such Claim Notice prior to the
expiration of the General Liability Period or the Tax Liability Period, as
applicable, all rights of the Indemnitee to assert any such Claims shall
terminate and be forever waived. The Claim Notice shall state (i) the aggregate
amount of the Maxwell Recoverable Losses or the Shareholders Recoverable Losses
(in either case, "Recoverable Losses") as to which indemnification is being
sought (which amount may be estimated and updated from time to time); (ii) the
components of the amount of Recoverable Losses for which indemnification is
being sought (which components may be estimated and updated from time to time);
and (iii) the specific grounds upon which the Claim for indemnification is being
made. The right of the Indemnitee to indemnification for a Claim shall be deemed
to be accepted by the Indemnitor unless, within 30 days after the Indemnitor's
receipt of the Claim Notice, the Indemnitor shall notify the Indemnitee in
writing that it objects to the right of the Indemnitee to indemnification with
respect to the Claim.
(b) Control of Litigation; Mutual Cooperation. If a Claim is
based upon a claim asserted by a third party against the Indemnitee (a "Third
Party Claim") and the Indemnitor denies liability for the Claim hereunder, the
Indemnitee shall be entitled to control the defense of the Third Party Claim,
including, without limitation, the employment of counsel and the right to settle
the Third Party Claim without any participation by or consent from the
Indemnitor. All fees and expenses of counsel retained by the Indemnitee to
defend such Third Party Claim, expert witness fees and other costs incurred in
such action, shall be payable by the Indemnitee defending such Third Party
Claim; provided, however, that if such Third Party Claim results in a
Recoverable Loss for which the Indemnitor, notwithstanding any denial of
liability, is found to be liable hereunder, such reasonable fees and expenses of
counsel, expert witness fees and other reasonable costs incurred in such action
shall be deemed to be included in such Recoverable Loss and payable by the
Indemnitor to the extent and under the limitations provided in this Article 12.
If the Indemnitor does not deny liability for the Claim hereunder, the
Indemnitor shall be entitled, in his or its discretion, to assume the defense of
the Third Party Claim, including, without limitation, the employment of counsel
reasonably satisfactory to the Indemnitee; provided, however, that until the
amount of Maxwell Recoverable Losses exceeds $100,000, the Indemnitee, if
Maxwell or a Maxwell Indemnitee, shall be entitled to assume the defense of the
Third Party Claim, including, without limitation, employment of counsel
reasonably satisfactory to the Shareholders. If the Indemnitor does not deny
liability for the Claim hereunder, but does not elect to assume the defense of
the Third Party Claim, the Indemnitee shall be entitled to assume the defense of
the Third Party Claim. Regardless of which party is controlling the defense of
the Third Party Claim for which the Indemnitor admits liability hereunder, (i)
the Indemnitor and the Indemnitee shall act in good faith; (ii) no settlement of
the Third Party Claim may be agreed to without the written consents of the
Indemnitor and the Indemnitee, which consents shall not be unreasonably
withheld; (iii) the reasonable fees and expenses of counsel retained to defend
the Third Party Claim, expert witness fees and other costs incurred in such
action shall be deemed to be included in such Recoverable Losses and shall be
payable by the Indemnitor to the extent and under the limitations provided in
this Article 12; and (iv) the party controlling the defense of the Third Party
Claim shall deliver, or cause to be delivered,
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to the other party copies of all correspondence, pleading, motions, briefs,
appeals or other written statements relating to or submitted in connection with
the defense of the Third Party Claim, and timely notices of, and the right to
participate in (as an observer), any hearing or other court proceeding relating
to the Third Party Claim.
(c) Resolution of Disputes. The Indemnitor and the Indemnitee
shall undertake in good faith to or to have their representatives promptly meet
and attempt to resolve all disputes regarding indemnification. If the Indemnitor
and the Indemnitee are unable to resolve such disputes within 20 days, the
resolution of the disputes shall be referred to and settled by arbitration to be
held in San Diego, California and conducted in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association. In any
such action initiated by a Maxwell Indemnified Party, or in any cross-complaint
by a Maxwell Indemnified Party (i) such Maxwell Indemnified Party shall use
reasonable best efforts to make each Principal Shareholder a party to such
Arbitration and (ii) in any action to collect a judgment related to Maxwell
Recoverable Losses, such Maxwell Indemnified Party shall use reasonable best
efforts to collect such losses from each Principal Shareholder, such that no
Principal Shareholder would, absent a default by one of them, pay more than his
or her pro rata share of the Maxwell Recoverable Losses, which pro rata share
shall be set forth in a contribution or cross-indemnity agreement among the
Principal Shareholders, (a copy of which will be provided to Maxwell). The
foregoing shall not limit the authority of a Shareholder Representative to act
on behalf of the Principal Shareholders with respect to any claim by a Maxwell
Indemnified Party. Judgment upon the award may be entered in any court of
competent jurisdiction or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may be. The
successful or prevailing party or parties shall be entitled to recover all
attorneys' fees, expert witness fees and other costs incurred in such action, in
addition to any other relief to which it or they may be entitled. Such
attorneys' fees, expert witness fees and other costs shall be payable in cash.
12.8 Indemnity as Exclusive Remedy. Each party hereto acknowledges and
agrees that, from and after the Closing Date, its sole and exclusive remedy with
respect to any and all claims relating to the subject matter of this Agreement,
shall be pursuant to the indemnification provisions set forth in this Article
12, except that nothing in this Agreement shall be deemed to constitute a waiver
of any tort claims of, or causes of action arising from, fraudulent
misrepresentation or deceit, or a waiver of any equitable remedies that a court
or arbitrator may determine that a party may obtain.
ARTICLE 13
POST-CLOSING COVENANTS
13.1 Resale. In order to preserve the pooling-of-interests treatment of
the combination, each Affiliate hereby agrees not to sell, transfer or convey
Maxwell Common Stock issued in connection with the Merger until the date on
which Maxwell has filed with the Commission
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consolidated financial statements of Maxwell including combined results of
operations of at least 30 days after the Merger, in accordance with Regulation
S-X under the Exchange Act, as amended (such date being the "Eligible Resale
Date").
13.2 Surviving Corporation Option Plan. As promptly as possible
following the Effective Time (and in any event in no more than 45 days), Maxwell
shall cause the Surviving Corporation to adopt a stock option plan similar to
that in place at Maxwell Technologies Systems Division, Inc. ("Systems"). The
number of shares in the plan pool would equal 15% of the outstanding shares of
the Surviving Corporation, and of the total of 15% in the option pool, 8% would
be utilized initially for options granted to key employees of the Surviving
Corporation and 2% would be utilized initially for certain Maxwell officers,
consistent with current practice. The balance would be reserved for key
employees hired by the Company in the future. In addition, Maxwell plans to
offer certain employees of the Surviving Corporation its standard Maxwell Option
Program.
13.3 Surviving Corporation Board of Advisors. Immediately after the
Effective Time Maxwell will cause the Surviving Corporation to establish a Board
of Advisors that would include the current independent directors of the Company.
The Board of Advisors will hold regular meetings for at least one year following
the Effective Time.
13.4 Organization. So long as feasible in light of Maxwell's overall
goals for financial performance and increasing shareholder value, the Surviving
Corporation shall be part of the Systems organization and the President of the
Surviving Corporation will report to the President of Systems. Effective as of
the first day of the month following the Effective Time, Systems and the
Surviving Corporation shall enter into an asset transfer agreement whereby
Systems' Radiation Source Business would be placed in the Surviving Corporation.
The Surviving Corporation's executive officers would manage the day-to-day
operations of the Surviving Corporation and the Radiation Source Business,
subject to oversight by Maxwell and consistent with other Maxwell subsidiaries.
ARTICLE 14
SHAREHOLDER REPRESENTATIVES
14.1 Appointment. Each Principal Shareholder by executing this Agreement
appoints each of the Shareholder Representatives as his, her or its agent and
attorney-in-fact for the purposes set forth herein. Each Shareholder
Representative, acting alone or together with the other Shareholder
Representatives, shall have the full and exclusive power and authority to act in
each Principal Shareholder's name, place and stead with respect to all matters
relating to this Agreement and the transactions contemplated hereby, including,
without limitation:
(i) To modify, waive and amend, and execute and
acknowledge and deliver to Maxwell such modifications, waivers and
amendments, to any provision of the
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Agreement as such Shareholder Representative shall approve, the approval
of such amendments, waivers and modifications by such Shareholder
Representative and all of the terms and conditions thereof to be
conclusively evidenced by the execution and delivery of such amendments,
waivers and modifications by such Shareholder Representative.
(ii) To complete, modify, amend, execute, acknowledge and
deliver all instruments, documents, certificates and instructions as
such Shareholder Representative deems necessary in order to effect the
transactions contemplated by this Agreement.
(iii) To retain legal counsel in connection with all
matters and things set forth or necessary with respect to this Agreement
and the Escrow Agreement.
(iv) To ask, demand, sue for, levy, recover and receive
all sums of money, debts, dues and other demands whatsoever which may be
due, owing and payable to such Shareholder under the terms of this
Agreement.
(v) To negotiate, defend and settle all claims asserted
by, and to resolve all disputes with, the Maxwell Indemnified Parties
with respect to this Agreement and the transactions contemplated hereby,
including, without limitation, those arising in connection with any
claim for indemnification, and to pay such persons any amounts due with
respect to such claims, and to settle any dispute or pay any judgment in
favor of such Maxwell Indemnified Parties by releasing Exchange Shares
held in Escrow to Maxwell.
(vi) To receive all notices under this Agreement and the
Escrow Agreement.
(vii) To make any other decision or election or take any
other action on behalf of such Shareholder relating to the subject
matter of this Agreement and the Escrow Agreement and the transactions
contemplated hereby and thereby.
14.2 Appointment Irrevocable. This appointment is coupled with an
interest and is irrevocable until such time as all claims asserted by, and
disputes with, the Maxwell Indemnified Parties have been finally satisfied,
waived or otherwise resolved, except that a successor or successors may be
appointed pursuant to Section 14.4 hereof. Subject to the terms and conditions
hereof, any and all action taken by either Shareholder Representative with
respect to this Agreement shall be binding on each Shareholder.
14.3 Shareholder Representatives Held Harmless. Each Principal
Shareholder agrees to hold each Shareholder Representative free and harmless
from any and all loss, cost, claim, expense, damage or liability which he may
incur or sustain as a result of any action taken by him in good faith pursuant
to his appointment as agent and attorney-in-fact under this Agreement.
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14.4 Duration; Succession. The appointment of a Shareholder
Representative hereunder shall be effective until the last date upon which all
claims for indemnification under Article 12 hereof have been resolved or the
time for bringing any such claims has expired; and all disputes involving
Maxwell or any of the Shareholders regarding any of the matters subject to
indemnity have been resolved; provided, however, that in the event of the death
or incapacity of a Shareholder Representative, Paul Blevins, followed by David
Czajkowski, shall succeed to the duties of the deceased or incapacitated
Shareholder Representative hereunder, and shall act as attorney-in-fact and
representative for the Shareholders as if he were appointed attorney-in-fact and
representative hereunder on the date of such death or incapacity. In the event
no named person shall be available to serve as Shareholder Representative, the
estate of Robert Czajkowski shall select such a person.
ARTICLE 15
GENERAL PROVISIONS
15.1 Entire Agreement; Modifications; Waiver. This Agreement and the
agreements ancillary hereto, supersede any and all agreements heretofore made,
written or oral, relating to the subject matter hereof including without
limitation the Letter of Intent dated November 4, 1998 and constitute the entire
agreement of the parties relating to the subject matter hereof. This Agreement
may be amended only by an instrument in writing signed by Maxwell on the one
hand and the Company and a Shareholder Representative on the other hand.
Inspection of documents or the receipt of information pursuant to this Agreement
shall not constitute a waiver of any representation, warranty, covenant or
condition hereunder. No waiver shall be binding unless executed in writing by
the party making such waiver.
15.2 Severability. If any clause or provision of this Agreement shall be
held invalid or unenforceable by the final determination of a court of competent
jurisdiction, and all appeals therefrom shall have failed or the time for such
appeals shall have expired, such clause or provision shall be deemed eliminated
from this Agreement but the remaining provisions shall nevertheless be given
full force and effect.
15.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto, and their respective
successors and assigns.
15.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
15.5 Governing Law. This Agreement shall be construed and interpreted in
accordance with the internal substantive laws of the State of California.
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15.6 Notices. All notices required or desired to be given hereunder
shall be given in writing and signed by the party so giving notice, and shall be
effective when personally delivered, one business day after transmission if sent
by facsimile and appropriate confirmation is received, or five (5) days after
being deposited in the United States mail, as certified or registered mail,
return receipt requested, first class postage and fees prepaid, addressed as set
forth below. Any party from time to time may change such party's address for
giving notice by giving notice thereof in the manner outlined above:
If to the Company:
Space Electronics Inc.
4031 Sorrento Valley Boulevard
San Diego, California 92121
Attention: Robert Czajkowski
Facsimile: (619) 452-5499
If to Maxwell or Newco:
Maxwell Technologies, Inc.
9275 Sky Park Court
San Diego, California 92123
Attention: Gary J. Davidson and Donald M. Roberts, Esq.
Facsimile: (619) 277-6754
With a copy to:
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Attention: Roger H. Lustberg, Esq.
Facsimile: (213) 229-8550
If to the Shareholder Representatives:
Space Electronics Inc.
4031 Sorrento Valley Boulevard
San Diego, California 92121
Attention: Robert Czajkowski and David Strobel
Facsimile: (619) 452-5499
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With a copy to:
Luce, Forward, Hamilton & Scripps LLP
600 W. Broadway, Suite 2600
San Diego, California 92101
Attention: Robert Copeland, Esq.
Facsimile: (619) 232-8311
15.7 Expenses. None of the Company, the Shareholders, or Maxwell is or
shall be obligated to any person for any finder's fee in connection with this
Merger, other than the Company's liability to Arthur Andersen L.L.P. and,
whether or not the acquisition is consummated, each of the Company and Maxwell
shall pay their own expenses (including outside legal and accounting fees)
incident to the negotiation, preparation of the definitive written agreement,
filings and preparation of documents in connection with the issuance of shares,
and any other documents prepared in connection therewith and consummation of the
acquisition.
15.8 Recovery of Litigation Costs. If any legal action or arbitration or
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of the Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
15.9 Confidentiality. From and after the date hereof, Maxwell, the
Company and their affiliates, agents or representatives shall not disclose or
communicate to any person, firm or corporation in any manner whatsoever any
Confidential Information (as defined below) of the other, which Maxwell or the
Company learns, discovers or otherwise acquires pursuant to this Agreement and
the transactions contemplated hereunder; provided, however, that Maxwell and the
Company shall be permitted to make such disclosures or communications to their
financial advisors, consultants, attorneys, accountants and lenders provided
that such Confidential Information shall be accompanied by directions that such
information is to remain confidential in accordance with the provisions
contained herein. The term "Confidential Information," as used herein, means all
information of a business or technical nature relative to Maxwell's and the
Company's businesses currently being conducted by Maxwell and the Company.
Maxwell's and the Company's obligations with respect to such Confidential
Information shall be of no effect to the extent, and only to the extent (a) such
Confidential Information is required to be disclosed by any law, rule or
regulation or by any applicable judgment, order or decree of any court or
governmental body having jurisdiction, (b) such information is now or hereafter
becomes part of the public domain, to the extent it is not public as a result of
breach of this Agreement, (c) such information is already in the possession of
Maxwell or the Company at the time disclosure to Maxwell or the Company occurs
under this Agreement, so long as such prior possession was not knowingly
acquired by Maxwell or the Company by misappropriation or other improper means
or under a prior agreement of
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confidentiality, or (d) such information has come into the possession of Maxwell
or the Company from a third party without breach of this Agreement, or without
any breach by the third party of a confidentiality obligation to Maxwell or the
Company, known to the other, or without misappropriation or other improper means
on the part of the third party and made known to Maxwell or the Company.
Previously entered confidentiality agreements between the parties will continue
in full force and effect. In the event of termination of this Agreement pursuant
to Article 10, Maxwell and the Company will not use any such Confidential
Information of another party and will promptly return to the other parties all
documents, records and materials, including all copies thereof, that contain
Confidential Information of that party.
15.10 No Third Parties Benefitted. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto, their successors
and assigns, and no other person or persons shall have any right or action under
this Agreement.
15.11 Recitals, Schedules and Exhibits. The recitals, schedules and
exhibits to this Agreement are incorporated herein and, by this reference, made
a part hereof as if fully set forth at length herein.
15.12 Section Headings. The section headings used herein are inserted
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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<PAGE> 175
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SPACE ELECTRONICS INC.
By: /s/ Robert M. Czajkowski
--------------------------------------
Name: Robert M. Czajkowski
Title: CEO
PRINCIPAL SHAREHOLDERS:
/s/ Robert M. Czajkowski
-------------------------------------------
Name: Robert M. Czajkowski
/s/ David J. Strobel
------------------------------------
Name: David J. Strobel
/s/ Paul E. Blevins
------------------------------------
Name: Paul E. Blevins
------------------------------------
Name: W. Lee Shevel, Ph.D.
/s/ David R. Czajkowski
------------------------------------
Name: David R. Czajkowski
FULL CIRCLE RESEARCH, INC.
By:
--------------------------------------
James Spratt
Chief Executive Officer
54.
<PAGE> 176
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SPACE ELECTRONICS INC.
By:
--------------------------------------
Name:
Title:
PRINCIPAL SHAREHOLDERS:
-------------------------------------------
Name: Robert M. Czajkowski
/s/ David J. Strobel
------------------------------------
Name: David J. Strobel
------------------------------------
Name: Paul E. Blevins
------------------------------------
Name: W. Lee Shevel, Ph.D.
/s/ James M. Spratt
------------------------------------
Name: James M. Spratt
/s/ Joan Spratt
------------------------------------
Name: Joan Spratt
56.
<PAGE> 177
FULL CIRCLE RESEARCH, INC.
By: /s/ James Spratt
--------------------------------------
James Spratt
Chief Executive Officer
MAXWELL TECHNOLOGIES, INC.
By: /s/ Gary Davidson
--------------------------------------
Name: Gary Davidson
Title: CFO
MT ACQUISITION CORPORATION
By: /s/ Gary Davidson
--------------------------------------
Name: Gary Davidson
Title: VP
57.
<PAGE> 178
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") is made and entered into as
of November ___, 1998, by and among Zapp National Bank, as escrow agent (the
"Escrow Agent"), Maxwell Technologies, Inc., a Delaware corporation (the
"Company") and Robert Czajkowski and David Strobel as representatives for the
former stockholders of Space Electronics Incorporated ("SEi") listed on Schedule
A hereto (the "Stockholders"). Mr. Czajkowski and Mr. Strobel or their
respective successors are each individually, a "Stockholder Representative" and
collectively, the "Stockholder Representatives." The Company, the Stockholder
Representatives and the Escrow Agent are collectively the "Parties". For
purposes of this Escrow Agreement, any one of the Stockholder Representatives
shall have the exclusive authority to bind the Stockholders and are empowered to
give all consents, authorizations and approvals hereunder on behalf of the
Stockholders. Subject to the terms and conditions of this Escrow Agreement, the
Escrow Agent shall act on any instruction given by any Stockholder
Representative on the Stockholders' behalf and any Escrowed Shares (as
hereinafter defined) which are to be delivered to the Stockholders shall be
delivered to the Stockholder Representatives by the Escrow Agent on behalf of
the Stockholders.
R E C I T A L S
WHEREAS, each of the Stockholders is a stockholder of Space Electronics,
Inc., a Delaware corporation ("SEi"), at the time of execution of this Escrow
Agreement, and each has granted the Stockholder Representatives the power and
authority to represent such Stockholder with respect to all matters arising
under this Agreement;
WHEREAS, the Company, MT Acquisition Corporation, a Delaware corporation
and subsidiary of the Company ("Newco"), SEi and certain of the Stockholders are
parties to an Agreement and Plan of Reorganization, dated as of November ___,
1998 (the "Merger Agreement") pursuant to which Newco will be merged with and
into the Company, with the Company as the surviving corporation (the "Merger");
WHEREAS, pursuant to the Merger, the Company will issue to the
Stockholders an aggregate of 893,617 shares of the common stock, $.10 par value,
of the Company (the "Common Stock");
WHEREAS, the Merger Agreement provides that 89,362 shares of Common
Stock (the "Escrowed Shares") are issued subject to the terms and conditions of
this Escrow Agreement and requires that each of the Stockholders and the Company
execute and deliver an Escrow Agreement on or before the Effective Time (as
defined in the Merger Agreement) under which the Company will deposit the
Escrowed Shares into escrow to support the indemnity obligations of the
Stockholders contained in the Merger Agreement; and
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<PAGE> 179
WHEREAS, it is the desire of the parties to this Escrow Agreement to
cause the Escrowed Shares to be deposited in escrow with the Escrow Agent as
required and thereafter to be released to the Stockholder Representatives, to
the extent that the Stockholders become entitled thereto, or to be applied as
herein provided in respect of the amount of Maxwell's Recoverable Losses (as
defined in the Merger Agreement) with respect to which the Maxwell Indemnitees
are entitled to indemnification pursuant to and subject to the conditions of
Article 12 of the Merger Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the Merger Agreement and the
benefits inuring thereunder to the Stockholders, and in consideration of the
mutual covenants, agreements and provisions herein and therein contained, the
Parties hereby agree as follows:
1. Creation and Purpose of Escrow; Deposit of Shares.
1.1 Deposit. At the Effective Time, or as soon as practicable
thereafter, the Company will deposit in escrow with the Escrow Agent
certificates representing all of the Escrowed Shares. The Escrowed Shares,
together with appropriate instruments of transfer executed in blank by a
Stockholder Representative on behalf of each of the Stockholders, with
signatures guaranteed by a commercial bank or a member firm of the National
Association of Securities Dealers, Inc., will be received by the Escrow Agent,
and will be held and distributed by it in accordance with the terms and
conditions of this Escrow Agreement. Certificates representing the Escrowed
Shares shall promptly after receipt be registered in the nominee name of the
Escrow Agent. Each Stockholder shall be deemed to be the beneficial owner of
such Stockholder's respective proportion (as defined in the Merger Agreement) of
the total Escrowed Shares and the Escrow Agent shall record each Stockholder's
respective beneficial ownership of Escrowed Shares accordingly. The Escrow Agent
acknowledges that it has received a copy of the Merger Agreement prior to the
execution of this Escrow Agreement.
1.2 Purpose of the Escrow. The purpose of holding the Merger
Agreement Escrowed Shares in escrow subject to the terms and conditions of this
Escrow Agreement is to provide security for and in respect of Maxwell's
Recoverable Losses for which the Maxwell Indemnitees are entitled to
indemnification by the Stockholders pursuant to, and subject to the conditions
of, the Merger Agreement.
1.3 Stockholder Representatives. Each Stockholder has appointed
each of the Stockholder Representatives as his or her agent and attorney-in-fact
and each such Stockholder Representative shall have full and exclusive power and
authority to act in such Stockholder's name, place and stead with respect to all
matters relating to this Escrow Agreement and the transactions contemplated
hereby. Any person who is a successor to any Stockholder Representative pursuant
to Section 13.4 of the Merger Agreement or an executed power of attorney shall
be deemed to be a "Stockholder Representative" for all purposes hereof.
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1.4 Stock Dividends and Splits. If, during the term of this
Escrow Agreement, there is declared a stock dividend on the Common Stock, or if
the shares of the Common Stock shall be increased by reason of a subdivision of
such shares, there shall be added to the Escrowed Shares held by the Escrow
Agent pursuant to this Escrow Agreement all shares delivered as stock dividends
upon, or by reason of a subdivision of, the shares delivered to the Escrow Agent
pursuant to Section 1.1. In the event of any change in the capital stock
structure of the Company through merger, consolidation, recapitalization or
reorganization, the number of Escrowed Shares and securities comprising the
Escrowed Shares shall be appropriately adjusted.
1.5 Cash Dividends. Any cash dividends or distributions of
property by the Company (other than distributions of the Common Stock or other
securities in a recapitalization) paid or made to the Escrow Agent with respect
to the Escrowed Shares shall be paid to the Stockholder Representatives as soon
as practicable after receipt thereof by the Escrow Agent for distribution to the
Stockholders in accordance with each Stockholder's respective proportion of the
amount of such dividends or distributions with respect to Escrowed Shares.
1.6 Sale of Escrow Shares. With the prior written consent of the
Company, any Stockholder may sell his or her Escrowed Shares provided that the
sale price is not less than $23.50 per share. In the event of a sale, the cash
received shall be delivered to the Escrow Agent and may be used to reimburse
Maxwell Recoverable Losses. Any such sale shall be in accordance with all
applicable securities laws.
1.7 Voting. So long as the Escrow Agent continues to hold
Escrowed Shares under this Escrow Agreement, each of the Stockholders shall be
entitled to vote such Stockholder's Individual Proportion of the total Escrowed
Shares (as shown on Schedule A hereto) entitled to vote at any and all meetings
of stockholders of the Company. In any such case, the Transfer Agent shall mail
to each of the Stockholders copies of each annual report, notice of meeting of
stockholders, proxy statement or other solicitation material distributed
generally to stockholders of the Company in connection with each meeting of
stockholders of the Company.
2. Distribution of Escrow Property.
2.1 Mutual Consent. Except as otherwise provided below in this
Section 2, the Escrow Agent shall hold the Escrowed Shares and shall distribute
the same only upon written instructions signed by both the Company and a
Stockholder Representative with respect to the Escrowed Shares and other shares
or property attributable thereto pursuant to Section 1.4, or pursuant to the
final decision of an arbitrator or the final order, judgment or decree of a
court of competent jurisdiction pursuant to Section 4.3 of this Escrow
Agreement.
2.2 Automatic Disposition. On __________, 1999/2000, the Escrow
Agent shall deliver certificates representing the Escrowed Shares to the
Stockholder Representatives for distribution to the Stockholders unless prior
thereto a written claim as defined in Section 2.4 herein shall have been
received by the Escrow Agent from the Company in which case the Escrow Agent
shall act in accordance with Section 2.3 of this Escrow Agreement with respect
to the number of
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<PAGE> 181
Merger Agreement Escrowed Shares subject to such claim.
2.3 Retention of the Escrowed Shares. Notwithstanding Section
2.2, if on or prior to the date of delivery determined pursuant to Section 2.2,
the Escrow Agent has received a Claim Notice (as defined below) from the
Company, the Escrow Agent shall, without concerning itself with the explanation
of the grounds for such Claim Notice, continue to hold and refrain from
delivering such amount of the Merger Agreement Escrowed Shares as is equal to
150% in aggregate value of the Maxwell Recoverable Losses for which
indemnification is claimed under the Merger Agreement. For all purposes hereof,
the parties agree that the value of each Escrowed Share shall be $23.50 per
share (the "Current Value"). The Escrowed Shares so retained by the Escrow Agent
shall be held until all claims for indemnification of Maxwell Indemnitees under
the Merger Agreement are settled or are determined by final order, judgment or
decree of an arbitrator or a court of competent jurisdiction pursuant to Section
4.3 of this Escrow Agreement; provided, however, that the Stockholders shall be
entitled to tender cash to the Maxwell Indemnitees in an amount equal to the
Current Value of the Escrowed Shares so retained and such retained shares shall
be subject to disbursement to the Stockholder Representatives for allocation to
the Stockholders.
2.4 Claim Notices. Promptly upon receipt of notice in writing (a
"Claim Notice") complying with the requirements of Section 3.1 hereof, claiming
that the Stockholders have or may become obligated under the Merger Agreement to
indemnify the Maxwell Indemnitees in respect of any Maxwell Recoverable Losses,
the Escrow Agent shall forward copies of the Claim Notice to each of the
Stockholder Representatives; provided, however, that failure to give any such
Claim Notice shall not affect any right of the Maxwell Indemnitees to
indemnification unless the Stockholders have been materially prejudiced by such
failure to give notice. With respect to a Claim Notice claiming that the
Stockholders have become obligated to indemnify the Maxwell Indemnitees, if a
Stockholder Representative does not give the Escrow Agent notice in writing (a
"Contest Notice"), complying with the provisions of Section 3.2 hereof, within
30 days after the date of the mailing of the copy of such Claim Notice by the
Escrow Agent, that such Stockholder Representatives intend to contest the claim
for indemnification set forth in the Claim Notice, then the Escrow Agent shall,
without further instructions, return to the Company the number of Escrowed
Shares equal in aggregate value to the Losses for which indemnification is
claimed in the Claim Notice (with each Escrowed Share valued as provided in
Section 2.3 hereof) and the Stockholders shall be deemed to have waived any
right hereunder to further contest such claim for indemnification. If the Escrow
Agent receives a Contest Notice, within the period of time above provided, the
Escrow Agent shall make no delivery of the Escrowed Shares set aside in respect
of such claim except upon the written instructions of the Company and a
Stockholder Representative or the final judgment, order or decree of an
arbitrator or a court of competent jurisdiction pursuant to Section 4.3 of this
Escrow Agreement. If a Stockholder Representative delivers a Contest Notice and
all or a portion of the Maxwell Recoverable Losses contested in the Contest
Notice are ultimately agreed to be Maxwell Recoverable Losses for which the
Maxwell Indemnitees are entitled to indemnification, then the Losses payable to
the Maxwell Indemnitees shall be increased by interest at the current Prime Rate
of interest (as published in the Wall Street Journal from time to time) accruing
from the date of the Claim Notice to the actual date of payment.
5
<PAGE> 182
2.5 Limited Obligations of Escrow Agent. It is understood and
agreed that in any event the obligations of the Escrow Agent to make payment
from this escrow upon any claims shall be limited to the amount of Escrowed
Shares then actually held in escrow, regardless of the amount of any Losses.
3. Claim Notices and Instructions.
3.1 Any Claim Notice given by the Company or Maxwell Indemnitees
to the Escrow Agent, and any matter involving this escrow, shall be delivered to
the Escrow Agent and each of the Stockholder Representatives. Any Claim Notice
shall set forth:
(i) Information in reasonable detail identifying the
matter with respect to which indemnification for Maxwell Recoverable
Losses is claimed;
(ii) The maximum amount of claims for indemnification for
Losses which have been or may be incurred by the Maxwell Indemnitee;
(iii) A statement in reasonable detail of the grounds upon
which indemnification for Losses is claimed; and
(iv) The number of Escrowed Shares which are claimed with
respect to such Maxwell Recoverable Losses, as provided in Section 2.3
or 2.4, as applicable.
3.2 Contest Notice. Any Contest Notice given by a Stockholder
Representative to the Escrow Agent, shall contain a reasonable and detailed
explanation of the grounds upon which indemnification for such Losses are
contested, shall be signed by such Stockholder Representative and shall be
delivered to the Escrow Agent with a copy thereof delivered to the Indemnified
Party.
4. Escrow Agent.
4.1 Discharge. The Escrow Agent, having delivered all of the
Escrowed Shares pursuant to the terms of this Escrow Agreement, shall thereafter
be discharged from any further obligations hereunder. The Escrow Agent is hereby
authorized, in any and all events, to comply with and obey any and all final
arbitration awards, judgments, orders and decrees of any court of competent
jurisdiction pursuant to Section 4.3 of this Escrow Agreement and, if it shall
so comply or obey, it shall not be liable to any of the Parties hereto or to any
other person by reason of such compliance or obedience. If this escrow shall be
involved in any arbitration, litigation or controversy, the Company, the
Stockholders and the Stockholder Representatives shall jointly and severally
hold the Escrow Agent free and harmless against any and all claims, actions,
demands, losses, costs and expenses to which the Escrow Agent may become subject
by reason of such litigation or controversy; provided that the Escrow Agent has
acted in good faith hereunder.
4.2 Limited Liability. It is agreed that the duties of the Escrow
Agent are only such as are herein specifically provided, being purely
ministerial in nature, and that it shall incur no
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<PAGE> 183
liability whatsoever except for willful misconduct or gross negligence so long
as it has acted in good faith. The Escrow Agent shall be under no responsibility
in respect of the Escrowed Shares deposited with it other than faithfully to
follow the instructions herein contained. It may consult with counsel and shall
be fully protected in any action taken in good faith, in accordance with the
advice of counsel. It shall not be required to defend any legal proceedings
which may be instituted against it in respect of the subject matter of these
instructions unless requested to do so by one or more of the Parties hereto and
indemnified by the requesting Party to its reasonable satisfaction against the
cost and expense of such defense. Any further limitation on liability necessary
for the engagement of the Escrow Agent is attached hereto as Appendix B and
incorporated herein by this reference.
4.3 Arbitration; Right to Interplead. Any disputes with respect
to Claim Notices or otherwise with respect to any parties' entitlement to the
Escrowed Shares shall be settled pursuant to the Merger Agreement; provided,
however, that in the event conflicting demands are made or notices served upon
the Escrow Agent with respect to this escrow, the Escrow Agent shall have the
absolute right at its election to do either or both of the following: withhold
and stop all further proceeding in, and performance of, this escrow; or submit
the resolution of the dispute to a court of competent jurisdiction. All fees and
costs of the court proceeding shall be borne by the Party (other than Escrow
Agent) which fails to prevail in such court proceeding or, if either Party fails
to prevail on all issues submitted to such court proceeding, then such fees and
costs shall be borne as determined by such court. In case a court proceeding is
brought, the Escrow Agent shall ipso facto be fully released and discharged from
all obligations and all duties imposed upon it by this Escrow Agreement with
respect to the Claim Notice or Escrowed Shares in dispute.
4.4 Reliance on Documents. The Escrow Agent shall have no
responsibility for the genuineness or validity of any document or other item
deposited with it, and it shall be fully protected in acting in accordance with
any written instructions given to it hereunder and believed by it to have been
signed by the proper officers or other representatives of the Parties hereto.
4.5 No Withdrawal of Instruments. Prior to the termination of
this escrow, no Party shall have the right to withdraw instruments deposited by
it with the Escrow Agent except as provided herein.
5. General.
5.1 Notices. All notices, requests, demands, consents and other
communications which are required or permitted hereunder shall be as provided in
the Merger Agreement, except that the address of the Escrow Agent shall be as
provided on the signature page to this Agreement.
5.2 Entire Agreement. Except for the Merger Agreement, this
Escrow Agreement supersedes any and all oral or written agreements heretofore
made relating to the subject matter hereof and constitutes the entire agreement
of the parties relating to the subject matter hereof.
5.3 No Third Party Beneficiaries. Except as otherwise expressly
provided herein,
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<PAGE> 184
nothing herein expressed or implied is intended or shall be construed to confer
upon or to give any person, firm or corporation, other than the parties hereto,
any rights or remedies under or by reason of this Escrow Agreement.
5.4 Headings. The headings in this Escrow Agreement are inserted
for convenience of reference only and shall not be a part of or control or
affect the meaning hereof.
5.5 Counterparts. This Escrow Agreement may be executed in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5.6 Governing Law. This Escrow Agreement shall be construed and
interpreted according to the laws of the State of California.
5.7 No Waiver. No failure or delay by any Party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, and no single or partial exercise thereof shall preclude any right or
further exercise or the exercise of any other right, power or privilege.
5.8 Severability. Should any one or more of the provisions hereof
be determined to be illegal or unenforceable, all other provisions hereof shall
be given effect separately therefrom and shall not be affected thereby.
5.9 Successors and Assigns. This Escrow Agreement shall inure to
the benefit of and be binding upon the respective parties in interest and their
heirs, executors, administrators, legal representatives, successors and assigns.
5.10 Attorneys' Fees. The Company, on the one hand, and the
Stockholders, on the other hand, agree to pay to the other Party all reasonable
attorneys' fees, costs and other expenses incurred by the other Party in
successfully enforcing any provision of this Escrow Agreement against such
Party.
8
<PAGE> 185
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as
of the Date first above written.
THE COMPANY:
MAXWELL TECHNOLOGIES, INC.
By: ________________________________________
Name:
Title:
STOCKHOLDER REPRESENTATIVES:
____________________________________________
Robert Czajkowski
____________________________________________
David Strobel
ESCROW AGENT:
ZAPP NATIONAL BANK
By: ________________________________________
Name:___________________________________
Title:__________________________________
Address:________________________________
________________________________
________________________________
<PAGE> 186
ADDENDUM
The fees and expenses of the Escrow Agent shall be borne by the
Company. The fee statement shall be sent on an annual basis to Maxwell
Technologies, Inc., Attn: Joseph C. Stumpf, 9275 Skypark Court, San Diego,
California 92123. The charges for an escrow agreement is a set-up fee of
$__________ and an annual fee of $__________.
<PAGE> 187
EXHIBIT B
INVESTMENT LETTER - AFFILIATE
November __, 1998
Maxwell Technologies, Inc.
9275 Sky Park Court
San Diego, California 92123
Gentlemen:
The undersigned has been advised that as of the date of this letter the
undersigned may be deemed to be an "affiliate" of Space Electronics,
Incorporated, a Delaware corporation (the "Company"), as the term "affiliate" is
(i) defined for purposes of Rule 145 of the rules and regulation (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), and/or (ii) used
in and for purposes of Accounting Series Releases 130 and 135, as amended, of
the Commission.
Pursuant to the terms of the Agreement and Plan of Reorganization dated
as of November __, 1998 (the "Merger Agreement") by and among Maxwell
Technologies, Inc., a Delaware corporation ("Maxwell"), MT Acquisition
Corporation, a Delaware corporation ("Newco"), the Company, and certain
shareholders of the Company (the "Shareholders"), Newco will be merged with and
into the Company (the "Merger"). Pursuant to the Merger Agreement, the
Shareholders will receive shares of common stock, par value $0.10 per share, of
Maxwell ("Maxwell Common Stock") in exchange for shares owned by the undersigned
of common stock, par value $0.001 per share, of the Company (the "Company Common
Stock").
The undersigned represents, warrants and covenants to Maxwell that:
Pooling of Interests
A. The undersigned represents to, and covenants with, Maxwell that the
undersigned has not and will not, during the 30 days prior to the Effective Date
(as defined in the Merger Agreement), sell, transfer, pledge or otherwise
dispose of (or reduce the risk of ownership of) any shares of the Company Common
Stock or shares of the capital stock of Maxwell that the undersigned may hold,
and furthermore, that the undersigned will not sell, transfer, pledge or
otherwise dispose of (or reduce the risk of ownership of) any shares of Maxwell
Common Stock received by the Shareholders pursuant to the Merger Agreement or
any other shares of the capital stock of Maxwell held by the undersigned until
after such time as results covering at least 30 days of combined operations of
the Company and Maxwell have been published by Maxwell, in the form of a
quarterly earnings report, an effective registration statement filed with the
Commission, a report
<PAGE> 188
to the Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes the combined results of operations.
Certain Tax Representations
B. The undersigned represents that the following are true, correct and
complete:
(i) The undersigned owns the shares of Company Common Stock set
forth on Schedule 2.3 to the Merger Agreement (collectively, the "Shares").
Shares acquired on or after April 1, 1998 are referred to below as "Recently
Acquired Company Shares";
(ii) The undersigned has not and will not engage in a Sale (as
defined below) of any of the Company Common Stock (including the Shares) in
contemplation of the Merger;
(iii) The undersigned has no plan or intention (a "Plan") to
engage in a sale, exchange, transfer, distribution, redemption or reduction in
any way of the Shareholders' risk of ownership by short sale or otherwise, or
other disposition, directly or indirectly (such actions being collectively
referred to herein as a "Sale") of a number of shares of Maxwell Common Stock to
be received by the Shareholders pursuant to the Merger in exchange for shares of
Company Common Stock ("Merger Stock") that would reduce the Shareholders
ownership of Merger Stock received pursuant to the Merger to a number of shares
having a value, as of the Effective Date, of less than fifty percent (50%) of
the difference between the value of the Company Common Stock held by the
Shareholders immediately prior to the Effective Date minus the value at such
time of the Recently Acquired Company Shares. For purposes of computing the
percentage required by the preceding sentence, the shares of Company Common
Stock (a) with respect to which the Shareholders will receive consideration in
the Merger other than Merger Stock (including cash to be received in lieu of
fractional shares of Maxwell Common Stock) or (b) with respect to which a Sale
occurs prior to the Merger and in contemplation thereof, shall be considered
Company Common Stock exchanged for Merger Stock in the Merger and then disposed
of pursuant to a Plan;
(iv) The undersigned will not exercise any dissenters' rights in
connection with the Merger or the other transactions contemplated by the Merger
Agreement.
(v) The undersigned is not aware of, or participating in, any
Plan on the part of the holders of Company Common Stock to engage in a Sale of
shares of Merger Stock such that the aggregate fair market value, as of the
Effective Date of the Merger, of shares subject to such Sales would exceed fifty
percent (50%) of the difference between the aggregate fair market value of all
shares of outstanding Company Common Stock immediately prior to the Merger minus
the aggregate fair market value at such time of all Company Common Stock
acquired on or after April 1, 1998. For purposes of the preceding sentence,
shares of Company Common Stock (or the portion thereof) (a) with respect to
which a shareholder of the Company receives consideration in the Merger other
than Merger Stock (including, without limitation, cash received in lieu of a
fractional share of Maxwell Common Stock) or (b) with respect to which a Sale
occurs prior or subsequent to the
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<PAGE> 189
merger and in contemplation thereof, shall be considered shares of outstanding
Company Common Stock exchanged for Merger Stock in the Merger and then disposed
of pursuant to a Plan.
(vi) To the knowledge of the undersigned, the liabilities of
Company were incurred by Company in the ordinary course of its business.
(vii) Following the Merger, the Company shall hold at least
ninety percent (90%) of the fair market value of Company's net assets and at
least seventy percent (70%) of the fair market value of Company's gross assets
held immediately prior to the transaction. For purposes of this representation,
amounts paid by the Company to dissenters, to shareholders who receive cash or
other property, or to pay reorganization expenses and all redemptions and
distributions (except for regular normal dividends) made by the Company, will be
included as assets of the Company immediately prior to the transaction.
(viii) To the knowledge of the undersigned, the fair market value
of Company's assets exceeds the sum of its liabilities.
(ix) The undersigned has no Plan to take any action that,
individually or in conjunction with any actions taken by others, would prevent
the Merger from qualifying as a reorganization qualifying under the provisions
of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986,
as amended (the "Code"). The undersigned hereby covenants and agrees to use his
best efforts to cause the Merger to qualify, and shall not take any actions
which could prevent the Merger from qualifying, as a reorganization qualifying
under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
(x) The representations contained herein shall be true, correct
and complete at all times from the date hereof through and including the date on
which the Merger occurs.
Certain Securities Act Representations
C. The undersigned represents, warrants and agrees as follows:
(i) The undersigned is the beneficial owner of the shares of
Company Common Stock and options to purchase Company Common Stock indicated on
Schedule 2.3 to the Merger Agreement, which at the date hereof and at all times
up until the Effective Date will be free and clear of any liens, claims,
options, charges or other encumbrances not described on such schedule.
(ii) The undersigned has been advised that the issuance of the
shares of Maxwell Common Stock to the undersigned in connection with the Merger
has been or will be registered with the Commission under the Securities Act on a
Registration Statement on Form S-4. However, the undersigned has been advised
that, since at the time the Merger is to be submitted for a vote of the
shareholders of the Company the undersigned may be deemed to be an affiliate of
the Company and the distribution by the undersigned of any Maxwell Common Stock
will not have been registered under the Securities Act, the undersigned may not
sell, transfer or otherwise dispose of the Maxwell
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Common Stock unless (i) such sale, transfer or other disposition has been
registered under the Securities Act, (ii) such sale, transfer or other
disposition is made in compliance with the volume and other limitations of Rule
145 promulgated by the Commission under the Securities Act, or (iii) such sale,
transfer or other disposition is otherwise exempt from registration under the
Act.
(iii) The undersigned shall not make any sale, transfer or other
disposition of the Maxwell Common Stock in violation of the Securities Act or
the rules and regulations promulgated thereunder.
(iv) Stock transfer instructions will be given to Maxwell's
transfer agent and there will be placed on the certificates for the Maxwell
Common Stock, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies. The shares represented by this certificate
may only be transferred in accordance with the terms of a letter
agreement dated as of ________________ ___, 1998 between the
registered holder hereof and Maxwell Technologies, Inc., a copy
of which agreement is on file at the principal offices of Maxwell
Technologies, Inc."
(v) Unless the transfer by the undersigned of the Maxwell Common
Stock has been registered under the Securities Act or is a sale made in
compliance with Rule 145, Maxwell reserves the right to put a legend on the
certificates issued to any transferee of the undersigned stating in substance:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to which
Rule 145 promulgated under the Securities Act of 1933 applies.
The shares may not be sold, pledged or otherwise transferred
except in accordance with an exemption from the registration
requirements of the Securities Act of 1933."
(vi) The legends set forth in paragraphs (iv) and (v) above shall
be removed by delivery of substitute certificates without the applicable legend
if, in the opinion of counsel to Maxwell, (a) such legend is not required for
purposes of the Securities Act or (b) the sale or other disposition of the
shares evidenced by the certificate is permitted by the provisions of Rule
145(d). In any event, such legend may be removed upon the request of the
undersigned not later than two years after the Merger is consummated, unless the
undersigned is then an "affiliate" within the meaning of Rule 145(d).
General Release of the Company
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<PAGE> 191
D. The undersigned agrees as follows:
(i) General Release. In consideration of the benefits received by
the undersigned as a result of the Merger, the undersigned, on behalf of such
person and all of its owners, partners, officers, directors, employees,
shareholders, affiliates, related entities, assigns and successors, and each and
every agent, insurer and attorney of any of the foregoing, and all persons
acting by, through, under or in concert with any of them (collectively, the
"Seller Parties"), hereby irrevocably, finally and unconditionally releases,
relieves, acquits and forever discharges each of the Company, its officers,
directors, employees, shareholders, affiliates, related entities, assigns and
successors, and each and every agent, insurer, and attorney of any of the
foregoing, and all persons acting by, through, under or in concert with any of
them (collectively, the "Company Parties"), from and against any and all
liabilities, claims, demands, obligations, damages, expenses (including
attorneys' fees and costs actually incurred) and causes of action at law or in
equity, of any nature, known or unknown, which such Seller Party now owns or
holds, has at any time heretofore owned or held, or may any time hereafter own
or hold, by reason of any agreement, representation, warranty, statement, act,
event or omission which existed or occurred, or failed to occur (collectively,
"Claims"), prior to the date of this letter, arising from or relating in any way
whatsoever to (a) the operations of the Company or (b) any Seller Party's
ownership of or investment in Company Common Stock, including without limitation
Claims in any way related to the original purchase of such Company Common Stock
or any option to purchase Company Common Stock, whether such Claims arise under
the federal or state securities laws or otherwise. Notwithstanding the
foregoing, the Company Parties shall remain liable to the Seller Parties for (x)
any accrued but unpaid salary or benefits due to the undersigned and arising out
of the ordinary course of the Company's business consistent with past practice,
and (y) for the obligations incurred by Maxwell under Article 12 of the Merger
Agreement.
(ii) Waiver of Unknown Claims. The undersigned expressly waives
and relinquishes all rights and benefits afforded by Section 1542 of the Civil
Code of the State of California ("Section 1542"), and any statute, rule or
regulation of any other relevant jurisdiction similar in nature to Section 1542,
and does so understanding and acknowledging the significance of such specific
waiver of Section 1542 and such other statute, rule or regulation. Section 1542
of the Civil Code of the State of California states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Thus, notwithstanding the provisions of Section 1542 and any statute,
rule or regulation of any other relevant jurisdiction similar in nature to
Section 1542, and for the purpose of implementing a full and complete release
and discharge of all those released by this letter, the undersigned expressly
acknowledges that this letter is intended to include in its effect, without
limitation, all claims which such party does not know or suspect to exist in
his, her or its favor at the time of execution hereof, and that this letter
contemplates the extinguishment of any such claims.
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Each of the parties hereto acknowledge that they have expressly
bargained for the foregoing waiver of the provisions of Section 1542 and any
statute, rule or regulation of any other relevant jurisdiction similar in nature
to Section 1542.
E. This letter shall be governed by the laws of the State of Delaware.
Dated: November __, 1998
Very truly yours,
____________________________________
Name:
Accepted this __ day of
November 1998 by
MAXWELL TECHNOLOGIES, INC.
By: _________________________________
Name:
Title:
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EXHIBIT C
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of
___________, 1998, by and between Space Electronics Incorporated, a Delaware
corporation ("Employer"), and ____________________ ("Employee").
R E C I T A L S:
(i) Pursuant to that certain Agreement and Plan of Reorganization dated
as of November __, 1998 (the "Merger Agreement") by and among Maxwell
Technologies, Inc. ("Maxwell"), MT Acquisition Corporation ("Newco"), Employer,
and certain shareholders of Employer, MT Acquisition Corporation will merge with
and into Employer (the "Merger"). This Agreement will only be effective upon
consummation of the Merger (the "Closing").
(ii) Employer desires to hire Employee as of the Closing to serve as
__________ of the Employer and Employee desires to serve in such capacity.
Employer and Employee desire to set forth herein their Agreement regarding the
terms and conditions upon which Employee shall serve as an employee of Employer.
This employment for the Term of Employment specified below is essential to
Maxwell's realizing the benefits of the Merger, and failure of Employee to
complete that term will damage Employer beyond the amount of Employee's Salary
specified below.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and other good
and valuable consideration, the receipt of which hereby is acknowledged,
Employer and Employee hereby agree as follows:
1. Employment and Term of Employment. Employer hereby employs Employee,
and Employee hereby accepts employment ("Employment") with Employer, in
accordance with the terms and conditions of this Agreement. The term of
Employee's Employment under this Agreement (the "Term of Employment") shall
commence at the Closing and shall end on the __________ anniversary of the
Closing. Notwithstanding the foregoing provisions of this Section 1, the Term of
Employment is subject to earlier termination pursuant to the provisions of
Section 5 below.
2. Position, Duties, and Exclusivity of Services.
2.1 Position and Duties. During the Term of Employment, Employee
hereby agrees to provide to Employer services as ___________ of Employer.
Employee's duties hereunder shall be the usual and customary duties of the
office in which he shall serve and such other duties
<PAGE> 194
consistent with his office as may be assigned to him from time to time by the
officers or the Board of Directors of Employer. Employee acknowledges that his
duties may change from time to time in connection with changes in the nature of
the business conducted by or the operating strategy of the Employer.
2.2 Exclusivity of Services. Employee shall devote himself to the
performance of his duties hereunder on a full-time basis with a level and amount
of diligence and time commensurate with his position and sufficient to enable
him to perform fully all such duties. During the Term of Employment, except as
set forth on Schedule A hereto, Employee shall not, directly or indirectly,
engage or participate in any other business or profession and shall not serve as
an employee, officer, director or in any other capacity for any business,
professional or governmental entity or organization, whether or not for
remuneration, without first obtaining the written consent of Employer. However,
so long as Employee does not violate the noncompetition or confidentiality
provisions contained in Section 6 below or an accompanying non-competition
agreement or fail to perform his duties hereunder, Employee shall be entitled to
serve in any nonremunerative capacity with any charitable or professional
organization.
3. Base Salary; Bonus; Employee Options.
(a) For services rendered during the Term of Employment, Employer
shall pay to Employee in each year of the Term of Employment a base annual
salary (the "Base Salary") of ____________________ Dollars ($__________) per
annum, payable in installments customary with Employer's standard payroll
periods, subject to annual increases at the discretion of Employer.
(b) Employee may be granted an annual bonus at the sole
discretion of the Board of Directors of Employer.
4. Benefits and Perquisites. During the Term of Employment, Employee
shall be entitled to receive all employee benefits and perquisites of Employer
in accordance with Employer's policies. [Note: Certain signatories to have
arrangements as discussed in draft S-4.]
5. Early Termination of Employment.
5.1 Date of Employment Termination. The Term of Employment and
Employee's Employment hereunder shall terminate upon the first to occur of the
following:
(a) Death. The date of Employee's death;
(b) Disability. The Employment termination date specified
in a written notice given by either Employer or Employee to the other party, if
such notice is given at least ten (10) days in advance of such termination date
and if such notice is given by reason of Employee's "Disability," which shall
mean a physical or mental disability of Employee resulting in his inability for
sixty (60) consecutive days to perform his duties hereunder on a full-time
basis, provided that the existence of such disability must be attested to in a
written statement by a physician
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selected in good faith by Employer and shall not be effective unless termination
is in full compliance with the Americans with Disabilities Act and Family
Medical Leave Act;
(c) Termination by Employer for Cause. The date on which
Employee's Employment is terminated by Employer for "Cause," provided that
Employer shall provide Employee with at least ten (10) days' written notice of
such termination date and provided further that the term "Cause" shall mean (i)
Employee's conviction of a felony or gross misdemeanor, (ii) Employee's failure
to perform his duties hereunder in any material respect, failure to comply with
Employer's standard policies and procedures generally applicable to employees in
any material respect, or failure to comply with any provision of this Agreement
in any material respect, after having received written notice from Employer
identifying such failure and after having received an opportunity of at least
fourteen (14) days in which to cure the failure so identified by Employer if
such failure is susceptible to cure, (iii) a willful act by Employee as a result
of which he receives an improper personal benefit at the expense of Employer or
Maxwell, (iv) an act of fraud or dishonesty committed by Employee against
Employer or Maxwell;
(d) Termination by Employer Without Cause. The date on
which Employee's Employment is terminated by written notice from Employer for
any reason other than death, Disability or Cause; and
(e) Termination by Employee Without Cause. The date on
which Employee's Employment is voluntarily terminated by Employee by a written
notice to Employer, after which Employer shall have no obligation to Employee
for Base Salary, bonus, or benefits;
(f) Termination by Employee for Good Reason. In the event
Employee is required by Employer to relocate to offices outside of San Diego
County, California, Employee may elect to instead terminate his employment, and
such termination shall be a termination by Employee with Good Reason.
5.2 Payments Upon Employee's Termination of Employment. Upon the
termination of his Employment for any reason, Employee shall be entitled to
receive any earned but unpaid Base Salary for the period prior to the date on
which his Employment terminates. If Employee's Employment is terminated by
Employer other than for death, Disability or Cause, or is terminated by Employee
for Good Reason, Employee shall be entitled to continue to receive his Base
Salary for the lesser of (i) the remainder of the Term of Employment (as it may
have been extended under the terms hereof) or (ii) 24 months, in each case at
the Base Salary rate in effect as of such termination date. If Employee's
Employment terminates for death, Disability or Cause, or is terminated by
Employee pursuant to Section 5.1(e), he shall have no right to receive any Base
Salary for the period after the date on which his Employment terminates. No
other payments shall be made to Employee upon termination.
5.3 Effect of Employee's Termination of Employment. Termination
of Employee's Employment for any reason, including termination by Employee
without Cause, shall not relieve Employee from any obligations that are required
to be performed by Employee pursuant
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to Section 6 below following such termination of Employment or under Employee's
Noncompetition Agreement.
6. Confidentiality.
6.1 Confidentiality. Employee shall at no time, either during his
Employment or for three years following the termination of his Employment for
any reason, use or disclose to any person, directly or indirectly, any
confidential or proprietary or non-public information concerning the business,
affairs, services, trade secrets, customers or employees of Employer (including,
without limitation, the identities, location or other information concerning
past, present or potential customers of Employer); provided, however, that the
foregoing obligation of Employee shall not apply to the extent that (a) Employee
is, in the written opinion of legal counsel, required to disclose any of the
foregoing pursuant to the provisions of applicable law, (b) such use or
disclosure is required in the performance of Employee's duties hereunder or (c)
any such information or material becomes generally known and available to the
public otherwise than by reason of a disclosure or communication of such
information or material by Employee. Such information includes, without
limitation, confidential or proprietary information relating to Employer's
business operations, internal structure, financial affairs, programs,
inventions, improvements, designs, systems, ideas, technical data, trade
secrets, software, procedures, manuals, internal reports, lists of clients and
prospective clients, sales and marketing methods, as well as the amount, nature
and type of services, equipment and methods used and preferred by clients of
Employer and the fees paid by such clients. Employee and Employer agree that,
for purposes of this Section 6, references to Employer include its subsidiaries,
Maxwell and other affiliated entities of Employer and Maxwell. Employee shall
also execute Employer's standard form of confidentiality agreement.
6.2 Return of Records. During his Employment, it is likely that
Employee will have access to certain proprietary records of Employer, including,
without limitation, contracts, agreements, financial books, instruments and
documents, policy and procedure manuals, client lists, memoranda, data, reports,
programs, manufacturing and production methods, software, tapes, rolodexes,
telephone and address books, letters, research, listings, programming and other
instruments and documents relating to the clients, services or business of
Employer. All proprietary records of Employer remain the property of Employer.
Upon the termination of his Employment, Employee shall return to Employer all
such proprietary records that are in his possession or control, and Employee
shall not make or retain copies of any proprietary records exclusively the
property of Employer.
6.3 Inventions.
(a) Inventions and Original Works Assigned to Employer.
1. Employee shall make prompt written disclosure to
Employer, shall hold in trust for the sole right and benefit of
Employer, and hereby assigns to Employer all right, title and interest
in and to any ideas, inventions, original works of authorship,
developments, improvements or trade secrets which Employee solely or
jointly has
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<PAGE> 197
conceived or reduced to practice, or conceives or reduces to practice,
or causes to be conceived or reduced to practice, during the period of
Employee's employment with Employer, provided, however, that this
agreement does not require assignment of any invention which qualifies
fully for protection under section 2870 of the California Labor Code
(hereinafter "section 2870") (but only to the extent and during the time
that section 2870 is applicable to Employee's employment with Employer),
which section provides as follows:
(i) Any provision in an employment agreement
which provides that an employee shall assign, or offer to assign, any of
his or her rights in any invention to his or her employer shall not
apply to an invention that the employee developed entirely on his or her
own time without using the employer's equipment, supplies, facilities,
or trade secret information except for those inventions that either:
(1) Relate at the time of conception or
reduction to practice of the invention to the employer's business, or
actual or demonstrably anticipated research or development of the
employer; or
(2) Result from any work performed by the
employee for the employer.
(ii) To the extent a provision in an employment
agreement purports to require an employee to assign an invention
otherwise excluded from being required to be assigned under subdivision
(a), the provision is against the public policy of this state and is
unenforceable.
2. All original works of authorship which are made
by Employee (solely or jointly with others) within the scope of
Employee's employment and which are protectable by copyright are "works
made for hire," as that term is defined in the United States Copyright
Act (17 U.S.C., section 101).
(b) Inventions and Original Works Assigned to the United
States. Employee hereby assigns to the United States government all Employee's
right, title and interest in and to any and all inventions, original works of
authorship, developments, improvements or trade secrets whenever full title to
same is required to be in the United States by a contract between Employer and
the United States or any of its agencies.
(c) Obtaining Letters Patent, Copyright Registrations and
Other Protections.
(i) Employee shall at Employer's expense assist
Employer in every reasonable and proper way to obtain and enforce United
States and foreign proprietary rights relating to any and all
inventions, original works of authorship, developments,
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improvements or trade secrets of Employer in any and all countries.
Employee will execute, verify and deliver such documents and perform
such other acts (including appearing as a witness) Employer may
reasonably request for use in applying for, obtaining, perfecting,
evidencing, sustaining and enforcing such proprietary rights of Employer
and the assignment thereof. Employee shall execute, verify and deliver
assignments of such proprietary rights of Employer to Employer or its
designee. Employee shall assist Employer with respect to proprietary
rights of Employer in any and all countries beyond the termination of
Employee's employment, subject to Employee's compensation by Employer at
a reasonable rate after termination for the time actually spent by
Employee at Employer's request on such assistance together with all of
Employee's expenses reasonably incurred therewith.
(ii) If Employer is unable for any reason, after
reasonable effort, to secure Employee's signature on any documents
needed in connection with the actions specified in the preceding
paragraph, Employee hereby irrevocably designates and appoints Employer
and its duly authorized officers and agents as Employee's agent and
attorney-in-fact, to act for and on behalf of Employee to execute,
verify and file any such documents and to do all other lawfully
permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by Employee. Employee
hereby waives and quitclaims to Employer any and all claims of any
nature whatsoever which Employee now or may hereafter have for
infringement of any proprietary rights assigned to Employer in
accordance with this agreement.
(d) Obligation to Keep Employer Informed. In addition to
Employee's obligations under paragraph (a) above, during the period of
Employee's employment and for six months after termination of employment for any
reason, Employee shall promptly disclose to Employer fully and in writing all
patent applications filed by Employee or on Employee's behalf. At the time of
each such disclosure, Employee shall advise Employer in writing of any
inventions that Employee believes fully qualify for protection under section
2870; and Employee shall at that time provide to Employer in writing evidence
reasonably necessary to substantiate that belief. Employer shall keep in
confidence and shall not disclose to third parties without Employee's consent
any proprietary information disclosed in writing to Employer pursuant to this
agreement relating to inventions that qualify fully for protection under the
provisions of section 2870. Employee shall preserve the confidentiality of any
such invention that does not qualify fully for protection under section 2870.
Employee shall keep and maintain adequate and current records (in the form of
notes, sketches, drawings and in any other form that may be required by
Employer) of all proprietary information developed by Employee and all
inventions made by Employee during the period of Employee's employment at
Employer, and which belong to Employer hereunder which records shall be
available to and remain the sole property of Employer at all times subject to
the provisions hereof.
6.4 Remedies. Employee acknowledges that damages would be an
inadequate remedy for his breach of any of the provisions of this Section 6, and
that his breach of any of such provisions will result in immeasurable and
irreparable harm to Employer. Therefore, in addition to any other remedy to
which Employer may be entitled by reason of Employee's breach of any such
provision, or any other provision of this Agreement that could be reasonably
expected to have the
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effect of resulting in a breach of this Section 6, Employer shall be entitled to
temporary, preliminary and permanent injunctive and equitable relief. Without
limiting the generality of the foregoing, Employee agrees that a showing of any
breach of any provision of this Section 6 shall constitute, for the purposes of
all determinations of the issue of injunctive relief concerning this Section 6,
conclusive proof of all of the elements necessary to entitle the Employer to
temporary, preliminary and permanent injunctive relief.
7. General Provisions.
7.1 Notices. All notices and other communications required or
permitted by this Agreement to be delivered by Employer or Employee to the other
party shall be delivered in writing to the address shown below, either
personally, by facsimile transmission or by registered, certified or express
mail, return receipt requested, postage prepaid, to the address for such party
specified below or to such other address as the party may from time to time
advise the other party, and shall be deemed given and received as of actual
personal delivery, on the first business day after the date of delivery shown on
any such facsimile transmission or upon the date of actual receipt shown on any
return receipt if registered, certified or express mail is used, as the case may
be.
Employer: Space Electronics Inc.
c/o Maxwell Technologies, Inc.
9275 Sky Park Court
San Diego, California 92123
Attention: Donald M. Roberts, Esq.
Facsimile No.: (619) 277-6754
Employee: _________________________
_________________________
_________________________
Facsimile No.: _________
7.2 Amendments and Termination; Entire Agreement. This Agreement
may be amended or terminated only by a writing executed by Employer and
Employee. This Agreement constitutes the entire Agreement of Employer and
Employee relating to the subject matter hereof and supersedes all prior oral and
written understandings and agreements relating to such subject matter.
7.3 Successors and Assigns. This Agreement shall be binding upon,
and shall benefit, Employer and Employee and their respective heirs, estates,
personal representatives, executors and permitted successors and assigns.
Notwithstanding the foregoing, the rights and obligations of the parties
hereunder are not assignable to another person without prior written consent
except to the extent provided herein upon Employee's death or Disability;
provided, however, that Employer may assign its rights and obligations
hereunder, without obtaining Employee's consent, to any successor to the
business conducted by the Employer or any affiliate of Employer succeeding to
the business conducted by the Employer provided that there is a reasonable
expectation that the successor or affiliate will be a bona fide, ongoing
business concern.
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7.4 Calculation of Time. Whenever in this Agreement a period of
time is stated in a number of days, it shall be deemed to mean calendar days
starting with the first day after the event or delivery of notice and ending at
the end of the last day of the applicable time period. However, when any period
of time so stated would end upon a Saturday, Sunday or legal holiday, such
period shall be deemed to end upon the next day following that is not a
Saturday, Sunday or legal holiday.
7.5 Further Assurances. Employer and Employee shall each perform
any further acts and execute and deliver any further documents as the other
party may reasonably request in order to carry out the purposes and provisions
of this Agreement.
7.6 Provisions Subject to Applicable Law. All provisions of this
Agreement shall be applicable only to the extent that they do not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Agreement invalid, illegal or unenforceable under any
applicable law. If any provision of this Agreement or any application thereof
shall be held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of other provisions of this Agreement or of any other
application of such provision shall in no way be affected thereby.
7.7 Waiver of Rights. Neither Employer nor Employee shall be
deemed to have waived any right or remedy that it or he has under this Agreement
unless this Agreement expressly provides a period of time within which such
right or remedy must be exercised and such period has expired or unless such
party has expressly waived the same in writing. The waiver by Employer or
Employee of a right or remedy hereunder shall not be deemed to be a waiver of
any other right or remedy or of any subsequent right or remedy of the same kind.
7.8 Definitions; Headings; Gender and Number. A term defined in
any part of this Agreement shall have the defined meaning wherever such term is
used herein. The headings contained in this Agreement are for reference purposes
only and shall not affect in any manner the meaning or interpretation of this
Agreement. Where appropriate to the context of this Agreement, use of the
singular shall be deemed also to refer to the plural, and use of the plural to
the singular. The term "person" refers to any natural person, corporation,
partnership or other association or entity. The terms "he, his, him or himself"
shall be interpreted as referring to persons of both male and female gender.
7.9 Counterparts. This Agreement may be executed in two
counterparts, and by each of Employer and Employee on a separate counterpart,
each of which shall be deemed an original but both of which taken together shall
constitute but one and the same instrument.
7.10 Expenses Incurred in Preparing This Agreement. Each of
Employer and Employee shall bear such party's own costs and expenses incurred in
connection with the negotiation and preparation of this Agreement.
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7.11 Governing Laws. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California.
7.12 Exclusive Remedy. The payments contemplated by this
Agreement shall constitute the exclusive and sole remedy for any termination of
Employee's Employment by Employer and Employee covenants not to assert or pursue
any remedies, other than an action to enforce this Agreement, at law or in
equity, with respect to any termination of Employee's Employment.
7.13 Acknowledgment by Maxwell Technologies, Inc.. Maxwell
Technologies, Inc., agrees to cause Employer to perform its covenants and
agreements hereunder in all material respects.
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IN WITNESS WHEREOF, Employer and Employee have executed and delivered
this Agreement as of the date first above written.
EMPLOYER: SPACE ELECTRONICS INC.
By:
Name:
Title:
EMPLOYEE:
Name:
For purposes of Section 7.13
MAXWELL TECHNOLOGIES, INC.
By:
Name:
Title:
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EXHIBIT D
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of
__________, 1998, by and between Maxwell Technologies, Inc., a Delaware
corporation (together with all of its subsidiaries, the "Company"), and
_______________ ("Stockholder"). All capitalized terms not otherwise defined
shall have the same meaning ascribed to them in the Merger Agreement (as defined
below).
R E C I T A L S:
A. Pursuant to that certain Agreement and Plan of Reorganization dated
as of January __, 1998 (the "Merger Agreement") by and among Maxwell
Technologies, Inc., a Delaware corporation, MT Acquisition Corporation, a
Delaware corporation ("Newco"), Space Electronics Incorporated, a Delaware
corporation ("SEi"), and certain shareholders of SEi, Newco is being merged with
and into SEi, and as a result of the Merger, SEi will become a wholly-owned
subsidiary of the Company.
B. As a principal shareholder of SEi, Stockholder will derive a
substantial benefit directly and indirectly from consummation of the
transactions contemplated by the Merger Agreement, in which, by virtue of the
Merger, all of the outstanding capital stock of SEi is being acquired by
Maxwell, and the Company is willing to enter into the Merger Agreement only upon
the condition that Stockholder and the Company enter into this Agreement.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the receipt and adequacy of which are hereby acknowledged and to
induce the Company to enter into the Merger Agreement and the agreements
contemplated therein, the Company and Stockholder hereby agree as follows:
1. Covenant Not to Compete.
1.1 General. The Company and Stockholder expressly recognize and
acknowledge that the Company, through SEi, is engaged in a business which is
highly competitive; that any knowledge of the Company's Confidential Information
(as defined below) or business affairs would give a competitor advantage over
the Company; that the Company's activities may be worldwide in character; that
employment, directly or indirectly, of Stockholder anywhere in the area in which
the Company conducts its business would give to such competitor an unfair
competitive advantage; and that Stockholder possesses valuable skills and
knowledge which he has a legitimate right to exploit. In recognition of the
above, Stockholder and the Company hereby expressly agree that the restrictions
on competition by Stockholder contained in this Section 1 are reasonable, will
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not overburden Stockholder, and are in the best interests of both Stockholder
and the Company. "Confidential Information" shall mean all records of the
accounts of customers, route books, customer lists, and any other records and
books relating in any manner to the customers and/or suppliers of the Company
(whether such records, books or lists are prepared by Stockholder or otherwise
come into the possession or use of Stockholder). "Confidential Information"
shall also mean any product information, technical data, know how,
specifications, processes, drawings, sketches, formulas, computations and any
other information of any kind whatsoever, whether written or not, concerning any
process, manufacture, composition of matter, plant, design, idea, method, system
or plan in which the Company has a possessory interest and which becomes known
to Stockholder. "Confidential Information" shall also mean any accounting,
sales, advertising, marketing or management information, methods or techniques,
any business plans, any computer programs and routines of the Company and any
other information of any kind whatsoever, whether written or not, concerning,
directly or indirectly, the Company, its plans, programs or operations, which
information is not generally known in the businesses or industries in which the
Company is or may become engaged during Stockholder's involvement in the
Company.
1.2 Time Period, Affiliations and Area Covered. Stockholder
promises that for a period of three years following the Closing Date of the
Merger (the "Time Period"), he shall not either directly or indirectly use or
disclose any Confidential Information to any other person (except as is
necessary to perform Stockholder's duties to the Company) and shall not engage
directly or indirectly as a proprietor, partner, shareholder, director, officer,
employee, agent, consultant or in any other capacity or manner whatsoever for a
competitor of the Company or any parent, affiliate, subsidiary, successor or
appointee of the Company, as constituted during such period, in any business
activity related to the business that either SEi or Maxwell Technologies Systems
Division, Inc. is currently engaged in, or proposes to engage in during the Time
Period (collectively, the "Business"), within:
(a) the State of California; or
(b) the United States.
1.3 Limitation. Nothing contained in this Section 1 shall prevent
Stockholder from purchasing or causing or permitting to be purchased for his
direct or indirect benefit securities of any corporation whose securities are
regularly traded on any national or regional securities exchange; provided,
however, that such purchase must not result in the direct or indirect beneficial
ownership of more than five percent of any outstanding class of equity
securities of any corporation engaged directly or indirectly in any trade or
business activities competitive with the Business carried on by the Company
without the written approval of the Company.
1.4 Nonsolicitation. Inasmuch as Stockholder has access to the
proprietary information and trade secrets of SEi and, in the future, the
Company, and his use of such information would constitute a breach of
Stockholder's duty not to use such information in a manner that is harmful to
the interests of the Company during the Time Period, or, if longer the period in
which he is employed, hired as a consultant or receiving salary or consulting
fees from the Company plus one
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<PAGE> 205
year following the termination of Stockholder's employment or receipt of salary,
Stockholder shall not solicit, divert or attempt to divert from the Company any
business of, any customer of, or any employee of the Company or any former
employee having been employed by the Company or SEi within the previous year.
1.5 Remedies. Stockholder acknowledges that damages would be an
inadequate remedy for his breach of any of the provisions of this Section 1, and
that his breach of any of such provisions will result in immeasurable and
irreparable harm to the Company. Therefore, in addition to any other remedy to
which the Company may be entitled by reason of Stockholder's breach of any such
provision, the Company shall be entitled to temporary, preliminary and permanent
injunctive and equitable relief. Without limiting the generality of the
foregoing, Stockholder agrees that a showing by the Company of any breach of any
provision of this Section 1 shall constitute, for the purposes of all
determinations of the issue of injunctive relief, conclusive proof of all of the
elements necessary to entitle the Company to temporary, preliminary and
permanent injunctive relief. Without limiting the foregoing, in the event of an
action brought by any party for breach of any provision of this Agreement, the
prevailing party in such dispute shall be entitled to recover from the losing
party, its fees, costs, and expenses, including without limitation, fees and
expenses of attorneys and accountants, and all fees, costs and expenses of
appeals.
2. General Provisions.
2.1 All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given if transmitted by telecopier with receipt
acknowledged, or upon delivery, if delivered personally or by recognized
commercial courier with receipt acknowledged, or upon the expiration of 72 hours
after mailing, if mailed by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
The Company: Maxwell Technologies, Inc.
9275 Sky Park Court
San Diego, CA 92123
Attention: Donald M. Roberts, Esq.
Telephone: (619) 279-5100
Facsimile: (619) 277-6754
Stockholder: ___________________________________
___________________________________
___________________________________
Facsimile: ________________________
2.2 Amendments and Termination; Entire Agreement. This Agreement
may not be amended or terminated except by a writing executed by all of the
parties hereto. This Agreement constitutes the entire agreement of the Company
and Stockholder relating to the subject matter
29
<PAGE> 206
hereof and supersedes all prior oral and written understandings and agreements
relating to such subject matter.
2.3 Scope and Reasonableness. The parties agree that it is not
their intention to violate any public policy or statutory or common law. The
parties intend that the provisions of this Agreement be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. The parties intend that the
noncompetition provisions contained in Section 1 be construed as a series of
separate covenants by Stockholder. Accordingly, to the extent that the
provisions hereunder shall be adjudicated to be invalid or unenforceable in any
one such jurisdiction, this Agreement shall be deemed amended to delete
therefrom or reform the portion thus adjudicated to be invalid or unenforceable,
such deletion or reformation to apply only with respect to the operation of the
particular section or provision of this Agreement in the particular jurisdiction
in which such adjudication is made.
2.4 Successors and Assigns. This Agreement shall be binding upon,
and the rights and obligations of this Agreement shall benefit, the Company and
Stockholder's and their respective heirs, estates, personal representatives,
executors and permitted successors and assigns of the Company. Notwithstanding
the foregoing, under no circumstances, shall Stockholder assign or transfer his
rights or obligations under this Agreement. The rights and obligations of the
Company shall be assignable without prior written consent of Stockholder.
2.5 Calculation of Time. Whenever in this Agreement a period of
time is stated in a number of days, it shall be deemed to mean calendar days
starting with the first day after the event or delivery of notice and ending at
the end of the last day of the applicable time period. However, when any period
of time so stated would end upon a Saturday, Sunday or legal holiday, such
period shall be deemed to end upon the next day following that is not a
Saturday, Sunday or legal holiday.
2.6 Further Assurances. Each party shall each perform any further
acts and execute and deliver any further documents as the other party may
reasonably request in order to carry out the purposes and provisions of this
Agreement.
2.7 Provisions Subject to Applicable Law. All provisions of this
Agreement shall be applicable only to the extent that they do not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Agreement invalid, illegal or unenforceable under any
applicable law. If any provision of this Agreement or any application thereof
shall be held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of other provisions of this Agreement or of any other
application of such provision shall in no way be affected thereby.
2.8 Waiver of Rights. Neither the Company nor Stockholder shall
be deemed to have waived any right or remedy that it or he has under this
Agreement unless this Agreement expressly provides a period of time within which
such right or remedy must be exercised and such period has expired or unless
such party has expressly waived the same in writing. The waiver by
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<PAGE> 207
the Company or Stockholder of a right or remedy hereunder shall not be deemed to
be a waiver of any other right or remedy or of any subsequent right or remedy of
the same kind.
2.9 Definitions; Headings; Gender and Number. A term defined in
any part of this Agreement shall have the defined meaning wherever such term is
used herein. The headings contained in this Agreement are for reference purposes
only and shall not affect in any manner the meaning or interpretation of this
Agreement. Where appropriate to the context of this Agreement, use of the
singular shall be deemed also to refer to the plural, and use of the plural to
the singular. The terms "he, his, him or himself" shall be interpreted as
referring to persons of both male and female gender.
2.10 Counterparts. This Agreement may be executed in
counterparts, and by both of the Company and Stockholder on separate
counterparts, both of which shall be deemed an original but both of which taken
together shall constitute but one and the same instrument.
2.11 Expenses Incurred in Preparing This Agreement. On a going
forward basis, each party shall bear such party's own costs and expenses
incurred with the performance of this Agreement.
2.12 Governing Law. In all respects, including all matters of
construction, validity and performance, this Agreement and the rights and
obligations arising hereunder shall be governed by, and construed and enforced
in accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to principles thereof regarding
conflicts of laws.
31
<PAGE> 208
IN WITNESS WHEREOF, the Company and Stockholder have executed and
delivered this Noncompetition Agreement as of the date first above written.
MAXWELL TECHNOLOGIES, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
Stockholder:
____________________________________
Name:
<PAGE> 209
ANNEX B
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of a merger or consolidation, were
either (i) listed on a national securities exchange or designated as a
national market systems security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving
a merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
<PAGE> 210
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to
<PAGE> 211
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such
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publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
<PAGE> 213
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 120, L.
'97, eff. 7-1-97.)
<PAGE> 214
ANNEX C
CALIFORNIA CORPORATIONS CODE
CHAPTER 13. DISSENTERS' RIGHTS
1300. Right to Require Purchase -- "Dissenting Shares" and "Dissenting
Shareholder" Defined (a) If the approval of the outstanding shares (Section 152)
of a corporation is required for a reorganization under subdivisions (a) and (b)
or subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of
the Federal Reserve System, and the notice of meeting of shareholders to act
upon the reorganization summarizes this section and Sections 1301, 1302, 1303
and 1304; provided, however, that this provision does not apply to any shares
with respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A)
or (B) if demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B)
or paragraph (1) (without regard to the provisos in that paragraph), were
voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case were
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
1301. Demand for Purchase -- (a) If, in the case of a reorganization, any
shareholders of a
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corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivisions (b) thereof, to require the corporation
to purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b)of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares describe in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. Endorsement of Shares -- Within 30 days after the date on which notice
of the approval by the outstanding shares or the notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder, the shareholder shall submit
to the corporation at its principal office or at the office of any transfer
agent thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the shares
are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
1303. Agreed Price -- Time for Payment -- (a) If the corporation and the
shareholder agree that the shares are dissenting shares and agree upon the price
of the shares, the dissenting shareholder is entitled to the agreed price with
interest thereon at the legal rate on judgments from the date of the agreement.
Any agreements fixing the fair market value of any dissenting shares as between
the corporation and the holders thereof shall be filed with the secretary of the
corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to reorganization are satisfied, whichever is later, and in the case of
<PAGE> 216
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304. Dissenter's Action to Enforce Payment -- (a) If the corporation denies
that the shares are dissenting shares, or the corporation and the shareholder
fail to agree upon the fair market values of the shares, then the shareholder
demanding purchase of such shares as dissenting shares or any interested
corporation, within six months after the date on which notice of the approval by
the outstanding shares (Section 152) or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder, but not thereafter, may file a
complaint in the superior court of the proper county praying the court to
determine whether the shares are dissenting shares or the fair market value of
the dissenting shares or both or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. Appraiser's Report -- Payment -- Costs -- (a) If the court appoints an
appraiser or appraisers, they shall proceed forthwith to determine the fair
market value per share. Within the time fixed by the court, the appraisers, or a
majority of them, shall make and file a report in the office of the clerk of the
court. Thereupon, on the motion of any party, the report shall be submitted to
the court and considered on such evidence as the court considers relevant. If
the court finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
undercertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Section 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. Dissenting Shareholder's Status as Creditor -- To the extent that the
provisions of Chapter 5
<PAGE> 217
prevent the payment to any holders of dissenting shares of their fair market
value, they shall become creditors of the corporation for the amount thereof
together with interest at the legal rate on judgments until the date of payment,
but subordinate to all other creditors in any liquidation proceeding, such debt
to be payable when permissible under the provisions of Chapter 5.
1307. Dividends Paid as Credit Against Payment -- Cash dividends declared and
paid by the corporation upon the dissenting shares after the date of approval of
the reorganization by the outstanding shares (Section 152) and prior to payment
for the shares by the corporation shall be credited against the total amount to
be paid by the corporation therefor.
1308. Continuing Rights and Privileges of Dissenting Shareholders -- Except
as expressly limited in this chapter, holders of dissenting shares continue to
have all the rights and privileges incident to their shares, until the fair
market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
1309. Termination of Dissenting Shareholder Status -- Dissenting shares lose
their status as dissenting shares and the holders thereof cease to be dissenting
shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares
of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivisions (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. Suspension of Proceedings for Payment Pending Litigation -- If
litigation is instituted to test the sufficiency of regularity of the votes of
the shareholder in authorizing a reorganization, any proceedings under Section
1304 and 1305 shall be suspended until final determination of such litigation.
1311. Exempt Shares -- This chapter, except Section 1312, does not apply to
classes of shares whose terms and provisions specifically set forth the amount
to be paid in respect to such shares in the event of a reorganization or merger.
1312. Attacking Validity of Reorganization or Merger -- (a) No shareholder of
a corporation who has a right under this chapter to demand payment of cash for
the shares held by the shareholder shall have any right at law or in equity to
attack the validity of the reorganization or short-form merger, or
<PAGE> 218
to have the reorganization or short-form merger set aside or rescinded, except
in an action to test whether the number of shares required to authorize or
approve the reorganization have been legally voted in favor thereof; but any
holder of shares of a class whose terms and provisions specifically set forth
the amount to be paid in respect to them in the event of a reorganization or
short-form merger is entitled to payment in accordance with those terms and
provisions or, if the principal terms of the reorganization are approved
pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days,
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
<PAGE> 219
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Maxwell Technologies, Inc. ("Maxwell") is a Delaware corporation.
Article V of Maxwell's Bylaws provides that Maxwell 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 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 Maxwell's Certificate of Incorporation currently
provides that each Director shall not be personally liable to Maxwell 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
Maxwell 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.
II-1
<PAGE> 220
Maxwell 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 Maxwell. Maxwell may from time to
time enter into indemnity agreements with additional individuals who become
officers or Directors of Maxwell.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed pursuant to Item 601 of
Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated November 25, 1998, among
Space Incorporated ("SEi"), and Maxwell Technologies, Inc.
("Maxwell") and MT Acquisition Corporation, included as Annex A to
the Proxy Statement/Prospectus, and incorporated herein by
reference.**
4.1 Form of Rights Certificate, filed as Exhibit 1 to Maxwell's
Registration Statement on Form 8- A filed June 30, 1989, and hereby
incorporated by reference.
4.2 Amendment to Form of Rights Certificate, dated April 2, 1997, filed
as Exhibit 4.2 to Maxwell's Annual Report on Form 10-K for the
fiscal year ended July 31, 1997 ("1997 Form 10-K") and incorporated
by reference.
4.3 Form of Rights Agreement between Maxwell and First Interstate Bank,
the Rights Agent, filed as Exhibit 4.2 to Maxwell's Annual Report on
Form 10-K for the fiscal year ended July 31, 1990 ("1990 Form
10-K"), and incorporated by reference.
5.1 Opinion of Riordan & McKinzie, a Professional Law Corporation as to
the legality of shares of Maxwell common stock being registered.
8.1 Opinion of Luce, Forward, Hamilton & Scripps LLP, as to certain
federal income tax consequences of the Merger.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Riordan & McKinzie, a Professional Law Corporation
(included in the opinion filed as Exhibit 5.1 hereto).
23.4 Consent of Luce, Forward, Hamilton & Scripps LLP (included in the
opinion filed as Exhibit 8.1 hereto).*
24.1 Power of Attorney with respect to Maxwell (included on page II-5).
27.1 Financial Data Schedule.
99.1 Form of SEi Proxy.
99.2 Form of Employment Agreement to be entered into with certain
officers of SEi, included as Exhibit C to Annex A to the Proxy
Statement/Prospectus, and incorporated herein by reference.
99.3 Form of Noncompetition Agreement to be entered into with certain
officers of SEi, included as Exhibit D to Annex A to the Proxy
Statement/Prospectus, and incorporated herein by reference.
99.4 Voting Agreement, dated as of November 25, 1998, by and among
Maxwell, SEi and certain of SEi's stockholders.
</TABLE>
II-2
<PAGE> 221
<TABLE>
<S> <C>
99.5 Form of Escrow Agreement by and among Maxwell, certain of SEi's
stockholders and the escrow agent, included as Exhibit A to Annex A
to the Proxy Statement/Prospectus, and incorporated herein by
reference.
99.6 Form of SEi Affiliate Agreement, included as Exhibit B to Annex A to
the Proxy Statement/Prospectus, and incorporated herein by
reference.
</TABLE>
*To be filed by Amendment
**Maxwell Technologies, Inc. undertakes to provide the schedules omitted from
the Exhibit upon request from the Securities and Exchange Commission.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes thereto.
ITEM 22. UNDERTAKINGS.
(a) (1) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 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) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(3) The Registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a) (3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(4) 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.
II-3
<PAGE> 222
(b) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 223
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this registration statement to be signed on its behalf of the
undersigned, thereunto duly authorized, in the city of San Diego, state of
California on November 27, 1998.
MAXWELL TECHNOLOGIES, INC.
(Registrant)
By: /s/ THOMAS L. HORGAN
-----------------------------------------
Thomas L. Horgan
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary J. Davidson and Thomas L. Horgan, and each
of them, his true and lawful attorneys-in-fact and agents, each 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, including post-effective
amendments, to this Registration Statement, and any registration statement
relating to the offering covered by this Registration Statement and filed
pursuant to Rule 462(b) under the Securities Act of 1993, and to file the same,
with 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 and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or their 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 below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas L. Horgan President, Chief Executive Officer and November 27, 1998
- ------------------------- Director (Principal Executive Officer)
Thomas L. Horgan
/s/ Gary J. Davidson Vice President--Finance and November 27, 1998
- ------------------------- Administration, Chief Financial Officer
Gary J. Davidson and Treasurer (Principal Financial Officer
and Principal Accounting Officer)
/s/ Mark S. Ross Director November 27, 1998
- -------------------------
Mark S. Ross
/s/ Carlton J. Eibl Director November 27, 1998
- -------------------------
Carlton J. Eibl
/s/ Alan C. Kolb Director November 27, 1998
- -------------------------
Alan C. Kolb
</TABLE>
II-5
<PAGE> 224
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Kenneth F. Potashner Director November 27, 1998
- -------------------------
Kenneth F. Potashner
/s/ Karl M. Samuelian Director November 27, 1998
- -------------------------
Karl M. Samuelian
</TABLE>
II-6
<PAGE> 225
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated November 25, 1998, among
Space Electronics Incorporated ("SEi"), and Maxwell Technologies,
Inc. ("Maxwell") and MT Acquisition Corporation, included as Annex A to
the Proxy Statement/Prospectus, and incorporated herein by
reference.**
4.1 Form of Rights Certificate, filed as Exhibit 1 to Maxwell's
Registration Statement on Form 8- A filed June 30, 1989, and hereby
incorporated by reference.
4.2 Amendment to Form of Rights Certificate, dated April 2, 1997, filed
as Exhibit 4.2 to Maxwell's Annual Report on Form 10-K for the
fiscal year ended July 31, 1997 ("1997 Form 10-K") and incorporated
by reference.
4.3 Form of Rights Agreement between Maxwell and First Interstate Bank,
the Rights Agent, filed as Exhibit 4.2 to Maxwell's Annual Report on
Form 10-K for the fiscal year ended July 31, 1990 ("1990 Form
10-K"), and incorporated by reference.
5.1 Opinion of Riordan & McKinzie, a Professional Law Corporation as to
the legality of shares of Maxwell common stock being registered.
8.1 Opinion of Luce, Forward, Hamilton & Scripps LLP, as to certain
federal income tax consequences of the Merger.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Riordan & McKinzie, a Professional Law Corporation
(included in the opinion filed as Exhibit 5.1 hereto).
23.4 Consent of Luce, Forward, Hamilton & Scripps LLP (included in the
opinion filed as Exhibit 8.1 hereto).*
24.1 Power of Attorney with respect to Maxwell (included on page II-5).
27.1 Financial Data Schedule.
99.1 Form of SEi Proxy.
99.2 Form of Employment Agreement to be entered into with certain
officers of SEi, included as Exhibit C to Annex A to the Proxy
Statement/Prospectus, and incorporated herein by reference.
99.3 Form of Noncompetition Agreement to be entered into with certain
officers of SEi, included as Exhibit D to Annex A to the Proxy
Statement/Prospectus, and incorporated herein by reference.
99.4 Voting Agreement, dated as of November 25, 1998, by and among
Maxwell, SEi and certain of SEi's stockholders.
99.5 Form of Escrow Agreement by and among Maxwell, certain
of SEi's stockholders and the escrow agent, included as Exhibit A
to Annex A to the Proxy Statement/Prospectus, and incorporated
herein by reference.
99.6 Form of SEi Affiliate Agreement, included as Exhibit B to Annex A to
the Proxy Statement/Prospectus, and incorporated herein by
reference.
</TABLE>
*To be filed by Amendment
**Maxwell Technologies, Inc. undertakes to provide the schedules omitted from
the Exhibit upon request from the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 5.1
RIORDAN & MCKINZIE
A PROFESSIONAL LAW CORPORATION
300 S. GRAND AVENUE, 29TH FLOOR
LOS ANGELES, CALIFORNIA 90071-3155
November 25, 1998
13-364-009
Maxwell Technologies, Inc.
9275 Sky Park Court
San Diego, California 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 893,617 authorized and
previously unissued shares of the Common Stock (the "Shares"), $.10 par value
per share, of the Company to be exchanged for shares of common stock of Space
Electronics, inc., a Delaware corporation ("SEi"), pursuant to an Agreement and
Plan of Reorganization dated (the "Agreement") as of November 25, 1998 by and
among the Company, MT Acquisition Corporation, a wholly-owned subsidiary of the
Company, SEi and certain shareholders of SEi. This opinion is delivered to you
in accordance with the requirements of Item 601(b)(5) of Regulation S-K under
the 1933 Act in connection with the Registration Statement on Form S-4,
including all pre-effective and post-effective amendments thereto (the
"Registration Statement"), for the aforementioned exchange, 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 in reliance thereon, we are of the opinion
that the Shares have been duly authorized, and, upon issuance in accordance with
the terms and provisions of the Agreement, will be validly issued, fully paid
and non-assessable.
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.
In giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the rules
and regulations of the Commission thereunder.
Very truly yours,
/s/ Riordan & McKinzie
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Maxwell
Technologies, Inc. for the registration of 893,617 shares of its common stock
and to the incorporation by reference therein of our report dated September 15,
1998, with respect to the consolidated financial statements of Maxwell
Technologies, Inc. included in its Annual Report (Form 10-K) for the year
ended July 31, 1998, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Diego, California
November 27, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
included in or made part of this registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
November 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1997 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1995 DEC-31-1996 SEP-30-1997 DEC-31-1997 SEP-30-1998
<CASH> 0 1,310,000 0 160,000 214,000
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 1,744,000 0 2,267,000 3,303,000
<ALLOWANCES> 0 (150,000) 0 (238,000) (200,000)
<INVENTORY> 0 1,184,000 0 2,398,000 2,493,000
<CURRENT-ASSETS> 0 4,507,000 0 5,754,000 7,245,000
<PP&E> 0 1,237,000 0 2,280,000 3,012,000
<DEPRECIATION> 0 (397,000) 0 (739,000) (1,130,000)
<TOTAL-ASSETS> 0 5,347,000 0 7,295,000 9,127,000
<CURRENT-LIABILITIES> 0 2,422,000 0 2,819,000 5,105,000
<BONDS> 0 437,000 0 636,000 849,000
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 1,000 0 1,000 1,000
<OTHER-SE> 0 2,487,000 0 3,839,000 3,172,000
<TOTAL-LIABILITY-AND-EQUITY> 0 5,347,000 0 7,295,000 9,127,000
<SALES> 3,750,000 10,598,000 8,602,000 11,121,000 8,806,000
<TOTAL-REVENUES> 3,750,000 10,598,000 8,602,000 11,121,000 8,806,000
<CGS> 2,165,000 4,217,000 3,361,000 4,606,000 5,315,000
<TOTAL-COSTS> 3,383,000 7,482,000 6,626,000 9,104,000 9,599,000
<OTHER-EXPENSES> 12,000 7,000 0 41,000 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 30,000 8,000 9,000 (32,000) 129,000
<INCOME-PRETAX> 325,000 3,101,000 1,985,000 2,008,000 (922,000)
<INCOME-TAX> 0 1,144,000 834,000 741,000 (369,000)
<INCOME-CONTINUING> 325,000 1,957,000 1,151,000 1,267,000 (553,000)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 325,000 1,957,000 1,151,000 1,267,000 (553,000)
<EPS-PRIMARY> .30 1.35 .68 .78 (.32)
<EPS-DILUTED> .30 1.35 .60 .67 (.29)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[SEi Logo]
Space Electronics Incorporated
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 1998
The undersigned hereby appoints Robert Czajkowski and David Strobel, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and vote, as designated below, all shares of Common
Stock of Space Electronics Incorporated ("SEi"), held of record by the
undersigned on November 25, 1998, at the Special Meeting of stockholders of SEi
(the "Meeting") to be held at SEi's offices located at 4031 Sorrento Valley
Boulevard, San Diego, California on Thursday, December 31, 1998, at 10:00 a.m.,
local time, and at any adjournments or postponements thereof.
THIS PROXY WILL BE VOTED AS YOU INDICATE BELOW. IF YOU DO NOT INDICATE A
CHOICE, THIS PROXY WILL BE VOTED FOR PROPOSAL NO. 1. In their discretion, the
proxy holders are authorized to vote upon such other business as may properly
come before the Meeting or any adjournments or postponements thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SEI.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL NO. 1.
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Approval and adoption of the FOR AGAINST ABSTAIN 2. To transact such other
Agreement and Plan of business as may
Reorganization dated as of [ ] [ ] [ ] properly be presented
November 25, 1998, among SEi, at the Meeting or any
Maxwell Technologies, Inc. and (please check one box) adjournments or
MT Acquisition Corporation. postponements
thereof.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Whether or not you plan to attend the meeting in person, you are urged to
complete, date, sign and promptly mail this proxy in the enclosed return
envelope so that your shares may be represented at the meeting.
Please sign exactly as your name(s) appears on your stock certificate. If
shares of stock are held of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased stockholder should give
their full title. Please date this proxy.
Name of Stockholder(s)
---------------------------------------------------------
Please print stockholder(s) name
Signature(s) Date:
----------------------------------------- ----------------------
NOTE: Joint owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
<PAGE> 1
EXHIBIT 99.4
VOTING AGREEMENT
This STOCKHOLDER VOTING AGREEMENT (the "Agreement") is entered into as
of November 25, 1998, by and among the undersigned stockholder(s) (collectively,
if more than one, "Stockholder") of Space Electronics, Inc., a Delaware
corporation ("SEi"), Maxwell Technologies, Inc., a Delaware corporation
("Maxwell"), and MT Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Maxwell ("Merger Sub").
W I T N E S S E T H:
WHEREAS, concurrently with the execution of this Agreement, Maxwell,
Merger Sub, SEi and certain shareholders of SEi are entering into an Agreement
and Plan of Merger (the "Merger Agreement") (capitalized terms used but not
defined herein shall have the same meaning assigned to such terms in the Merger
Agreement), pursuant to which SEi will become a wholly-owned subsidiary of
Maxwell upon a merger (the "Merger") of Merger Sub with and into SEi;
WHEREAS, Stockholder owns, as of the date hereof, the shares of SEi
common stock, par value $.001 per share (the "SEi Common Stock"), as set forth
on Schedule A attached hereto (collectively, the "Existing Shares," together
with any shares of SEi Common Stock acquired after the date hereof and prior to
the termination hereof, hereinafter collectively referred to as the "Shares");
and
WHEREAS, Maxwell and Merger Sub have entered into the Merger Agreement
in reliance on Stockholder's representations, warranties, covenants and
agreements hereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
PROXY
1.1 Proxy.
(a) With respect to the Merger Agreement or any other merger,
acquisition, or business combination involving SEi (an "Alternative
Transaction") for which approval of the stockholders of SEi is sought, and any
transactions contemplated thereby, Stockholder hereby irrevocably makes,
constitutes and appoints Maxwell to act as Stockholder's true and lawful proxy
and attorney-in-fact in the name and on behalf of Stockholder, with full power
to appoint a substitute or substitutes. Stockholder further directs Maxwell, and
Maxwell hereby agrees, to vote all of the Shares which are entitled to vote at
any meeting of the stockholders of SEi (whether annual or special and whether or
not an adjourned meeting), or by written consent in the
<PAGE> 2
place and stead of Stockholder in favor of the Merger as set forth in the Merger
Agreement and against any Alternative Transaction. By giving this proxy
Stockholder hereby revokes any other proxy granted by Stockholder at any time
with respect to the Shares and no subsequent proxies will be given with respect
thereto by Stockholder.
(b) All power and authority hereby conferred is coupled with an
interest and is irrevocable, shall not be terminated by any act of Stockholder
or by operation of law, by lack of appropriate power or authority, or by the
occurrence of any other event or events and shall be binding upon all
beneficiaries, heirs at law, legatees, distributees, successors, assigns and
legal representatives of Stockholder. If after the execution of this Agreement,
Stockholder shall cease to have appropriate power or authority, or if any other
such event or events shall occur, Maxwell is nevertheless authorized and
directed to vote the Shares in accordance with the terms of this Agreement as if
such lack of appropriate power or authority or other event or events had not
occurred and regardless of notice thereof.
(c) Stockholder agrees to use all good faith efforts to cause any
record owner of the Shares of which Stockholder is the beneficial owner to grant
to Maxwell a proxy of the same effect as that contained herein. Stockholder
shall perform such further acts and execute such further documents as may be
required to vest in Maxwell the sole power to vote the Shares in accordance
herewith during the term of the proxy granted herein.
(d) The proxy granted herein shall expire on the date of
termination of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
2.1 Representations and Warranties of Stockholder. Stockholder
represents and warrants to Maxwell and Merger Sub as follows:
(a) Ownership of Shares. On the date of this Agreement the
Existing Shares are all of the Shares currently beneficially owned by
Stockholder. Stockholder does not have any rights to acquire any additional
shares of SEi Common Stock other than as set forth on Schedule A attached
hereto. Other than as set forth on Schedule B attached hereto, Stockholder
currently has good, valid and marketable title to the Shares, free and clear of
all liens, encumbrances, restrictions, options, warrants, rights to purchase and
claims of every kind (other than the encumbrances created by this Agreement and
other than restrictions on transfer under applicable federal and state
securities laws).
(b) Power; Binding Agreement. Stockholder has the full legal
right, power and authority to enter into and perform all of Stockholder's
obligations under this Agreement. The execution and delivery of this Agreement
by Stockholder will not violate any other agreement to which Stockholder is a
party including, without limitation, any voting agreement,
2
<PAGE> 3
stockholders agreement or voting trust. This Agreement has been duly executed
and delivered by Stockholder and constitutes a legal, valid and binding
agreement of Stockholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in effect
affecting creditors' rights and remedies generally or general principles of
equity. Neither the execution or delivery of this Agreement nor the consummation
by Stockholder of the transactions contemplated hereby will (i) require any
consent or approval of or filing with any person or entity or (ii) constitute a
violation of, conflict with or constitute a default under, any contract,
commitment, agreement, understanding, arrangement or other restriction of any
kind to which Stockholder is a party or by which Stockholder is bound.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
MAXWELL AND MERGER SUB
3.1 Representations and Warranties of Maxwell and Merger Sub. Each of
Maxwell and Merger Sub represents and warrants to Stockholder as follows:
(a) Power; Binding Agreement. Each of Maxwell and Merger Sub has
full legal right, power and authority to enter into and perform all of its
obligations under this Agreement. The execution and delivery of this Agreement
by Maxwell and Merger Sub will not violate any other agreement to which Maxwell
or Merger Sub is a party. This Agreement has been duly executed and delivered by
each of Maxwell and Merger Sub and constitutes a legal, valid and binding
agreement of Maxwell and Merger Sub, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in effect,
affecting creditors' rights and remedies generally or general principles of
equity. Neither the execution of this Agreement nor the consummation by Maxwell
or Merger Sub of the transactions contemplated hereby will (i) require any
consent or approval of or filing with any person or entity or (ii) constitute a
violation of, conflict with or constitute a default under, any contract,
commitment, agreement, understanding, arrangement or other restriction of any
kind to which Maxwell or Merger Sub is a party or by which it is bound.
ARTICLE IV
TERMINATION
4.1 Termination. This Agreement shall terminate on the earlier of (i)
the date on which Maxwell, Merger Sub and Stockholder mutually consent in
writing to terminate this Agreement, (ii) the Effective Time (as defined in the
Merger Agreement) on (iii) if the Merger is not completed before the later of
(x) January 31, 1999, (y) 30 business days after the Proxy Statement/Prospectus
(as defined in the Merger Agreement) is mailed to the SEi stockholders or
3
<PAGE> 4
(z) five business days after the expiration or termination of the waiting period
under the HSR Act (as defined in the Merger Agreement).
ARTICLE V
CERTAIN COVENANTS OF STOCKHOLDER
5.1 Certain Covenants of Stockholder.
(a) Except in accordance with the provisions of this Agreement,
Stockholder agrees, while this Agreement is in effect, not to, directly or
indirectly:
(i) Sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares; or
(ii) Grant any proxy, deposit any Shares into a voting
trust or enter into a voting agreement with respect to any of the
Shares.
(b) Stockholder agrees, while this Agreement is in effect, to
notify Maxwell promptly of the number of any shares of SEi Common Stock acquired
by such Stockholder after the date hereof.
(c) Until such time as this Agreement is terminated, Stockholder
agrees to take any actions as reasonably requested by SEi, within his, her or
its power as are necessary or appropriate to enable SEi to satisfy the
conditions precedent set forth in the Merger Agreement to Maxwell's obligations
to consummate the Merger, and to use his, her or its best efforts to cause SEi
to satisfy such conditions precedent.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices or other communications required or permitted
hereunder shall be in writing (except as otherwise provided herein) and shall be
deemed duly given when received by delivery in person, by telecopy, telex or
telegram or by certified mail, postage prepaid, or by an overnight courier
service, addressed to Stockholder at the address(es) set forth on the signature
page hereof and to Maxwell or Merger Sub at:
Maxwell Technologies, Inc.
9275 Sky Park Court
San Diego, California 92123
Attn: Donald M. Roberts, Esq.
4
<PAGE> 5
With copies to:
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Attn: Roger H. Lustberg, Esq.
Telecopier: (213) 229-8550
6.2 Entire Agreement. This Agreement, together with the documents
expressly referred to herein, constitute the entire agreement among the parties
hereto with respect to the subject matter contained herein and supersede all
prior agreements and understandings among the parties with respect to such
subject matter.
6.3 Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties.
6.4 Governing Law. This Agreement, and all matters relating hereto,
shall be governed by, and construed in accordance with the laws of the State of
Delaware without giving effect to the principles of conflicts of laws thereof.
6.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same document.
6.6 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
6.7 Further Assurances. Each party hereto shall execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
6.8 Legal Expenses. In the event any legal proceeding is commenced by
any party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding shall be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorney's fees.
5
<PAGE> 6
6.9 Amendment and Modification. This Agreement may be amended, modified
and supplemented only by a written document executed by Maxwell, Merger Sub and
Stockholder.
6.10 Specific Performance. The parties agree that in the event of a
breach of any provision of this Agreement, irreparable damage would occur, the
aggrieved party would be without an adequate remedy at law and damages would be
difficult to determine. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party may elect to
institute and prosecute proceedings in any court of competent jurisdiction to
enforce specific performance or to enjoin the continuing breach of such
provision. By seeking or obtaining such relief, the aggrieved party will not be
precluded from seeking or obtaining any other relief to which it may be entitled
at law or in equity.
IN WITNESS WHEREOF, Maxwell and Merger-Sub have caused this Agreement to
be executed by their duly authorized officers and Stockholder has executed this
Agreement, each as of the date set forth above.
"MAXWELL"
MAXWELL TECHNOLOGIES, INC.
By: /s/ GARY DAVIDSON
- -------------------------------------
Name: Gary Davidson
Title: CFO
"MERGER SUB"
MT ACQUISITION CORPORATION
By: /s/ GARY DAVIDSON
- -------------------------------------
Name: Gary Davidson
Title: VP
STOCKHOLDER(S):
<TABLE>
<S> <C>
Name of Stockholder: Robert M. Czajkowski Name of Stockholder: David J. Strobel
By: By:
-------------------------------------- -----------------------------------
Name: Name:
------------------------------------ ---------------------------------
Title: Title:
------------------------------------ --------------------------------
Address: Address:
--------------------------------- ------------------------------
- ----------------------------------------- --------------------------------------
Fax No.: Fax No.:
---------------------------------- ------------------------------
</TABLE>
6
<PAGE> 7
6.9 Amendment and Modification. This Agreement may be amended, modified
and supplemented only by a written document executed by Maxwell, Merger Sub and
Stockholder.
6.10 Specific Performance. The parties agree that in the event of a
breach of any provision of this Agreement, irreparable damage would occur, the
aggrieved party would be without an adequate remedy at law and damages would be
difficult to determine. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party may elect to
institute and prosecute proceedings in any court of competent jurisdiction to
enforce specific performance or to enjoin the continuing breach of such
provision. By seeking or obtaining such relief, the aggrieved party will not be
precluded from seeking or obtaining any other relief to which it may be entitled
at law or in equity.
IN WITNESS WHEREOF, Maxwell and Merger-Sub have caused this Agreement to
be executed by their duly authorized officers and Stockholder has executed this
Agreement, each as of the date set forth above.
"MAXWELL"
MAXWELL TECHNOLOGIES, INC.
By:
- -------------------------------------
Name: Gary Davidson
Title: CFO
"MERGER SUB"
MT ACQUISITION CORPORATION
By:
- -------------------------------------
Name: Gary Davidson
Title: VP
STOCKHOLDER(S):
<TABLE>
<S> <C>
Name of Stockholder: Robert M. Czajkowski Name of Stockholder: David J. Strobel
By: /s/ ROBERT M. CZAJKOWSKI By: /s/ DAVID J. STROBEL
-------------------------------------- -----------------------------------
Name: Robert M. Czajkowski Name: David J. Strobel
------------------------------------ ---------------------------------
Title: CEO Title: PRESIDENT
------------------------------------ --------------------------------
</TABLE>
6.1
<PAGE> 8
<TABLE>
<S> <C>
Name of Stockholder: Paul E. Blevins Name of Stockholder: W. Lee Shevel, Ph.D.
By: /s/ PAUL E. BLEVINS By:
-------------------------------------- --------------------------------------------
Name: Paul E. Blevins Name:
------------------------------------ ------------------------------------------
Title: CFO Title:
------------------------------------ -----------------------------------------
Fax No.: 619 452-5499
----------------------------------
Name of Stockholder: David R. Czajkowski Name of Stockholder: Full Circle Research, Inc.
By: /s/ DAVID R. CZAJKOWSKI By:
-------------------------------------- --------------------------------------------
Name: David R. Czajkowski Name:
------------------------------------ ------------------------------------------
Title: SPACE PRODUCTS BUSINESS UNIT MAN. Title:
------------------------------------ -----------------------------------------
Fax No.: 619 452-5499
----------------------------------
Name of Stockholder: James P. Spratt Name of Stockholder: Joan Spratt
By: By:
-------------------------------------- --------------------------------------------
Name: Name:
------------------------------------ ------------------------------------------
Title: Title:
------------------------------------ -----------------------------------------
</TABLE>
7
<PAGE> 9
<TABLE>
<S> <C>
Name of Stockholder: Paul E. Blevins Name of Stockholder: W. Lee Shevel, Ph.D.
By: By:
-------------------------------------- --------------------------------------------
Name: Name:
------------------------------------ ------------------------------------------
Title: Title:
------------------------------------ -----------------------------------------
Fax No.: Fax No.:
---------------------------------- -----------------------------------------
Name of Stockholder: David R. Czajkowski Name of Stockholder: Full Circle Research, Inc.
By: By: /s/ JAMES P. SPRATT
-------------------------------------- --------------------------------------------
Name: Name: James P. Spratt
------------------------------------ ------------------------------------------
Title: Title: President
------------------------------------ -----------------------------------------
Fax No: Fax No.: 760 431-5605
------------------------------------ ---------------------------------------
Name of Stockholder: James P. Spratt Name of Stockholder: Joan Spratt
By: /s/ JAMES P. SPRATT By: /s/ JOAN SPRATT
-------------------------------------- --------------------------------------------
Name: James P. Spratt Name: Joan V. Spratt
------------------------------------ ------------------------------------------
Title: Board-of-Director Title:
------------------------------------ -----------------------------------------
Fax No.: 760 431-5605 Fax No.: 760 431-5605
---------------------------------- ---------------------------------------
</TABLE>
7
<PAGE> 10
Schedule A to Stockholder Voting Agreement
<TABLE>
<S> <C>
1. Shares Owned Beneficially by Stockholder
Name: David R. Czajkowski 166,197
Record Holder: No. of Shares
Beneficial Holder:
(if different)
Name: W. Lee Shevel, Ph.D. 50,000
Record Holder: No. of Shares
Beneficial Holder:
(if different)
Name: Full Circle Research, Inc. 137,800
Record Holder: Full Circle Research, Inc. No. of Shares
Beneficial Holder: James P. Spratt
(if different)
Name: David J. Strobel 528,983
Record Holder: No. of Shares
Beneficial Holder:
(if different)
Name: Paul E. Blevins 62,697
Record Holder: No. of Shares
Beneficial Holder:
(if different)
2. Stockholder's Options to Purchase Shares:
David J. Strobel 65,000
Name of Option Holder No. of Shares
Robert M. Czajkowski 80,000
Name of Option Holder No. of Shares
David R. Czajkowski 31,000
Name of Option Holder No. of Shares
Paul E. Blevins 45,000
Name of Option Holder No. of Shares
</TABLE>
8
<PAGE> 11
Schedule B to Stockholder Voting Agreement
None
9
